Can the credit crunch dent prime office market?

MEGAN WALTERS and ALVIN TEO examine the impact of sub-prime woes on the real estate needs of financial institutions here

Singapore’s fast growing financial sector has been a major user of prime office space and helped fuel the strong growth in rental and capital values of late. But the recent credit crisis in global markets stemming from defaulting US sub-prime loans has put a dampener on the financial sector.

At the start of the sub-prime fallout in July, Asian banks were thought to be relatively insulated from the problems.

But by the end of August, banks, including DBS and the Bank of China, appeared to have greater exposure to US mortgage debt than previously thought.

DBS admitted to $2.4 billion exposure to collateralised debt obligations (CDOs), double what the market had expected. The Bank of China saw its share price fall 8.1 per cent when it became apparent that it held $9.5 billion or 3.8 per cent total securities investments in CDOs.

What will be the effect on the Singapore office market from this shake-up in the banking system? Cushman and Wakefield examine the issue by looking at the performance of the top 25 office buildings here.

Financial services are a key part of the Singapore economy, making up 20 per cent of GDP. More importantly, financial services’ annual GDP growth was 17 per cent for Q2 07, more than double the manufacturing GDP growth rate of 8.3 per cent on the same basis.

Manufacturing is the largest single component of GDP accounting for 45 per cent GDP, but the growth rates in financial services means banking and related services is catching up fast.

The Singapore Department of Statistics found that for Q2 07, the financial services industry did extremely well with turnover growing at an astounding 39.7 per cent on an annualised basis.

A slowdown in the American economy is now expected – with higher borrowing costs, and falling house prices affecting US consumers. With the health of the financial sector dependent on the health of the main economy, the question is: to what extent is the slower growth of the US going to affect the financial sector in Singapore?

This will be two ways: first, the health of the general economy in Asia and, more specifically Singapore, and the second, where the interrelated nature of the financial markets means a downturn in the US financial sector will squeeze the financial sector here.

Of the two issues, the first – the general economic outlook for the region – is still very positive, whilst the second – the financial markets themselves – are still uncertain.

Following a review with 480 companies in seven Asian cities, including Singapore, IMA Asia, a consultancy firm, has revised its economic forecast for Asia (excluding Japan) upwards from 7.4 to 7.9 per cent for 2007 and 7.1 to 7.6 per cent for 2008, despite a substantial cut in the US GDP forecast.

The effect of the risk in the financial markets is much harder to judge – with no one really certain where the risk currently lies. This will be an issue for banks, uncertain whether to expand their regional operations to meet the projected regional growth, against the backdrop of uncertainty in the financial markets. What will be the effect of difficulties in the financial markets on Singapore prime office markets? As at end- August 2007, Singapore prime office rents are $12.21 psf/month with the Top 25 buildings at $12.28 psf/month.

It is expected that any immediate effect on the local prime office market will come from banks as tenants. Most banks are not the owners or landlords of the top 25 office buildings. The majority of the buildings are owned by local property developers or, most recently, funds.

C&W research has found that banks and financial institutions occupy nearly 40 per cent of floor space or nearly 4.8m sq ft in the top 25 prime office buildings, a long way ahead of the next largest category of occupants – professional services firms such as auditors and lawyers.

Given the current volatility of the market triggered by the sub-prime lending in US and the most recent fear of a liquidity crunch, would this affect this group of occupiers in their aggressive expansion plans as we have witnessed in the past 18 months?

A squeeze on bank profits from the credit crunch may result in a reduction in headcount, as already seen in Lehman and HSBC in the US, which will lead to some secondary supply back on to the market. It is possible that this may affect the developers in the real estate markets, but to date we have no evidence of any problems for developers occurring as a result of the current credit crunch.

We have consistently witnessed space being taken up due to expansions and new set-ups. Although at a slightly slower pace as compared to the first half of the year, it is largely due to a lack of supply of good class office buildings.

Vacancy rates are consistently hovering at only one per cent for this group of buildings. Many large financial institutions are also aggressively pre-committing spaces even before the building is constructed and this was best demonstrated in Marina Bay Financial Centre where the entire Tower 1 of about 600,000 sf was pre-leased three years ahead of the building completion! They include tenants like Standard Chartered Bank and French investment bank Natixis.

With 70 per cent of the Top 25 buildings achieving full occupancy consistently, many businesses have also resorted to reconfiguring their existing premises to contain more headcount due to shortage of spaces for their expansions.

The fundamentals of the Asia-Pacific economies remain strong with GDP rates remaining robust. Singapore’s own GDP figures have just been revised upwards by MTI from 5-7 per cent to an upbeat 7-8 per cent range. It is possible that the credit crunch will have little effect as fundamentals remain strong, and Singapore remains a competitive place to do business. Any reduction in headcount by banks and freeing up of supply will more than be met by demand from other sectors.

However, sentiment plays a strong part in stock markets particularly in Asia. In the longer term, the current market wobble may lead to a correction in prices which will affect firms’ expansion plans, and the banks’ willingness to lend.

 

Source: Business Times 27 Sept 07

Brisbane Devt to release 2nd phase of Illoura

Freehold project has 30 detached, semi- detached houses

AUSTRALIAN property company Brisbane Development is all set to release the second phase of Illoura, its strata landed project in the Holland Road area, after the first 15 units in the development were sold at prices exceeding $5 million apiece.

Illoura consists of a total of 30 detached and semi-detached houses which are being developed on 87,100 sq ft of freehold land in the prestigious Holland Road precinct.

Designed by award-winning SCDA Architects, each home will have two storeys plus attic and basement, with strata areas measuring from 4,180 sq ft to 4,560 sq ft.

‘Illoura represents our first major project in Singapore and the introduction of an exciting new cluster housing concept,’ said Scott Collins, Brisbane Development’s director.

‘It is pleasing to see the high level of interest demonstrated by Singaporean and foreign investors at this early stage of the project’s release.’

Margaret Thean, executive director of property firm DTZ, which is marketing agent for the development, said that the project’s choice location and quality would attract buyers. The project is also expected to provide good rental yields, she said.

Illoura’s design comprises two parallel developments overlooking a central landscaped recreational area including a 25-metre swimming pool, jacuzzis and large timber decks.

Each of the six detached and 24 semi-detached houses at Illoura is designed around a central interlocking courtyard with an open terrace.

A typical house will have four bedrooms with en-suite bathrooms, a large gourmet kitchen, open plan living and dining area, an internal private lift accessing all floors in the home, and two private car parks, the developer said.

 

Source: Business Times 27 Sept 07

Bright outlook for S-Reit market

With more overseas players seeking to list here and strong backing from the government to strengthen governance and the operation structure of the market, Singapore is fast developing into a regional Reit hub

SINGAPORE has established itself as one of the most developed markets in Asia for real estate investment trusts (Reits), supported by new listings and active acquisitions by existing Reits.

Reits have been the bright spot in the Singapore capital market and a major driver in the growth of market capitalisation on the Singapore Exchange (SGX). Currently, there are 17 Singapore Reits (S-Reits) listed on the SGX with a total market capitalisation of more than $25 billion as at end-August.

S-Reits have come a long way since the first retail Reit, CapitaMall Trust (CMT), was listed in 2002. The subsequent raising of the gearing cap from 25 per cent to 35 per cent contributed to the burgeoning market.

The investment trust framework allows an attractive level of tax-efficiency. S-Reits are granted tax transparency status, waiver of stamp duty and exemption from capital gains tax. Individual investors are given tax exemptions on Reit payouts. For these reasons, Reits have spurred considerable interest among investors and are now widely accepted as a high-quality investment option.

S-Reits themselves have been growing through acquistions. A total of $6.14 billion worth of properties was acquired by S-Reits in 2006, representing 20 per cent of the year’s total investment sales. This was also 39 per cent higher than the $4.41 billion of total assets acquired by S-Reits in 2005. So far this year, S-Reits have acquired properties of more than $3.7 billion.

Commercial Reits contributed the bulk of investment sales made by S-Reits in 2006 by acquiring a total of $3.84 billion worth of assets or 63 per cent of the total acquisition costs ($6.14 billion). The most significant transaction made by commercial Reits last year was the joint acquisition of Raffles City by CapitaCommercial Trust and CapitaMall Trust for a total of $2.17 billion, representing the highest price paid for any investment transaction in 2006.

So far this year, commercial Reits continue to account for the largest proportion of investment sales made by SReits, contributing $2.16 billion in transacted value or 58 per cent of the $3.71 billion in total investment sales. It was announced recently that both K-Reit and Suntec Reit have each acquired a one-third stake in One Raffles Quay for $1.88 billion. In addition, CapitaLand divested its interest in Wilkie Edge, a commercial-cum-serviced residence development, to CapitaCommerical Trust for $182.7 million.

The potential for further growth in the S-Reit market is substantial. The development of the S-Reit sector is largely supported by the proactive initiatives of the Monetary Authority of Singapore (MAS) to enhance their competitiveness in the region. In a move aimed at making Singapore a major Reit hub, the MAS released a consultation paper on proposed amendments to the Reit regulations in March. Key proposals include improving disclosure on short-term yield enhancing arrangements and their impact, allowing Reits to pay dividends in excess of current income, removing the aggregation rule for transactions with the same interested party and prohibiting discounts to institutional investors during IPOs.

An increasing variety of asset classes is expected to be listed as Reit vehicles in the medium term, beyond office buildings, shopping malls and industrial properties. Following the launch of the first healthcare S-Reit, First Reit, Lippo Group announced its plans to list two more S-Reits in the near term, 12 of which are shopping malls located in Jarkata with a total lettable area of 500,000 sq ft. The initial portfolio of the group’s third Reit will comprise commercial properties outside Indonesia, such as office buildings in Singapore, China and Hong Kong, worth about $2 billion in total.

JTC, the largest industrial developer in Singapore, announced its plan to list an industrial S-Reit in the near term.

Its initial portfolio, estimated at $1.4 billion to $1.6 billion, will include flatted factories, ramp-up and stack-up factories, three multi-tenanted business park buildings and a warehouse.

Pramerica Asia was reported to be looking to divest its retail property portfolio via a Reit. Shopping malls to be injected into its $1-billion initial portfolio include Century Square, Hougang Plaza, Tiong Bahru Plaza and White Sands. Mapletree Investments was also reported to be planning to launch a commercial trust with VivoCity as the anchor asset, valued at an estimated $1.6 billion to $2 billion. Other properties likely to be included in this Reit are St James Power Station, HarbourFront Centre, a 60 per cent stake in HarbourFront Towers One & Two, a 30 per cent stake in Keppel Bay Tower, PSA Building and PSA Vista. The total value of the entire portfolio, including VivoCity, is estimated to be $3 billion.

While the Singapore government continues to strengthen governance and the operation structure of S-Reits, it is also striving to turn Singapore into a regional Reit hub, which will give Reits direct and ready access to capital.

More incentives are being provided for local and foreign companies to establish cross-border Reits, to hold overseas properties on other bourses as a strategy to expand their portfolios. Geographically, more than $20 billion or 81 per cent of the total asset portfolio held by S-Reits are local properties and the remaining 19 per cent or $4.77 billion worth of portfolio are overseas assets.

The outlook for the S-Reit market remains positive as more Reit issuers divest their overseas assets into Reits here.

More sophisticated Reit products will be developed over time. An Indian-based developer, Embassy Group, was also reported to be looking at launching a Reit in Singapore with a portfolio comprising some of the group’s business parks in India.

Indonesian property developer, Gapura Prima Group, will be teaming up with Malaysian developer (Amanah Raya Bhd) to launch a Reit on the SGX in the near term. Its initial portfolio will comprise five malls in Indonesia and another two in Malaysia worth $400 million in total.

Tokyo-based Asia Pacific Land Group plans to list a Reit in Singapore, with an initial portfolio comprising some of its retail and office properties in Japan worth $2.3 billion in total. Another Tokyo-based real estate fund manager, Re-plus, plans to launch an S-Reit in early 2008, with a portfolio comprising two China office buildings worth at least US$400 million.

Saudi Arabia-based property developer, Tanmiyat Investment Group, was reported to be looking to launch an SReit with an initial portfolio of developments in Saudi Arabia, the United Arab of Emirates, Turkey, Jordan and Sudan, worth a total of $13.6 billion.

As Reit portfolios become more diversified, more so than in the mature US and Australian Reit markets, Reit managers in Singapore are challenged to find ways to increase yields of the various asset types to make it more attractive for investors.

Certainly, Reits have added a dimension to the real estate investment and capital markets that appeals to both investors and property companies. The expected growth in Reits would have a positive impact on the broader market as it adds depth to the market and gives investors here wider investment choices.

 

Source: Business Times 27 Sept 07

The ascent of landed housing

Solid gains await with double-digit price growth and Singapore’s scarcity of land

THE private residential market has been hogging the headlines in the past 18 months. Overall prices recovered in 2004 and 2005 by 0.9 per cent and 3.9 per cent respectively, and home prices shot up by 10.2 per cent in 2006 and another 13.5 per cent in the first half of 2007, led mostly by the condominium segment of the market.

It has been pretty obvious that non-landed homes have been leading the way in the strengthening residential market, with prices growing from a marginal 1.1 per cent in 2004 to 4.5 per cent in 2005, 11.1 per cent in 2006 and 14.2 per cent in the first six months of 2007 alone, according to numbers from the Urban Redevelopment Authority (URA).

What of landed properties then? Will landed properties match their high-rise counterparts in the price spiral?

Prices of landed homes have risen in line with the rest of the market. (See Table 1) From a marginal 0.6 per cent rise in 2004, prices of landed homes grew by 2.4 per cent in 2005, 6.7 per cent in 2006 and 10.1 per cent in the first half of 2007.

A breakdown in price of the different landed property types shows that detached houses have made the most headway over the past year. According to URA numbers, prices of detached houses rose by 12.3 per cent in H1 07, after increasing by 8.1 per cent in 2006.

As for semi-detached and terrace houses, their indices rose by 7.6 per cent and 9.3 per cent respectively in the first half of 2007, from 5.3 per cent and 5.2 per cent respectively in 2006. As detached houses comprise Good Class Bungalows (GCB), the price increases have been more pronounced given the demand for high-end homes.

Based on caveats for GCBs, the average price has risen by an estimated 30 per cent in 2006 and a further 25 per cent in the first half of 2007. Not only are prices registering double-digit growth, it has also been observed that certain GCBs have been sold and resold within 12 to 18 months.

An example of this trend is a GCB at Queen Astrid Park that was sold for $12.5 million in April 2006, only to be resold at $16 million in May and then again in December 2006 for $18 million. This is an increase of 44 per cent in seven months. Another GCB at Nassim Road was first sold for $9.8 million in February 2005 only to be sold

another three times for $15 million in August 2006, $18.4 million in December 2006 and $24.2 million in June 2007, an increase of 147 per cent over some 28 months.

Overall, it appears that there are several solid reasons for optimism in the landed housing market, especially in the next 12 months.

As prices of landed property in Singapore have not risen as steeply as their non-landed counterparts, there would generally be some better bargains in the landed market compared with luxury condominiums that have already attained very high benchmarks.

Aside from the GCB market, the comparatively slower rise in prices for landed properties could be viewed more favourably vis-a-vis upper and middle-upper income local home buyers who might have been priced out of the luxury condominium market, especially in the very prime locations.

Secondly, landed housing will always be considered a scarce commodity in the Singaporean landscape. With limited land, landed housing at present comprises 29 per cent of all housing stock throughout the island as at June 2007, or 68,360 units out of 233,143 private homes. Due to its inherent scarcity, landed housing would always be the ultimate goal of Singaporeans, especially since foreigners are not ordinarily allowed to purchase these properties.

With regard to scarcity, landed housing can be an attractive investment property in the near future as a source of regular income. As Singapore welcomes more foreign professionals to its shores, houses for rent could prove to be valuable assets for rental income, especially so for foreign professionals who might be used to living in landed properties back home and are not allowed to purchase similar types of accommodation while working in Singapore.

In the first six months of 2007, URA’s rental indices for all the landed property types improved significantly. During this period, rents of detached houses increased by 13 per cent followed by a 11.4 per cent rise for semi-detached houses and a extraordinary 17.3 per cent jump in rents for terrace houses. Compared with capital values of landed residences, rents have increased much faster.

Examples of recent rental transactions where the increases were evident include a detached house at Woodgrove Estate which was renewed at $15,000 a month, a 25 per cent increase from the previous rent of $12,000 a month. A detached house at Chancery Lane was rented at $16,500 a month, while a semi-detached house at Lim Tai See Walk was rented at $11,000 a month.

From a supply standpoint in the next five years, 1,872 landed units are under construction with another 2,579 landed units planned. Compared with the 28,082 non-landed units under construction and the 35,077 non-landed units that have not started, new supply of landed homes only account for 6.6 per cent of all new supply expected from the second half of 2007 to 2011, making it fairly certain that landed residential homes are going to remain a scarce product for the foreseeable future.

An increase in landed prices of some 20 per cent for the whole of 2007 might very well be on the cards, given an accumulation of the above factors. Demand for landed housing should increase, and prices would follow suit once the home-buying public realises that there are investment, as well as rental income opportunities in landed houses, and that prices have also not risen as much compared with condominiums in the prime areas.

Ultimately though, it will be the fundamental reality that landed housing will always be a scarce product in Singapore’s urban landscape that bodes well for this type of housing in the medium to long term.

 

Source: Business Times 27 Sept 07

Redas: Mass market poised for double-digit growth

En bloc sales slow after introduction of new rules by govt

By UMA SHANKARI

(SINGAPORE) The Real Estate Developers’ Association of Singapore (Redas) yesterday said that it expects ‘double-digit’ price growth in the mass market over the next 12 months.

‘The mass market hasn’t been very active and the base is low,’ said Chia Ngiang Hong, Redas’ first vice-president.

‘It will probably play a bit of catch-up with the high-end segment. So I believe it is going to be double-digit (price growth) for the next 12 months.’

Mr Chia is also the general manager of City Developments, one of Singapore’s largest developers.

Developers and analysts agreed with him.

‘Mass-market home prices will go up in line with higher costs of building materials, labour and land prices,’ said Margaret Goh, chief executive of NTUC Choice Homes.

Yesterday was Redas’ annual Mid-Autumn Festival celebration.

Kicking off the event, Redas president – and SC Global chief executive – Simon Cheong called for more good local and international schools in Singapore.

‘One of the most important conditions for expats to stay in Singapore, I am told, is education,’ he said. ‘In short, no good education, no good future, no global city, no good real estate market.’

Education Minister Tharman Shanmugaratnam was the guest of honour at the event.

Mr Cheong also told reporters that collective sales in Singapore are slowing after the government recently introduced new rules governing such sales.

‘In the process of digesting all these new rules, there will obviously be a pause . . . It will probably slow down the supply of en bloc land,’ Mr Cheong said.

Sales could also be slowing as homeowners who cannot find replacement properties might be reluctant to sell, he said.

But Mr Cheong expects the prices fetched by en bloc sites to keep climbing as more owners will have to be enticed to sign up for a collective sale.

Developers are already anticipating more difficulty in getting prime land and expect to pay higher prices going forward, he said.

Mr Cheong also said that developers could be holding back launching new properties because changes to the en bloc legislation means that supply of new prime land sites could be harder to come by.

 

Source: Business Times 26 Sept 07

Sentosa’s strata landed site goes for $78.7m

Boutique developer Elevation bags The Green Collection

SENTOSA Cove’s only strata landed housing development, The Green Collection, has been sold for $78.7 million, or some $1,099 per square foot per plot ratio (psf ppr).

Boutique developer Elevation Developments won the 71,600 sq ft site with the highest bid out of eight received, following an expressions of interest exercise which closed last month.

Elevation intends to launch the project at around $1,500-$1,670 psf in about six months’ time, the company’s founder, Satinder Garcha, told reporters yesterday.

The developer will build 20 units of about 6,000 sq ft each on the site, which has a plot ratio of one. The project will be called Elevation Golf Villas.

‘The project will probably set a benchmark for its kind of property,’ said Mr Garcha.

The units, which will be ready by the end of 2009, could sell for between $9 million and $10 million apiece – which works out to $1,500-$1,670 psf, he said.

Elevation is going with a luxury ‘golf villa’ theme as the project faces Sentosa Golf Club’s famed Tanjong Course with a 200 m frontage to the golf fairways.

All units will have three storeys and 7- 20 m of frontage facing the golf course. Each home will also have its own swimming pool, Mr Garcha said.

The price paid for the land far surpassed the last en bloc sale price of Sentosa Cove’s Sandy Island, which went for $771 psf ppr in March this year, Sentosa Cove said.

The Green Collection is Sentosa Cove’s second-last en bloc sale of landed parcels.

The plot is the only land parcel in Sentosa Cove where a developer has the flexibility to design and develop either strata terrace, semi-detached or detached houses with shared recreational facilities.

Elevation is a boutique developer of landed residential property in Singapore. Over the last three years, it has acquired 22 sites for building good class bungalows (GCBs) in Singapore’s prime areas such as Nassim Road.

 

Source: Business Times 26 Sept 07

Jalan Sultan conservation shophouses up for tender

SEVENTEEN two-storey conservation shophouses opposite KeyPoint at Jalan Sultan were yesterday offered to suitable investors by the Urban Redevelopment Authority (URA). The reserve-list site is 0.14 hectares in size.

A URA spokeswoman said: ‘The land parcel can be put to commercial uses such as hotel, office, shops and restaurants. There is no control on the quantum but detailed proposals for the use and layout within the shophouses are subject to approval of all relevant Competent Authorities.’

Knight Frank reckons the plot will attract good demand from boutique hotel developers and those keen on turning the units into office space, given the supply crunch in these two sectors.

When restored, the shophouses would also be suitable for housing food and beverage outlets, in line with the proliferation of such venues in the Kampong Glam Conservation Area where the latest parcel is located. ‘Tender prices are estimated in the $7 million to $10.2 million range, equivalent to $470 to $680 per square foot of land area,’ Knight Frank director Nicholas Mak said.

Its auctions director, Mary Sai, a veteran in the shophouse market, reckons investors will offer the URA around $500,000 to $600,000 per shophouse unit. ‘The restoration cost will amount to about $400,000 to $500,000 per shophouse, bringing the all-in investment to around $1 million or more per shophouse unit.

This is in line with the $1.2 million to $1.3 million that sellers of 99-year leasehold restored shophouses with land areas of under 1,000 sq ft are generally seeking,’ Ms Sai said.

URA will launch the reserve-list site for tender only if there is a successful application with an undertaking to bid a minimum price that is acceptable to the state.

 

Source: Business Times 26 Sept 07

HK home prices may rise 33% by 2009: UBS

(HONG KONG) Hong Kong’s home prices may jump as much as 33 per cent between now and the end of 2008, extending gains as wages rise amid a lack of new housing, UBS AG said.

Housing prices are strong thanks to ‘rising pay increases, record low supplies, cheap mortgages and fund flows from mainland China’, UBS’ Hong Kong-based analyst Eric Wong said in a note yesterday. Prices rose 13 per cent in the first half of 2007.

Hong Kong lenders including HSBC Holdings plc last week followed the US Federal Reserve in cutting benchmark lending rates by half a percentage point. That will make mortgage lending rates lower than the inflation rate, which may ‘tip the balance’ in home prices, Mr Wong said.

Sino Land Co may gain the most among local builders from a rally in home prices after leading a group that bought a Tai Po residential site in a Hong Kong government auction last week, Mr Wong said. The group’s winning HK$4.6 billion (S$889.1 million) bid was higher than some analysts had forecast for the sale.

Mr Wong’s other ‘top picks’ include Sun Hung Kai Properties Ltd and Cheung Kong Holdings Ltd, the city’s two biggest builders by market value.

 

Source: Bloomberg (Business Times 26 Sept 07)

Fed adopts broker rules for banks after eight-year delay

(WASHINGTON) The Federal Reserve has approved new rules defining securities transactions that banks can conduct without registering as brokers, ending an eight-year impasse with the US Securities and Exchange Commission (SEC).

The rules, adopted on Monday at a Fed meeting here, will let banks continue selling mutual funds, variable annuities and other securities. The SEC, which developed the rules with the Fed, approved the plan on Sept 19.

‘The final rules achieve the goal of providing a clear, workable and flexible framework for banks to continue to serve the demands of their customers for banking services that include securities products while ensuring consumer protection,’ Fed governor Randall Kroszner said.

The 1999 Gramm- Leach-Bliley Act required the SEC to write rules to help keep financial firms from moving brokerage operations into banks to escape the regulator’s oversight. Adoption of the new rules ends a dispute in which bank regulators contended that the SEC’s rulemaking efforts would infringe on traditional banking services.

‘The rules are intended to allow banks to continue to operate as they have for many years,’ said Kieran Fallon, the Federal Reserve’s assistant general counsel.

 

Source: Bloomberg (Business Times 26 Sept 07)

Big loan problem credits up: US regulators

WASHINGTON – The value of big loans with problems held by US banks rose 20 per cent in 2007, but the volume of syndicated credit commitments worth US$20 million or more also rose, bank regulators said on Tuesday.

Adversely rated credits – loans that are likely to result in some loss for the lender without corrective action – rose to US$114.1 billion from US$95.2 billion in 2006, regulatory agencies said in the annual ‘Shared National Credit’ review.

The review, published annually by the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp, and the Office of Thrift Supervision, looks at syndicated loans and loan commitments of at least US$20 million that are shared by three or more regulated financial institutions.

Despite the rise, the volume of adversely rated credits as a share of total shared national credits is low by historical comparison and is indicative of satisfactory credit quality, the agencies said.

At the same time, regulators warned of the possibility of credit risks as a result of rapid portfolio growth and weakening of underwriting standards.

‘Banking organisations should ensure that underwriting standards are not undermined by competitive pressures,’ the agencies said.

Large loans rose to US$2.3 trillion in credit commitments, 21 per cent more than in 2006.

Portfolio growth reflects substantial merger and acquisition financing provided during 2006 and early 2007, the banking agencies said.

Adversely rated credits are still at less than half of their peak dollar level of US$236.1 billion in 2002.

Problem credits were heavily concentrated in the manufacturing and telecommunications sectors, regulators said.

 

Source: REUTERS (Business Times 26 Sept 07)

US consumer confidence tanks, home sales slide

Weaker business conditions, less favourable job market cast cloud over consumers

(WASHINGTON) Sales of existing homes, depressed by turmoil in credit markets, fell for a sixth straight month in August, pushing activity to the lowest point in five years.

Meanwhile, US consumer confidence tanked in September to almost a two-year low amid weakening business and job market conditions, the Conference Board said yesterday.

The National Association of Realtors said that sales of existing single-family homes dropped by 4.3 per cent in August, compared to July. Sales at a seasonally adjusted annual rate dropped to 5.5 million units, the slowest pace since August 2002.

The Conference Board said that its consumer confidence index fell to 99.8, down from a revised 105.6 in August.

The confidence reading was sharply below Wall Street forecasts of 104.5 and was at its lowest since hitting 98.3 in November 2005. Last month the index dropped from 111.9 in July.

‘Weaker business conditions combined with a less favourable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern,’ said Lynn Franco, the group’s research director.

‘Looking ahead, little economic improvement is expected, and with the holiday season around the corner, this is not welcome news.’ The confidence index is closely watched by the markets as an indicator of consumer spending, which accounts for roughly two-thirds of US economic activity.

The housing market has been battered by the steepest downturn in 16 years. Those problems were exacerbated in August by turmoil in credit markets, reflecting new worries about rising defaults in sub-prime mortgages.

The median price of an existing home – the point where half sold for more and half for less – edged up slightly in August to US$224,500 , an increase of 0.2 per cent from August 2006.

It marked the first year-over-year price increase after a record 12 straight months of declining prices.

However, many analysts believe that sales and prices will fall further as the housing market receives additional blows from rising default rates that are dumping more homes on an already glutted market and causing lenders to tighten standards. These factors have made it harder for potential borrowers to qualify for loans.

The Federal Reserve responded last week to fears that all the problems in housing and credit markets could cause a recession by cutting a key interest rate by a bigger-than-expected half point. Many economists believe that if the Fed continues to cut rates for the rest of the year that should be enough to keep the country out of a recession.

Sales were down in all parts of the US in August. The West saw the biggest drop, a decline of 9.8 per cent, followed by declines of 5.2 per cent in the Midwest, 2.7 per cent in the South and 2 per cent in the North-east.

The fall in sales pushed the inventory of unsold homes to a record 4.58 million in August. That means it would take 10 months to exhaust the inventory of homes on the market at the August sales pace, also a record figure.

Meanwhile, home prices in the 10 largest cities suffered their sharpest annual fall in 16 years, according to the Standard & Poor’s/Case Shiller national home price index yesterday. The composite month-over-month index of 20 metropolitan areas fell 0.4 percent in July from June, bringing the measuredown 3.9 per cent from a year earlier.

S&P said its composite month-over-month index of 10 metropolitan areas declined 0.6 per cent in July to 215.94, for a 4.5 per cent year-over-year drop. It was the worst rate of decline since July 1991, when the economy was emerging from recession.

 

Source: AP, AFP, Reuters (Business Times 26 Sept 07)

Boutique developer buys Sentosa Cove site for $79m

It beats 7 others for landed property plot; plans to build 20 houses there

A YOUNG entrepreneur who became a full-time polo player after selling his Silicon Valley dot.com firm has emerged as a successful property developer here.

Indian-born Satinder Garcha, 36, signalled his growing status in the industry yesterday when his company paid $78.68 million for a 200m-long landed plot in Sentosa Cove.

Boutique developer Elevation Developments beat seven other bidders in what Sentosa Cove, which is marketing the land, said was a highly competitive process.

Its price for the 71,589 sq ft plot, which faces the Sentosa Golf Club’s Tanjong course, works out to $1,099 per sq ft of potential gross floor area.

This surpassed the $771.25 psf collective sale price paid for the enclave’s Sandy Island in March.

Sentosa Cove now has just one last landed parcel to be sold en bloc to developers.

Mr Garcha’s property portfolio will be worth $400 million to $500 million once the developments are completed.

He has 22 other properties – about half of which are good class bungalows – in prime areas such as Swettenham Road and Gallop Road. Most are in various stages of development.

Mr Garcha, who is the captain of the Singapore polo team, plans to build 20 houses on the Sentosa site, each with a rooftop pool.

The houses will have 10m glass frontages giving residents a clear view of the golf course.

Many of the homes the firm is building around Singapore will be rented out but Mr Garcha intends to sell the Elevation Golf Villas for $9 million to $10 million each once they are completed around 2010.

These numbers are dwarfed by the price tag of two other properties he owns – bungalows in Nassim Road designed by world-renowned architect Zaha Hadid.

These houses, with a built- up space of 10,000 sq ft, will probably sell for $40 million to $50 million, he said.

The bungalows, now at the design stage, are expected to be ready by 2010. They are Ms Hadid’s first residential project in Asia, said Mr Garcha.

‘She was very excited about Singapore,’ he said.

The Iraqi-born architect, known for projects such as the classic Vitra Fire Station in Germany, had worked on the masterplan for Singapore’s science hub one-north.

When Mr Garcha first came to Singapore, he was intent only on playing polo.

He had sold his information technology company people.com in late 2000 to TMP Worldwide, a recruitment advertising business.

He then set up his own polo team that competed around the globe.

Mr Garcha used part of his dot.com windfall – he will not disclose his firm’s sale price – to enter property development about three years ago when he saw the opportunities.

‘I saw a lot of value in the property market. Prices were at a 10-year low,’ he said.

Mr Garcha, who is of Indian descent, has become a Singapore citizen.

 

Source: The Straits Times 26 Sept 07

UPFRONT – Viet property boom a goldmine for S’pore firms

LE THI Phuong Thao, 51, never planned to get rich – very rich, in fact, by Vietnamese standards – by speculating on real estate.

Ms Thao, a home furnishings business operator, stumbled across buying and selling property almost by accident five years ago.

And she is now seizing the opportunity presented by an extraordinary boom in the top end of Vietnam’s property market with both hands.

Back in 2002, Ms Thao bought a shop in downtown Ho Chi Minh City for her business. But a year later, she realised its value had shot up dramatically, so she sold it.

‘It wasn’t planned,’ Ms Thao said. Emboldened by the success of her ‘accidental’ investment, she went on to buy more.

Last year, she teamed up with two friends to buy not one, but three houses in a Ho Chi Minh City waterfront gated development, Villa Riviera, developed by Singapore’s Keppel Land (KepLand).

They have since sold all three for a total profit of US$100,000 (S$150,059), and are now eagerly awaiting the year-end launch of KepLand’s condo, The Estella.

The Singapore developer said there is strong pent-up demand, given the booming economy and a shortage of mid- to high-end properties.

The Asian Development Bank projects that Vietnam’s economy will grow by 8.3 per cent this year and 8.5 per cent next year.

Already, high-end home prices average about US$177 per sq ft (psf) in Hanoi and US$270 psf in Ho Chi Minh City, the business hub.

Earlier this month, a 1,108 sq ft condo unit at The Lancaster in Ho Chi Minh City’s prime District 1 sold for US $515,000, or a record US$464.5 psf. The condo was launched three years ago at an average of US$185.8 psf, or about US$206,000.

Vietnam is also experiencing a shortage of quality office space – all the Grade A buildings in Ho Chi Minh City are fully leased, along with hotel rooms and retail centres. Service apartments are in great demand as well.

‘Investment funds are coming out of your ears,’ said Mr Tony Foster, who has been in Vietnam since 1994 and set up law firm Freshfields Bruckhaus Deringer in Hanoi.

‘Infrastructure work is booming. It has always been on the up, but the pace is going faster and faster. There is a huge amount of pent-up demand.’

The Vietnamese – young, hungry for success and hardworking – aspire to own their homes, especially landed ones, observers say. Viet Kieu, or overseas Vietnamese, have also been buying.

Foreigners are not allowed to invest outright in Vietnam unless they are residents, and even then, they can buy only on leasehold terms.

‘The market here is booming. It is just like Hong Kong 20 years ago,’ said Mr Bowie Leung, a Hong Konger who has lived in Ho Chi Minh City since 1989.

Vietnam’s population of 86 million is young – the average age is 24 – and also represents a growing consumer market.

‘The key is that the Vietnamese are spending money like Singaporeans,’ said Mr Marc Townsend, managing director of property agency CB Richard Ellis (Vietnam).

On the property front, Singapore developers such as KepLand, CapitaLand, Frasers Centrepoint, GuocoLand and Allgreen have entered Vietnam.

Said Mr Lui Chong Chee, CEO of CapitaLand Residential: ‘Vietnam is a vibrant Asian country and an important new market for CapitaLand.’ CapitaLand has plans to build 2,800 homes in Ho Chi Minh City.

Even smaller players want a share. Another Singapore-based developer, Chip Eng Seng, said last month that it would take a 5 per cent stake in a listed Vietnamese firm, marking the start of its growth into the country and overseas.

Yet another Singapore developer, Heeton Holdings, is looking for a site.

Developers from Malaysia, South Korea and Japan are also eyeing Vietnam’s potential.

Few Vietnamese have a bank account, so property purchases are almost always made in cash, though sometimes with gold tael bars.

‘Ho Chi Minh City has no lack of suitors,’ said an industry observer. ‘If you want to survive, go to the suburbs.’

As Ho Chi Minh City grows, surrounding provinces will ride on the upswing, she said. ‘The potential is there, the demand is there, but the supply is not.’

But while competition is rising, the market is in no danger of oversupply soon.

Resettling those occupying a proposed development site can also cause headaches as land compensation can be costly for developers, observers say.

Industry players also say the approval and development process in Vietnam can be cumbersome and drawnout.

‘Supply is affected by the difficulties of getting a licence for a project,’ said Mr Townsend.

This is where the experience of an established player such as KepLand comes in handy – it entered the Vietnamese property market about 13 years ago.

Said an industry observer: ‘Vietnam is a market where you need staying power. Don’t expect to come in to just do a project and run.’

Currently, the tallest building in Ho Chi Minh City – Saigon Trade Centre – is just 32 storeys tall. But the cityscape is set to change, with the next phase of construction set to bring buildings of 40 to 60 storeys, Mr Townsend said.

KepLand, for one, is ramping up its presence. ‘We’re now quickly selling more projects to ride on the upswing,’ said Mr Ang Wee Gee, its director of regional investments.

Frasers Centrepoint is also looking to scale up its activities in Vietnam, where it has two existing properties, said CEO Lim Ee Seng.

 

Source: The Straits Times 26 Sept 07

Case, property body seek licensing of housing agents

Calls come amid growing number of complaints lodged against agents

A SHARPLY rising tide of consumer complaints against property agents has emerged in recent data, amid a spike in property sales in the current market boom.

Complaints include claims of misrepresentation and a failure to explain contract terms and conditions fully, the consumer watchdog, the Consumers Association of Singapore (Case), said.

This has led to renewed calls by Case for a stronger industry watchdog to regulate the sector.

Case, together with the Institute of Estate Agents (IEA), is seeking the mandatory licensing of property agents in Singapore.

In the interim, IEA yesterday launched a new ‘practising certificate’ to all its members, aimed at boosting their credibility and giving homebuyers and sellers more confidence in agents’ professionalism.

The IEA represents about 900 property agents in Singapore. Its president, Mr Jeff Foo, said mandatory regulation for estate agents was overdue, especially given the current property market’s bullishness.

The IEA practising certificate will have the identification number of the agent who, as a member, is bound to adhere to the organisation’s strict guidelines and code of conduct.

Case president Yeo Guat Kwang said yesterday at a public forum held by the IEA, that agents should be licensed individually. He said Case and IEA will ‘push the message to the relevant authorities’.

Complaints lodged against estate agents have almost doubled in the last two years. Case received 991 complaints last year, up from 672 in 2005, and 469 in 2004.

So far this year, 557 complaints have been made.

Mr Yeo said some complainants claimed that unexplained contract clauses were added by the agents, such as changing the level of commission that had been agreed upon.

Mr Yeo, an MP for Aljunied GRC, also said that Case and IEA are already in talks to introduce more regulatory measures.

This could be in the form of a standardised proficiency test that every agent has to pass before being allowed to operate, he said.

Currently, there is no mandatory qualification or licence requirement for housing agents. To operate, an agent has to join a licensed property agency, whose licence is issued by the Inland Revenue Authority of Singapore.

Mr Yeo told The Straits Times: ‘Even taxi drivers have to fulfil certain criteria before they can operate. What more for property agents, who deal with the hard-earned life savings of Singaporeans.’

Even if rogue agents were sacked, they could join another agency because of the lack of a central body to regulate these agents, he added.

Mr Yeo said IEA’s new initiative was a good way to encourage self-regulation, and encouraged consumers to choose agents with such recognition.

To boost membership numbers, the IEA also announced a new tie-up with NTUC yesterday, which enables IEA members to enjoy social benefits under the NTUC.

NTUC’s secretary-general, Mr Lim Swee Say, who was at the signing of the memorandum of understanding yesterday, said that through IEA, NTUC can now extend its membership to agents.

He said this was another step closer towards the labour movement’s 2011 vision of an all-inclusive membership for workers of all backgrounds.

 

Source: The Straits Times 26 Sept 07

REDAS CHIEF ON BRIEF PAUSE – Collective sales ease as new rules take hold

THE market for collective sales has had a spectacular run this year, but new rules are likely to act as a brake to it, Mr Simon Cheong, chief executive of property developer SC Global, said yesterday.

Mr Cheong, who is also chairman of the Real Estate Developers Association Singapore (Redas), said the market is still digesting changes in collective sale legislation passed in Parliament last week.

‘In the process of digesting, obviously there will be a pause,’ he said.

The new rules, which are likely to kick in next month, will lengthen the collective sale process and likely constrict land supply.

‘For us developers, we are already anticipating that it will be more difficult to get choice sites in the near future. If we do, it will be at a higher price,’ Mr Cheong said on the sidelines of a Redas lunch yesterday to mark the mid-autumn festival.

In a separate move, a Knight Frank report yesterday forecast a slowdown in collective sales. The property consultancy said developers have been spending $10.22 billion on sites for collective sales since January, more than the $8.08 billion outlay for all of last year.

Activity, however, is already abating, with only 13 deals worth $1.65 billion done in the third quarter. This compared with 27 deals worth $5.24 billion in the second quarter, said Knight Frank.

 

Source: The Straits Times 26 Sept 07

Singapore office rentals still competitive

COMPANIES are paying more for labour and rentals in Singapore than before, but prices are still competitive compared to global cities such as London, New York, Tokyo and Hong Kong.

Minister Mentor Lee Kuan Yew pointed this out yesterday, but said the Government would ensure prices stayed lower than countries ‘in a similar position’.

This is so that Singapore can stay competitive.

‘I think we should be able to manage that,’ Mr Lee said. ‘I believe we’ve got to watch it closely, make sure that it doesn’t run away and get us into an uncompetitive fashion.’

He gave this assurance at a dialogue which followed the inaugural Singapore Maritime Lecture. A member of the audience asked how Singapore was balancing its bid to be a cosmopolitan city, with the need to stem soaring costs.

Mr Lee noted there was a property crunch now, with both commercial and residential sectors hit, as a result of the ’sudden influx’ of bankers and top corporate types. However, the Government has already taken action to tackle it, he said.

‘I think we can sort it out in two to three years. In the meantime, we have put into our plans some release of buildings from one use to another in order to loosen up the market,’ he added.

On Monday, the Government also released a second temporary office site for sale to help ease an office crunch that has sent rents and prices soaring.

 

Source: The Straits Times 26 Sept 07

Sale of Seletar Garden could fetch up to $75m

This works out to $683-$733 psf ppr inclusive of DC for the 73,099 sq ft site

SELETAR Garden, a mixed development at Yio Chu Kang Road, is up for sale by tender with the estimated price of between $70 million and $75 million.

This works out to be $684-$733 per square foot per plot ratio (psf ppr) inclusive of development charge (DC) for the 73,099 sq ft site.

The property is being marketed by PropNex, whose head of investment sales Charles Chua says there is also a possibility of the alienation of three parcels of adjoining remnant state land at an estimated additional $8.3 million.

This will bring the total site area to over 100,000 sq ft and with a possible gross floor area (GFA) of over 140,000 sq ft.

Together with the state land, the site could cost between $555 and $590 psf ppr. Mr Chua believes the site, which is within a 15-minute walk of the Yio Chu Kang MRT offers potential for a boutique serviced-residence or condominium and food-and-beverage centre.

Mr Chua estimates that the current open market value for the residential units at Seletar Garden is between $850 and $850 psf.

Based on the indicative collective sale price, each owner is expected to make a premium of at least 80 per cent over the open market price, Mr Chua said. He estimates that about 40 residential units of between 1,600 and 1,800 psf can be built on the site. The break-even price for the potential new development would be about $750 psf.

 

Source: Business Times 25 Sept 07

Second transitional office site released

THE government yesterday launched for sale its second transitional office site in a bid to improve the supply of office space.

Market watchers estimate that the 1.2 hectare site in Tampines could fetch about $100 per square foot per plot ratio (psf ppr) – which works out to some $12.4 million in total.

The land parcel is the second transitional site offered by the Urban Redevelopment Authority (URA) as office rents in Singapore continue to climb amidst a supply shortfall.

Transitional office sites are expected to help tide over the space shortage until new supply starts to kick in from 2009 onwards.

URA in August awarded the first transitional office site at Scotts Road. That site attracted 11 bidders, with the winning bid coming to $37 million, or $219 psf ppr.

The new site, which has a maximum gross floor area of 124,000 sq ft and a 15-year lease, is expected to fetch a lower price as it is not in the central area.

‘The Scotts Road site can fetch rents of between $7 and $8 psf per month, while this site will be able to get only about $4-$5,’ said Ku Swee Yong, director of marketing and business development at Savills Singapore.

Some experts were more bullish, however.

Knight Frank director of research and consultancy Nicholas Mak expects the site to fetch between $200 and $260 psf ppr, similar to the Scotts Road site. That price works out to $24.8-$32.2 million.

‘With the current absorption rate of office space at 91.9 per cent, coupled with a shortage of Grade A office space in the prime area, demand for suburban offices with good location and well-developed infrastructure is in strong demand,’ said Mr Mak.

‘The office space that will be developed on this site is likely to be attractive to banks and financial institutions to house their backroom operations.’

The land parcel is located at Tampines Concourse/ Tampines Avenue 5 – within the established Tampines Regional Centre.

The upcoming office building will be within walking distance of the Tampines MRT station and bus interchange.

The building is expected to be a low-rise development of about three storeys that can be built quickly in about a year, URA said.

 

Source: Business Times 25 Sept 07

Residential property launches gathering speed again

Ho Bee previews Turquoise, Wheelock properties to launch Scotts Square

DEVELOPERS are slowly stepping up residential property launches again, with Ho Bee Investments previewing its Turquoise condo at Sentosa Cove and Wheelock Properties (Singapore) holding the official launch of Scotts Square later this week.

Turquoise, which will have 91 apartments, will be priced at $2,500 psf on average. Ho Bee has been conducting viewings at its showflat lately for its business associates and is expected to begin sales at a preview starting on Thursday.

The 99-year leasehold project comprises three- and four-bedroom units, and penthouses.

Ho Bee will develop the six-and-a-half storey project on Sentosa Cove’s Waterfront Collection site, which is flanked by Tanjong Golf Course and waterways.

It bought the site in a tender that closed in November last year, for $919 psf per plot ratio (psf ppr).

This will be the first condominium launch in Sentosa Cove’s Southern Residential Precinct.

Ho Bee also won another condominium site (jointly with Malaysia’s IOI Group) in March this year. The duo paid $1,361 psf ppr for the plot, dubbed The Seaview Collection, and they are expected to develop it into an eightstorey condo with about 150 units.

Ho Bee is also said to have begun marketing The Orange Grove, a 72-unit freehold condo, in Indonesia.

The average price of the 12-storey project is understood to be around $3,000 psf.

It is diagonally across the road from another condo that Ho Bee began selling around January this year – the 60-unit Orange Grove Residences. Four units are left in the five-storey freehold condo. The current price is about $2,500 psf on average.

Over in the Scotts Road area, Wheelock Properties has sold about half of its 338-unit Scotts Square at an average price of $3,983 psf since July. And although it is holding an official launch for the freehold project on Friday, the group’s executive director, Tan Bee Kim, says the plan is not to sell off all the remaining units just yet.

The developer is in the midst of deciding just how many units it will sell for now, as well as the pricing. Market watchers expect the average price to inch up to slightly above $4,000 psf.

Over in the Dunearn Road location, MCL Land has sold off all but the showflat of its 163-unit cluster terrace housing development, Hillcrest Villas, in two weeks. The average price achieved for the 99-year leasehold development was around $870 psf of strata area.

 

Source: Business Times 25 Sept 07

German fund manager eyes Asia properties

Union Investment looks to quadruple its regional portfolio over a 4-year period

GERMAN fund manager Difa Deutsche Immobilien Fonds (recently renamed Union Investment) is looking to quadruple its property portfolio in Asia over the next four years, its Asia-Pacific head has told BT in an interview.

‘Right now, we have 10 properties worth about 500 million euros (S$1,055 million) in Asia,’ said the group’s Asia- Pacific managing director, Steffen Wolf.

‘We would like to grow the portfolio value to at least two billion euros or so.’ he added.

Union Investment, which owns some 15 billion euros worth of real estate across the world, last year turned its attention to Asia in search of attractive acquisitions.

Since September last year, it has acquired 10 properties in the region, including six residential projects in Japan and two office properties in South Korea.

In Singapore, Union Investment has bought two properties.

In January, it acquired Vision Crest’s office block and the House of Tan Yeok Nee next door in the Penang Road/ Clemenceau Avenue area for a total of $260 million from mainboard-listed property group Wing Tai.

Union Investment is now working on more acquisitions in Japan, China and Singapore, Mr Wolf said.

‘We are also closely looking at Malaysia, India and Thailand,’ he added.

Right now, the group’s focus is on the key cities in all the countries, he said.

Asia, said Mr Wolf, is ‘very strategic’ to Union Investment.

The group has traditionally invested in Europe and the US, but has of late been building up its Asian team in Germany.

The logical next step was to set up a physical presence in the region, and so the group opened an office in Singapore in October 2006.

Right now, the office has just two people, but Mr Wolf wants to grow the team to six or eight by the end of the year, he said.

In Singapore, the group is looking at office properties as well as residential, retail and hospitality assets for acquisition, Mr Wolf said.

The group ideally has to acquire finished, freestanding and already leased-out buildings. It is, for example, not allowed to take on the risks involved with developing a greenfield project.

Its business model is based on collecting rents and distributing them to shareholders.

But Union Investment will not rush into acquisitions, Mr Wolf said.

The cash-rich company is in Asia for the long haul, and will be willing to wait for good acquisition opportunities to come by, rather than compete head-on with more aggressive bidders.

‘We can ride through market cycles,’ Mr Wolf said. ‘We are not affected by crises such as the sub-prime crisis. We have a lot of cash.’

 

Source: Business Times 25 Sept 07

Foreigners snap up 87% more landed homes in first half: DTZ

Companies make 265 buys in H1 2007 vs one in H1 2006

(SINGAPORE) Foreigners, including permanent residents, bought 232 landed homes here in the first half of this year, up 87 per cent from the same period last year, according to DTZ Debenham Tie Leung’s analysis of caveats.

But foreign buyers’ share of total caveats lodged for landed homes in H1 2007 was about 7.6 per cent, down slightly from a 7.9 per cent share in the same year-ago period.

Nearly 90 per cent of these foreign buyers in the first six months of this year were Singapore permanent residents.

Malaysians accounted for the biggest share or 23.7 per cent of foreign buyers of landed homes in H1 2007, followed by United Kingdom nationals (18.5 per cent) and Australians (7.8 per cent).

The number of landed homes picked up by Singaporeans in H1 2007 was up 76.3 per cent year-on-year, though Singaporeans’ share of total caveats for landed homes fell to 83.7 per cent in H1 2007 from 92.1 per cent in H1 2006.

The decline was due to a surge in the number of landed homes bought by companies, to 265 in H1 this year from just one in the same period last year.

In all, 265 caveats were lodged by companies for bungalows, semi-detached houses and terrace homes in H1 2007, compared with just one caveat in H1 2006. The companies include both local and foreign corporations, and could possibly reflect the effect of some investors including individuals or small groups of investors who made purchases through companies, market watchers reckon.

‘There have been small developers and contractors buying up stretches of landed houses in places like Telok Kurau and Kembangan, with the aim of tearing them down and redeveloping the site into a small block of apartments,’ says Knight Frank executive director Peter Ow.

DTZ’s analysis, which was based on caveats captured by Urban Redevelopment Authority’s Realis system, also showed that the most popular landed housing districts sought after by foreigners in H1 2007 differed from those pursued by Singaporeans.

The top location for foreigners (including PRs) who bought landed homes during the period was District 10 (which covers areas like Grange Road, Tanglin, Chatsworth, Jervois, Bishopsgate, Holland Road, Swettenham Road and Laurel Wood Avenue), followed by Districts 15, 11 and 19.

District 15 covers Katong, East Coast and the Meyer Road locations; District 11 includes the Bukit Timah and Dunearn vicinity, Gilstead Road and Gentle Drive; and District 19 includes Serangoon Gardens and Lorong Chuan.

Other popular locations included Districts 21 (which covers the Upper Bukit Timah area) and 4 (Sentosa Cove) In contrast, among Singaporean landed home buyers, the most popular district was 19, followed by Districts 15, 10, 16 (part of Bedok and Tanah Merah), 20 (including Sembawang Hills and Upper Thomson) and 28 (which covers locations like Seletar Hills and Mimosa Place).

‘Foreigners seem to be zooming in more on traditional residential property investment locations, such as prime Districts 10 and 11 and the traditionally popular District 15,’ said a market watcher.

Among companies which bought landed homes from January to June this year, District 15 was the most in demand, followed by Districts 19, 10 and 14.

The 232 landed homes that foreigners purchased in the first half was just 11.5 per cent shy of the 262-unit figure for the whole of last year. The record was set in 1999, when foreigners picked up 347 landed homes on the island.

In Singapore, foreigners have to be PRs before they can receive permission to buy landed homes on mainland Singapore, and Sentosa Cove is the only location where foreigners who are not PRs are allowed to purchase landed property. Even then, foreign would-be buyers must seek permission from the Land Dealings (Approval) Unit under the Singapore Land Authority.

Typically, it takes about four weeks for approval to be granted, but on Sentosa Cove, the time has been cut to less than 48 hours under a special fast-track approval scheme.

Foreigners, including PRs, can at any one time own only one landed home in Singapore and must occupy it themselves rather than renting it out.

 

Source: Business Times 25 Sept 07

HPL: Horizon Towers sellers extend deadline

Buyer will now ask for adjournment of legal proceedings

(SINGAPORE) Hotel Properties Ltd (HPL) has finally secured a much-needed extension of a deadline to purchase the Horizon Towers development.

And the listed developer will now make good on its promise to apply for an adjournment of the legal proceedings it has commenced against the sellers.

HPL announced yesterday evening that the sellers of the Leonie Hill property have officially agreed – en masse – to push back the deadline by four months, to Dec 11. This will give HPL and its partners – who collectively agreed to buy Horizon Towers for $500 million in February – the time needed to push through the en bloc sale.

The deal had fallen through in August when the Strata Titles Board (STB) rejected Horizon Towers’ application for a collective sale order – on the grounds that the application was defective.

STB’s decision, which came just days before the original sale completion deadline, meant there was no time for a fresh application to be filed or for a High Court appeal of STB’s judgment to be heard.

HPL and its partners – Morgan Stanley Real Estate-managed funds and Qatar Investment Authority – needed the sellers to extend the deadline, but its repeated requests in recent weeks went unheeded. The buyers then took legal action and sued the sellers for up to $1 billion in damages.

The situation reached a turning point when HPL chief Ong Beng Seng arranged a meeting with some 40 owners of Horizon Towers, at the Hilton last week. At this meeting, Mr Ong’s lawyers Allen & Gledhill told the attendees that they would be prepared to adjourn the legal proceedings if the sellers agreed to extend the deadline – and that they would drop the lawsuit altogether if the sale goes through.

This meeting was followed by a second meeting at the Raffles Town Club the next day, which was attended by owners of 135 units of Horizon Towers. These owners decided to push back the collective sale deadline to Dec 11 and to do everything ‘reasonably necessary’ to effect the collective sale.

They told BT after the meeting that they would be reaching out to the owners of the remaining 42 units – who did not attend the meeting – to seek their support. Their efforts have apparently succeeded, judging by HPL’s announcement yesterday.

HPL also told BT now that it has received official confirmation of the sellers’ decision to extend the sale completion deadline, it would honour its promise to apply for an adjournment of the legal proceedings it has filed against the sellers. This means a Thursday court showdown between the buyers and the sellers will be averted. Up next is Friday’s High Court hearing of the appeal against STB’s decision.

 

Source: Business Times 25 Sept 07

Foreigners snap up 87% more landed homes in first half: DTZ

Companies make 265 buys in H1 2007 vs one in H1 2006

(SINGAPORE) Foreigners, including permanent residents, bought 232 landed homes here in the first half of this year, up 87 per cent from the same period last year, according to DTZ Debenham Tie Leung’s analysis of caveats.

But foreign buyers’ share of total caveats lodged for landed homes in H1 2007 was about 7.6 per cent, down slightly from a 7.9 per cent share in the same year-ago period.

Nearly 90 per cent of these foreign buyers in the first six months of this year were Singapore permanent residents.

Malaysians accounted for the biggest share or 23.7 per cent of foreign buyers of landed homes in H1 2007, followed by United Kingdom nationals (18.5 per cent) and Australians (7.8 per cent).

The number of landed homes picked up by Singaporeans in H1 2007 was up 76.3 per cent year-on-year, though Singaporeans’ share of total caveats for landed homes fell to 83.7 per cent in H1 2007 from 92.1 per cent in H1 2006.

The decline was due to a surge in the number of landed homes bought by companies, to 265 in H1 this year from just one in the same period last year.

In all, 265 caveats were lodged by companies for bungalows, semi-detached houses and terrace homes in H1 2007, compared with just one caveat in H1 2006. The companies include both local and foreign corporations, and could possibly reflect the effect of some investors including individuals or small groups of investors who made purchases through companies, market watchers reckon.

‘There have been small developers and contractors buying up stretches of landed houses in places like Telok Kurau and Kembangan, with the aim of tearing them down and redeveloping the site into a small block of apartments,’ says Knight Frank executive director Peter Ow.

DTZ’s analysis, which was based on caveats captured by Urban Redevelopment Authority’s Realis system, also showed that the most popular landed housing districts sought after by foreigners in H1 2007 differed from those pursued by Singaporeans.

The top location for foreigners (including PRs) who bought landed homes during the period was District 10 (which covers areas like Grange Road, Tanglin, Chatsworth, Jervois, Bishopsgate, Holland Road, Swettenham Road and Laurel Wood Avenue), followed by Districts 15, 11 and 19.

District 15 covers Katong, East Coast and the Meyer Road locations; District 11 includes the Bukit Timah and Dunearn vicinity, Gilstead Road and Gentle Drive; and District 19 includes Serangoon Gardens and Lorong Chuan.

Other popular locations included Districts 21 (which covers the Upper Bukit Timah area) and 4 (Sentosa Cove) In contrast, among Singaporean landed home buyers, the most popular district was 19, followed by Districts 15, 10, 16 (part of Bedok and Tanah Merah), 20 (including Sembawang Hills and Upper Thomson) and 28 (which covers locations like Seletar Hills and Mimosa Place).

‘Foreigners seem to be zooming in more on traditional residential property investment locations, such as prime Districts 10 and 11 and the traditionally popular District 15,’ said a market watcher.

Among companies which bought landed homes from January to June this year, District 15 was the most in demand, followed by Districts 19, 10 and 14.

The 232 landed homes that foreigners purchased in the first half was just 11.5 per cent shy of the 262-unit figure for the whole of last year. The record was set in 1999, when foreigners picked up 347 landed homes on the island.

In Singapore, foreigners have to be PRs before they can receive permission to buy landed homes on mainland Singapore, and Sentosa Cove is the only location where foreigners who are not PRs are allowed to purchase landed property. Even then, foreign would-be buyers must seek permission from the Land Dealings (Approval) Unit under the Singapore Land Authority.

Typically, it takes about four weeks for approval to be granted, but on Sentosa Cove, the time has been cut to less than 48 hours under a special fast-track approval scheme.

Foreigners, including PRs, can at any one time own only one landed home in Singapore and must occupy it themselves rather than renting it out.

 

Source: Business Times 25 Sept 07

Jumeirah to open its first European resort

(DUBAI) Jumeirah Group, the hotel management company owned by Dubai’s government, leased a property being built in Mallorca, Spain from a German real estate fund to gain its first European resort and spa.

The 120-room Jumeirah Port Soller resort is held on a ‘long-term’ lease from the WestInvest Interselect fund, Jumeirah said in a statement posted on its website yesterday.

The resort, due to open in 2010, is being built by WingField Corp and was bought for WestInvest by Deka Immobilien GmbH, according to the statement.

Jumeirah is expanding outside Dubai, where it manages the sail-shaped Burj al-Arab hotel. The company has urban hotels in London and New York, and aims to expand its network five-fold to 57 properties by 2011, chairman Gerald Lawless had said in May.

Spanish hotel prices rose the most in four years last month, led by rate increases on the Balearic islands including Mallorca, the Spanish government said in a report yesterday.

 

Source: Business Times 25 Sept 07

Ciputra Property to tap up to US$150m in Jakarta IPO

Developer plans to use proceeds to acquire companies and subsidiaries

(HONG KONG/JAKARTA) Indonesian real estate developer PT Ciputra Property is planning to raise up to about US$150 million in a domestic initial public offering, according to a listing prospectus and a source familiar with the deal.

Ciputra Property, a mixed-use commercial property unit of PT Ciputra Development Tbk, plans to sell 40.19 per cent of its enlarged share capital ahead of a listing scheduled for Nov 12.

The company, which has holdings in shopping malls in Jakarta and Semarang, said it plans to use 521.9 billion rupiah (S$85.4 million) from the proceeds to acquire a number of companies and subsidiaries, and the remaining funds from the sale as working capital and for construction costs.

Registration and book- building for the deal are scheduled for Oct 9-19, with pricing due on Oct 22, and the public offering set for Nov 5-7.

The deal is being sponsored by Citigroup and Danareksa.

Indonesian companies have raised over US$3 billion so far this year in initial public offerings and follow-on equity sales according to Thomson Financial, marking a record for Jakarta’s stock market.

Initial public offerings, or IPOs, raised US$680 million.

The Jakarta stock market has risen 30 per cent so far this year on the back of strong foreign demand and an improving economy.

In May, the president director of the Jakarta Stock Exchange, Erry Firmansyah, told Reuters the bourse was aiming to double the number of new listings this year. During 2006, a total of four initial public offerings raised just US $278 million.

Some of the bigger listing candidates in Indonesia include state-owned toll road operator PT Jasa Marga, which hopes to raise roughly US$300 million this year, and coal miner PT Indo Tambangraya Megah, a unit of Thailand’s Banpu plc, which is looking to raise about US$100 million in an IPO.

 

Source: Reuters (Business Times 25 Sept 07)

Credit fallout to hit London office building

CBRE sees 2.5m sq ft of new space instead of 4.5m forecast earlier

(LONDON) The equivalent of two to four skyscrapers per year are now unlikely to be built in London in 2009 to 2011 due to fallout from the US subprime crisis, property services firm CB Richard Ellis (CBRE) said yesterday.

CBRE said it expected 2.5 million square feet (232,300 sq metres) of new office space per year to be built in central London in 2009 through 2011, instead of a previously forecast 4.5 million square feet.

But that could help to extend London’s commercial property cycle by reducing the risk of too many new offices going up in the crane-dotted UK capital, Peter Damesick, head of UK research at CBRE, said. He said the decision to slash his estimate for London’s development programme by 44 per cent was the result of higher funding and construction costs and because financial market turbulence had cast a pall over the UK capital’s jobs outlook, potentially holding back rental growth. ‘Funding for office developments has become harder to obtain and got more expensive,’ Mr Damesick told Reuters, citing anecdotal evidence which showed lending margins doubling in some cases to 175 basis points over benchmark interest rates. J’There is also a feeling that the strength of (occupier) demand in the short-term will be less than was expected six months ago due to the impact of potential financial dislocation on London’s financial services,’ he said. In addition, the regeneration of a large area of London before the 2012 Olympics was likely to push up construction costs even further, he said.

But a degree of self-regulation now would benefit the property industry going into the next decade, even though the supply of office space was near a record low in central London, with an average vacancy rate of 3.3 per cent at the end of August, according to CBRE data.

‘It will reduce the risk, which was beginning to appear in the pipeline, of medium-term oversupply and enhances the prospects for rental stability,’ Mr Damesick said. ‘So we’ll probably see slower rental growth in the short-term but less risk of a rental downturn in the medium term.’

Excessive office building helped to extend and deepen a downturn in London’s property market in the early 1990s.

Among the ambitious office development projects that have come into question in recent weeks is the 72-storey London Bridge Tower – nicknamed the Shard of Glass – which is due for completion in 2010/11 and lies on the city’s south bank. Property investment firm CLS Holdings plc, one of the joint venture partners behind the Shard project, said financing options were under review and demolition works were still due to begin before the end of the year.

 

Source: Reuters (Business Times 25 Sept 07)

Taipei housing market confidence dips

Rising prices push figure down to lowest in 4 years

(TAIPEI) Taipei housing market confidence dropped to its lowest in almost four years because of rising prices, a Taiwan government-sponsored survey showed.

The housing confidence index for Taiwan’s capital fell to 97.55 in the second quarter, slipping below 100 for the first time since the third quarter of 2003, the Institute for Physical Planning & Information wrote in a report. A score lower than 100 means most respondents view conditions as poor.

Residential property in Taipei cost an average NT$316,000 (S$14,331) per ping in the second quarter, an increase of NT$54,000 per ping from a year earlier, the report said. Each ping equals 3.3 square metres.

People paid an average NT$9 million for a home in Taipei in the second quarter, down from NT$9.3 million a year earlier, according to the report posted on the institute website. The survey polled 1,233 people who had already bought a house, 895 people who were looking to buy, and 744 people looking to rent.

Taiwan’s Council for Economic Planning and Development, which sponsored the survey, decided to cancel its press briefing on the release because it indicated a slowdown in the island’s property market, the Economic Daily News reported yesterday.

Taiwan’s central bank on Sept 20 raised its discount rate on 10-day loans by an eighth of a percentage point to 3.25 per cent, compared with the 4.75 per cent benchmark interest rate in the US.

That resulted in an exodus of money as individuals and companies invest in higher-yielding assets abroad.

Taiwan residents invested a net US$17.2 billion in overseas securities in the second quarter, the biggest quarterly net outflow on record, the island’s central bank said in August.

 

Source: Bloomberg (Business Times 25 Sept 07)

Shanghai properties draw pension funds

JLL: Foreign insurers may buy in as yields dip see short-term investors exiting

( SHANGHAI) Overseas pension funds and insurers may become main buyers of premium office and commercial properties in Shanghai as shorter-term investors could sell due to falling yields, Jones Lang LaSalle (JLL) said last week.

Property investors with a relatively short-term investment horizon, such as banks and private equity firms, may have achieved their return targets and consider selling, especially when investment yields are being compressed, it said.

‘Some of the opportunistic and value-added investors will now be looking to sell because they have met their IRR (internal rate of return) targets,’ the property consultancy said in a press release.

‘Consequently, we believe that the number of core assets up for sale will rise as these funds realise their investments,’ it said, adding that long-term investors such as pension funds and insurance firms would likely become the buyers.

Several long-term investors last year bought major projects, including the US$188 million acquisition of a Shanghai office property by German pension fund SEB, it said.

Greg Hyland, a JLL director, told reporters he didn’t expect an immediate wave of investment from foreign insurers and pension funds in Shanghai’s property market – partly because China is trying to cool its property market and some of the recently introduced measures would complicate cross-border transactions.

Rents and capital value of Shanghai office and commercial properties are expected to rise, but growth would be ‘less explosive’ than in 2000-2006 when rents rose 14 per cent annually, JLL said.

Opportunistic investors, who typically hold properties for three to five years, have already been hunting for property projects in second-tier Chinese cities for higher yields, it said.

Foreign investors, including Wall Street banks Goldman Sachs and Morgan Stanley, have poured billions of dollars into Shanghai properties over the past few years, partly driven by China’s currency appreciation.

Strong price rises in Shanghai and other major Chinese cities such as Beijing have driven down rental yields.

Gross yields on Shanghai office property fell to below 8 per cent in 2006, although they are still higher than the around 5 per cent in Hong Kong and Singapore and 4 per cent in Tokyo, and most fixed-income products, property consultancy CBRE has said.

JLL said that Shanghai’s office property market is becoming attractive to long-term investors because of the steady demand from international corporations and the growing supply of grade-A office towers.

The occupancy rate of high-end offices in Shanghai may stay at around 90 per cent over the next three years, with investment-grade office supply likely to peak in 2010 – when total space should reach 6.2 million square metres, JLL said.

 

Source: Reuters (Business Times 25 Sept 07)

Only 20% of US sub-prime mortgages at risk

No plans to scrap such mortgages as they democratise credit: US official

ABOUT 5 per cent of all US mortgages are sub-prime but only one fifth of these are at risk of default, US Department of Housing and Urban Development (HUD) assistant secretary Darlene Williams said yesterday.

Ms Williams was speaking at the inaugural Asia-Pacific Housing Forum held in Singapore yesterday where she said that there was no intention of abolishing sub-prime mortgages.

‘Sub-prime mortgages democratise credit, and so we don’t want to throw that option away,’ she said.

Instead, the HUD’s Federal Housing Administration is expected to help an estimated 240,000 families avoid foreclosure by underwriting refinanced loans of those still creditworthy.

Ms Williams maintained that some of those who defaulted on their sub-prime mortgages had poor financial literacy. ‘Many did not even read their contracts,’ she said.

Also speaking at the forum was Minister of National Development Mah Bow Tan who said that affordability in the public housing sector was not a problem in Singapore as people serviced their loans through their Central Provident Fund (CPF) savings, with little cash outlay.

With over 80 per cent of Singaporeans living in Housing and Development Board (HDB) flats and 95 per cent of these owning their homes, Singapore has one of the highest, ‘if not the highest’, home ownership rates anywhere, Mr Mah said.

Speaking to representatives of housing authorities from around the world, Mr Mah explained that there were two key government policies that helped make public housing in Singapore so successful: the Land Acquisition Act, and the use of CPF savings to pay for flats.

On public housing, he said: ‘Over the years, this has developed into an implicit social contract that has laid a firm foundation for Singapore’s economic, social and political stability.’

CapitaLand gives $1m to 10 charities

TEN charities received a combined $1 million yesterday from the philanthropic arm of Asian property giant CapitaLand. Giving away 10 cheques of $100,000 each was CapitaLand Hope Foundation chairman Lim Chin Beng.

Set up in 2005, the foundation aims to help young people, with children’s charities its main focus. This year’s donation – the largest by the foundation so far – goes to helping over 1,400 children in Singapore, Thailand and Vietnam.

‘We don’t just build offices, houses and malls,’ said Mr Lim. ‘We’d like to think we build lives too.’

The Singapore-based corporation now sets aside 0.5 per cent of its net profit for its charity arm every year.

About $4 million was pumped into the foundation last year, said Mr Lim.

Though a quarter of the money went to local charities yesterday, future donations could go to fund more projects in China and across the region, said Mr Lim.

Yesterday’s cheque recipients spanned a range of needs faced by children in Singapore and beyond, from cancer to housing development and education.

Among the recipients was The Straits Times School Pocket Money Fund. Established in 2000, it has so far helped more than 10,000 children, providing for basic expenses such as meals during recess, transport and miscellaneous items such as worksheets and stationery.

ST editor Han Fook Kwang, who received the cheque on behalf of the fund, said: ‘Even with a booming economy, there are many children without basic needs, such as enough pocket money, so we are most grateful for generous donors like CapitaLand.”

While many corporations have established philanthropic arms, pledging a fixed percentage of their net profits is rarely done, said Mrs Tan Chee Koon, chief executive officer of the National Volunteer and Philanthropy Centre.

The move, she said, is commendable as it attests to a company’s commitment to giving, by ‘consciously weaving it into their corporate DNA’.

 

Source: The Straits Times 25 Sept 07

HPL to ask to adjourn Horizon Towers hearing on Thursday

Decision follows official confirmation of extension of sale deadline to Dec 11

THE move by the Horizon Towers sellers to extend the sale deadline of their estate has succeeded in fending off Thursday’s High Court hearing.

Hotel Properties (HPL) said yesterday that it will apply to have the hearing adjourned. This came after it received official confirmation of the extension from the condominium’s sale committee.

Law firm Tan, Rajah & Cheah informed HPL that the estate’s new committee had extended the time for obtaining a collective sale order to Dec 11. The seven-member committee represents owners of 177 units.

These are the majority owners who have signed the agreement to sell en bloc.

HPL and its two partners, the intended buyers of the Horizon Towers, are suing the sellers of the 99-year leasehold estate for an alleged breach of contract.

The sale committee, the third at the Leonie Hill estate since the saga began a few months ago, was formed last Thursday. That was when almost all who were at a meeting voted to extend the deadline to Dec 11.

Sellers of 135 units – out of 177 units which signed the sale agreement – attended.

This option to extend by four months was part of the original sale agreement. The owners also agreed to do everything ‘reasonably necessary’ to effect the sale.

Those owners who organised the meeting were believed to have stated in a circular that absent owners were deemed to have agreed with the majority decision made at the meeting.

All eyes will now be on another legal front – Friday’s High Court hearing over the sellers’ appeal to quash the Strata Titles Board (STB) ruling last month that aborted the collective sale deal.

STB dismissed the Horizon Towers case over a procedural error and not over any arguments put up by a group of owners opposed to the sale. That deal lapsed as the sellers did not extend the Aug 11 deadline.

Last Friday, the HPL-led consortium filed an affidavit asking that it be allowed to participate in Friday’s appeal, claiming that the issues would be more effectively adjudicated with its involvement. A decision will be made on Friday.

If the appeal succeeds, the case could go back to the STB. But a negative verdict could end the Horizon Towers deal once and for all.

If it goes back to the STB, the minority owners who object to the sale will resurface issues such as the contract’s apparently low price and the unusual fact that the commission for the estate’s marketing agent will be paid by the buyers, not the sellers.

HPL said earlier that it will drop its lawsuit if a collective sale order is obtained. Its group wants Horizon Towers for $500 million, the price inked in February.

 

Source: The Straits Times 25 Sept 07

Second short-term office site released at Tampines

THE Government has released a second temporary office site for sale, this time at the Tampines Regional Centre.

This followed the strong response to a similar plot along Scotts Road last month, which drew a better-thanexpected 11 bids.

The two sites are the first plots of office land to be offered in Singapore on 15-year leases as part of the Government’s efforts to ease an office crunch that has sent rents and prices soaring.

The Tampines plot ‘will continue to help meet the demand for office space in the short to medium term’, the Urban Redevelopment Authority (URA) said in a statement yesterday.

Located at the corner of Tampines Concourse and Tampines Avenue 5, the 1.15ha site can be built up to a maximum gross floor area of about 124,000 sq ft.

A low-rise development of about three storeys can be built on the plot ‘quickly in about a year’, the URA said.

While they expect a good level of interest in the Tampines parcel, property consultants said competition for it is likely to be less keen than that for the Scotts Road plot.

The 1.04ha site, next to the Newton MRT station, drew a top bid of $37 million, or $219 per sq ft per plot ratio (psf ppr).

Mr Donald Han, managing director of property firm Cushman & Wakefield, said the Scotts Road site was hot due to its prime location.

In contrast, the Tampines plot is in the suburbs. It will also be competing with nearby sites at the Changi Business Park, which are sold on short-term, 30-year leases.

Mr Han expects five or six bids for the site, which are likely to be lower than the price fetched for the Scotts Road plot. Offers could range from $140 to $160 psf ppr, or about $17.3 million to $20 million, he said.

‘On top of everything, the market now expects that more transitional sites will be released,’ Mr Han added.

Mr Nicholas Mak, director of research and consultancy at Knight Frank, predicted, on the other hand, that while the Tampines site would fetch fewer bids than the Scotts Road plot, the bid levels would be the same.

‘Suburban offices with good locations and well-developed infrastructures are in strong demand,’ he said.

His estimate for the site: $24.8 million to $32.2 million, or $200 to $260 psf ppr.

 

Source: The Straits Times 25 Sept 07

Inflation rises to 2.9% – highest since December 1994

Climbing food prices and higher transport and communication costs drive CPI up

CONSUMER prices rose by 2.9 per cent last month from a year earlier, the biggest increase since 1994, as the effects of the goods and services tax (GST) hike continued to set in.

The August figure came in above the median market expectation of 2.8 per cent.

Economists are predicting that inflation could pick up in the months ahead, with crude oil prices at record highs.

But they do not expect any change in the key monetary tool available to tackle inflation – the central bank’s stance on the Singapore dollar which is up for its semi-annual review next month.

Last month’s increase follows a 2.6 per cent rise in July, when a 2 percentage point hike in the GST took effect.

Climbing food prices and higher transport and communication costs, which together make up nearly half of household spending, helped to hoist the Consumer Price Index (CPI) last month.

Food prices crept up by 3.3 per cent year on year, according to data released by the Department of Statistics yesterday. This is the fastest pace since the 4.7 per cent seen in Jan 1995, noted HSBC economist Prakriti Sofat.

Meanwhile, transport and communication costs rose 3.4 per cent, while health-care costs climbed the most – by 6 per cent.

The acceleration in consumer prices is largely explained by a further pickup in food, housing and transport costs with some further impact of the July GST hike also flowing through, Ms Sofat added.

On a month-on-month basis, last month’s CPI rose 0.3 per cent over July, after increasing 2.1 per cent over June.

For the first eight months of the year, consumer price inflation averaged 1.3 per cent.

Economists are predicting year-on-year monthly inflation to nudge above 3 per cent by the end of this year.

‘In September, we expect to see inflation above 3 per cent as oil prices hit record highs. And the increase in bus fares in October will continue to add to price pressures,’ predicted United Overseas Bank economist Ho Woei Chen, She also forecast inflation of 1.8 per cent for the full year.

She expects the Monetary Authority of Singapore (MAS) to maintain its current policy of a modest and gradual appreciation of the Singdollar at next month’s review.

While inflation is at multi- year highs, DBS economist Irvin Seah believes that further monetary tightening – via a steeper appreciation path – to combat inflation is not on the cards.

‘I think MAS will stand pat for now, because there is a sense that the substantial upward trend in inflation is largely due to the GST hike,’ he said.

A steeper Singdollar appreciation path is more effective in curbing imported inflation, and could hurt Singapore’s exports at a time when the global economy is cooling, said Mr Seah. A strong Singdollar makes Singapore exports more expensive in foreign markets.

‘You will need other non- monetary measures to keep domestic inflationary pressures in check.’

 

Source: The Straits Times 25 Sept 07

Defaults on sub-prime loans ’stabilising’

THE default rate for strife-hit United States sub-prime mortgages is stabilising, a US housing official said yesterday at a housing conference in Singapore.

Defaults on these loans, issued to homebuyers with low income or a poor credit history, triggered global shock waves recently and sparked intense scrutiny of Singapore banks’ exposure to them.

Assistant secretary of policy development and research at the US Housing and Urban Development Department, Dr Darlene Williams, indicated that she did not expect last week’s half-point US interest rate cut to affect the number of defaults significantly.

Speaking to reporters at the inaugural Asia-Pacific Housing Forum, she said: ‘The hope is that the Fed rate cut would send the signal that the government is concerned and willing to continue to analyse the situation so that the market can relax.’

‘We believe we still have a market that is correcting, but we don’t expect any drastic changes to the rate of defaults.’

Dr Williams said sub-prime loans form only a small percentage of the US mortgage market and only 20 per cent of such mortgages are at risk of default.

‘Our economic fundamentals are strong. The loan defaults are half of what they were in the 1980s and interest rates are low compared with the double-digit rates of 20 years ago,’ she said.

Sub-prime loans play a role in helping people own homes, she said. ‘Sub-prime mortgages democratise credit, so we don’t want to throw that option away.’

The three-day housing forum is organised by Habitat for Humanity and the Singapore Institute of Planners.

At the same event, Singapore National Development Minister Mah Bow Tan shared the Republic’s successful experience of housing its citizens at affordable prices.

 

Source: The Straits Times 25 Sept 07

HSBC Holdings closes US sub-prime mortgage unit

(NEW YORK) HSBC Holdings, Europe’s biggest bank, said last Friday that it is closing its US sub-prime mortgage unit, cutting 750 jobs and taking US$945 million in charges and write-downs. It said that the business is no longer sustainable.

For London-based HSBC, which is under pressure from activist investors to shake up its corporate governance, it was the latest blow from the meltdown in the US market for loans to home buyers with poor credit histories.

HSBC Finance, the US consumer finance arm of HSBC, said the closure of Decision One Mortgage would result in people losing their jobs at offices in Fort Mill, South Carolina; Phoenix, Arizona and Charlotte, North Carolina.

‘It’s no longer sustainable and not the right place to allocate capital in the future,’ HSBC Holdings group chief executive Michael Geoghegan said in a statement.

Dozens of US sub-prime lenders have curtailed operations, closed down or filed for bankruptcy protection. The sub-prime crisis has roiled the US housing industry and played a central role in nearly 90,000 job cuts.

HSBC Finance will record an impairment charge of about US$880 million, reflecting a write-down of Decision One assets on its books. It will also incur about US$65 million in after-tax charges for restructuring that includes employee termination benefits and facility closures.

HSBC acquired Decision One when it bought Household International in 2003 for US$14 billion.

Decision One is a small part of HSBC’s US operations, which include car loans and credit cards.

HSBC, the world’s fourth biggest bank, with a market value of more than US$200 billion, has been criticised for the underperformance of its share price in the last five years and its purchase of Household, which has exposed it to the US sub-prime mortgage crisis.

HSBC’s charge for bad debts was US$6.35 billion in the first half of the year, up 63 per cent from US $3.89 billion in the same period last year as it continued to suffer from past loans to the hard-hit US subprime mortgage sector. Earlier this year, HSBC Finance got new leadership, which quickly put together a team to examine and monitor credit risk under chief executive Brendan McDonagh. The company also stopped buying sub-prime loans originated by other lenders.

Mr McDonagh said that the company will continue to originate sub-prime loans through its network of more than 1,350 branches.

 

Source: Reuters (Business Times 24 Sept 07)

INSIDE MARKETS – Buy and sell transactions hit low levels; fund managers quiet

PURCHASES by directors and substantial shareholders was low for a second straight week with only 34 companies posting 72 ‘buys’, based on filings on the Singapore Exchange from Sept 17 to 21. The figures were consistent with the previous week’s 35 companies and 72 acquisitions. Investors should note that the buying has been low in each of the past two weeks, with the number of purchases sharply lower than the 124 acquisitions in the first week of September and 106 trades in the last week of August. Sales activity last week were also down with only 23 firms posting 52 disposals, sharply lower than the previous week’s 28 companies and 100 disposals.

Fund managers were quiet. Only six institutions each posted 16 purchases and 22 disposals, against the previous week’s eight asset managers with 30 acquisitions and nine institutions recording 43 disposals.

Several buyers made their maiden entry on the local market last week. The chief executive of Dutech Holdings made his first purchase after the group announced its second-quarter results, while the managing director of Soilbuild Group Holdings returned to the market after being absent since 2006. Legg Mason Inc raised its interest in Straits Asia Resources by 7 per cent to 5.1 per cent. On the sales side, there were bearish signals in Hongguo International Holdings and Aztech Systems as two fund managers lowered their respective stakes to below 5 per cent.

Dutech Holdings

Chairman and CEO Johnny Liu Jiayan recorded his first buys in recently-listed ATM manufacturer Dutech Holdings, after the stock fell below 40 cents per share. The purchases were also made after the group announced its Q2 results on Sept 12. The CEO acquired an initial 200,000 shares on Sept 13 at 39 cents each. He picked up a further 200,000 shares on Sept 17 after the stock fell to 35 cents, doubling his stake to 400,000 shares. Mr Liu is one of two directors who have bought the company’s shares since the stock was listed on Aug 2.

Independent director Graham Macdonald Bell acquired an initial 17,000 shares on Aug 7 at 37 cents each.

Dutech Holdings posted a 5.3 per cent gain in net profit to 12.64 million yuan (S$2.54 million) for the three months to June 30, 2007. Earnings in the first half rose by 14.9 per cent to 23.29 million yuan. After rising from the IPO price of 33 cents to 46 cents on the stock’s trading debut on Aug 2, the counter closed sharply lower at 32.5 cents on Friday.

Soilbuild Group Holdings

Managing director Lim Chap Huat recorded his first buys in boutique property developer and construction firm Soilbuild Group Holdings since July 2006, with 229,000 shares snapped up from Sept 17 to 20 at an average of $1.27 each. The trades, which accounted for 44 per cent of the stock’s trading volume, boosted his holdings (direct and deemed) to 116.3 million shares, or 58 per cent of the issued capital.

Mr Lim is one of three directors who have bought shares in the past two months. Chairman of Remuneration Committee Kelvin Tan Wee Peng bought 10,000 shares on Aug 15 and 16 at an average price of $1.22 each, boosting his direct stake to 150,000 shares. Executive director Low Soon Sim, on the other hand, picked up 10,000 shares on Aug 16 at $1.21 each, raising his direct interest to 570,000 shares.

Soilbuild Group announced its interim results on Aug 14 with a net profit of $28.69 million for the six months to June 30, 2007, against a loss of $2.34 million in the same period last year. The counter closed at $1.30 on Friday.

Straits Asia Resources

Legg Mason Inc became a substantial shareholder of resource development and mining firm Straits Asia Resources on Sept 14 following the purchase of three million shares at $1.36 each. The trade increased its deemed holdings by 7 per cent to 46.8 million shares or 5.1 per cent.

But Fidelity International Ltd reported a disposal-related filing on Sept 11 of 1.2 million shares at an estimated price of $1.33 each, which reduced its deemed stake to 54.5 million shares or 5.9 per cent. The group previously sold 3.7 million shares from Aug 2 to Sept 10 at estimated prices of $1.18 to $1.33 each.

Overall, the fund manager’s stake is down by nearly 5 million shares or 8 per cent since August. Prior to the disposals, the group acquired 13.3 million shares from July 19 to Aug 1 at estimated prices of $1.42 to $1.18 each. Fidelity reported an initial filing on July 18 of 1.8 million shares at 94 US cents each, which raised its interest to 5.01 per cent.

Investors should note that CEO Richard Ong Chui Chat acquired 400,000 shares from July 13 to 31 at $1.43 to $1.17 each, or an average of $1.30 each, which boosted his deemed holdings by 129 per cent to 710,000 shares. He previously acquired 100,000 shares on March 6 at 76 cents each.

Straits Asia Resources announced its Q2 results on Aug 14 with net profit down by 39 per cent to US $7.11 million for the three months to June 30, 2007. Earnings in H1 fell by 41.4 per cent to US$15.53 million. The counter closed at $1.44 on Friday.

Hongguo International Holdings

Consistent sales by FMR Corp in fashion shoes designer, manufacturer, and retailer Hongguo International Holdings since the last week of June totalling 21.2 million shares lowered its interest by 52 per cent to 4.9 per cent. The disposals were made from June 28 to Sept 14 at estimated prices of $1.30 to $0.86 each.

The group last sold 969,000 shares from Aug 15 to Sept 14 at estimated prices of 86 cents to 95 cents each, which reduced its deemed holdings to 19.3 million shares or 4.9 per cent. Prior to the disposals, FMR Corp acquired nearly 21 million shares from December 2006 to June 27 at estimated prices of $0.54 to $1.32 each. The group became a substantial shareholder (for the second time) on Dec 21, 2006, following the purchase of 1.2 million shares at 54 cents each, which raised its interest to 5.2 per cent.

The fund manager’s sentiment is not entirely negative as Schroder Investment Management Group became a substantial shareholder on Aug 7 following the purchase of 884,000 shares at 97 cents each. The purchase, which was made on behalf of clients by its Hong Kong branch acting as Investment Advisors, boosted its deemed holdings to 20.6 million shares or 5.2 per cent.

Investors should note that managing director Li Wei purchased 1.75 million shares in January at $1.16 each, which increased his deemed stake by 9 per cent to 21.5 million shares or 5.4 per cent. Mr Li also has direct holdings of 17.4 million shares or 4.4 per cent. He previously acquired 1.7 million shares from Nov 28 to 30, 2006 at an average of 71.4 cents each. The stock closed at 88.5 cents on Friday.

Aztech Systems

Credit Agricole Asset Management SA ceased to be a substantial shareholder of contract manufacturer Aztech Systems on Sept 19 following the sale of 2.1 million shares at an estimated price of 49.5 cents each. The trade reduced its deemed holdings by 10 per cent – to 19.3 million shares or 4.6 per cent. The sale price was far below the group’s initial filing price in July.

Credit Agricole previously reported an initial filing on July 6 of 1.04 million shares at 61 cents each, which raised its interest to 5.1 per cent. But board member Patricia Ng Sok Cheng and the company bought shares on Sept 20. Ms Ng acquired 100,000 shares at 42 cents each, which increased her direct stake by 72 per cent to 239,000 shares. She also has deemed interest of 15 million shares or 3.6 per cent.

She previously acquired 1.7 million shares from Feb 28 to June 18 via exercise of options at an average of 10.6 cents each and 50,000 shares on Feb 14 on the open market at 41.5 cents each.

Prior to her trades this year, Ms Ng bought 50,000 shares in December 2004 at nine cents each. The company, on the other hand, bought back 500,000 shares on Sept 20 at 42.5 cents each. The group previously acquired 389,000 shares on Aug 17 at 48 cents each, 500,000 shares on Aug 2 at 60 cents each, and 1.2 million shares in March at 37 cents each. The trades since March were the company’s first buybacks since listing. The stock closed at 45 cents on Friday.

The writer is Managing Director, Asia Insider Limited

 

Source: Business Times 24 Sept 07

WALL STREET INSIGHT – Investors look for direction after the rally

Impact of credit market turmoil on Q3 earnings, US economy’s ability to stave off recession, oil price surge top concerns

IN NEW YORK

FROM the Fed and lower interest rates to corporate quarterly earnings, the stock market enjoyed a week of nearly unmitigated good news and outright euphoria that has temporarily but dramatically banished the demons of financial market collapses and hedge fund failures.

But now, as Wall Street’s analysts and traders trade in their obsession with the Fed and capital market liquidity – which started with the ‘will they or won’t they’ of late August, and evolved into the ‘how much will they’ cut interest rates debate of the past two weeks – to the market’s other two fundamental market drivers – economic growth and corporate profitability – investors must wonder if the two weeks’ worth of strong rallying on Wall Street will fade just as quickly as the euphoria.

Looking at the bullishness which has sent the Dow Jones Industrials rocketing forward by more than 5 per cent in just 10 days of trading, Joe Battipaglia, stock market strategist at Ryan, Beck, thinks stocks may be due for a pause this week as the investing community stops to assess whether the gains share prices have achieved lately are justified by market fundamentals.

‘The incredible sense of relief over what appears to be the containment of the credit market crisis and the Fed’s strong response to liquidity issues is probably going to shift to a more sober assessment of where we stand now,’ he said.

And that assessment must include how hard the summer’s credit market turmoil has hit third quarter corporate earnings, the US economy’s ability to stave off recession, and the recent surge in oil prices to yet another record high level which could provoke inflation as well as threaten to dampen consumer spending.

Still, investors’ euphoria over the Federal Reserve’s fifty basis point cut is based on the sound logic that stocks historically tend to perform better when interest rates are falling.

At week’s end, analysts found other reasons to hope that the Fed-inspired bull rally of the past two weeks has more legs, with good news from software developer Oracle, which posted a fiscal first-quarter profit that rose 26 per cent from a year ago, and Nike, which also handily beat fiscal first-quarter earnings and revenue targets.

Goldman Sachs, Morgan Stanley, Lehman Brothers, and Bear Stearns all posted quarterly profits, giving investors assurance that the credit crisis won’t derail corporate earnings.

On Friday, the Dow Jones Industrial Average gained 53.49 points, or 0.39 per cent, to 13,820.19. The S&P 500 was up 7 points, or 0.46 per cent, to 1,525.75. The Nasdaq Composite was better by 16.93 points, or 0.64 per cent, to 2,671.22. It was the second winning week in a row. The Dow and the S&P 500 both climbed 2.8 per cent for the week, and the Nasdaq added 2.7 per cent.

‘I think (Friday’s) strong market performance is an indication that investors are feeling optimistic about the third and fourth quarters for corporate earnings,’ said Hugh Johnson, chief investment strategist at Johnson Illington Advisors.

‘There’s still a lot of worry about the fallout on corporate America from the subprime mortgage contagion, and seeing these good early results gives a boost as we head into earnings pre-announcement season,’ he said.

Currently, the estimated growth rate for the third quarter stands at 4.1 per cent, according to corporate earnings tracker Thomson First Call. On July 1, the estimated growth rate for the Q3 07 was 6.2 per cent.

In the S&P 500 index, there have been 51 negative pre-announcements issued by corporations for the coming quarter, and 26 positive pre-announcements, pretty much the historical average for the S&P 500. But earnings aside, most analysts believe the market will continue to move according to the betting on future Fed action.

‘Over the next few weeks, Wall Street will be parsing the economic data not just to get a sense of the economy’s health, but more so in order to figure out whether the Fed is going to give us another rate cut at its October meeting,’ said Mr Johnson.

This week, Wall Street will have ample opportunity to play the economic guessing game, with several key readings on the economy from new and existing home sales numbers today and tomorrow, respectively, followed on Wednesday by durable goods orders. Consumer confidence poll is due tomorrow and University of Michigan consumer sentiment for September is due on Friday. Final second quarter GDP is to be released on Thursday, and personal income and construction spending on Friday.

Investors will be in the uncomfortable position of hoping for economic data that’s not bad enough that it shows the economy heading for a recession, but weak enough that the Fed feels it necessary to cut rates further to prevent a recession.

‘That’s one reason I think we can expect to see plenty more volatility over the next month or two,’ said Mr Battipaglia. ‘We have a lot of issues yet to be decided, and until we get some more clarity on the economy, we’ll get some big swings,’ he predicted.

 

Source: Business Times 24 Sept 07

LEASEBACK DEAL – MapletreeLog pays $15m for Tuas warehouse

MAPLETREE Logistics Trust Management (MapletreeLog) has bought a warehouse in Singapore for $15.2 million, marking the latest in a rapid run of acquisitions over the last few months.

Yesterday, it announced that it had bought the warehouse in Tuas from Pioneer Districentre, which will lease back the property for seven years – with an option to extend it for a further seven years.

MapletreeLog chief executive Chua Tiow Chye said that this acquisition adds to the trust’s stable core of Singapore properties which will generate long-term and stable returns for unitholders.

‘Given the tight supply situation for high quality logistics real estate in good locations, rentals and capital values are expected to remain firm,’ Mr Chua added.

Just last week, MapletreeLog said that it is investing $92 million in a distribution centre in the Kanto region of Japan, a key logistics area.

The tenant will have a lease tenure of 20 years, which the trust sees as complementing the shorter-term leases it has in its portfolio in higher-growth markets such as China, Hong Kong and Malaysia.

Earlier this month, MapletreeLog completed the purchase of two properties in Selangor, Malaysia for just under RM30 million (S$13 million).

Prior to yesterday’s purchase, its most recent buy in the Singapore market came last month. MapletreeLog then bought four warehouses for $36.8 million from mainboard-listed Union Steel Holdings, which will lease them back for six years, with an option to extend for another six years.

All four properties are located in the Tuas area.

Last Friday, the Reit’s units closed unchanged at $1.17. While the share price was as high as $1.46 in May, it has since lagged behind the broader market.

It is now roughly at the same level as at the start of the year, while the Straits Times Index is still 18 per cent up.

 

Source: The Straits Times 24 Sept 07

HSBC to shut down sub-prime lending unit

Bank says US unit is no longer sustainable; closure will cost $1.3b in goodwill charge

NEW YORK – HSBC Holdings, the British-based banking giant, announced recently that it would close its subprime mortgage subsidiary in the United States, saying the unit was ‘no longer sustainable’.

HSBC’s earnings have been hit by its heavy exposure to the US sub-prime mortgage market, where home loans have been given to people with patchy credit histories.

HSBC said its closure of Decision One Mortgage will entail a goodwill charge of around US$880 million (S$1.3 billion) and a restructuring charge of US$65 million by year-end. About 750 Decision One employees will be affected by the closure, the group said last Friday.

‘This is a small part of our US business,’ said HSBC chief executive Michael Geoghegan. ‘It’s no longer sustainable and not the right place to allocate capital in the future. We said we would make tough decisions and we have done exactly that.’

Decision One, a unit of subsidiary HSBC Finance, originates non-prime mortgages through brokers. The bank said it will still manage Decision One’s US$349 million loan portfolio.

HSBC was the largest provider of sub-prime loans in the US last year, according to Inside Mortgage Finance, a real estate industry tracker, ahead of the US leaders in the domestic market, New Century and Countrywide.

The HSBC decision comes as rising interest rates and falling house prices have triggered a spike in foreclosures by borrowers with already stretched finances.

The group said HSBC Finance will focus on originating and servicing loans through its consumer lending branch network under the HFC and Beneficial brands.

Source: AGENCE FRANCE-PRESSE (The Straits Times 24 Sept 07)

25% more HDB flats rented out since March

MORE Housing Board (HDB) flatowners are cashing in on the rising rental market by letting out their units following a relaxation of the rules on doing so.

The new rules have spurred 5,700 more people to rent out their flats over the past six months.

The latest figures from the HDB show that a total of 15,773 flats have been given the green light for rental by the middle of this month.

This is a 25 per cent jump on the total figure before the March 3 rule change. About 39 per cent of these additional homeowners would not have qualified had the rules not been eased.

Previously, flatowners could rent out their flats only five years after buying them – or 10 years if they had not paid off HDB home loans.

Now, they can do so after living in their flats for just three years – or five years if they had bought it with a government subsidy or grant. It no longer matters if the home loan has been paid off.

The change almost doubled the pool of eligible flats to 645,000, out of more than 800,000 across the island.

The relaxation was part of a series of measures to make it easier for flatowners to earn income from their units.

Besides easing subletting rules, the HDB also allowed homeowners to take out reverse mortgages on their flats. It is also looking into a novel scheme to buy back the tail-end of flats’ leases from homeowners.

Newly minted landlords included Madam Yee Kin Moi, 58. The retired hawker and her husband rented out their four-year-old flat in Choa Chu Kang just last month for about $1,000 a month, and moved in with their daughter to help take care of their 18-month-old grandson.

The rental income, said Madam Yee, covers their monthly housing instalments and helps pay daily expenses as well.

She told The Straits Times: ‘The good thing about renting the flat out is that we do not need to sell it. We can go back to live in it if our children choose to migrate elsewhere.’

According to the HDB, about 27 per cent of flats rented out after March 3 belonged to owners who were older – aged 55 years and above.

Most of those renting out their flats under the revised rules moved in with their family members. About 22 per cent now live with their children, while another 36 per cent live with their parents, siblings and other relatives.

About two-thirds of flats being rented out are three- and four-room units.

HDB statistics show that three-room flats fetched a median rental of $980 islandwide from April to June, while four-room flats fetched $1,180.

Property agents estimate that rents are up about 10 per cent to 15 per cent since then, but say demand for rental flats remains strong as tenants, deterred by rising private rentals, choose public housing instead.

Median rentals of non-landed private homes islandwide grew by 11 per cent from April to June to $31.87 per sq m per month. This means it would cost about $3,200 a month to rent a 100 sq m, three-bedroom home.

As a result, rental flats being put on the market are being snapped up within a month, said the chief executive of property agency Propnex, Mr Mohamed Ismail.

Most homeowners, though, will not rush to rent out their flats even if rental rates become even more attractive. This is simply because they would have nowhere else to live if they did.

The director of Dennis Wee Properties, Mr Chris Koh, pointed out: ‘Not every elderly couple would want to live with their children.’

 

Source: The Straits Times 24 Sept 07

En blocked: How Horizon Towers made history

The Leonie Hill condo was just one of scores of estates snapped up by developers in a collective sales frenzy over the past two years. Now its owners are being sued by a developer in a landmark case that will go before the High Court on Thursday. How did it all come to this?

THE first hint that the $500 million sale faced trouble can be traced to an anonymous letter dated April 25 that was sent to owners of the condo’s 210 units.

It started: ‘Dear fellow owners, Some of us begin to wonder if our en bloc exercise now makes sense.’

The letter writers urged decisive action, suggesting that the owners of the 25-year-old property were being short-changed and that a far higher price was possible.

‘If enough like-minded owners decide to rescind the (agreement) and the majority falls below 80 per cent, the application to the Strata Titles Board (STB) can be repealed.’

The buyers were local developer Hotel Properties Ltd (HPL) and its two partners Morgan Stanley Real Estate managed funds and Qatar Investment Authority.

They agreed in a private treaty deal in February to buy the 99-year leasehold condo for $500 million, which was the reserve price set last year. Until early February, it was a record price in absolute terms for an en bloc sale.

At that price, each owner of the condo’s 199 units would get about $2.3 million, with the 11 penthouse units reaping $4 million to $6.28 million.

But the letter writers were unhappy. Prices of neighbouring properties had skyrocketed since the deal was struck.

‘We are now believing that our en bloc price no longer reflects the true value of Horizon Towers and we strongly feel that if we sell our unit individually, we would achieve prices far better than what this en bloc has fetched us.’

One case the letter cited was neighbouring condo development The Grangeford.

Grangeford owners were asking for $660 million, or $2,016 per sq ft (psf) of potential gross floor area.

That was more than double the $850 psf of total floor area achieved by Horizon Towers. ‘Deep down…many owners may now be regretting this en bloc. They may be willing to join this…movement,’ the letter said.

It engendered enough discontent over the sale price to lead some owners to attempt a deal reversal. Also, 10 groups filed objections to the sale.

Mediation sessions before the STB to settle the dispute started in late May. But those attempts at mediation between the warring camps of owners failed.

A group of 42 disgruntled owners, who had hired a law firm for advice, called for an extraordinary general meeting at Horizon Towers.

They wanted to remove the sale committee, which was blamed for not consulting the owners when it granted the option to purchase nine months after the reserve price was set. This failed.

But most members of the first sale committee later resigned and were replaced by new ones – and a second committee took their place.

At this point, it is worth noting that when the original Horizon Towers sale tender closed in August last year, there were no offers at its reserve price.

But the property market picked up significantly after that. In late June this year, a developer said it wanted to buy The Grangeford for $592 million, or about $1,810 psf per plot ratio – the highest price achieved for a 99-year leasehold site.

According to an affidavit filed by HPL for the High Court case on Thursday, an anonymous letter was circulated around this time to Horizon Towers residents, asking them to ‘act quickly and decisively’ to salvage something for themselves as Horizon Towers was, the letter said, being given away at a relatively paltry sum.

The STB hearing

THE bitter dispute that had focused on the condo’s sale price took an unexpected turn on Aug 3.

That was when the STB threw out the application for sale approval because of procedural errors – the sale paperwork was not in order.

There was another problem: The contract between the HPL-led consortium and the sellers included an atypical condition, according to market players.

The sellers were given the option to extend the sale deadline by another four months if the sale was not completed within six months of the original deal in February – that is, by Aug 11.

A senior property consultant said: ‘The discretion to extend the time frame usually lies with the buyer in the first instance, and thereafter upon mutual agreement.’

With the deal now apparently dead, the HPL-led consortium, represented by lawyers K. Shanmugam and William Ong from Allen & Gledhill, immediately swung into action. They wrote to the sellers alleging they were in breach of the February contract and wanted them to extend the Aug 11 deadline so that the procedural errors could be corrected and the application to the STB refiled.

But the Aug 11 deadline came and went. By now, neighbour had turned against neighbour as the stakes grew higher.

The HPL-led consortium has now proceeded to sue the members of the first and second sale committees and is seeking an order to bind all the other sellers. If that order is granted by the court on Thursday, it will mean that all Horizon Towers sellers will be liable to pay damages to HPL.

HPL is seeking about $800 million to $1 billion in lost profits as a result of the alleged breach of contract. So the owners of each unit could be looking at a bill of more than $5 million.

Since then, some majority owners have reached out to HPL, and last Wednesday, a group of them met HPL chief Ong Beng Seng, where HPL made it clear that it will drop the suit only if a collective sale order is obtained.

A ray of hope emerged the following day, last Thursday, when a large group of owners met to appoint yet another – the third – sale committee. More significantly, they agreed to extend the sale deadline until Dec 11.

HPL and its partners are waiting for an official confirmation of the extension before they seek an adjournment of this Thursday’s hearing.

Even if the High Court case is adjourned, the sale would have a long way to go, given the disputes so far.

Lessons learnt

THE case – which has involved more than 10 lawyers – has underscored the point that a collective sale agreement is a legal document and sellers may be liable to legal action.

This is a sobering thought for property investors or owners who believe that the only serious question they have to consider in a collective sale is the price they will receive for their units.

Lawyer Henry Heng from Tan Peng Chin LLC said: ‘The case highlights and reinforces the potential consequences and liabilities of owners pushing for an en bloc sale when the en bloc process or application goes wrong.”

The Horizon Towers case has also changed the way collective sales are conducted. Owners, their property agents or lawyers involved would now pay more attention to procedural requirements, said Mr Heng.

The High Court hearing is fixed for this Thursday while a separate appeal by the sellers to the High Court to quash the STB order invalidating the original sale will be heard a day later.

If that appeal succeeds, the case could return to the STB. What would happen then is anyone’s guess – though many owners are no doubt longing for signs of a resolution on the horizon.

 

Source: The Sunday Times 23 Sept 07

The rant over rent: Landlords strike back

We’re not greedy, we’ve been ’subsidising’ tenants with low rates since 2003, they say

RETIRED doctor S.M. Soon, 62, is one happy landlord.

She collects $16,000 a month from her tenant at Emerald Hill, which means she doesn’t have to use her own funds to top up her monthly mortgage payments.

But things weren’t always so rosy.

From 2002 to last year, the monthly rent from her 5,000 sq ft Peranakan house was $12,000, and she was coughing up $4,000 every month to service the loan and pay for maintenance.

‘Prices are just returning to what they were 10 years ago. For us landlords, it’s not always Sunday,’ said Dr Soon.

Tenants have been crying foul over soaring rents which have shot up by 31.2 per cent over the past year.

Last week, The Sunday Times featured a family whose rent rose from $2,400 to $7,200 when the lease ended this year.

In the end, the family had to move from Jervois Road near the city to the East Coast area, and still pay rent that is twice as much.

But landlords are also keen to debunk their greedy image.

In a letter to The Straits Times’ Forum page last week, Madam Yeo Boon Eng pointed out that expatriates had been enjoying extremely low rents since 2003 and owners were ’subsidising’ tenants before the increase in rents.

She is now charging her tenant $2,100 for a corner terrace house in Yio Chu Kang, up from $1,600 last year.

She said her tenants did not complain or bargain. But if they did, she would have stood her ground and they would have had to look elsewhere.Nine of the 12 landlords who spoke to The Sunday Times said they, too, collected very low rents in the past few years.

The higher prices are not arbitrary, they argued. They simply reflect property prices now and are a function of demand.

It is only recently that landlords are seeing returns on their investments, with rental yields exceeding monthly instalments.

Said Dr Soon: ‘It’s not a matter of raising prices because we’re greedy. We get whatever the property will fetch in the market.

‘I wouldn’t dare ask for $16,000 if the market rent is $10,000.’

Retired lecturer H. Chu, 65, who is renting out three properties in Holland Grove View, Binjai Crescent and Eastwood, said: ‘Landlords are not unreasonable. It’s just that there are too many people at this time who want a place.’

He didn’t even have to raise the rent on his Binjai Crescent bungalow; the tenant offered him $8,500 this year, instead of the $5,600 he was paying.

‘He knows the market,’ he said.

Property agent Andrew Tan, 51, agrees. The only landlords he would call greedy are those with ‘moving targets’.

This year alone, he has dealt with five landlords who kept upping their prices even after letters of intent had been signed by prospective tenants. Among the landlords contacted by The Sunday Times, none admitted to doing this. Most said they try to keep their existing tenants.

Said Dr Soon: ‘It makes sense to keep a good tenant, instead of waiting another month for another tenant to come along and paying commission fees to the agent.’

She said she charged her existing tenant $16,000 when she could have put her property on the market for $20,000.

But no matter how much of a ‘discount’ existing tenants get, they are bound to be unhappy about the sudden rent hikes. And landlords are peeved by the attention the more vociferous tenants get.

‘When tenants were enjoying low rents, nobody thought about the landlord. It’s not that prices have gone up drastically. It’s that, in the first place, they went down so much,” said housewife V. Wong, who is in her 50s.

Her 1,800 sq ft apartment at Central Green in Tiong Bahru used to fetch $4,300, which meant she had to chip in about $800 to meet the mortgage payments and taxes. Now she rents it out at $6,800.

Ultimately, the sums have to add up.

Said landlord Ms Y. Tan, an accountant who is in her 60s: ‘Who wants to charge low rents? We’re not running a charity.’

simlinoi@sph.com.sg

Ups and downs

‘When tenants were enjoying low rents, nobody thought about the landlord. It’s not that prices have drastically gone up. It’s that, in the first place, they went down so much.’

HOUSEWIFE V. WONG, on why tenants are unhappy about the sudden rent hikes

 

Source: The Sunday Times 23 Sept 07

Potential risks of buying undeveloped land

THE gains from investing in undeveloped or raw land might sound attractive, but experts say retail investors need to take care.

Mr Ku Swee Yong, the director of marketing and business development at property consultant Savills Singapore, said such investments can be ‘a good tool’ because of the potential for capital gains and because they require smaller sums than direct property purchases.

He pointed out, however, that investors keen on land banking have other options, for instance, buying uncompleted properties or investing in real estate investment trusts.

The chief executive of wealth management firm dollarDEX, Mr Chris Firth, warned that ‘a big problem’ with land banking is that most of these activities are not regulated anywhere. Thus, the offerings vary greatly, ranging from ‘genuine ones to scams’.

Pricing is another issue. ‘In some cases, the markup from wholesale plots into retail plots is so huge, investors have virtually no hope of turning a profit.’

In July, in Britain, four firms that had sold plots of agricultural land to the public were wound up by the High Court after a probe into misrepresentations. It was revealed that the sites had little or no chance of getting planning permission.

The chief investment officer of private wealth manager Providend, Mr Daryl Liew, said investors should perform due diligence on the firm and assess the land’s potential.

Here are some issues you should consider.

Absence of regulation

The buying of raw land as an investment is not regulated in Singapore. If investors choose to deal with investments not regulated by the Monetary Authority of Singapore, they forgo legal protection.

Consumers are thus urged to find out as much as possible about the company, understand the product and ensure the investment fits in with their financial goals.

Long wait for developers to come in

There is no guarantee as to how soon developers will buy over the land. Estimates by strategic land investment companies range from three years to eight or even 14.

Fruitless wait; the land is never developed

It is possible the land might never undergo development. It was reported last November, that British land banking firm Land Heritage (UK) closed after a probe and its 700 investors were not refunded.

High ‘hidden’ costs

Depending on the country, you might have to pay capital gains tax, withholding tax or miscellaneous legal fees before you can realise the profits. These costs could well eat up half your profits.

Lack of liquidity

Land assets are illiquid. In most cases, there is a minimum holding period before you can sell your individual plots of land even if developers have yet to buy the area in question.

Exchange rates

If you bought the land in a foreign currency, there is a risk of currency moving against you.

 

Source: The Sunday Times 23 Sept 07

Banking on overseas land

Thousands of Singaporeans have sunk money into undeveloped plots overseas in the hope of getting high returns. Finance Correspondent Lorna Tan talks to three investors who have ventured into this foreign territory FOR some, it is not enough to have a roof over their heads. Singaporeans’ love affair with property has extended to owning raw land beyond the Republic’s shores, with more than 10,000 opting for this type of investment.

In the 1990s, there was just one firm marketing such undeveloped land, or raw land.

But now at least five firms are selling land in Britain, Canada, Thailand and the United States. The latest two entrants are Profitable Plots, which offers British land, and Royal Siam Trust, which sells beachfront plots in Thailand.

Investor Helen Tay

FOR Ms Helen Tay, 37, it has been a long wait for her raw land investment to bear fruit, and she is still waiting.

In 1998, the former lawyer turned network marketeer bought two plots of Canadian land for C$50,000 (S $74,485) after visiting a roadshow at a hotel. It was organised by land asset management firm Walton International Group.

Set up here in 1996, Walton markets plots of raw land in the Canadian cities of Calgary and Edmonton, as well as in Texas, in the US. It buys the land, keeps a portion for itself and sells the rest to individual investors, who in turn get a title deed in their name. Each unit of land costs about C$25,000. Investors are typically advised that there could be a wait of five to seven years before the parcel of land obtains development approvals. When that happens, Walton will sell the land to developers at a higher price, subject to 60 per cent of investors consenting to the sale.

For Ms Tay, the wait to see profits from her plots in Northridge, Calgary, has been longer than expected. ‘I still haven’t seen my money. It’s been a long wait…Back in 1998, I was given a forecast of five years. It’s not a great investment but if the money comes in, it should still be better than putting money in a fixed deposit,’ said Ms Tay.

But her long wait could be coming to an end.

In May, she was informed by Walton that there was an offer to buy the land at a price that worked out to C $130,000 per plot. This would mean a profit of about C$96,000 for Ms Tay, after she coughs up a capital gains tax of 40 per cent to the Canadian government, plus transfer fees.

If she had bought one plot of land, the tax would be a lower 25 per cent.

Investor John Khoo

UNLIKE Ms Tay, another raw land investor, Mr John Khoo, 50, made sure he saw his plot of land before purchasing it. Mr Khoo works in a foreign bank here but has been visiting relatives in Edmonton, Canada every year since 1990.

In 2004, he plonked about C$100,000 into two plots of land measuring 700 sq ft each (excluding the garden areas), after visiting the raw land sites to assess their appeal.

Mr Khoo took a loan for 60 per cent of the purchase price at an annual rate of under 2 per cent from a Canadian bank. He was also informed that he need not pay a property gains tax as it was his first property in Canada.

‘Location is the most important factor and that means buying land near a mall, a train station, an oil field, a windmill, biodiesel farmland…If you don’t go there, you don’t really know what kind of site you’ve bought. So unless you are familiar with the area, better go see for yourself,’ said Mr Khoo.

Before investing, he also consulted banker friends who were familiar with the location of his sites.

Mr Khoo added that by the time land banking firms sell their plots to Asian investors, the good ones would have been taken up by local investors, who would have picked the cream of the crop of the raw land sites.

The land that he bought had just received planning permission then, and two two-bedroom houses now sit on his two plots of land. The land is near a university in downtown Edmonton.

The value of his land has since doubled and Mr Khoo expects to pay a legal fee of about C$1,000 when he sells his land. Currently, he enjoys an annual rental yield of 10 per cent.

Investor Dr Chiu Jen Wun

DR CHIU Jen Wun, 45, said that ‘the main bugbear of raw land investing is time’, because you can never be sure when you can cash out.

In recent years, the anaesthesiologist has invested in Canadian and British land, which he purchased from Walton and Profitable Plots. He declined to reveal the amount.

Early this year, he made a net profit of about $20,000 from two plots of Canadian land, which were about half an acre, or 0.202ha, each. He had bought them at $37,000 per plot, 41/2 years ago.

Two years ago, he invested in British land. At that time, Profitable Plots was selling units of land with each ranging between £3,000 (S$9,044) and £28,000. Customers were told to expect returns of 2.5 to 14 times, said Dr Chiu. Profitable Plots has advised him that it may take five years to see results.

A personal friend of financial guru Robert Allen, Dr Chiu was motivated to invest in raw land as part of his overall investments so as to generate multiple streams of income.

‘This is one allocation in my diversified balanced portfolio of investments,’ said Dr Chiu, who aims for a minimum 7 per cent annual return on his investments. He adds that the advantage of buying British land for Singaporeans who do not work or live there, is that they need not pay either capital gains tax or stamp duty to the British government.

To boost the confidence of investors and to make it easier for them to part with their cash, both Walton and Profitable Plots offer some sort of buyback guarantee.

Instead of opting for such a guarantee, Dr Chiu decided to wait it out in the hope of bigger returns.

At Walton, investors can sell the land back to Walton at the original purchase price in five years, based on an agreement. But this is believed to be limited to Canadian land and not US land. In fact, the firm used to offer a financing scheme at a rate of 11.75 per cent a year but it has since been withdrawn.

And Profitable Plots, which has paid up capital of $2.1 million, offers two ways of getting a return. Group operations director Andy Nordmann said: ‘One is where the return is earned when planning permission is given and the land is sold to a developer. The other is a fixed return of 12.5 per cent paid annually. This allows our clients the choice of both a short-term and a medium-term investment strategy.’

The firm provides a warranty to all clients which allows a five-year opt-out with no loss of capital. And it also allows clients the flexibility of switching their plots to ones that have already received development approval, so that they can enjoy faster gains.

Mr Nordmann emphasised that Profitable Plots ensures that all funds are placed in the hands of an independent trust which helps to safeguard the investments no matter what happens to the seller of the land.

 

Source: The Sunday Times 23 Sept 07

85% of MCL Land’s Hillcrest Villas sold in the past fortnight

Average price for the 163-unit cluster terrace homes project is $871 psf

MCL Land has sold 85 per cent of its 163-unit cluster terrace homes development Hillcrest Villas over the past fortnight.

The average price for the 99-year leasehold project in the Dunearn Road area on the former SingTel Academy site is about $871 per square foot (psf) of strata area. Absolute prices range from $2.5 million to $3 million per unit.

This means the listed property group, a subsidiary of Hongkong Land, has sold about 400 homes this year for slightly more than $900 million.

MCL is planning to launch two freehold condos next year with a total of about 360 units in the Holland Hill and Pasir Panjang locations, MCL Land CEO Koh Teck Chuan told BT yesterday.

Hillcrest Villas’ cluster terrace houses will have two storeys plus attic and basement, with a total strata area of about 3,100 sq ft on average per unit. The typical unit has four bedrooms plus another in the basement that can be turned into an entertainment room. The development has shared facilities including swimming pools, a clubhouse and gym.

‘Buyers are all Singaporeans, given the restrictions on foreigners regarding owning landed property. We’ve a good mix of owner occupiers and investors,’ Mr Koh said.

Hillcrest Villas’ location next to Raffles Girls’ Primary School and near Nanyang Primary School is a draw for parents eyeing a place for their children in these schools, market watchers said.

Mr Koh noted that cluster houses at The Teneriffe at Laurel Wood Avenue nearby are fetching monthly rentals of about $14,000. ‘Assuming Hillcrest Villas command the same rental, and based on our average selling price of $2.7 million, the net yield at about 5.6 per cent is pretty attractive,’ he said.

Hillcrest Villas is being marketed by DTZ Debenham Tie Leung.

Earlier this year, MCL Land launched two other condominium projects – the 132-unit Waterfall Gardens at Farrer Road and 129-unit Tierra Vue at St Patrick’s Road on the former Marine Parade Gardens site.

Both freehold projects are fully sold. MCL Land achieved average prices of about $1,500 psf for Waterfall Gardens and $850 psf for Tierra Vue, Mr Koh said.

The group has another two freehold condos that it plans to release next year – one with about 180 units on the Balmeg Court site off Pasir Panjang Road, and a joint venture with Ho Bee on a project with about 180-190 units on the Holland Hill Mansions site.

Meanwhile, Kallang Development yesterday began previewing 48 freehold terrace houses at Sembawang Road under the latest phase of its Springside development.

Intermediate terrace units are priced at about $1.75 million on average and have land areas ranging from 1,617 sq ft to 2,154 sq ft and floor areas of about 3,500 to 3,700 sq ft. Corner units, with plot sizes of 2,400 to 4,800 sq ft and floor areas of 3,500-5,000 sq ft, cost $2.2 million to $3 million. All units are three storeys high and will have attics but no basements.

Another landed development expected to come on the market soon is King’s 8, comprising eight freehold strata bungalows along King’s Road. Each strata bungalow will have its own swimming pool.

 

Source: Business Times 22 Sept 07

Fed rate cut a blessing and a curse for China

AS THE Federal Reserve cut interest rates by half a point this week, it is doubtful much thought went into what it would mean for China.

And that is fine. The Fed has 12 districts around the United States, and it acts to influence the domestic economy. Globalisation has globalised the Fed, though. It is hardly far-fetched to think of Latin America as the Fed’s 13th district, Russia the 14th, Asia the 15th and so on.

Not surprisingly, this week’s Fed decision was the most anticipated by Asia in many a year. Nowhere were officials watching closer than in Beijing.

It is not just that China’s currency is still effectively pegged to the US dollar. It is more about what Mr Donald Straszheim, vice-chairman of Newport Beach, California-based Roth Capital Partners, calls the Group of Two.

The G-2 – the US and China – is rapidly becoming the most important economic relationship.

It is getting harder and harder to discern where one economy ends and the other begins. China cannot live without US demand for exports and the vital role the American consumer plays in its poverty-reduction efforts. The US cannot survive without China’s money, much of which is parked in reasuries and enables the US to finance its excesses.

Yet the Fed’s cut highlighted the extent to which US and Chinese monetary policies are moving in opposite directions. The Fed lowered its benchmark interest rate for the first time in more than four years to 4.75 per cent, while China is still working to tighten credit.

More liquidity

THE US’ adding of liquidity – and the sub-prime loan crisis forcing Fed chairman Ben Bernanke’s hand – is both a blessing and a curse for Asia’s second-biggest economy.

First, the curse angle. China has been shielded from much of the fallout of the credit-market problems that began in the US and spread around the globe. A largely closed capital account and a stable currency protected China from the 1997 Asian crisis and the approach has paid off again in recent months.

As the Fed lowers rates, though, it is providing liquidity to a global system that seems to find no shortage of ways to channel it to China. That creates a paradox.

The People’s Bank of China can sit back and see if its five rate increases this year curb the fastest inflation since 1996 and damp down speculation in stocks and real estate. That is not a wise choice, given a global increase in price pressures.

The other choice may make matters worse. Higher borrowing costs at this point will serve as a more powerful magnet for the so-called hot money that officials in Beijing are trying to contain. And so there you have it: China’s monetary choices range from bad to worse. China must do much more than just raise rates.

Mr Bernanke is less to blame for this predicament than his predecessor, Mr Alan Greenspan. As Mr Greenspan cut short-term rates to 1 per cent in 2003, speculative flows rushed to Asia, and China especially. It seeped into all types of Chinese assets, including stocks and real estate. Now that the Fed is cutting rates again, China finds itself in a difficult position.

Looked at another way, the sub-prime mess that spooked the Fed enough to move could be a blessing for China in the long run.

A hard landing in the US cannot be ruled out, and that would hurt export-dependent China. There is much chatter about Asia decoupling from the US, yet the region is still highly reliant on the world’s biggest economy.

A couple of rate cuts, meanwhile, will not get US households out of debt. Asia should not assume the US is about to boom just because the Fed loosens credit. While such a dynamic would be a blow in the short run, it might prompt China to work harder to create a thriving domestic economy.

As global investors tighten risk-management guidelines following recent mortgage-market woes, China’s financial system may be forced to grow up.

For example, increased risk aversion – if markets get antsy again – could let some air out of China’s stock bubble, reducing risks to the broader financial system.

Also, given the lack of transparency, investors know little about the true magnitude of China’s bad-loan challenge. Throughout the nation, there are many cities that want to be the next Shanghai or Dalian with massive skyscrapers, five-star hotels, six-lane highways, international airports, world-class universities and cultural centres.

Those efforts are taking place largely beyond the control of Beijing and financed with easy credit extended by banks. When China does slow, the debt hangover will be quite painful.

High stakes

THE upside is that the subprime problems in the US may have Chinese creditors working harder to scrutinise borrowers’ ability to repay loans. That would mean fewer bad loans to clean up if China’s 11.9 per cent growth slows to 5 per cent. The nation would be better off in the decades ahead.

In the short run, though, China’s challenges are increasing as the Fed acts to calm markets. Balancing the need to raise hundreds of millions out of poverty, while also avoiding an overheated economy, just got a little harder – thanks to the Fed.

NO MAGIC BULLET

A couple of rate cuts will not get US households out of debt. Asia should not assume that the US is about to boom just because the Fed loosens credit. While such a dynamic would be a blow in the short run, it might prompt China to work harder to create a thriving domestic economy.

 

Source: Bloomberg (The Straits Times 22 Sept 07)

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Home market will grow even if punters retreat: report

Developers may go for higher volumes, lower margins in mass, mid-segment

(SINGAPORE) Recent events could make the residential property market vulnerable to declines in collective sales and speculative activity.

However, Goldman Sachs believes that other demand drivers such as the increase in resident population will help mitigate the fall in those selling their homes through collective sales and looking for replacement homes.

It reckons there will be little adverse impact from a drop in speculation while foreign buying will be relatively sticky. And the silver lining from the recent market slowdown brought about by the sub-prime mortgage crisis in the US is that it has weakened reasons for the Singapore government to curb price rises, argues a paper by Goldman Sachs Global Investment Research.

‘Going forward, we think all developers will see more of their residential exposure being tied to mid- and mass market projects via new site acquisitions so as to meet expected demand in those segments.

‘We look for achievement of strong selling prices and take-up in forthcoming residential launches to demonstrate the strength of demand in the residential market and drive share price performance of Singapore developers,’ according to the paper, titled ‘Residential market shaken but still good for developers’.

The paper, authored by Goldman Sachs executive director (Asia-Pacific Investment Research) Leslie Yee, says the sharpest increases for Singapore residential property prices are over.

However, the operating environment in Singapore for developers is good, as they can still enjoy fat margins from developing their existing prime district residential landbanks, and reinvesting the money they make from selling such projects into mass/mid market sites where profit margins will be lower but volumes will be high.

‘We see developers achieving margins of about 20 per cent in mid to mass market projects and tapping into opportunities as population increases,’ Mr Yee said. He expects a positive demand picture, with net incremental annual demand of around 19,000 private homes over the next few years.

New demand will come from increases in the resident population, of which an increase in the number of permanent residents is a major driver; increase in the non-resident population; sellers of properties that are the subject of en bloc sales; and Housing and Development Board (HDB) upgraders.

The bank said its demand numbers do not factor in speculative buying. ‘Given the speed and scale of price increases this year, we think a fall in speculative activity benefits the property market in the longer run by reducing pressure for government intervention to cool prices,’ it added.

Goldman Sachs says it is not overly concerned about a decline in en bloc sellers looking for replacement properties arising from a near-term slowdown in collective sales amidst higher development charges and changes in legislation. This is because other components of demand will remain strong.

As for a slowdown in the supply of redevelopment sites if en bloc sales cool off, the paper argues that developers have enough residential projects on hand to execute, and the ability to acquire mid- and mass-market land from state tenders.

Goldman Sachs says it does not expect foreign buying, which has been instrumental in driving up residential property prices here, to dissipate as the factors attracting these buyers to the local property market – including transparency, openness to foreigners, and absence of capital gains tax – still hold.

Also, foreign buyers include permanent residents, whose property purchases here are likely to remain strong provided the momentum of new investments and jobs is maintained.

Goldman Sachs favours GuocoLand and City Developments for their leverage to the Singapore residential sector, accounting for 35 and 38 per cent respectively of their revalued net asset values.

In the mass segment of the private housing market, ‘we see strong domestic economic factors and rising HDB resale prices underpinning price performance’, the paper says.

‘We think the government will be happy to see HDB resale prices rise so that larger segments of the population can enjoy the fruits of Singapore’s success while continuing to ensure affordable housing for citizens through the HDB primary market,’ Goldman Sachs reasons.

 

Source: Business Times 21 Sept 07

Horizon Towers resolution may be in sight

Owners of 135 units vote to extend sale deadline to Dec 11

(SINGAPORE) There may finally be a resolution, of sorts, for the long-running Horizon Towers saga.

Owners of 135 units at the Leonie Hill development – who attended a hastily convened meeting at the Raffles Town Club last night – voted in favour of extending the deadline for the en bloc sale of the development.

These owners – who form the bulk of the owners of the 177 units who had consented to the en bloc sale in February – agreed to push back the collective sale deadline to Dec 11. They also agreed to do everything ‘reasonably necessary’ to effect the collective sale.

And while these owners of 135 units recognise that their votes are not binding on the owners of the remaining 42 units – who didn’t attend last night’s meeting – they say they hope the other owners will support their decision.

They will be reaching out to these remaining owners soon, to seek their support.

This startling twist to recent events may be the key to unlocking the impasse between the majority sellers of Horizon Towers and the development’s buyers – Hotel Properties Ltd (HPL), Morgan Stanley Real Estate-managed funds and Qatar Investment Authority.

HPL and its partners sued the majority sellers after repeated requests to the sellers – to extend the Aug 11 sale completion deadline by four months – were not met.

The collective sale had collapsed on a technicality before the Strata Titles Board (STB) in early August, and the buyers wanted an extension of the deadline so that there would be enough time to file a fresh application to the STB for a collective sale order.

HPL and its partners have threatened to sue every one of the majority sellers for millions of dollars each.

HPL chief Ong Beng Seng – who rarely makes public appearances – even met some 40-odd sellers at the Hilton on Wednesday, in a bid to convince them of the need to extend the deadline.

His lawyers, Allen & Gledhill, also told the attendees at the Hilton meeting that they would be prepared to adjourn the legal proceedings if the sellers agreed to extend the deadline – and that they would drop the lawsuit altogether if the sale goes through.

Some observers believe that this overture by HPL may have swayed the vote at the Raffles Town Club meeting yesterday.

A group of sellers, represented by Wong & Leow, however, told BT that their decision to extend the deadline wasn’t motivated by the threat of the lawsuit filed against the sellers.

‘Throughout this entire period, from the time the STB rejected the collective sale application, we have never said we were not going to extend the deadline. We have chosen to extend the deadline today, as an act of good faith,’ said a spokesperson for the group, which comprises owners of about 60 units.

When contacted by BT last night, HPL’s group executive director Christopher Lim said the buyers would honour the undertaking given to sellers at the Hilton meeting.

‘We will stand by what we offered, which is that we are prepared to apply for the adjournment of the legal proceedings once we get formal confirmation that the deadline has been extended. And we will drop the lawsuit altogether once the collective sale goes through,’ he said.

It means, however, that the lawsuit still hangs over the majority sellers.

The Horizon Towers owners at last night’s Raffles Town Club meeting also voted in a new sales committee – comprising five new members and two members from the first sales committee.

 

Source: Business Times 21 Sept 07

House okays changes to en bloc sale rules

PARLIAMENT yesterday approved changes to the Land Titles (Strata) Bill, which spells out proper procedure for en bloc sales.

The changes will now become law sometime next month after it has been cleared by the President’s office.

During the second reading of the Bill in Parliament yesterday, Deputy Prime Minister and Law Minister S Jayakumar said that the changes are meant to provide more safeguards and transparency for all owners – and not intended to make it harder to reach a collective sale agreement.

‘We have to craft the amendments in a way that strikes a balance between trying to make the process more transparent and fair with suitable safeguards, while at the same time not making it unduly unmanageable or too onerous to bring about an en bloc sale,’ Prof Jayakumar said.

He was responding to Members of Parliament (MPs) who wanted more safeguards added to the Bill.

For example, one suggestion was to make it mandatory for developers to offer sellers a replacement unit within the same estate as their old property.

Prof Jayakumar explained that the government will not implement more safeguards this time round as he does not want to ‘micro-manage’ the en bloc process.

However, the Ministry of Law will not ‘close shop’ and forget about the issue, he said: ‘This review by my Ministry and the Strata Titles Board and the Singapore Land Authority will be an ongoing one.’

For now, in line with several MPs’ suggestions, the Ministry of Law will see if a best practices guide for en bloc sales can be developed.

For now, the passing of the bill means that the en bloc process will change somewhat.

For example, a lawyer will have to be present when an owner signs the collective sales agreement.

Owners can also change their minds after signing the agreement within a five-day ‘cooling off’ period.

Prof Jayakumar also explained that the changes will not apply to projects that have already got the required 80 or 90 per cent majority – based on share value – before the start of the amended act.

 

Source: Business Times 21 Sept 07

Steep rates likely for F1 trackside hotel rooms

Companies seeking to entertain guests may have to pay top dollar for packages over race period

(SINGAPORE) Corporations preparing to entertain their guests at trackside hotels during the Singapore Formula One Grand Prix in September next year may have to dig deep into their pockets.

Though most hotels have not publicised their rates yet, indications are that guests may be charged several times the normal tariff when F1 fever is in full swing. Also, some hotels may not agree to let out rooms just for race night, but could sell packages for several nights.

Companies in a hurry to book rooms for their guests and clients have already started negotiating with the hotels and some have been quoted tentative rates.

One hotel that usually charges $900 a night for a suite tentatively quoted a package of more than $18,000 for the period leading up to the race.

This works out to a daily rate of around $4,000 a night.

Trackside hotels will pay a levy of 30 per cent to the Ministry of Trade and Industry for the five-day period between Sept 24 and Sept 28 next year to offset some of the expenses involved in staging the event. While the levy contributes to raising the rates somewhat, the period also coincides with the drivers’ practice sessions, qualification races and the main event itself – all of which are eagerly watched by racing aficionados. This also enables hotels to sell packages for the entire period for which the F1 circus will be in town.

While the hotels involved seem hesitant to pin down concrete prices, BT was tipped that the suites at one of the trackside hotels, Swissotel the Stamford, are already fully booked with a price tag hovering around $3,500 per night.

One source trying to book rooms for his company said that he had been quoted a tentative rate of around $1,300 a night at The Pan Pacific Singapore. The hotel refused to confirm this. Cheryl Ng, public relations manager for the Pan Pacific, said: ‘Based on the market forces of variable demand and supply, certain room rates have been finalised and extended to potential guests. There are many wait-listed enquiries regarding rooms during Formula One and we are in the midst of responding to interested parties.’

She added that the price floor and ceiling will not be apparent until the hotel has completed its entire pricing strategy.

Ritz-Carlton Millenia general manage Allan Federer told BT that similar rates would be offered to individuals and corporations, and differentials would arise only on the basis of room types and the view of the track during the F1 period. The official room rates would be released on the Ritz-Carlton website around the end of the month. At this point, the Ritz-Carlton has committed about 85 per cent of its guest rooms, with bookings largely stemming from both local and international companies.

‘The F1 is a terrific way to entertain your top customers,’ enthused Mr Federer, adding that the hotel began to confirm bookings from its wait-list about a month ago.

The Oriental director of communications Ruth Soh said that no official bookings have been made although the hotel has also been maintaining a waiting list for interested clients, consisting of both F1 enthusiasts and corporations. Various packages will be available in time to come, with prices to be determined by a confluence of factors such as room size, a view of the track as well as special amenities.

Other trackside hotels include The Fullerton, Marina Mandarin, Raffles Hotel, Conrad Centennial, Carlton Hotel and Peninsula-Excelsior.

Unsurprisingly, even non-trackside hotels – which will pay a levy of 20 per cent during the lead-up to the race – say that the response so far has been heartening. According to Thierry Douin, area manager and general manager for Shangri-La Hotel Singapore, there have been many inquiries from various race teams as well as travel agencies.

One factor that will decidedly influence the prices of hotel rooms is the time of the race. The world governing body for motorsports, Federation Internationale de l’Automobile (FIA), is expected to confirm soon whether – as expected – Singapore will conduct a night race. An affirmative response would be significant as it will mark the first night race in F1 history.

 

Source: Business Times 21 Sept 07

Sands raising $5b to fund building of S’pore IR

Banks roped in are said to include DBS, UOB, OCBC

(SINGAPORE) Las Vegas Sands Corp, the world’s largest casino operator by market value, is seeking a record loan in Singapore currency to fund construction of the nation’s first integrated resort (IR), which will include a casino, three people familiar with the deal said.

The gaming firm hired eight banks including the three local banks – DBS, OCBC Bank and United Overseas Bank – as well as Goldman Sachs to arrange the $5 billion borrowing, according to the people, who declined to be identified because the information is private.

The other four arranging banks are Morgan Stanley, Merrill Lynch & Co, Lehman Brothers Holdings Inc and Citigroup Inc.

Ron Reese, spokesman for Las Vegas Sands, didn’t reply to an e-mail sent by Bloomberg. Spokesmen at the banks either declined to comment or could not be immediately reached.

Part of the $5 billion will be used to repay a US$1.4 billion 12-month borrowing arranged a year ago, according to the people. The $5 billion loan, maturing in seven to eight years, will be the largest-ever made in Singapore currency, according to data compiled by Bloomberg. It will be backed by the casino.

The interest margin on the loan will be between 2 percentage points and 2.5 percentage points more than the swap offer rate on Singapore currency, according to the people. The three-month rate is fixed at 2.62 per cent yesterday.

That compares with 2.75 percentage points more than the London interbank offered rate Las Vegas Sands is paying on US$3.3 billion borrowed last year for its Macau expansion, a loan that matures in 2011. The three-month Libor rate is 5.59 per cent.

‘Banks will likely create a syndicate to spread the risk,’ said Lim Kok Boon, chief investment officer here at Fortis Private Banking. ‘The collateral in the form of land and building will appreciate.’

Second-quarter profit at Las Vegas Sands, run by billionaire Sheldon Adelson, fell 69 per cent as interest payments on funds borrowed to expand in Asia more than doubled from a year earlier to US$54.4 million.

Las Vegas Sands’ downtown Marina Bay resort, neighbouring Singapore’s business district, will feature three hotel towers linked by a sky garden, restaurants run by celebrity chefs Charlie Trotter and Thomas Keller, and an art-andscience centre.

The casino company’s debt is rated three steps below investment grade at Ba3 by Moody’s Investors Service and an equivalent BB- by Standard & Poor’s.

 

Source: Bloomberg (Business Times 21 Sept 07)

Funding squeeze tightens as China reins in asset markets

Policy shift could spell trouble for stock, property markets: analysts

(SHANGHAI) A massive squeeze in China’s money market suggests the authorities are getting serious about reining in soaring asset markets to control inflation.

Funding squeezes have occurred a few times this year in response to initial public offers of equity and seasonal demand for money. But the current drought of funds is much harsher than previous ones and is set to last longer.

In contrast to past squeezes, this one is largely the result of initiatives by the authorities to cool the stock market and reduce the amount of funds available for bank lending, much of which is going into the property market.

In the past, the central bank balanced supply and demand for funds more carefully to limit spikes in short-term interest rates. This time, rates have largely been left to soar unchecked as the authorities soak up money from the market.

‘Authorities are shifting their focus to the stock market and to commercial banks’ lending growth, while putting less focus on short-term volatility in money market rates,’ said Chai Cipeng, a fixed-income trader at Daiwa SMBCSSC Securities in Shanghai.

The shift in policy priorities could spell trouble for the stock and property markets in coming months. It could also mean a difficult time for Chinese fixed-income investors until stock and property prices finally show signs of cooling down.

The weighted average seven-day repo rate, a key measure of short-term liquidity, surged to a multi-year high of 6.6942 per cent yesterday – far exceeding this year’s previous peak of 4.77 per cent, hit in April.

Because the squeeze is expected to last until early October, when money will return to banks after a long holiday period, the average one-month repo, usually more stable, also jumped yesterday, hitting a multi-year high of 7.2092 per cent against this year’s previous peak of 4.45 per cent.

Trade in bills and bonds almost halted this week as desperate banks lack the money to trade. While the central bank has reduced money market draining operations, the resulting net injection is dwarfed by the hundreds of billions of yuan that the market is being required to provide.

Net injections of that scale are ‘not enough in this environment’, said Shi Lei, an analyst at Bank of China.

The squeeze is largely due to the planned sale of big volumes of special bonds to the market this month, a form of monetary tightening, and by record IPOs in quick succession from China Construction Bank and Shenhua Energy, part of efforts to cool the stock market by boosting supply of equity.

The steps are being taken just a week after China announced August consumer price inflation jumped to a 10-year high of 6.5 per cent from July’s 5.6 per cent.

 

Source: Reuters (Business Times 21 Sept 07)

Sunshine to acquire China property firm for 61m yuan

Henan Jinjiang has 2 mixed-devt projects in Zhengzhou

SUNSHINE Holdings is buying a China property company for 61 million yuan (S$12.2 million).

The acquisition, Henan Jinjiang Real Estate Co Ltd, will be 90 per cent owned by Xinxiang Huilong Real Estate Co Ltd and 10 per cent by Henan Huilong Property Management Co Ltd. The latter two companies are wholly owned subsidiaries of Sunshine.

Sunshine said Henan Jinjiang is a property developer, with two projects in Zhengzhou.

Zhengzhou, the capital city of Henan province, has a population of 3.5 million and a gross domestic product of 165 billion yuan in 2005. The two projects – Zhong Mou Project (site area: 76,000 sq metres) and Yan Ming Hu Project (779,000 sq metres) – are mixed developments. Both are expected to see revenue contribution from FY2008.

Sunshine said the total planned GFA for the Zhong Mou project – strategically located near the Civic District – is about 97,000 square metres. About 80 per cent will be allocated for residences and the rest commercial development.

The estimated average selling price is between 2,500 yuan and 3,500 yuan per square metre for residential space and about 4,000 yuan per square metre for commercial space.

As for the Yan Ming Hu project, the total planned GFA is about 274,000 square metres and will comprise deluxe residential with facilities for business conferences. The estimated average selling price for residential space is about 10,000 yuan per square metre.

Sunshine said the purchase will be satisfied from internal resources and borrowings.

Listed on the Singapore Exchange mainboard in March 2006, Sunshine is one of the rapidly growing property developers in Henan province and has successfully carved a niche in developing properties in second and third-tier China cities.

Yesterday, the shares closed trading at 35 cents each, compared with its initial public offer price of 27.5 cents.

 

Source: Business Times 21 Sept 07

Fresh sub-prime concerns in Europe?

Local session turns more sober with ST Index down 41.9 points and a weak broad market

IT’S possible to argue that since the Straits Times Index had rocketed by almost 117 points on Wednesday, it would be reasonable to expect some kind of pullback yesterday. This, indeed, was the case, with the index dropping 41.9 points to 3,552.46.

On the other hand, it must have been troubling on some level to some observers that activity yesterday was very heavily concentrated in penny stocks and warrants, and that the focus as far as blue chips were concerned was narrow – support for the index came almost exclusively from DBS, while the main drag was exerted by SingTel.

For those who subscribe to the first point of view, which is that Tuesday’s 50-basis-point US interest rate cut is sufficient to kickstart the bull market, then yesterday’s dip would best be described as the market ‘taking a breather’.

This is the phrase most commonly used to describe a fall in prices, a seemingly innocuous term but one actually laden with meaning, since it implies that once the breather is over, the upward push will resume.

However, those who were troubled by the lack of breadth, depth and follow-through would undoubtedly have found grounds to fret over the fall, since it came despite a follow-through rise in Hong Kong and Japan.

Instead of the former British colony setting the pace as it traditionally does, the local market most probably drew its inspiration – or lack of it – from a fall in the US futures market and a soft opening for Europe.

One possible reason for Europe’s slip was a plunge in the shares of the UK’s embattled mortgage lender Northern Rock and a warning by Deutsche Bank that its Q3 profit has been adversely affected by the recent market turmoil, both serving as reminders that the US sub-prime crisis may not have fully played out yet.

All told, it was a much more sober session than that which preceded it, resulting in the broad market recording 145 rises versus 341 falls excluding warrants.

Meanwhile, DBS Vickers (DBSV) recommended an ‘overweight’ on the banks, mainly because it expects topline growth to remain robust.

On the ongoing and controversial subject of the local banks’ exposure to US collateralised debt obligations (CDOs), DBSV said that ‘as CDO investments are generally held as available-for-sale and/or held-to-maturity securities, mark-to-market losses would be recorded in reserves rather than the profit-and-loss account unless it is deemed permanently impaired’.

‘Nevertheless, the upcoming release of Q3 results will clearly reveal how banks treat their respective CDO investments, and we believe this would ultimately seal back investor confidence over time.’

Morgan Stanley, on the other hand, reminded investors that good times don’t last forever.

‘Singapore banks have enjoyed very low loan loss charges for the last four years. Current earnings and ratings don’t capture underlying risk tendency in our view,’ said Morgan Stanley. It called an ‘underweight’ on OCBC and an ‘equal weight’ on DBS and UOB.

In a preview of its upcoming global investment strategy to be released today, BCA Research said it recommends staying positive on equities since policy reflation will lift prices. In addition, BCA recommends overweighting emerging markets, raising the weighting of US stocks to ‘neutral’, and that investors stick to larger caps instead of small caps.

 

Source: Business Times 21 Sept 07

New, tighter rules for en bloc sales passed

Further changes may follow if necessary, Jaya tells MPs who want more to be done

A SLEW of intensely-debated changes aimed at making the red-hot collective sales market fairer was passed in Parliament yesterday.

The revisions – keenly watched since they were mooted in March – will make it harder for residential developments to go en bloc as they must fulfil more conditions.

And further changes may be in the works if they are necessary, said Deputy Prime Minister S. Jayakumar, also Law Minister.

He was responding to spirited appeals by several Members of Parliament yesterday, who peppered him with suggestions on how to further tighten the rules.

Most felt more could be done to protect the interests of minority owners and the elderly, who are often strongly opposed to selling en bloc but find they have no choice.

In response, Prof Jayakumar said that while their suggestions were not ‘without merit’, he was also concerned about not ‘micromanaging the process’.

‘We have to…strike a balance between trying to make the process more transparent…while at the same time not making it unduly unmanageable or too onerous.’

But he added that the ministry is not going to ‘close shop and forget about the process of en bloc sales’.

It will ‘monitor very closely’ the new laws and make further amendments if needed.

The changes have already had some effect on the en bloc market, even before they are due to come into effect next month.

Property players say they have spurred a rush among homeowners to go en bloc before the new rules make it harder.

But some consultants, like Knight Frank director of research and consultancy Nicholas Mak, say the changes may not have a large impact on the market.

‘They will add more procedural hurdles, but on the whole, they were not designed to slow down en bloc sales and they are unlikely to do so,’ he said.

More than 30 amendments were approved yesterday, after extensive public and industry feedback. They are meant to introduce more regulation into the market and ‘minimise complaints of harassment, unfairness and lack of transparency’, said Prof Jayakumar.

Key revisions include a five-day period for owners to change their minds after signing the collective sale agreement. Also to come are new rules on setting up a sale committee and new powers for the Strata Titles Board, which governs collective sales.

Another major change addresses an imbalance in voting rights in a mixed development. It adds an extra level of owner consent, by floor area, before a sale can proceed.

The amendments were beefed up in recent months after 400 suggestions from the public and discussions with about 40 industry experts.

They follow months of grievances from homeowners over a lack of clarity in collective sales, which have seen a spectacular record run in the last two years.

The need for more regulation has also been thrown up by cases such as that of Horizon Towers, where owners are being sued by the estate’s buyer over a botched collective sale.

Not to be outdone, MPs weighed in with their own proposals yesterday.

These ranged from not allowing ‘young’ buildings below 10 years of age to go en bloc to offering a one-for-one exchange of units in the new development.

More than one MP also spoke of the non-monetary losses felt by owners forced to sell en bloc, and condemned ‘condo raiders’ who buy units in a development and push for a collective sale.

Nominated MP Kalyani Mehta suggested that only residents who have stayed in an estate for more than two years can sit on the sale committee.

Prof Jayakumar took these outpourings in his stride.

A two-year residency condition, he said, would discriminate against new bona fide homeowners. Replacement units are sometimes offered, but turned down by sellers for various reasons.

As for those concerned about younger buildings, he offered this statistic: since 1999, almost 70 per cent of developments that have been sold en bloc were more than 20 years old.

But he agreed to look into some proposals, such as a best practices guide and standard forms to help en bloc players.

 

Source: The Straits Times 21 Sept 07

Horizon Towers sellers vote to extend sale deadline

New sale committee formed and they hope to avert potential lawsuit

A LARGE group of Horizon Towers sellers voted last night to extend a deadline for the sale of the condominium, in a bid to head off a lawsuit over an earlier $500 million sale that fell through.

The sellers last night voted to do everything ‘reasonably necessary’ to effect the collective sale of their estate, which has been mired in uncertainty for months.

The sellers hope to avert a lawsuit filed by a Hotel Properties-led (HPL-led) consortium, which is trying to buy the condo. The case is due in court next week.

At a meeting on Wednesday between HPL chief Ong Beng Seng and about 50 sellers, it was made clear that the buyers would adjourn the court hearing if there was an extension of the sale deadline.

Yesterday, HPL spokesman Christopher Lim reiterated this position. ‘If the Horizon Towers transaction goes through, we will drop the lawsuit as well as claims for damages,’ he said.

The buyers are seeking hundreds of millions of dollars in damages for an alleged breach of contract by the condo majority owners.

Last night, the sellers also elected seven members to form a new sale committee – their third so far in the drawn-out saga.

The new committee is to be headed by Mr Lim Seng Hoo. The team includes one person from the old sale committee.

‘The meeting was very well organised and amicable,’ said an owner who attended the meeting.

Sellers of 135 units – out of 177 units – gathered at Raffles Town Club yesterday to attempt to resolve its botched collective sale after their previous sale committee quit.

Only one unit did not vote in favour of the resolutions passed yesterday. Horizon Towers has 199 apartment units and 11 penthouse units.

The 7.30pm meeting ended after 10pm, even though owners were still streaming in from 8pm to 8.30pm.

Many owners at the meeting refused to speak to the media.

HPL and its two partners, Morgan Stanley Real Estate-managed funds and Qatar Investment Authority, want to buy Horizon Towers at the $500 million price it inked in February. But the collective sale application was thrown out by the Strata Titles Board (STB) early last month because of a technical error.

The agreement then lapsed because the sellers did not extend an Aug 11 deadline that was written into their contract. Meetings followed and the sale committee eventually quit.

Sellers from 21 units had then called for yesterday’s meeting to pass a few resolutions such as forming a new sale committee and to vote on an extension of the sale deadline to seek an STB order for the sale to go through.

This is ahead of a High Court hearing next Thursday and a High Court appeal to quash the STB order next Friday.

Also yesterday, a group of more than 80 owners represented by lawyers from Wong & Leow engaged a public relations consultant to help them with media relations.

 

Source: The Straits Times 21 Sept 07

All new buildings to go green from next year

IN A major push to make developers go green, the Government will require all new buildings to meet minimum environmental standards from next year.

Developers will be required to be more efficient in using water and energy than under current industry practice.

The Building Control (Amendment) Bill was passed in Parliament yesterday to give the Minister of National Development the power to impose the rules.

This latest change is perhaps the most significant extension of regulations so far to make buildings environmentally friendly.

The Building and Construction Authority (BCA) estimates the requirements would raise construction costs by just about 1 per cent.

But experts say the final figure would be even less – negligible in fact – if green features were factored into a building’s design from the start.

These could take the form of more efficient air-conditioning and lighting systems, water fittings or better insulation. More details of the rules will be released later.

Going green was optional for developers in the past. In December last year, the Government launched a $20 million incentive fund which private developers could use to make their buildings more environmentally sustainable.

In April, the Government required all new public buildings to meet green standards as set out by the BCA.

Under its two-year-old Green Mark certification programme, buildings are rated on how efficient they are in the use of water and energy, and their effect on their users’ health and the environment.

So far, 66 out of about 120,000 buildings in Singapore have received the Green Mark certificate, while another 25 are in the pipeline for this stamp of approval.

The BCA estimates that getting this minimum Green Mark standard would eventually shave 10 to 15 per cent off a building owner’s utilities bill.

Major developer City Developments, which has Green Mark certifications for 16 of its buildings, said the Government’s previous green initiatives had made the impending requirements easier to accept.

General manager for its projects division Eddie Wong told The Straits Times: ‘We believe that with early and efficient planning, green buildings can be both environmentally sustainable and financially successful.’

Meanwhile, another part of the Bill passed yesterday requires building owners to maintain facilities for the disabled. They will not be allowed to change, remove or block any features designed especially for these users. This would mean, for example, that they risk being penalised if they lock up a toilet built for the disabled.

 

Source: The Straits Times 21 Sept 07

HDB launches sixth build-to-order project in Fernvale

The 698 4-room flats will have full floor finishes, sanitary fittings

TO MEET the increasing demand for homes, the Housing Board (HDB) yesterday launched 698 flats for sale in Sengkang.

HDB’s latest build-to-order (BTO) project, Coral Spring, offers premium four-room units of 95 sq m to 96sq m, priced between $188,000 and $252,000.

These premium flats will be provided with full floor finishes and sanitary fittings.

Home buyers can choose other components to be installed under HDB’s Optional Component Scheme.

The project, which will consist of five 25-storey buildings, is located at the junction of Sengkang West Avenue and Fernvale Road.

The flats are within walking distance of Fernvale LRT station and Fernvale Point, which houses a wet market, supermarket and foodcourt.

It is also near schools such as Fernvale Primary School and Pei Hwa Secondary School.

Prices are higher than the last BTO project, launched in May, Fernvale Vista Phase 2, where four-room flats were priced between $145,000 and $200,000.

Four-room flats at Fernvale Court, launched two years ago, were priced from $138,000 to $177,000.

Coral Spring is the sixth BTO project in Fernvale.

With the exception of Coral Green, which was launched in 2004 and later dropped because of weak demand, the other projects have been well-received, said HDB.

Three – Fernvale Grove, Fernvale Court and Fernvale Vista Phase 1 – are now at construction stage. HDB is selecting applicants for Fernvale Vista Phase 2.

An HDB spokesman told The Straits Times yesterday it is confident there will be good demand for Coral Spring.

If the response is good, applicants will be called to select their flats.

HDB will assess the take-up rate before deciding whether to call for a building tender under the build-to-order scheme.

Applications for the new homes close on Oct 9.

If Coral Spring is given the green light, it is expected to be completed by the end of 2011.

An exhibition of the project will be held at the HDB Hub’s Habitat Forum during the application period.

 

Source: The Straits Times 21 Sept 07

Rising costs, competition top list of SME concerns

Annual poll shows firms are squeezed by higher wages, input costs, rents

RISING business costs have overtaken staffing issues as one of the top hurdles faced by small and medium-sized enterprises (SMEs), an annual survey has found.

Stiff competition, a perennial worry, is the top concern, but escalating costs were the next biggest worry cited by firms polled in the latest SME Development Survey.

Amid strong economic growth, firms feel squeezed by climbing wages, followed by higher prices for raw materials and other inputs, as well as steeper rents.

Three out of five SME bosses cited rising wages as their biggest headache among cost components.

About half faced rising input prices while 37 per cent were concerned about steeper rents.

The findings were unveiled yesterday by DP Information Group, which conducted the poll, with partners Spring Singapore and IE Singapore. The exercise was supported by the Infocomm Development Authority of Singapore.

More than 1,200 SMEs took part in the survey, now into its fifth year.

This year, six out of 10 firms listed competition as their greatest worry, compared to 45 per cent last year.

But next on the list came rising cost pressures.

A total of 53 per cent of SME bosses this year said this was a major headache, up from just one-third last year, making it the fastest-growing SME concern.

‘With a strong economy, low levels of unemployment and demand for labour rising, it is to be expected that SMEs need to pay more to attract the right people,’ said DP Info managing director Chen Yew Nah.

‘The boom in China and India also fuelled the demand for raw commodities, with rising prices being felt across all industries,’ she added.

Among those most affected by rising wage costs are firms in the construction, services and food and beverage industries, the survey showed.

At the same time, however, SMEs polled are also gaining from the buoyant economy, with more firms reporting turnover growth of more than 10 per cent, and fewer businesses suffering losses.

Despite a tighter labour market, 68 per cent of firms surveyed said they pay the market average for salaries and staff benefits, and 16 per cent claim to pay ‘above-market rates’. Still, more than half of the SMEs polled reported problems hiring workers for roles from operational to managerial.

Meanwhile, worries about finding business opportunities and getting funding have taken a back seat this year.

More firms are growing their business by expanding abroad – with 70 per cent of respondents doing business overseas, up from 59 per cent last year.

The proportion of SMEs which reported problems finding new financing has fallen to 10 per cent, from 19 per cent last year.

‘There have been major improvements in the ability of SMEs to access funding, reflecting the responses of the banks and the Government to the needs of SMEs,’ said Ms Chen.

‘At Spring Singapore, we listen closely to our SMEs to gain insights into their challenges, issues and aspirations,’ said deputy chief executive Png Cheong Boon, outlining a series of public initiatives to improve SMEs’ access to money, markets, management skills and know-how.

There are about 148,000 SMEs in Singapore, making up 99 per cent of all enterprises and providing six in 10 jobs.

 Rising Cost

 

Source: The Straits Times 21 Sept 07

The Aspine up for en bloc sale with $145m price tag

This is lower than indicative price for nearby Pinetree Condo

THE owners of The Aspine at 5 Balmoral Road are teaming up to sell their homes collectively, with an asking price of $145 million or $1,966 psf per plot ratio – lower than the $2,100 psf ppr indicative price announced last week for nearby Pinetree Condo.

No development charge is payable for both sites.

Newman & Goh head of investment sales Jeffrey Goh, whose firm is marketing The Aspine, said: ‘In today’s market with the sub-prime mortgage fiasco still up in the air, one should not be too gung-ho in demanding exorbitant asking prices. Our asking price is a good fit for the developer but at the same time clears the hurdle of the owners’ minimum reserve price.’

Based on the $1,966 psf ppr unit land price, the breakeven cost for a new condo on the District 10 site off Stevens Road would be around $2,400 to $2,500 psf, market watchers reckon.

And if The Aspine achieves its asking price, owners of the existing 35 apartments in the development stand to receive sums ranging from $3.7 million to $4.3 million for each unit – about 80 per cent more than if they sold their units individually, acccording to Mr Goh.

Owners controlling more than 80 per cent of share values in The Aspine have signed the collective sale agreement.

The development is about 15 years old.

The Aspine has a freehold land area of 46,104 sq ft land area and is designated for residential use with a 1.6 plot ratio (ratio of maximum potential gross floor area to land area) and 12-storey maximum height.

In March this year, Hong Leong Group paid $1,188 psf ppr, including DC, for One Balmoral. No 3 Balmoral Road, with a land area of about 23,820 sq ft, is understood to have changed hands a few months later at between $1,300 and $1,400 psf ppr.

The tender for The Aspine closes on Oct 17.

 

Source: Business Times 20 Sept 07

71 Robinson Rd to be developed for $450m

Lehman Brothers- Kajima office project will be up by mid-2009

US INVESTMENT bank Lehman Brothers and Japan-based Kajima Corporation said yesterday they will spend about $450 million developing their upcoming office project at 71 Robinson Road.

The 280,000 sq ft building – aimed mainly at finance and banking companies – will be up by mid-2009, beating the nearby Marina Bay Financial Centre (MBFC) by about six months.

The price includes the $163.4 million the partners paid last year for the plot, which was the site of SingTel’s Crosby House.

Lehman and construction and property conglomerate Kajima have equal stakes in the venture.

The 15-storey building in the Central Business District (CBD) is designed to meet growing demand for space from global banks and financial institutions that want to establish or expand regional operations. For example, it will have purpose-built trading floors.

The building will come to market ahead of MBFC, which will offer some 1.6 million sq ft of office space in 2010.

MBFC has proved popular with financial institutions but is not fully leased yet.

‘There is no question there is an advantage in being quick to market,’ said Chris Archibold, regional director at Jones Lang LaSalle (JLL), which is marketing 71 Robinson Road. Space in the building will be leased at ‘market rate’, he said.

The project will benefit from rising office rents in the CBD amid a supply shortage.

JLL’s research shows Singapore will have about 2.3 million sq ft of new office space over the next three years – far short of the 5.1 million sq ft that will be needed, which will push rents up.

In just the first half of this year, Prime Grade A office rents in the CBD rose 44 per cent to $13.80 per square foot (psf), JLL said. It expects rents to hit $15.80 psf by year-end.

71 Robinson Road is Lehman’s first direct property investment in Singapore, said Blake Olafson, senior vice president of the bank’s global real estate group.

Kajima, on the other hand, has been involved in more than 200 projects in Singapore and has two luxury residential projects for launch – one at Balmoral and the other at Bishopwalk.

 

Source: Business Times 20 Sept 07

Servcorp expands in S’pore as office market booms

OFFICE space provider Servcorp is looking to expand in Singapore to take advantage of the booming office market here.

Last year, the Australia-based company grew the office space in its Singapore portfolio by 35 per cent with the opening of a new location in Prudential Tower and the addition of another level in Suntec Tower Three.

And now, it is looking to add another five Servcorp floors over the next three to five years.

Servcorp, which celebrated its 20th year in Singapore yesterday, leases office space in bulk from landlords, then re-leases the space to companies and provides office support – providing what it calls a ’serviced office network’.

It also offers ‘virtual office packages’, where a client can take advantage of a prestigious address, get a dedicated receptionist who answers calls in a company’s name and gain access to boardrooms and meeting rooms.

The group has about 64,000 sq ft of space under lease in Singapore – out of more than 800,000 sq ft worldwide.

But to ride the booming office market here, it wants to grow its portfolio.

‘Demand has certainly increased and we are seeing companies being much more bullish about their entry to the Singapore and Asian markets,’ said Alf Moufarrige, Servcorp’s chief executive. ‘Instead of setting up with only one or two people, they are starting with six or more people – which, of course, increases the demand for space.’

Enquiries for space have climbed by about 30 per cent in the past year, he said.

Due to the strong demand, the rents charged by Servcorp have also gone up, in line with the rent the company has to pay to its own landlords.

‘The commercial space market is definitely booming in Singapore!’ said Mr Moufarrige. ‘When I arrived in Singapore in early 2005, the asking rental for traditional space in Six Battery Road was $5.50 per square foot (psf). This is now at record levels of $18.50 psf.’

But there is still room for expansion, the company feels, as there are many office developments that are slated to come up over the next three to five years.

 

Source: Business Times 20 Sept 07

MGPA puts in record $2.02b bid for office site

All eyes are now on the plot next door, say consultants

(SINGAPORE) Macquarie Global Property Advisors (MGPA) is enlarging its footprint in the Singapore office market, putting in a record bid yesterday of $2.02 billion, or $1,409 psf of potential gross floor area, for a site slated for mostly office use.

Market watchers reckon MGPA’s all-in investment including land, construction costs and fees could be around $3 billion. The project could be completed around 2010.

The one-hectare plot, which is behind the One Shenton development and dubbed Marina View Parcel A, attracted just three bids in all. The 99-year leasehold plot can be developed into a maximum gross floor area (GFA) of 1.43 million sq ft, at least 70 per cent of which has to be set aside for offices.

Sources suggest Macquarie could be looking at an all-office scheme. Based on this, the sources estimate that Macquarie’s breakeven cost could be around $2,500 psf of net lettable area, and that it could be looking at exiting the investment at about $3,500 to $4,000 psf.

Said MGPA managing director Simon Treacy in a release yesterday evening: ‘The site presents a rare opportunity to develop a Grade A+ office building in the prime business district of Singapore where strong demand coupled with limited supply makes now an ideal time for high quality office development.’

Office industry watchers reckon that on a project-average basis, the development could fetch a monthly gross rent of around $12 per square foot and based on that, the net yield works out to 4.7 per cent on breakeven cost.

An all-office project could yield about 1.2 million sq ft net lettable area of offices. ‘An all-office configuration would provide opportunities to maximise the floor plate,’ said CB Richard Ellis executive director Li Hiaw Ho.

Macquarie’s bid was nearly 10 per cent higher than the second highest offer, believed to be from a joint venture between Mapletree Investments and CapitaLand ($1.8 billion, or $1,281 psf per plot ratio). The only other bid came from Malaysia’s IOI Group, at $1.6 billion or $1,128 psf ppr. Property consultants say that all eyes are now on the next-door, Marina View Land Parcel B, which is being offered for sale at an Urban Redevelopment Authority tender that will close on Nov 13. The 0.9-hectare plot can be developed into a maximum GFA of 1.22 million sq ft, of which at least 60 per cent has to be set aside for offices, and 25 per cent for hotel use.

MGPA’s bid yesterday of $2.02 billion is the highest ever for a state land sale in Singapore, pipping the total of $1.91 billion paid for the Marina Bay Financial Centre site in two phases, excluding the option fee.

The unit land price of $1,409 psf ppr is also said to be the highest for a primarily office site, surpassing the $1,104 psf ppr set in 1995 when Straits Steamship Land (now Keppel Land) bid for a site in the China Square area, which it later developed into what is today Prudential Tower.

It remains to be seen if MGPA will decide to team up with any partners for Marina View Land Parcel A. Assuming an all-in investment of $3 billion in developing this project, MGPA’s all-in investment in Singapore over the past year would cross $4 billion.

In March this year, an MGPA fund bought Temasek Tower for $1.04 billion or $1,550 psf of net lettable area. Late last year, MGPA made its maiden foray into Singapore’s real estate by buying 12 floors at Springleaf Tower on Anson Road for about $134 million, or $1,240 psf.

Source: Business Times 20 Sept 07

HORIZON TOWERS SAGA – Ong Beng Seng meets owners to talk extension

‘Hilton tea party’ shows no consensus among sellers

(SINGAPORE) Hotelier Ong Beng Seng took centre stage yesterday in a meeting with some 40 Horizon Towers owners to try to convince them of the need to extend the en bloc sale deadline.

The meeting came after repeated attempts by Mr Ong’s Hotel Properties Ltd (HPL) failed to secure the muchneeded extension which would allow the collective sale to go through.

The event took place just the night before another meeting due to be held today at the Raffles Town Club – when all the owners of Horizon Towers will have to decide if they want to meet HPL’s demands.

The majority sellers of the Leonie Hill development – the 270 owners who agreed in February to sell Horizon Towers en bloc to HPL, Morgan Stanley Real Estate-managed funds and Qatar Investment Authority for $500 million – are being sued by the buyers.

The legal action follows the refusal by the Strata Titles Board (STB) to grant a collective sale order to Horizon Towers on the grounds that the application was defective. STB’s decision, coming just days ahead of the sale completion deadline, meant there was too little time left for a fresh application to be filed.

HPL and its partners want the sellers to extend the sale deadline, but the sellers have consistently refused to do so.

The buyers have now sued the sellers – demanding that they extend the collective sale completion deadline or face the possibility of having to pay millions of dollars in damages each.

The aim of Mr Ong’s meeting with some 40 sellers yesterday – to which the media were not invited – was to find a way to head off further legal wranglings. He had hoped to convince this group of sellers – who are known to be keen for the collective sale agreement go through – of the need to extend the sale deadline.

Those who attended yesterday’s meeting at the Hilton, at HPL’s invitation, said Mr Ong spoke of how he had never sued anyone in his 30 years of doing business and how he hoped to find a more peaceful way of resolving the situation.

Attendees at yesterday’s ‘Hilton tea party’ – as one of the sellers dubbed the meeting – said that HPL’s lawyers, Allen & Gledhill, explained the history and legal implications of developments. Senior Counsel K Shanmugam told the would-be sellers that they had to decide if they wanted to elect a new sales committee and extend the sale deadline – and that they should hire lawyers to help them do so.

But while this group of sellers may be keen to extend the deadline, there are others who strongly object. One seller told BT: ‘It’s improper to put the threat of a lawsuit over us, to get us to extend the deadline, when we’ve already applied to the High Court to appeal the STB’s decision. We should just wait for the result of that appeal (to be heard on Sept 28) before thinking about an extension.’

Another vocal group of sellers, represented by Wong & Leow, also objected strongly to yesterday’s Hilton meeting. They said the meeting had been called without proper notice and could have the effect of rewriting the collective sale agreement. The divergent views between the now clearly splintered groups of sellers mean it will be tough for the owners to reach any satisfactory agreement easily.

Yet, that’s just what the sellers are aiming to do in today’s meeting at the Raffles Town Club. The gathering seeks to get all the majority sellers to vote on whether they should appoint a new sales committee and whether they should extend the deadline.

Horizon Towers is currently without a sales committee, after members of the last committee quit earlier this month – possibly owing to the strain of the situation.

Mr Ong spoke on how he had never sued anyone in his 30 years of doing business and how he hoped to find a more peaceful way of resolving the situation.

 

Source: Business Times 20 Sept 07

Lehman moves global property unit to S’pore

Bank to jointly invest $450m with Kajima in CBD office building

US investment bank Lehman Brothers has moved the base for the South-east Asian operations of its global real estate group from Bangkok to Singapore, it said yesterday.

The group has of late been beefing up its presence here, said Blake Olafson, senior vice-president of Lehman’s global real estate group.

Total staff count here has increased from about 30 to more than 200 now and the bank has also expanded its office space from half a floor at Suntec City to one-and-a-half floors, Mr Olafson said.

‘The missing link was the real estate guys,’ he said. ‘To run the business out of Singapore is very, very easy.’

The real estate unit intends to double its team to 12 members from 6-7 at present, he added.

Mr Olafson was speaking to reporters at a press conference yesterday, where Lehman announced that it will jointly invest some $450 million with Japan’s Kajima Corporation to build an office building in Singapore’s central business district (CBD). The partners have a 50:50 stake in the project.

The 15-storey building would be Lehman’s first direct property investment in Singapore. When completed in mid-2009, it will offer some 280,000 sq ft of office space.

Lehman’s real estate unit is looking for more investment opportunities in Singapore in both the residential and commercial sectors, Mr Olafson said.

The group also intends to grow its property investments in Malaysia and Indonesia out of Singapore.

So far, the unit has made about US$11 billion worth of direct property investments since 2001, but currently holds around US$7.3 billion in assets – having securitised or sold off the rest.

Going forward, the group will continue to maintain investments at around the same amount, Mr Olafson said.

 

Source: Business Times 20 Sept 07

Kajima to invest $900m in Asia over 2-3 years

(SINGAPORE) Construction and property conglomerate Kajima Corp plans to invest around S$900 million in Asia over the next 2-3 years to further diversify outside of its Japan home base, a senior executive of the firm told Reuters yesterday.

The Asian arm of the group said it was also looking to double its contribution to overall revenue to 10 per cent in the next three years as it steps up investment in the region.

‘We would look to invest first in Jakarta, Phuket and Singapore,’ Masao Hashimoto, vice-MD of Kajima’s overseas arm in Asia, told Reuters in an interview.

Mr Hashimoto said the group was keen to develop a shopping mall in Singapore, where it already has about S$1 billion in assets, but had yet to find a suitable plot of land.

‘We would like to build an office, hotel and convention centre on our vacant land in Jakarta, which is almost five hectares,’ he said. The company also wants to develop villas and a hotel on its land in the Thai resort island of Phuket. Outside of Singapore and Japan, the group holds about US$600 million in Asian assets.

Like rival builders Obayashi Corp and Shimizu Corp, Kajima is facing a cut in public works spending in its domestic market as Tokyo looks to shore up its ailing finances. The group is targeting the Middle East and Africa to grow its construction business.

Kajima, which has a market capitalisation of US$3.8 billion, said yesterday that it had teamed up with US investment bank Lehman Bros to build a Singapore office building for S$450 million.

 

Source: Reuters (Business Times 20 Sept 07)

Asian stocks surge on Wall St gains

S’pore market scores 3.4% rise, led by banks and property stocks

(SINGAPORE) Asian stocks surged yesterday in tandem with Wall Street, following Tuesday’s move by the US Federal Reserve to slash its funds rate 50 basis points from 5.25 to 4.75 per cent.

Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index led the way, rocketing 3.7 and 4 per cent respectively to 16,381 and 25,554 points. In the United States, the Dow Jones Industrial Average gained 2.5 per cent on Tuesday.

Here, the Straits Times Index (STI) jumped 116.61 points or 3.4 per cent to 3,594.36 yesterday, led by the banks, property stocks and the Singapore Exchange. Elsewhere in the region, Australia’s ASX 200 rose 2.6 per cent and Malaysia’s KLCI added 1.6 per cent.

The trigger for the gains was the outcome of the most eagerly awaited Federal Open Market Committee (FOMC) meeting of the year on Tuesday, at which the US central bank had been widely expected to lower its short-term lending rate to ease mounting pressure in credit markets created by a crashing housing mortgage market.

Analysts unanimously described the Fed’s rate cut as welcome. Canadian research house BCA Research called it a ‘bold start to a new Fed easing cycle’ and pointed out that although 39 per cent of respondents in an informal poll were against Fed action of any kind as it would constitute a bailout of speculators and hedge funds, the Fed’s motive was clearly to revive flagging US economic growth.

‘Although the economy has not fallen off a cliff, it seems clear that continued sub-par growth lies ahead,’ BCA said. ‘Against that background, 4.75 per cent is still too high.’

DBS Group Research also believes more rate cuts are justified as the US has been slowing for some time. ‘(US) growth has run at a paltry 2.2 per cent for full two years,’ it said. ‘Fed funds should have been cut to 4.75 per cent even before the recent blowout in credit markets.’

DBS expects a further 25 basis-point reduction at the Oct 30 FOMC meeting and possibly one more in December.

Bank of America economist Peter Kretzmer, on the other hand, said the Fed’s statement accompanying Tuesday’s meeting said it has no plans at this time to ease further.

‘We concur with the FOMC that there is more than the usual uncertainty surrounding the current economic outlook,’ Mr Kretzmer said. ‘Our presumption at this point is that the FOMC may well stay on hold for a time to assess the impact of its actions on the financial markets and US economy. We anticipate a year-end funds rate target of 4.5 per cent.’

Nomura Asia Pacific strategist Sean Darby said that in contrast to other big central banks, the Fed has chosen to ignore latent inflationary concerns to ease the credit crunch afflicting the interbank markets.

With central banks already running loose monetary policies, Nomura said the US move will exacerbate inflationary problems.

‘While domestic credit conditions have marginally improved, sentiment remains fragile,’ Mr Darby said. ‘We expect other global central banks to remain much more hawkish and refrain from rate cutting.’

 

Source: Business Times 20 Sept 07

Irish investors buy iconic Beverly Hills shopping centre

(BEVERLY HILLS, California) Two Rodeo, a well-known Beverly Hills shopping centre that houses some of the world’s biggest names in luxury goods, has been bought by Irish investors for US$275 million.

The purchase of the complex at Rodeo Drive and Wilshire Boulevard by Sloane Capital demonstrates how choice real estate remains in demand even though the recent credit crunch related to sub-prime home loans is sending jitters through the financial and residential real estate markets.

Tiffany & Co, Lalique and Versace are among the upscale stores along a cobblestone path in the outdoor shopping centre, which is meant to evoke a small European street. Few changes for shoppers are expected at the complex, which contains the largest single block of retail space in the Rodeo Drive shopping district.

‘This is clearly an icon among cosmopolitan trophy properties,’ said Pierre Rolin, chairman of Strategic Real Estate Advisors, the London-based representative of the sellers. He identified them only as a European family trust.

Completed in 1990 at the southern entrance to the Rodeo Drive shopping district, Two Rodeo has entered popular culture as a retail shrine that attracts millions of tourists and other visitors annually.

‘It’s one of the most photographed locations in the city,’ said Thomas J Blumenthal, president of the Rodeo Drive Committee merchants group. The centre ‘has always represented what we are all very proud of in Beverly Hills’, he added.

Although Two Rodeo sits high in the retail firmament now, it has had rocky times. It was conceived in the late 1980s real estate boom by developer Doug Stizel, who spared no expense building the two-storey complex that includes a piazza and fountains. He imported the cobblestones from Italy.

After the complex was finished and occupied by Christian Dior, Valentino and other swanky stores, Mr Stizel sold majority ownership to Japanese investors for an estimated US$200 million. But a deep and prolonged recession swept Southern California in the 1990s, and even luxury shopping took a beating.

Several stores closed. The Japanese partners bailed out in 2000 after the retail market had improved, but they took a loss when they sold Two Rodeo for US$131 million to the family trust. More hard times followed with the collapse of the dotcom bubble and the 2001 recession.

Occupancy fell to 60 per cent and rents dropped to about US$125 per square foot (psf) per year, said Mr Rolin of Strategic Real Estate Advisors, which will continue to serve as asset managers for the new owners.

Today, Two Rodeo is fully occupied by 27 retailers, and rents are surpassing US$500 psf, Mr Rolin said.

European publications describe the new owners as horse racing tycoons John Magnier and JP McManus, and property investor Aidan Brooks.

The three friends invest in top-drawer retail properties and also own the Bulgari store across the street from Two Rodeo. Other holdings include the Rhindlander Mansion in New York, which is home to Ralph Lauren’s flagship store, and the Harry Winston jewellery store buildings in London and New York.

Investors ‘are still willing to make big bets on prime real estate’, said retail consultant Greg Gotthardt of Alvarez & Marsal.

And to international players who buy property in the globe’s most glamorous cities, ‘Beverly Hills is still relatively cheap’.

 

Source: LAT-WP (Business Times 20 Sept 07)

China property investment swells 29%

Investments total 1.4 trillion yuan in Jan-Aug 2007

(BEIJING) Investment in China’s property sector soared to 1.43 trillion yuan (S$285.5 billion) in the first eight months, 29 per cent up from the same period last year, according to the National Bureau of Statistics (NBS).

Of the total, 1.02 trillion yuan went to commercial housing, an increase of 30.9 per cent while 44.9 billion yuan went to economically affordable housing, an increase of 28.8 per cent.

By the end of August, China had 119 million square metres of vacant commercial buildings, down 2 per cent over the same period last year.

In the first eight months, developments on 162 million sq m of land were completed, an increase of 15.3 per cent, according to the NBS.

China’s real estate climate index rose to 104.48 points, up 0.48 points from last month and 1.17 points from a year ago.

The index, reflecting the nation’s current property market situation and development trends, includes sub-indices such as investment, sources of capital, floor space of marketable yet unsold buildings, areas of land developed and he floor space of buildings under construction.

The market is considered to be heating up when the index exceeds 100.

China’s housing price hikes accelerated last month despite a spate of government control measures.

Prices in 70 large and medium-sized cities were up 8.2 per cent in August over the same month last year, or 0.7 percentage points higher than the July rate.

 

Source: Xinhua (Business Times 20 Sept 07)

Japan commercial land prices inching up after 16-year slump

(TOKYO) Japan’s average commercial land prices rose in the year to July 1 for the first time in 16 years, led by office demand in the three biggest cities and reflecting the leading role big companies play in economic growth, a government report showed yesterday.

A recovery in land prices – after a long slide since Japan’s asset bubble burst in the early 1990s – has gradually spread out from major cities although the average price of residential land continued to fall, the survey by the land ministry showed.

Land price moves are closely watched by the Bank of Japan, which was blamed for causing the previous asset bubble by leaving rates low for too long, but a government official said current price rises were much more solidly based than in the bubble years.

The central bank left its policy target rate unchanged at 0.50 per cent yesterday as widely expected in the wake of turmoil in global financial markets.

Average commercial land prices in Japan rose 1.0 per cent in the year to July 1, the first such rise since 1991 when they saw a 3.4 per cent rise. Residential land prices fell 0.7 per cent on average nationwide, a smaller drop than the previous year but a 16th consecutive year of declines.

‘Overall, a recovery in land prices has shown signs of spreading as rises in the three major cities and other leading cities in local regions are spilling to surrounding areas,’ the Ministry of Land, Infrastructure and Transport said. ‘But prices are still falling in most local areas.’ Both commercial and residential land prices had their second straight year of gains in the three top cities – Tokyo, Osaka and Nagoya, where many corporations have their head offices – but the pace was far below that seen in the bubble era.

Commercial land prices in the three cities rose 10.4 per cent from a year ago and residential prices in those cities increased 4.0 per cent on average – their biggest rises since gains of 16.6 per cent and 22.3 per cent respectively in 1990.

But the pace of growth has slowed this year in many areas in Tokyo and Osaka that had seen strong gains until last year.’Investors are attaching greater importance to profitability of property,’ said Masayuki Kitamoto, director of the ministry’s land price research division. ‘That is making rises in land prices far more moderate now than the bubble era when they skyrocketed with people frantically buying real estate regardless of how to utilise the property.’

The report – based on polls conducted by prefectural governments and used for valuations in the real estate sector – is closely watched as it captures more current prices than other government surveys.

A survey released in August by the National Tax Agency – which evaluated land prices as of Jan 1 to calculate property tax – said land prices in Tokyo saw last year their biggest increase since Japan’s bubble years.

 

Source: Reuters (Business Times 20 Sept 07)

Asia-Pac real wages seen climbing further next year

Singapore salaries to go up a ‘very healthy’ 3.8%, says HR consultancy Hays

SALARIES in the Asia-Pacific will keep rising in 2008 as companies remain confident about business prospects and growth for next year, despite market talk of a post-Olympics slowdown, according to a report from a human resources consultancy released yesterday.

The Hay Group’s Compensation Report projects base salary increases, then compares the data to expected inflation for 2008 to estimate how much real wages will grow.

Developed economies like Singapore, Hong Kong and Australia will see ‘modest’ real salary increases of 3.8 per cent, 0.4 per cent and 2.6 per cent respectively, the report says.

‘Among all developed economies in Asia-Pacific, Singapore’s real pay increase of 3.8 per cent is very healthy due to positive business outlook and low inflation,’ says Christian Vo Phuoc, country manager for Reward Information Services at Hay Group Singapore.

But he warns that ‘in the short-term, foreign talent may find their increases eroded by the spiking housing rentals especially if their companies do not provide full housing allowances’.

Companies in developing economies like China, India, Indonesia and Vietnam are expected to hand out high base wage increases ranging from 9 to 13 per cent, although the impact on real wages will be moderated by high inflation.

In India, for example, Hay expects base salaries to rise 13.1 per cent, but with inflation at 5.2 per cent, real wages are expected to rise by 7.9 per cent.

In China, 3.2 per cent inflation will take real wage hikes down to 6.2 per cent, while in Indonesia, inflation of 6.2 per cent – the highest forecast among Asia-Pacific countries – will reduce real wage gains to 5.6 per cent.

Hay reports that blue collar employees in China are for the first time in three years expected to receive ‘almost as much increase as their white-collar counterparts’, thanks to the ‘impact from higher consumption price inflation and fierce market competition for skilled workers’.

Previously, blue collar workers saw their wages rise less than 8 per cent, compared to nearly 10 per cent for managers. For 2008, Hay expects blue collar wages to rise 9.1 per cent in China, though this is still a slower rate than that for managers.

Unsurprisingly, China’s financial services sector is expected to dish out the strongest wage rises, over 50 per cent in some cases to retain key people, Hay says.

And wages will rise faster than the national average in developing second-tier cities, such as in Tianjin, where multinational corporations like Airbus and Alcan have committed to large-scale investments and will compete for skilled labour and management talent.

Meanwhile, workers in Vietnam – ‘the second fastest growing economy in Asia-Pacific’ – will see real wages rise by 3.4 per cent, comparable to Singapore and Malaysia. But ’since Vietnamese salaries are starting at the groundfloor level, we can expect healthy and sustainable increases in the coming years’, says Connie Ma, manager of Emerging Markets at Hay.

Source: Business Times 20 Sept 07

FED RATE CUT – Shares of banks, mortgage lenders, home builders rise

But size of reduction signals that there’s much risk lurking under the surface

(NEW YORK) The Federal Reserve came to the aid of US banks on Tuesday when it cut rates in a move that should improve their lending margins and give them breathing space to deal with the fallout from the sub-prime mortgage crisis.

The Fed’s half percentage point cut in the federal funds rate to 4.75 per cent reduces the short-term cost of money that banks lend for longer periods, boosting their bottom line.

Lower rates could also revive some of the mergers and acquisitions idled by a global credit squeeze if investor confidence gets a sufficient boost.

‘It’s an old adage, that when the Fed start cutting, it’s good for banks. Their cost of funds goes down, and their net interest margin usually rises,’ said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management.

Bank stocks surged on the rate cut, with Bank of America Corp and Citigroup closing up 3.5 per cent and 5.2 per cent, respectively. Mortgage lenders and home builders also got a boost. Shares of No 1 US mortgage lender Countrywide Financial Corp rose 3 per cent and luxury home builder Toll Brothers climbed 8.7 per cent.

But Toll Brothers chief executive Robert Toll said that he does not believe it is time to call the bottom of the housing market and is worried about the magnitude of the cut.

‘I would have done a quarter instead of a half because it signals we’re in deep doodoo,’ said Mr Toll, speaking at the Credit Suisse Homebuilder Conference.

Private equity firms and investment bankers who handle their deals were keeping a close eye on the Fed’s decision.

The credit squeeze has left investment banks with more than US$300 billion of leveraged buyout debt stuck on their balance sheets, as debt investors have largely steered clear of the loans.

The debt load has caused some banks to take losses on the loans and kept them from earning lucrative fees through lending to corporate and private equity deal makers.

The Fed rate cut could help entice hedge funds and other debt investors to take some, or a large chunk, of that debt off the banks’ balance sheets. The rate cut, if nothing else, may help restore confidence in the leveraged loan market that banks have been hoping for.

‘Lowering rates for someone like Lehman Brothers, I would imagine they can be more aggressive at funding some deals they were looking at,’ said Jim Huguet, co-chief executive of Great Companies LLC, which has US$400 million in assets under management.

But the rate cut will not ease all of the pain being felt in the US housing market. And it will not bail out borrowers who stretched to buy homes they thought would skyrocket in value over the short term, analysts said.

‘Banks are on the hook, too, if they lent money to people with poor credit,’ said Ken Crawford, a portfolio manager at Argent Capital.

Mr Huguet was also concerned by the steepness of the rate cut.

‘It makes me concerned about how bad things could get,’ he said. ‘There is a lot of risk lurking under the surface, or they would not have made that kind of move.’

 

Source: Reuters (Business Times 20 Sept 07)

Surveyors see 10% chance of UK crash

RICS revises earlier forecast of 3% rise in house prices to flat over 12-15 mths

(LONDON) There is a ‘one-in-10 chance’ of a 1990s-style UK housing market crash, the Royal Institution of Chartered Surveyors (RICS) said on Tuesday, after scaling back its expectations for British house price inflation.

Simon Rubinsohn, RICS’s chief economist, said his base case was for flat house prices across Britain in the next 12-15 months, down from an earlier forecast of 3 per cent growth.

He also said there was a ‘20 per cent chance of a 10 per cent’ decline in London house prices over the next 12 months, and said talk of a looming ‘crash’ was legitimate and not irresponsible.

But like other housing market experts, he said homeowners were unlikely to see a repeat of Britain’s previous housing slump, when average prices fell by an inflation-adjusted 35 per cent from their peak in 1989, according to data from property services firm CB Richard Ellis.

Peter Damesick, head of UK property research at CB Richard Ellis, said the chances of a housing market crash were still ‘pretty small’ because there was no obvious trigger in the offing such as the economic downturn or sharp interest rate hikes seen in the early 1990s.

Mr Rubinsohn said RICS was not reacting simply to mortgage lender Northern Rock’s cashflow woes, which have been pushing up mortgage rates and could reduce the availability of credit, but had already been scaling back its expectations in the wake of previous UK interest rate rises.

Those interest rate hikes now appeared to have run their course, economists said, leaving the Bank of England with enough room to cut them if housing market conditions worsened significantly next year.

‘The risks in the near term are to the downside but further out, where there is scope for offsetting policy actions to take effect, we are more confident,’ said Michael Taylor, senior economist at Lombard Street Research, which was sticking to its view of negligible average house price growth in 2008.

 

Source: Reuters (Business Times 20 Sept 07)

Wall Street rallies after Fed sends strong signals

Aggressive cut surprises investors but statement still wary of inflation

IN NEW YORK

THE US central bank sent a strong and decisive message to the world’s financial markets with a fifty basis point short term interest rate cut on Tuesday, that it intends to combat the economic effects at home of the global credit crunch on the US economy as well as to buttress the faltering confidence in the financial system worldwide.

In its accompanying statement, the Federal Open Market Committee said the action was needed to ‘help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time’.

The Fed’s decision to make its first rate cut in four years such a big one was reached unanimously by what had heretofor been a deeply divided interest rate policy making committee.

‘The FOMC looks like it is finally getting it,’ said Joel Naroff, president of Naroff Economic Advisors, reflecting the overwhelmingly positive sentiment on Wall Street. ‘After consistently underestimating the extent of the slowdown in housing and the implications of the sub-prime meltdown, the Committee made the right, aggressive move,’ he said. ‘I only hope this is the beginning and not just the end of its recession-fighting attitude.’

The move was clearly intended to inject confidence into fragile financial markets, Wall Street analysts said, and for one day at least, it worked in spades. Investors celebrated and the major US stock market indexes soared on the news of the fifty basis point reduction in both the federal funds rate and the discount rate which brings them down to 4.75 per cent and 5.25 per cent, respectively.

The Dow Jones Industrials registering a whopping 335-point or 2.5 per cent gain on the day. The stunning rally was even stronger on the broader S&P 500 index, which leaped by 43 points, or 2.92 per cent, as well as on the technology company-dominated Nasdaq Composite, where shares gained 2.7 per cent, a 70 point advance.

‘Wall Street got exactly what it was asking the Fed for,’ said Jim Awad, chairman of WP Stewart, a US$6 billion equity growth fund. ‘Traders and money managers have been screaming for a fifty point cut for the last two weeks, but I don’t think most investors expected the Fed to act as aggressively as it did, which is why you got such an overwhelmingly positive reaction on the stock markets. People were surprised, very happily surprised to see the Fed make such a big about-face and put the priority on ensuring liquidity in the capital markets over keeping inflation in check,’ he said.

Wall Street seemed intent on continuing the celebration for a second day, as stocks  opened broadly higher following a big rally in Asia overnight. The Dow Jones industrials shot out of the gate at the opening bell, racing to a 86 point, 0.63 per cent gain in the first minutes of trading yesterday. The S&P 500 and Nasdaq Composite accelerated faster, advancing by 0.83 per cent and 0.71 per cent, respectively.

Tobias Levkovich, Citigroup’s chief investment strategist believes the market’s reaction to the Fed’s move will have more than short-term affects on share prices. ‘The decision to cut aggressively and the fairly clear language offered by the FOMC statement were meaningful salves for equity markets,’ he said, noting that daily moves of greater than 2 per cent, as occurred on Tuesday, are good indicators of strong future market performance as well. ‘This has been a bullish day on several levels,’ he said.

Still, Wall Street has already turned to its next big question: what’s next for the Fed?

‘The Fed noted that the action was ‘intended to forestall some of the adverse effects’ on the economy. Moreover, they also kept in the statements on upside inflation risks. We take these as a signal that they are not necessarily intending to reduce rates further which means that another rate reduction in October is not a certainty,’ observed David Rosenberg, chief US economist at Merrill Lynch.

Economists have already begun debating where the Fed goes from here and whether its fifty basis point cut is enough to keep the slumping US economy from an outright slump and a recession. Mr Rosenberg is in the camp of those favouring an additional cut, as is Mr Naroff, who said: ‘The Fed needs to keep taking necessary action to try to forestall a recession. One fifty basis point cut doesn’t necessarily do it for the economy. Even at 4.75 per cent, the Fed has not yet reached neutral. To stimulate growth, the funds rate should be cut to 4 per cent or less.’

Other economists, like Michael Darda, MKM Partners’ chief economist, said that chairman Ben Bernanke’s Fed should be loath to cut rates further, and must remain vigilant against the threat of inflation. ‘The inflation threat looms especially large because the dollar has been in decline against other major currencies. A declining dollar reduces consumers’ purchasing power and feeds inflation by making imports more expensive. The Fed has to be very careful not to provoke another bubble like the one that has led us to this crisis,’ he said.

 

Source: Business Times 20 Sept 07

Marina View plot draws record $2b bid

It’s a vote of confidence in market, say property watchers, who had expected much lower bids

A PRIME plot in Marina View has drawn a top bid of $2.02 billion – the first time the price of state land here has crossed the $2 billion mark.

The whopping bid yesterday pipped two other close offers, which also came in at near-record levels.

Property experts say the bullish bids are a continuing vote of confidence in the property market and could serve as a shot in the arm for market activity, which has quietened somewhat in recent weeks.

‘It is exactly the confidence booster that the market needs to keep it going at this point in time,’ said Ms Tay Huey Ying, director of research and consultancy at Colliers International.

The $2.02 billion bid was submitted by Macquarie Global Property Advisers (MGPA), a private equity real estate fund management firm partly owned by Australia’s Macquarie Bank Group.

It is almost double what property watchers predicted the 1.02ha site would fetch in May, when its tender was first launched. The 99-year leasehold plot is located behind the One Shenton and Sail @ Marina Bay condominiums.

Indeed, all the three bids that came in before the site’s tender closed yesterday were ‘nearer the top band of the expected range’, said Mr Lui Seng Fatt, regional director and head of investments at Jones Lang LaSalle.

CapitaLand and Mapletree put in a joint bid of $1.84 billion, while Malaysia’s IOI Group offered $1.6 billion.

The result of the tender, which is based solely on price, will be announced by the Government later.

Consultants said the turnout was quite good, given the site’s high price and ongoing global credit uncertainty.

‘In a market like this, I’m amazed that three bidders came out to offer between $1.6 billion and $2 billion,’ said Mr Ku Swee Yong, director of marketing and business development at Savills Singapore. ‘It’s a bid that very few people can afford.’

The top bid works out to about $1,409 per sq ft (psf) of gross floor area, said Mr Li Hiaw Ho, executive director of CB Richard Ellis.

He added that the plot could provide 800,000 sq ft of net lettable office space.

A 40-storey building can be built on the site, but 70 per cent of its gross floor area must be used for offices.

The rest can hold more offices, hotel rooms, homes or shops.

Experts said building homes or strata-titled office units could be a quick way for the winning bidder to recover most of its investment. Homes, for one, could fetch more than $2,500 psf, said Mr Li.

But MGPA appears to be favouring a full-office development. It said in a statement yesterday that the site ‘presents a rare opportunity to deve- lop a Grade A+ office building in the prime business district of Singapore, where strong demand coupled with limited supply makes now an ideal time for high quality office development’.

MGPA has been on an active buying spree here. In March, it agreed to buy Temasek Tower from CapitaLand for $1.04 billion.

Last month, it also bought 162 units of Allgreen Properties’ Cascadia condominium in Bukit Timah for a median price of $1,527 psf, sources said.

Marina Bay Site 

Source: The Straits Times 20 Sept 07

Ong Beng Seng urges Horizon Towers sellers to resolve sale

HOTEL Properties (HPL) chief Ong Beng Seng and his lawyers last night urged a group of Horizon Towers owners to cooperate in resolving the bungled $500 million collective sale of the condominium.

Mr Ong met the group at 4pm at Hilton Hotel yesterday – his first meeting with owners of the estate that he and his two partners are trying to buy.

HPL and partners are suing the Horizon Towers sellers for an alleged breach of contract and are seeking damages of more than $800 million.

The owners who met Mr Ong are anxious to avoid the potentially costly legal battle set to start next week.

They had written to HPL earlier.

But a few others who had not written in turned up at the meeting and were eventually allowed in, sources said.

Lawyers from Allen & Gledhill, who represent the HPL-led consortium, were also present.

According to sources, Mr Ong told the Horizon Towers sellers that he has not sued anyone in 30 years of doing business.

He said that as HPL is a listed company and he has to protect shareholders, as well as his two partners, they added.

Mr Ong then told the sellers that they must have integrity, honour the contract and set a good example for their children.

Some sellers indicated at the meeting that they were keen to have Allen & Gledhill senior counsel K.

Shanmugam participate at a major meeting to be held tonight.

The Horizon Towers sellers will have to decide on forming a sale committee and extending the sale deadline to allow the condominium’s sale to go through. They plan to vote at the meeting to be held at the Raffles Town Club.

The HPL-led consortium urged the sellers to vote sensibly at the meeting tonight.

A group of about 50 sellers have written to other sellers to express their concerns that the meeting tonight has been called without proper notice.

 

Source: The Straits Times 20 Sept 07

Buy second home but don’t over-commit

MANPOWER Minister Ng Eng Hen yesterday cautioned against over-committing when buying property at the expense of putting aside money for retirement.

The good news though is that with the latest changes, Central Provident Fund (CPF) members will be able to achieve both home ownership and retirement security, he said.

Indeed, with the new CPF system, more than eight in 10 new entrants to the workforce will meet their Minimum Sum for retirement. This is even for low-wage workers and even after buying their first home.

‘So our home ownership need not be sacrificed for retirement adequacy. We can have both,’ said Dr Ng.

But the problem, he pointed out, comes when some Singaporeans over-commit in buying bigger and subsequent homes.

It was an issue raised by Dr Muhammad Faishal Ibrahim (Marine Parade GRC), who recounted how a resident was shocked by the large amount of money he received after selling his house.

Dr Ng said it was good that some of these people put the gains from the sale of their houses into their CPF accounts.

‘These people sell their first homes but plough back gains from the sale of their first home and purchase a bigger home. And I think this is a good thing,’ he said.

‘It’s a good aspiration that Singaporeans can own bigger homes if they can afford it.’

But he also had a reminder for them: They ought to consider how much funds they could plough into their retirement savings before buying the bigger home.

‘If he had put that money early into his special or retirement accounts which now earn 5 per cent on the first $60,000, compounded over a number of years, it adds up,’ he said. ‘We should study how to advise first home sellers about this. I think it’s a good idea that we pay some attention to it.’

 

Source: The Straits Times 20 Sept 07

Frasers unit plans 10 service apartments in China

FRASERS Hospitality is set to open 10 new service residences in China by 2009.

Half of them will be ready before the Beijing Olympics next year, the Singapore-based service apartment operator said in a statement yesterday.

The company, a subsidiary of Frasers Centrepoint, will invest US$130 million (S$197 million) in one of the properties. The 23-storey building will be located in the heart of Beijing’s Central Business District, and boast 357 units.

Frasers bought the property in June and will open it in April as Fraser Suites Beijing, said Frasers Hospitality chief executive Choe Peng Sum.

The other nine residences will be managed by Frasers but owned by other companies, including property developer Yanlord Land Group, global private equity firm The Carlyle Group, and Chinese food company Cofco.

Besides Beijing, the 10 new service apartment properties will be located in the cities of Chengdu, Guangzhou, Hong Kong, Nanjing, Shanghai and Tianjin.

Two will open in November, one each in Beijing and Nanjing. Three more will open next year before the Olympics: Frasers Suites Beijing and two others in Shanghai.

Frasers already operates two properties in Shenzhen.

‘We will have more than 12 properties under the Fraser brand as we are still actively pursuing other suitable properties in China,’ said Mr Choe in the statement.

‘We expect that by 2010, Frasers will be operating more than 4,000 service residence units in over a dozen cities across China.’

Frasers is also talking to property owners in secondary cities like Chongqing, Dalian, Hangzhou, Suzhou, Wuxi and Xian.

 

Source: The Straits Times 20 Sept 07

Housing starts at lowest in 12 years

WASHINGTON – HOME construction starts in the United States fell 2.6 per cent last month to their lowest level in more than 12 years, a government report showed yesterday.

Building permit activity, a sign of future construction plans, also dropped to a low not seen since mid-1995.

The Commerce Department said housing starts set an annual pace of 1.331 million units last month, slightly lower than the 1.35 million units expected by economists and the upwardly revised pace of 1.367 million rate for July.

It was the lowest pace for housing starts since the June 1995 rate of 1.281 million units.

‘The housing market continues to be under pressure, constraining economic growth well into next year,’ said Ms Lindsey Piegza, a market analyst with FTN Financial in New York.

Building permits fell 5.9 per cent to an annual rate of 1.307 million, also the lowest since June 1995 when they were at 1.305 million.

Meanwhile, consumer prices in the US fell 0.1 per cent last month as energy prices retreated, a US Labour Department data showed yesterday.

The department’s consumer price index (CPI) compared with analysts’ expectations for a flat reading. It was the first decline in the headline inflation index since October last year.

The core CPI, which excludes food and energy costs, rose 0.2 per cent, in line with Wall Street’s expectations.

The relatively tame inflation report comes a day after the Federal Reserve cut key interest rates by a bigger than- expected half point, saying that even though inflation pressures remain, lower rates are needed to avert an economic downturn.

AGENCE FRANCE-PRESSE, REUTERS

US rate cut welcome, but…

THE United States Federal Reserve’s policy-making Open Market Committee (FOMC) slashed short-term interest rates by a surprising 50 basis points. Global stock markets reacted deliriously, with the Dow Jones Industrial Average rising by 2.5 per cent on Tuesday. Happy days are here again? The sub-prime crisis is over? Fears of inflation have been laid to rest? A reading of the fine print of the FOMC’s statement would suggest that the central bank has not altogether set aside its inflation concerns. It did not repeat its previous insistence that inflation was its ‘predominant concern’, but it did not say either that it was now worried most about the possibility of recession. Instead, it spoke of ‘uncertainty’ ahead.

Did it over-react to the uncertainty caused by the crisis in the sub-prime mortgage market? Many economists had warned that the Federal Reserve should not step in to make things easy for speculators. To do so would pose a moral hazard, they had argued, encouraging speculators to assume the central bank would always ride to the rescue. The FOMC obviously decided that the possibility of it encouraging the excesses that led to the sub-prime crisis paled in comparison to the possibility of that crisis triggering a downturn. Or to quote the words of former Fed chairman Alan Greenspan: ‘The question (the FOMC) had to weigh was, ‘Was punishing those (speculators) more important than doing something that (it) perceived to be in the greater good?” – and it decided ‘the greater good’ was more important. Fed chairman Ben Bernanke and his fellow governors probably took note that the US lost jobs in August, the first time that this has happened in four years. They probably would have been struck too that housing foreclosures were 36 per cent higher in August than in July.

As the FOMC’s statement accompanying the rate cut put it, ‘the tightening of credit conditions has the potential to intensify the housing correction and restrain economic growth more generally’.

Whether the rate cut will suffice to restore confidence will depend on developments in the credit markets. The chief problem the US economy faces now is not high interest rates, but liquidity. Investors spooked by the subprime crisis have been reluctant to take up mortgage-backed securities; banks, unable to sell their loans to the securities market, have been forced to carry them on their books; and hedge funds and private equity funds have found it difficult to borrow money. Cutting short-term interest rates will no doubt help businesses and consumers, but the sub-prime crisis will probably take some time to sort itself out.

 Source: The Straits Times 20 Sept 07

Fed’s aggressive rate cut sparks global markets

A BIGGER-THAN-EXPECTED interest rate cut by the United States central bank sent global bourses sprinting ahead yesterday.

The half-percentage point cut by the US Federal Reserve was double the quarter-percentage point cut that most analysts expected – and immediately caused a surge in US stocks.

Last night, the optimism continued on Wall Street, with the Dow Jones Industrial Average up 97.30 points, or 0.71 per cent, to 13,836.69 at press time.

Asian markets were equally thrilled at the Fed’s move to restore confidence in global financial markets and head off the risk of a US recession after weeks of market volatility.

It was the Fed’s first cut of the benchmark Fed Funds rate in four years, and is set to relieve a credit crunch in the global financial system, sparked by a US mortgage market crisis, by flooding it with cheaper funds.

In a statement, the Fed said the ‘action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time’.

At home, the benchmark Straits Times Index registered its second biggest one-day gain in history when it soared 116.61 points to 3,594.36 yesterday – just 70.77 points shy of the record high of 3,665.13 hit on July 24.

Tokyo’s Nikkei-225 Index shot up 3.67 per cent, and Hong Kong’s Hang Seng Index soared 3.98 per cent to a record high.

Across Asia, lower interest rates are expected to give a fillip to the housing market and stimulate spending in big-ticket items such as cars.

This gave a big boost to real estate developers and banks, which were among the biggest gainers in the various regional bourses yesterday.

Analysts said the Fed’s move should also help to restore confidence in the troubled global credit markets, where international banks have been hoarding cash and refusing to lend to each other.

But they warned that the surge on Wall Street and other global bourses was fuelled by hopes of further interest rates cuts later on.

These cuts would, how- ever, depend on US economic data to be released over the next month, they said.

They warn that, going by the wording in the statement issued, the Fed might have been uneasy cutting interest rates with crude oil prices hitting record highs, fuelling fresh inflation fears.

The cut in the widely watched Fed Funds rate – which sets the pace for US interest rates – to 4.75 per cent came early yesterday morning Singapore time.

Wall Street immediately notched up its best one-day gain in four years as the Dow Jones shot up 335.97 points, or 2.51 per cent.

The size of the cut was a major surprise. It was correctly forecast by only 23 of 134 economists surveyed by Bloomberg News, while 105 predicted a quarter-percentage point cut; six forecast no change.

 

Source: The Straits Times 20 Sept 07

Interest rate cut expected to help lift US economy

For house owners saddled with big mortgages, analysts say impact will not be significant

NEW YORK – THE Federal Reserve’s half-point benchmark interest rate cut on Tuesday will have little impact on United States home owners with hefty mortgages but will help boost the US economy, said analysts.

The Fed controls two key rates. The first is the discount rate, or the rate that Fed banks charge commercial banks for loans. The second is the more closely watched federal funds rate, which is the rate that banks charge each other for overnight loans.

The latter can affect rates on some types of consumer loans. The Fed cut both rates on Tuesday by a larger-than-expected half percentage point.

But many other rates are influenced by the bond and other markets rather than the Fed.

That is not to say the cut to the federal funds rate is irrelevant to consumers. It is expected to help bolster consumer confidence, which could give the economy a boost, which, in turn, would eventually reassure jittery lenders.

A number of large banks quickly followed the Fed’s lead by cutting their prime rates from 8.25 per cent to 7.75 per cent.

Analysts said the rate cuts seemed to have got credit flowing again, with more banks willing to lend, while the demand for cash had abated somewhat.

‘Liquidity is confidence and the Fed’s appropriately aggressive move has provided a big positive jolt to confidence,’ said Macquarie Bank interest rate strategist Rory Robertson.

Meanwhile, the head of the group widely considered the arbiter of US recessions, said the rate cut makes it less likely that the US will fall into a recession.

‘I think it was the right move,’ said Mr Martin Feldstein, the president of the National Bureau of Economic Research. ‘It can’t solve the problems that are weakening the economy but it can help offset them.’

What the rate cut can do is lower borrowing costs for businesses, thus spurring the economy. And the related fall in the greenback makes US exports more attractive, which can bolster US manufacturing, he said. What the cut does not do, however, is create an instant change of fortune for US consumers, experts cautioned.

They will likely see more mixed results in housing and mortgages.

US home owners with very low-rate adjustable rate mortgages (ARMs) will still see monthly payments rise after the rates reset, but the rise would not be as large.

ARM rates are usually tied to the one-year US Treasury bill, which usually stays in close proximity to the federal funds rate.

Fixed mortgages, however, are tied to the 10-year Treasury bill, which has not moved that much from where it was a year ago.

As many as half of the 450,000 sub-prime borrowers whose mortgage payments will increase in the next three months may still lose their homes because they cannot sell, refinance or qualify for help from the US government.

‘A lot of the folks who are in trouble are in trouble even before their mortgage rate resets,’ said Mr Bert Ely, a banking consultant. ‘They can’t refinance because they shouldn’t have gotten their mortgages in the first place.’

‘This is not a panacea to cure all ills in the housing and mortgage markets,’ said Bankrate.com senior financial analyst Greg McBride. ‘Nor is it designed to be. This is a step to make sure that the downturn in housing doesn’t drag the rest of the economy down.’

Source: LOS ANGELES TIMES, REUTERS, BLOOMBERG NEWS (The Straits Times 20 Sept 07)

Locals dwarf home-buying spree by foreigners in Q2

Koreans become major players; foreign buying hits record 2,864 units

(SINGAPORE) Foreigners, including permanent residents, bought a record 2,864 private homes in Singapore in the second quarter, up 34 per cent from the preceding quarter and more than twice the 1,221 private homes that they invested in during the same period a year ago.

But even this brisk buying was dwarfed by Singaporeans, who accounted for 68 per cent of caveats lodged for private home purchases in Q2 this year, up from 65 per cent in Q1.

In contrast, foreign buyers’ and PRs’ share of total private home purchases slipped to 25 per cent in Q2 2007, from 27 per cent in Q1 2007.

Companies, meanwhile, accounted for the remaining 7 per cent of private home buyers in Q2 2007, reflecting strong collective sales as well as acquisitions by numerous funds investing in residential property, according to DTZ Debenham Tie Leung’s analysis of caveats captured by Urban Redevelopment Authority’s Realis system.

DTZ’s report also showed Koreans are growing in prominence and accounted for 6 per cent of foreign buyers in Q2, their highest share ever. Koreans’ share among foreign buyers has been growing steadily over the past year.

The figure used to be around one to 2 per cent in 2004 and 2005, but rose to 2 to 4 per cent in various quarters last year. Koreans hardly featured as buyers in the 1990s.

The 185 private homes Koreans bought here during April to June 2007 reflected a 76 per cent quarter-on-quarter increase.

Growing purchases by Koreans reflect not only acquisitions by Korean nationals residing here, some drawn to Singapore by their children’s education, but also efforts by major Singapore developers to market their projects in Korea, DTZ executive director Ong Choon Fah observed.

Indonesians and Malaysians continued to be the largest groups of foreign buyers, accounting for 22 and 18 per cent respectively of overall private home purchases by foreigners in April to June 2007. This was followed by buyers from India, United Kingdom and China.

Nearly 96 per cent of the 2,864 private homes foreigners picked up in Q2 were private apartments/ condos, with landed homes making up the remaining 5 per cent.

The 2,743 apartments/ condos foreigners bought in Q2 comprised 2,062 units purchased in the secondary market – up 44 per cent from Q1 and a record quarterly figure – and 681 units acquired from developers in the primary market.

A further split of the secondary market purchases showed that 455 units were acquired in the subsale market and 1,607 units in the resale market. The latter figure was up 37 per cent from the preceding three months and a fresh high.

Resale deals are secondary market deals in developments that have received their Certificates of Statutory Completion, while subsales involve projects that have yet to do so.

DTZ attributed the strong foreign interest in resale properties to the current buoyant leasing market. Given the tight supply of rental properties in the prime districts, many expats are choosing to buy homes. Their preference is for completed properties that they seek to occupy themselves.

The 455 subsale apartments and condos that foreigners bought in Q2 represented a 32 per cent quarter-on-quarter increase and was the second highest quarterly figure ever – trailing only the 485 units snapped up in Q4 1995.

The Sail @ Marina Bay, Sky@eleven and Icon were among the projects popular with foreign buyers in the subsale market in Q2.

In the resale market, the most highly-sought after developments among foreigners included Sanctuary Green, Pebble Bay and Water Place (all in the Tanjong Rhu area), Queens and Valley Park. In the primary market (units purchased directly from developers), Casa Merah, RiverGate, One-north Residences and The Solitaire were among foreign buyers’ favourite projects.

Mrs Ong predicts that foreign buying will continue to be steady in the second half of 2007.

‘Sub-prime has taken some froth out of the market; but this affects more the specuvestors (who buy for capital gains but don’t mind holding on to the property, waiting for its price to rise). Foreign buyers, however, are purchasing more for owner occupation or long-term investment, drawn by Singapore’s success in reinventing itself.

Property prices here are higher than two years ago, but then Singapore today is very different. It is a very desirable place to invest and live in,’ she said.

 

 

Source: Business Times 19 Sept 07

Two prime residential sites put up for tender

Bids of over $1.2b seen for Pinnacle Collection condo site at Sentosa

TWO prime residential sites have been put up for tender, including the one at Sentosa which has been creating some buzz in the market, not least because of its billion-dollar price tag.

Sentosa Cove Pte Ltd launched its final condominium land parcel – The Pinnacle Collection – yesterday with a reserve price of not less than $963.8 million or $1,600 per square foot per plot ratio (psf ppr) for the 231,676.8-sqft site.

In July, SC Global put in the top bid of $268.3 million or $1,799.78 psf ppr for another Sentosa condo plot, so the reserve price for The Pinnacle Collection is conservative.

Savills Singapore director of marketing and business development Ku Swee Yong expects to see bids of between $1.2 billion and $1.3 billion, and believes the hefty price tag will see more joint ventures between foreign investors and local partners.

He also said the time frame for development, which will see The Pinnacle Collection receive temporary occupation permit (TOP) around 2011 when Resorts World at Sentosa is completed, will be perfect for a developer who wants to keep part of the development as an investment property for rental returns.

The news that the development of Marina South could be accelerated, with more potential waterfront living options, is not likely to have any impact as this is not expected any time soon.

Cushman & Wakefield managing director Donald Han says the market is still fairly hot. ‘The developer (for The Pinnacle Collection) will want to go in and out within a short space of time,’ he said.

One condition for the site, however, is that price and design will determine the winning bid. So as with the recent Beach Road land tender, the winning bid may not necessarily go to the highest bidder.

Sentosa Cove general manager Kemmy Tan added: ‘Design for this development is a key component in our evaluation.’

Design could raise the price of the units too.

‘As The Pinnacle Collection is conceptualised as an iconic project, the successful developer would allocate more in the way of resources to conceive an inspiring design as well as high-end finishes,’ said CBRE Research executive director Li Hiaw Ho.

As such, he estimates that the break-even cost would be between $2,800 and $3,000 psf based on a land price of $2,000 psf ppr. This would translate to an estimated selling price of about $3,200-$3,500 psf.

Separately, the Urban Redevelopment Authority (URA) put up a site in Enggor Street (Land Parcel B) in Tanjong Pagar for tender on the confirmed list of the Government Land Sales Programme.

Knight Frank director of research and consultancy Nicholas Mak reckons a condominium with about 190-210 units can be built at the site, which has been zoned ‘Residential with commercial at first storey’ with a maximum gross floor area of 252,091 square feet.

Mr Mak believes the site, apart from being well located, will also be attractive to developers because the URA temporarily disallowed the conversion of office use in the Central Area to other uses until December 2009, exacerbating limited supply in the area.

As such, Mr Mak expects the site to fetch bidding prices from $156 million to $177 million, equivalent to $620-$702 psf ppr.

 

Source: Business Times 19 Sept 07

61% of Upper Serangoon Shopping Centre for sale

SOME 61 per cent of Upper Serangoon Shopping Centre has been put up for sale by its owner, who is asking for $35-37 million for the stake.

The price works out to an average of $595 to $629 per square foot (psf) over available floor area.

The 61 per cent share is made up of strata-titled units consisting of 66 shop units out of a total of 164, as well as the sole office unit and all eight apartments. The properties for sale have a total strata floor area of 58,750 sq ft.

Transacted prices of commercial units in the vicinity for this year are in the range of $600-770 psf, said Credo Real Estate, which is marketing the project.

The stake is being sold by the original developer of the building, Hong Huat Development Co, which is now in voluntary liquidation.

The property firm was previously trying to get owners holding at least an 80 per cent share value in the shopping centre to agree to a collective sale. But BT understands that the majority owner decided to go ahead and sell the 61 per cent stake rather than to wait.

Credo said that there is still an opportunity for an en bloc sale together with other proprietors who may be keen to explore the possibility.

The buyer can also embark on a refurbishment scheme to spruce up the units for potential higher rentals, the firm added.

The ageing Upper Serangoon Shopping Centre is a six-storey commercial and residential development on Upper Serangoon Road.

‘With its prominent visibility and good accessibility, Upper Serangoon Shopping Centre is an attractive investment to serious investors looking for higher returns compared with those of the residential properties,’ said Credo.

The area consists mainly of conventional landed housing and low to mid-rise residential and shophouse developments.

The tender for the property will close on Oct 17 at 2.30 pm.

 

Source: Business Times 19 Sept 07

US home foreclosures jump 36% in Aug

(NEW YORK) The number of homes entering foreclosure, being auctioned and repossessed by banks jumped by 36 per cent in August from the month before, with cities in California, Florida and Nevada showing the biggest increases, according to a report scheduled to be released yesterday.

The report from RealtyTrac, a company that tracks public foreclosure filings nationally, attributes a big part of the rise to mortgage companies being forced to take ownership of homes because borrowers have fallen behind on payments and their properties were not sold at auction.

The sharp increases provide more evidence that the troubles in the housing and mortgage markets may prove long-lived, given that home prices are falling in many parts of the country, there is a large inventory of unsold homes and the job market is starting to weaken.

Housing specialists are also concerned about a big wave of adjustable-rate mortgages that will be reset to higher, variable interest rates in the coming months.

Nationally, there were 243,947 foreclosure filings in the month, accounting for one in every 510 households, according to the report. That is up 36 per cent from July and 115 per cent from August 2006.

Filings were up 48 per cent from July in California, 77 per cent in Florida and 21 per cent in Nevada, which has the highest foreclosure rates in the country at one in 165 households.

Foreclosure filings rose across most of the country, and the biggest increases were in Midwestern states that have struggled with job losses in manufacturing industries and in states where the real estate boom was most frenzied.

RealtyTrac’s data is based on courthouse filings from 2,500 of the nation’s more than 3,000 counties.

Some mortgage industry officials caution that data based on those filings may be incomplete or may lead to double counting of some homes.

Meanwhile another survey showed that confidence among US chief executives fell this quarter to the lowest point in four years, causing more companies to scale back hiring plans.

According to the Business Roundtable in Washington, the group’s economic outlook index fell to 77.4, the lowest since the third quarter of 2003, from 81.9 in the second quarter. Still, a reading greater than 50 signals expansion.

The decline in hiring plans raises the risk that employment won’t pick up after payrolls fell in August for the first time in four years.

 

Source: Reuters, Bloomberg (Business Times 19 Sept 07)

Another Enggor St plot up for tender

ANOTHER residential skyscraper of up to 60 storeys high could be built in Tanjong Pagar after a site was put up for sale yesterday, which is set to fetch more than $200 million.

The 99-year leasehold, 0.28ha site on Enggor Street went on sale just two weeks after an adjoining plot also hit the market.

The plot has a maximum gross floor area of 23,420 sq m, which property consultants estimate could hold 235 to 250 apartments. Commercial space can be located on the first storey.

The site is one of 10 plots transferred from the reserve list to the confirmed list for the July to December period.

That means the site was put up for tender on a specific date, whereas on the reserve list a tender is triggered only when an acceptable expression of interest is lodged.

The Urban Redevelopment Authority, which launched the tender yesterday, said the site caters to demand for inner-city living. Upcoming projects nearby include Icon by Far East Organization and the Housing Board’s 50-storey Pinnacle@Duxton.

The tender for the latest site closes at noon on Nov 15.

Mr Li Hiaw Ho, an executive director of CB Richard Ellis Research, expects the site to attract bids above $800 per sq ft per plot ratio (psf ppr), or $200 million.

The regional director and head of investments at Jones Lang LaSalle, Mr Lui Seng Fatt, was more bullish, estimating at least $1,200 psf ppr, or above $300 million.

The site, said Mr Lui, could house ‘branded’ residences managed by reputable global managers. Existing branded homes in Singapore include upcoming St Regis Residences and Four Seasons Park.

Earlier this month, an adjoining 0.3ha residential site in Enggor Street was put up for tender.

 

 

Source: The Straits Times 19 Sept 07

En bloc sellers ’set to spend over $4b buying new homes’

Savills expects sales to pick up as owners get paid and seek replacement homes

CASH windfalls will soon be arriving for the hundreds of home owners who sold their property en bloc during the frenzied April to June period.

As they look for new homes, they could pour more than $4 billion into the market by early next year, according to new estimates from Savills Singapore.

The property consultancy said the ‘bunching up’ of collective sales in the second quarter will yield almost $6.4 billion in total collective sale proceeds.

Most of the amount is due to come in between December and February, which is likely to prompt a pickup in market activity, said Mr Ku Swee Yong, Savills Singapore’s director of marketing and business development.

Assuming some sellers already have second homes, those who need a new place to live in will have about $4.2 billion to spend, he said.

His calculations showed that about 2,800 units were sold en bloc between April and June, for an average of $2.3 million a unit.

But he estimates that only about two-thirds of the owners will buy replacement homes. Still, this means almost 1,900 units in move-in condition will be needed in the months ahead.

Buyers are likely to seek these homes in areas such as Bukit Timah, Upper Bukit Timah, Clementi, Novena, Upper East Coast and Bukit Panjang, added Mr Ku.

This is because the bulk of the collective sales during the period were in the prime areas of Districts 9, 10, 11 and 15. Together, these cover Orchard, Holland, Bukit Timah, Newton and the East Coast.

Some of the larger projects sold en bloc in April-June include Farrer Court and Leedon Heights on Farrer Road, with more than 900 units between them. All these projects are in District 10, said Savills. In this prime district alone, 1,600 units were sold for $4.3 billion, it added.

‘Sellers in Districts 9 and 10 are likely to look for new homes in Districts 11 and 21 – Bukit Timah and Upper Bukit Timah,’ said Mr Ku. ‘Even if they have money to stay in the centre of town, they may have nothing to buy, as most of the older projects have already gone en bloc in the last two years.’

On the other hand, Bukit Timah and Upper Bukit Timah ‘have plenty of projects and not many collective sales’, he added.

He expects en bloc sellers to be out in full force buying new homes starting from December, thanks to the record run of collective sales this year – such deals from January to June hit almost $10 billion, according to Savills.

‘Almost all such sellers get their money within nine months of the sale,’ Mr Ku said, adding that Strata Titles Board sale approval takes about six months.

He added it has proven difficult for some sellers to buy a new home using a bridging loan. ‘So most of them won’t be able to buy a replacement unit until they actually get money in hand.’

 

Source: The Straits Times 19 Sept 07

Horizon Towers majority owners break ranks ahead of court battle

Some approach HPL group to seek resolution, avoid possible payout

SOME majority owners at Horizon Towers have broken ranks ahead of a courtroom showdown with a developer over the condominium’s bungled $500 million collective sale.

Some owners, keen to avoid the potentially costly legal battle, have written to the Hotel Properties-led (HPLled) consortium which agreed to buy the condominium in February.

A group of them say they are willing to sell their units to the consortium at the price agreed before the deal hit a brick wall. Another group of owners say they want to comply with the contract or seek any peaceful resolution.

HPL chief Ong Beng Seng and the consortium’s lawyers from Allen & Gledhill have agreed to meet these owners today, sources said.

The legal action, alleging breach of contract by the sellers, is due in the High Court on Thursday next week.

The consortium is seeking damages of more than $800 million – and if successful, that means every majority owner could face a massive payout.

The sellers now appear to be in disarray, having ignored a Sept 11 deadline given by the buyers for them to extend the sale completion date.

By the time the deadline came around, the sellers had no one to represent them as three remaining members of the sales committee had quit at a meeting on Sept 7. That meeting was attended by more than 200 sellers.

Sellers from 20 units who are keen to extend the sale completion date have called for a new meeting to elect a new sales committee. It has been scheduled for tomorrow evening.

HPL and its partners – Morgan Stanley Real Estate-managed funds and Qatar Investment Authority – had come in after the Horizon Towers tender closed in August last year without attracting a buyer at the $500 million reserve price.

But the sale fell through after the Strata Titles Board (STB) threw it out over a technical error in the sale paperwork last month.

The buyers then asked the sellers to extend the sale deadline by four months so that they could appeal against the STB ruling or try to refile the sale application.

If the sale had gone ahead, owners of 199 apartments would have reaped about $2.3 million each, while owners of the 11 penthouses would have received at least $4 million each.

Observers say HPL and its two partners will want to buy the site as a whole, which requires consent from the majority of the owners, and not individual units as some owners are proposing.

The buyers have asked the court for a ‘representative order’ which was served on all the owners yesterday.

If the High Court grants the order, any final judgment obtained against the seven defendants – who are sale committee members – will bind all the sale committee members and majority owners.

In an affidavit accompanying the summons, HPL said it would be ‘administratively inconvenient and extremely costly’ to pursue each of the 270 sellers as defendants.

Besides, the sellers have contracted with them on identical terms, it says.

Many others are waiting for the High Court hearing next Friday on their appeal to quash the STB order, before deciding on their next step.

They are mostly under major stress, faced with the prospect of possibly coughing up millions in damages.

Some of them, including sale committee members, have sought their own legal advice.

More lawyers have jumped into this case, which already involves several firms and well-known lawyers.

 

Source: The Straits Times 19 Sept 07

WORLD HOUSING MARKETS – Bubble trouble

By Robert J. Shiller

THE future of the housing boom, together with the possible financial repercussions of a substantial price decline in the coming years, is a matter of mounting concern among governments around the world.

I learnt this first-hand while attending this year’s Jackson Hole Symposium in the remote wilderness of Wyoming where, ironically, there are almost no homes to buy. The howls of coyotes and bugling of elk rang out at night. But, by day, everyone was talking about real estate.

This conference has grown to be a major global event for government monetary policymakers, with governors or deputy governors of 34 central banks attending this year. Roughly two-thirds of these countries have had dramatic housing booms since 2000, most of which appear to be continuing, at least for the time being. But there was no consensus on the longer-run outlook for home prices.

Of all these countries, the United States appears to be the most likely to have reached the end of the cycle.

According to the Standard & Poor’s/Case-Shiller US National Home Price Index, US home prices rose 86 per cent in real, inflation-corrected, terms from 1996 to last year, but have since fallen 6.5 per cent – and the rate of decrease has been accelerating.

That looks like the beginning of the end of the boom, though, of course, one can never be sure. I presented a bearish long-run view, which many challenged, but no one obviously won the argument.

Nevertheless, an outside observer might have been struck by the weight given to the possibility that the decade-long boom might well suffer a real reversal, followed by serious declines.

Weaker standards

THERE seems to be a general recognition of substantial downside risk, as the current credit crisis seems to be related to the decline in US home prices that we have seen.

The boom, and the widespread conviction that home prices could only go higher, led to a weakening of lending standards. Mortgage lenders in the US seem to have believed that home buyers would not default, because rising prices would make keeping up with their payments very attractive.

Also, the boom resulted in some financial innovations, which may have been good ideas intrinsically, but which were sometimes applied too aggressively, given the risk of falling prices. Mortgage- backed securities were urged onto investors for whom they were too risky. As with homebuyers, all would be well, the reasoning went, on the premise that home prices continue to rise at a healthy pace.

At the Jackson Hole conference, Mr Paul McCulley of Pimco, the world’s largest bond fund, argued that in the past month or two we have been witnessing a run on what he calls the ’shadow banking system’, which consists of all the levered investment conduits, vehicles and structures that have sprung up along with the housing boom.

The shadow banking system, which is beyond the reach of regulators and deposit insurance, fed the boom in home prices by helping to provide more credit to buyers.

Bank runs occur when people, worried that their deposits will not be honoured, hastily withdraw their money, thereby creating the very bankruptcy that they feared. It is no coincidence that this new kind of bank run started in the US, which is the clearest example of falling home prices in the world today.

When home prices stop rising, recent homebuyers may lose the enthusiasm to continue paying their mortgages – and investors lose faith in mortgage-backed securities.

Loose policy

THE US Federal Reserve is sometimes blamed for the current mortgage crisis, because excessively loose monetary policy allegedly fuelled the price boom that preceded it. Indeed, the real (inflation-corrected) federal funds rate was negative for 31 months, from October 2002 to April 2005. The only precedent for this since 1950 was the 37-month period from September 1974 to September 1977, which launched the worst inflation the US had seen in the last century. What then helped produce a boom in consumer prices now contributed to a boom in home prices.

Loose monetary policy is not the whole story. The unusually low real funds rate came after the US housing boom was well under way. According to the Standard & Poor’s/Case-Shiller US National Home Price Index, home prices were already rising at almost 10 per cent a year in 2000 – when the Fed was raising the federal funds rate, which peaked at 6.5 per cent. The rapid rise thus appears to be mostly the result of speculative momentum before the interest-rate cuts.

Former Fed chairman Alan Greenspan recently said that he now believes speculative bubbles are important driving forces, but at the same time, the world’s monetary authorities cannot control bubbles. He is mostly right: The best thing that the monetary authorities could have done, given their other priorities and concerns, is to lean against the real estate bubble, not stop it from inflating.

Today’s fall in home prices is linked just as clearly with waning speculative enthusiasm among investors, which is likewise largely unrelated to monetary policy. The world’s monetary authorities will have trouble stopping this fall, and much of the attendant problems, just as they would have had stopping the ascent that preceded it.

The writer is professor of economics at Yale University and author of Irrational Exuberance And The New Financial Order: Risk In The 21st Century.

 

Source: The Straits Times 19 Sept 07

Fed’s interest rate cut for 1st time in 4 years

WASHINGTON – THE US Federal Reserve cut a key interest rate for the first time in four years, seeking with an aggressive half-point move to prevent a steep housing slump and turbulent financial markets from triggering a recession.

The Fed announced yesterday that it was reducing its target for the federal funds rate, the interest that banks charge each other, from 5.25 per cent to 4.75 per cent, its lowest level since May last year. The half-point reduction was double the quarter-point move that many economists had been expecting.

The action was designed to boost economic growth by lowering borrowing costs for millions of consumers and businesses.

Commercial banks were expected to quickly match the Fed’s action by cutting their prime lending rate. The prime rate has been at 8.25 per cent for the past 15 months.

It was the first cut in the interbank rate – the Fed’s main tool to influence the economy – since June 2003 and the first half-point reduction since November 2002. In a related move, the Fed also lowered the discount rate it charges for direct loans to banks by a half-point to 5.25 per cent.

 

Source: ASSOCIATED PRESS, REUTERS (The Straits Times 19 Sept 07)

‘Iconic’ condo site at Sentosa Cove up for sale

THE best of the condominium sites in the wildly-popular gated residential enclave of Sentosa Cove was left till last.

That site went on sale yesterday, at a reserve price of $964 million, or $1,600 per sq ft per plot ratio – the price psf of the potential floor space.

But property consultants are already expecting bids for the 99-year leasehold site to come in above $2,000 psf per plot ratio, pushing the overall price well over $1 billion.

That would put the eventual selling price of completed condo units there at a hefty $3,200 to $3,800 psf – a level that some Orchard Road homes are going for.

‘This is an iconic site, the equivalent of the Orchard Turn site for Sentosa Cove,’ said Mr Ku Swee Yong of property consultancy Savills Singapore.

This 231,677 sq ft site, called The Pinnacle Collection, is one of two condo land parcels that flank the entrance of the marina leading into Sentosa Cove. It is set to be the tallest development in the enclave, with a height limit of 20 storeys.

Until now, the tallest has been the 15-storey The Oceanfront@Sentosa Cove, which sits on the other condo parcel flanking the marina entrance.

The newest site also allows the highest density development in Sentosa Cove, with a plot ratio of 2.6. That allows for a gross floor area of nearly 602,360 sq ft. Up to 357 luxury apartments can be built at the new site, said Sentosa Cove in a statement.

Despite the reserve price, property analysts feel certain this site will beat the price paid by SC Global in late July for another site at the enclave, which set a record of $1,799 psf per plot ratio.

Property consultancy CB Richard Ellis anticipates that the new site will be the ‘most coveted’ parcel of all the Sentosa Cove plots.

‘The interest level in the site could be a measure of developers’ confidence in the high-end residential market, and their reaction to the stock market turbulence,’ said Mr Nicholas Mak of property consultancy Knight Frank.

The successful bidder is likely to produce an inspiring design with high-end finishing touches, they said.

They expect the break-even cost for this residential project to be between $2,800 psf to $3,000 psf based on a land price of $2,000 psf per plot ratio. This would translate to an estimated selling price of about $3,200 psf to $3,500 psf for the homes, they said.

Mr Ku expects end selling prices at $3,400 to $3,800 psf.

The tender, which closes Dec 12, will be awarded based on price as well as design.

 

Source: The Straits Times 19 Sept 07

Property: Mass market sales up in August, speculation slows

Fall in subsale deals as sub-prime fallout and Ghost Month cool buying fever

(SINGAPORE) In the traditionally quiet ‘Ghost Month’ of August – when property transactions slowed dramatically – two significant trends emerged.

The Urban Redevelopment Authority released its update on private residential properties yesterday, showing that sales by developers actually went up compared to July. But caveats lodged in August showed that there was a sharp drop in subsales, signalling a cooling down of speculative activity.

At the same time, Colliers International pointed out that compared to July, August saw far more activity in the mass market.

The trends emerged against the backdrop of the US sub-prime mortgage shock, which served as a reality check for those gripped by the market frenzy of earlier months. In tandem with the Hungry Ghost month, this reduced the total number of transactions in August to 2,875, compared to 4,492 in July.

Developers launched 1,847 units in August, and sold 1,720.

And Colliers International estimates that about 47 per cent of the units launched and around 40 per cent of those sold were in the mass market segment.

‘This trend differed from that of last month in which the bulk of 45 per cent of the units launched were mid-tier units located in the rest of central region (RCR). Mass market units only accounted for 27 per cent in July 2007,’ said Colliers’ director for research and consultancy, Tay Huey Ying.

Although Ms Tay believes it is still too early to say if developers’ focus has now shifted to the mass market, she added: ‘The high-end and luxury segment has dominated the market since 2005, but from what we are seeing, it does now seem to be more evenly spread.’

Prices growth appeared to be somewhat muted. ‘Median prices of developments with units sold in both July and August rose marginally by an average of 2.7 per cent only,’ Ms Tay said.

The US sub-prime crisis and the lack of high-profile launches could have contributed to the slowdown, she added.

The development which saw the highest growth in median price in August was The Orchard Residences. Its median price rose 25.8 per cent. However, only two units were sold – one at $5,500 psf and another at $4,687 psf.

A spokesman for CapitaLand said the $5,500 psf penthouse was bought by a foreigner.

The penthouse, which is expected to have cost between $23 million and $27.5 million, has set the record for the most expensive property in Singapore on a per square foot basis.

Prices for most properties, however, are seen to be stabilising.

Ms Tay expects overall prices to ‘resume with the return of market confidence’, but added that price growth will be more ‘controlled’.

Interestingly, more stable prices have been accompanied by a drop in subsale activity. Colliers’ analysis of caveats lodged in August show that it now stands at 7 per cent of the total volume of property transactions. In July alone, subsale activity was almost twice as high at 13 per cent.

But, overall, market confidence is still intact, noted CB Richard Ellis executive director Li Hiaw Ho, who pointed out that prices still rose in August – albeit more slowly.

‘The very prime projects were marketed at above $3,600 psf while those in the fringe area were sold at above $1,200 psf,’ he said.

Two hot launches – The Parc Condominium and Soleil @ Sinaran – accounted for over 60 per cent of developer sales. Mr Li said median prices of Soleil @ Sinaran, at $1,410 psf, and The Parc Condominium, at $870 psf, were ‘within expectations’.

‘For the rest of the third quarter, price levels are expected to remain stable,’ he said.

Although the mass market prices have been slower to rise, Savills Singapore director of marketing and business development Ku Swee Yong believes the increases on a year-on-year basis are significant.

‘Last year, most buyers’ definition of prices for a mass market development would have been around $600 psf,’ he said. Based on URA’s monthly figures, only 71 units, or about 4 per cent of the units sold in August, cost under $750 psf.

 

 

Source: Business Times 18 Sept 07

Prime office rents up 3.3% in August

Raffles Place buildings led rise, with average rents there climbing 5.6%

PRIME office rents in Singapore climbed some 3.3 per cent in August to hit an average of $12.21 per sq ft per month (psf pm), Cushman & Wakefield’s new office report shows.

The property firm used a basket of about 50 buildings to calculate the average rent, managing director Donald Han said.

The firm, which also tracks the office rents for the top 25 Grade A office buildings within the larger basket of properties, said that rents for the selected 25 buildings rose to an average of $12.28 psf pm as at end-August, from $12.07 psf pm in July – up 1.7 per cent.

Last month’s rise in prime office rents was led by buildings in Raffles Place, Cushman & Wakefield’s data shows.

Average rents in Raffles Place climbed 5.6 per cent in August to hit $13.68 psf pm. Rents in the Orchard and Scotts area also rose some 2.2 per cent to $9.76 psf pm, while at City Hall/Marina Centre/Bugis, rents rose 0.3 per cent to $12.22 psf pm.

Mr Han expects overall prime office rents to hit $13.50 psf pm by year-end. However, rents at the top tier of Raffles Place properties will hit $19 psf pm by end-2007, he said.

He added that the US sub-prime crisis, which rattled markets here in August, will have little impact on the office market for the rest of the year. ‘Moving forward, you will still see an upside in terms of rentals,’ Mr Han said. ‘Subprime or no sub-prime, the fundamentals are still there for prices to keep climbing – there will still be a shortage of office space over the next few years.’

 

Source: Business Times 18 Sept 07

Investment sales to hit $50b in ‘07: CBRE

Target up from $35b set 3 months ago, with some $12.7b deals done since July

PROPERTY investment sales could hit $50 billion by the end of 2007, CB Richard Ellis (CBRE) predicted yesterday – increasing its full-year target from the figure of $35 billion it set just three months ago.

If CBRE’s target of $45-50 billion is met, it will be a substantial increase from the $30.6 billion worth of investment properties transacted in 2006.

The property firm arrived at the new target after total investment sales for the year to date came to some $37.9 billion – exceeding the previous prediction of $35 billion for the whole of 2007.

CBRE’s bullish prediction came on the back of news that some $12.7 billion worth of investment transactions have been recorded since the start of July, placing Singapore in a good position to end the year on a strong footing. ‘At this current pace, CBRE expects sales to peak at an all-time high of $50 billion by the end of 2007,’ the firm said in a report.

CBRE’s investment sales tally includes land deals, collective sales, transactions of entire office and other buildings as well as sales of strata-titled units including good class bungalows and condominiums worth more than $5 million apiece.

Investment sales in the private sector accounted for 84 per cent or $31.7 billion of total investment sales so far this year. The public sector contributed the remaining $6.2 billion.

So far this year, the residential sector has recorded $23.8 billion in transacted value – or 63 per cent of the year’s total investment sales, CBRE said. In particular, the collective sales market was fairly active in the third quarter of 2007, with a total of 16 sites generating some $1.7 billion of investment sales.

This was followed by sales of office properties. ‘On the back of the upbeat Singapore office market, investment activity in the office investment market remains robust,’ said CBRE. ‘Prime office properties continue to be highly sought after by investors, with some notable acquisitions made by real estate investment trusts and foreign funds.’Total office investment sales accounted for 24 per cent – or $9.2 billion – of the year’s investment sales.

Source: Business Times 18 Sept 07

URA data a boon for property market watchers

THERE has been a general welcome for the release by the Urban Redevelopment Authority of updates on the volume of property transactions and prices of new developer sales for three months now.

URA releases the details of transacted prices of new developments in different price brackets on its website. So for the 536-unit The Cascadia on Bukit Timah Road for instance, it is clear that although the price range of the 162 units launched and sold was between $1,038 and $1,638 psf, 58 units sold were in the $1,000-$1,500 psf bracket while 104 units sold were in the $1,500-$2,000 psf bracket.

‘It’s clear that the median price is leaning towards the higher side,’ said Savills Singapore director of marketing and business development Ku Swee Yong.

These data also reveal interesting nuggets of information like which developments are being launched in phases and which are not.

Projects launched in phases include The Marq on Paterson Hill and Helios Residences. Both still have units not launched.

The Parc Condominium and Soleil @ Sinaran were both launched completely and fully sold. Colliers International director for research and consultancy Tay Huey Ying said that this depends on the developers strategy, ‘cash out in the shortest time or maximise returns via phased launches in a rising market’.

Source: Business Times 18 Sept 07

Govt: CPF move won’t hit capital market

Manpower minister fleshes out plan to enhance CPF returns first outlined by PM Lee

(SINGAPORE) Even as he spelt out how all CPF members would enjoy higher interest rates on their contributions and have a more comfortable cushion for their retirement years, Manpower Minister Ng Eng Hen said that the restrictions put on investing in the CPF Investment Scheme would have ‘no adverse impact’ on the capital market.

Under the proposals first outlined by Prime Minister Lee Hsien Loong at the National Day Rally last month, CPF members would be paid an additional one percentage point interest on the first $60,000 in their accounts, which would go towards boosting their retirement savings.

The $60,000 may comprise up to $20,000 from the Ordinary Account (OA) and the rest from the Special, Medisave and Retirement Accounts (SMRA).

While all the OA monies can still be used for existing housing, CPF insurance and education plans, Dr Ng yesterday said the first $20,000 in both the OA and Special Account can no longer be used in the CPFIS. The extra interest aims to provide a risk-free nest- egg for Singaporeans who are living longer.

The restrictions will kick in from April 1 next year and money already invested in CPFIS will not be affected. But some have speculated on the impact of this move on the capital market.

‘Even after these restrictions, $42 billion will still be available for use in the CPFIS,’ Dr Ng told Parliament yesterday.

According to CPF figures in June, about $81 billion was available for the CPFIS.

But as the government moves to provide more support to Singaporeans who could be in danger of outliving their retirement savings, it has unveiled a series of reforms to the CPF scheme.

While the OA rate, which is pegged to banks’ interest rates, has until now been 2.5 per cent, the SMRA rate has been 1.5 per cent higher at 4 per cent. The SMRA rate is now being re-pegged to the 10-year Singapore Government Security (SGS) rate plus one per cent.

The new SMRA rate pegged to the 10-year SGS will be set quarterly.

‘A month before the next quarter, we will compute the new SMRA rate from the average daily yields of the 10-year SGS benchmark of the previous year,’ Dr Ng said. ‘The average 10-year SGS yield computed on this basis would now be 3 per cent.’

Based on the revised SMRA formula, the SMRA rate would be 3 plus one per cent, or 4 per cent – the same as what members currently earn.

But historically, this yield has been higher.

‘Had the SMRA formula been in place since the first issue of the 10-year SGS (in 1998), the SMRA rate would have averaged 4.5 per cent,’ Dr Ng said.

Of course, the ideal peg would have been a 30-year SGS because that is the average time that the members’ SMRA monies stay in their accounts. Since Singapore does not have such ‘long bonds’, the 10-year SGS was picked as the peg for the SMRA rate because it is actively traded.

The additional one per cent would provide for the difference expected between the interest on the 10-year SGS and the 30-year SGS, if it had existed.

Dr Ng said the new interest rates will kick in on Jan 1 next year. To help CPF members adjust to the floating SMRA rate, CPF will keep the 4 per cent floor for the SMRA rate for the first two years.

‘The 4 per cent floor will also apply to the extra interest tier, in the very unlikely event that the 10-year SGS rate falls below 2 per cent,’ Dr Ng said. ‘After two years, the 2.5 per cent floor rate will apply for all accounts as prescribed under the CPF Act.’

He said all CPF members will enjoy higher interest payments under the new system, which will cost the government at least $700 million more in the first year – and more in subsequent years.

But Dr Ng said the government is not giving handouts through the CPF system, which is not meant to be subsidised.

‘We have put in place a long-term framework which provides a fair rate of return on CPF monies that compares well with any offer from private pension plans,’ he said. ‘Most importantly, our CPF system minimises the financial risk to members.’

But CPF members may still run out of savings if they live beyond 85 years. So the government is setting up a committee to look into starting a National Longevity Insurance Scheme, headed by Professor Lim Pin, currently chairman of the National Wages Council.

‘The extra interest that members will get in the new CPF system will be more than enough to pay for this longevity insurance,’ Dr Ng said.

He also said the government will be flexible in accommodating the different circumstances of CPF members and offer different ways to provide for their full-life expectancy.

Members of Parliament generally welcomed the CPF reforms, but some are concerned that yields from long-term bonds will fall, reducing the SMRA rate.

‘Can the government instead guarantee a minimum 4 per cent interest rate, which is what Singaporeans are already enjoying regardless of the market performance?’ said Lam Pin Min (Ang Mo Kio).

 

Source: Business Times 18 Sept 07

US rate cut likely to boost S’pore growth

GDP may rise 1.4% points with 75 basis point cut in Fed rate: Citigroup

SINGAPORE’S economic growth may jump by another 1.4 percentage points, if the key US interest rate is cut by 75 basis points, says Citigroup.

In a report, its economist Chua Hak Bin said he expects the Fed funds and discount rate to be slashed by 50 basis points (bps) to 4.75 per cent and 5.25 per cent respectively at the upcoming Federal Open Market Committee meeting.

Also, he sees another possible cut of some 25 bps before year-end, which will ‘lift Singapore’s gross domestic product growth by 1.4 per cent points’.

Based on Citigroup’s analysis, this is almost double and far higher than the average of 0.8 per cent across Asian economies, because of Singapore’s heavy dependence on external demand and sensitivity of domestic interest rates to US interest rates.

Expectations of rate cuts came after the recent financial market troubles, which have affected US consumption outlook.

For example, ‘US housing prices have declined by an average of 8 per cent, but elevated levels of unsold homes suggest that further corrections are likely’.

Fed rate cuts will thus help cushion and reduce the potential negative impact from slower US growth.

The research house also thinks the Singapore economy is less sensitive to any US economic downturn, due to the diversification away from segments more sensitive to US business cycles, such as the electronics and pharmaceutical sectors.

In all, Citigroup says a one percentage point fall in US GDP growth cuts Singapore’s GDP growth by about 1.7 per cent point.

Indeed, its projected cut in rates may possibly lift Singapore’s GDP growth by more than necessary if US consumer spending does not slow as sharply as expected, aggravating the current pressures arising from supply bottlenecks.

Citigroup believes that the rate cut will strengthen the Sing dollar by 0.6 per cent, improve the current account surplus to GDP by 0.3 per cent point, and increase the fiscal balance to GDP by 0.2 per cent point.

However, the impact on local interest rates is likely to be modest, thus limiting the impact on mortgage rates and property market.

For example, the three-month Singapore Interbank offered rate is expected to shed only about 10 to 20 basis points to about 2.6 per cent in six months’ time, if the US rate cut is realised.

‘This is because short-term interest rates had already fallen sharply in the early part of the year and the ongoing upward adjustment since represents some normalisation.’

Stronger domestic investment growth may also start putting upward pressures on rates early next year.

Overall, Citigroup expects mortgage rates to fall by possibly 10 to 20 bps.

On the property front, Citigroup’s analyst Wendy Koh sees a supply crunch amid strong employment growth and falling vacancy rates. She expects residential rental rates to rise by 20-30 per cent a year.

This came as a record 113,800 jobs were created in the first half of this year, and Citigroup sees residential occupancy rates rising higher next year to over 97 per cent.

 

Source: Business Times 18 Sept 07

Sub-prime’s impact on S’pore ‘hard to gauge’

MAS is monitoring the situation and stands ready to inject funds if needed, says Iswaran

IT is ‘quite a difficult task’ at present to quantify how much the US sub-prime crisis will impact Singapore, Minister of State for Trade and Industry S Iswaran said in Parliament yesterday.

However, the risks have ‘increased’, and Singapore’s central bank is monitoring the situation and stands ready to inject funds if needed, he said.

Mr Iswaran also said that the government’s economic growth forecast for 2007 remains unchanged at 7-8 per cent, despite the recent global market turbulence.

‘The growth in the region and the diversity of our export markets will provide us with some buffer, but we are not immune to a slowdown in the major industrial economies,’ Mr Iswaran said. ‘At this stage, although the risks have increased, it is not clear that there has been a significant spillover into the real economy.’

Second Finance Minister Tharman Shanmugaratnam added that the Monetary Authority of Singapore (MAS) will inject liquidity into the market only if there is a ’systemic crunch’ – such as when normal borrowing and lending between the banks is not taking place. ‘This has not been the case so far,’ he said.

MAS is also working with the Singapore Exchange (SGX) to monitor its members and to ensure that there are sufficient resources in its clearing funds to meet outstanding obligations, Mr Iswaran said.

Separately, Minister for National Development Mah Bow Tan said that there is ‘no sign of a negative impact’ from the sub-prime crisis on the property market here.

‘The property market is driven by economic fundamentals and confidence,’ said Mr Mah. ‘Our economic growth is still healthy.’

The property market in Singapore is currently enjoying a boom. Home prices rose some 7.9 per cent in the second quarter of the year – the biggest quarter-on-quarter gain in about seven years.

All three ministers were responding to questions from their counterparts in Parliament about the impact of the US sub-prime crisis on Singapore.

 

Source: Business Times 18 Sept 07

Your money is safe, bank customers told

France and Spain reassure them after run on a British bank

(PARIS) French and Spanish authorities reassured bank customers their money was safe yesterday amid a run on Northern Rock, a British bank suffering from the US sub-prime credit crisis.

France’s major banks are ’solid’, Economy and Finance Minister Christine Lagarde told a press conference yesterday as international worries mounted over European institutions.

‘French banks, particularly in relation to German banks, are in a very good position,’ Ms Lagarde said after talks with US Treasury Secretary Henry Paulson.

She said French banks were safe ‘quite simply because of their structure, their results and the controls carried out by the banking commission’.

In Madrid, the Spanish central bank issued a statement saying: ‘Spanish institutions, like almost all those in the euro zone, have received liquidity operations from the European Central Bank, but that does not mean that they are experiencing any difficulty.’ It stressed that ‘no Spanish institution has started any sort of emergency financing procedure’.

Mr Paulson said financial market turbulence could continue for a while.

‘It will take a while to work through the turbulence in capital markets,’ he said. However, he added: ‘We’re doing so against a backdrop of a strong global economy.’

Meanwhile, thousands of customers queued to withdraw savings from the embattled British bank and its shares plunged again, heightening pressure for a sale of the business or its assets.

The bank, rescued by emergency Bank of England funding, said there was no need for investors or customers to panic and it remained solvent.

Nevertheless, customers appeared set to continue pulling out savings, and by early yesterday the bank’s shares had more than halved in value since Thursday’s close.

Fears have mounted that a run of withdrawals will exacerbate the lender’s funding problems and force a fire sale of the business.

The problems were triggered by the global credit crunch as banks, worried about exposure to dodgy US mortgage debt, jacked up the price of lending to each other.

As the fallout threatened to have wider economic and political impact, British finance minister Alistair Darling said the authorities would consider every option to solve the crisis.

By 1000 GMT, shares in the bank were down 32 per cent at 296 pence, following a 31 per cent tumble on Friday to cut the bank’s market value to under £pounds;1.3 billion ($3.94 billion). The shares fell as low as 290 pence and have lost 70 per cent this year.

The Newcastle-based bank provides one in 13 British home loans. The Bank of England, as lender of last resort, stepped in on Friday to offer emergency funding to ease its funding problems after it struggled to borrow in money markets.

The bank had not drawn on the emergency facility by Sunday, the government said.

News of the emergency funding line sent thousands of Northern Rock’s 1.4 million savings customers rushing to branches and to the Internet for their money. Customers were estimated to have withdrawn about £pounds;1.5 billion on Friday and Saturday.

Some reports said as much as £2 billion pounds has been withdrawn, which would represent about 8 per cent of its deposits.

Government, banking and regulatory officials are monitoring the situation closely, trying to halt the run on withdrawals.

Northern Rock chief executive Adam Applegarth sought to reassure customers that their savings were secure via a message posted on the company’s website.

‘Your money is safe with us and if you want some, or all of it back, then you are perfectly entitled to it. Whilst you may have to wait a little longer than usual to receive it, you will get it,’ Mr Applegarth said in the message posted on Sunday.

Northern Rock has hoisted a ‘for sale’ sign up and banks including Lloyds TSB have considered deals, according to industry sources, but suitors have been put off by difficult credit markets and uncertainty about the true valuation.

Analysts said the bank, approaching its 10th anniversary as a listed company, is unlikely to survive in its present form.

Moody’s Investors Service affirmed its short-term Prime-1 rating on the bank but placed its long-term investment grade Aa3 rating on review ‘direction uncertain’.

Moody’s said the agreement with the central bank to raise liquidity as necessary meant that Northern Rock will be able to meet obligations as they fall due. But it said Northern Rock would find it difficult to reduce its reliance on the wholesale market.

In an interview published yesterday in The Daily Telegraph, former US Federal Reserve chairman Alan Greenspan also warned of difficulties ahead.

Britain is more vulnerable to a credit crunch than the United States, Mr Greenspan said.

‘Britain is more exposed than we are – in the sense that you have a good deal more adjustable-rate mortgages,’ he said.

 

Source: AFP, Reuters, AP (Business Times 18 Sept 07)

Hong Kong state land fetches HK$4.55b

Sale of Tai Po site at HK$6,368 psf seen boosting secondary property market

IN HONG KONG

THE government has reaped HK$4.55 billion (S$885 million) in one of the biggest land auctions of the year, with the plot selling at the high end of expectations and nearly 50 per cent more than the opening price.

Private property firm Nan Fung Group was the successful bidder of the Tai Po site, which is expected to be developed into a low-rise residential complex of both apartments and houses.

The price is 48 per cent above the opening bid of HK$3.08 billion and comes close to analysts’ top expectations of HK$4.6-4.7 billion. The price works out to HK$6,368 per square foot, with more than 714,000 sq ft to be developed.

Past land auctions this year have been towards the lower range of expectations, dampening hopes of a knock-on effect to the market at large.

‘They (the government) have done well,’ said Ricky Poon, a director at Colliers International. ‘It will affect the secondary market for sure.’

A string of land auctions this year have fetched tepid results for government coffers, with a record sale in December 2006 failing to translate into a run of stellar results in 2007.

That month, a new high was set with the sale of a Peak site to Sun Hung Kai Properties for HK$1.8 billion, making it the most expensive slice of land in the world.The price paid translates into HK$42,196 psf, the highest so far paid for land in Hong Kong.

In June, a residential site along the harbour was auctioned for HK$5.56 billion in a sluggish sale. The auction was tipped to fetch up to HK$7 billion and hopes were high that the sale would inflate prices and trigger buying activity in the mass residential sector, which has treaded water for the first half of 2007.

Developer Sun Hung Kai Properties bid successfully for the 122,200 sq ft site, which enjoys views of the city’s skyline. The minimum asking price for the plot of land had been HK$4.2 billion.

It had been eyed as a catalyst to bigger price movements in the mass market, with many sellers in the secondary market holding off in the hope of gleaning a better price after the auction.

In a previous land auction in May, two sites in the Tuen Mun area were sold for HK$1.74 billion, also below the top end of expectations.

Despite the auction result yesterday, property stocks were feeling the brunt of profit-taking in the sector, with all eyes on the US Federal Reserve today as it decides on future interest rates.

Developers will be hoping for a cut of more than 25 basis points. ‘It depends on the major (Hong Kong) banks,’ Mr Poon noted. ‘Are they going to follow and reduce the interest rate?’

Property firms will be hoping for movement in the mass market, which is still lagging the luxury sector by a wide margin.

While luxury sales saw an increase of about 5 per cent in 2006, Colliers expects growth of between 15 and 20 per cent this year, pushing the sector to new highs and widening the gap between the high-end and mass residential units.

 

Source: Business Times 18 Sept 07

Greenspan’s lament: six years late and US$1 trillion short

If he did not intend to back the Bush tax cuts, he should have said so at the time

By PAUL KRUGMAN

WHEN US President George W Bush first took office, it seemed unlikely that he would succeed in getting his proposed tax cuts enacted. The questionable nature of his installation in the White House seemed to leave him in a weak political position, while the Senate was evenly balanced between the parties. It was hard to see how a huge, controversial tax cut, which delivered most of its benefits to a wealthy elite, could get through Congress.

Then Alan Greenspan, the chairman of the Federal Reserve, testified before the Senate Budget Committee.

Until then, Mr Greenspan had presented himself as the voice of fiscal responsibility, warning the Clinton administration not to endanger its hard-won Budget surpluses. But now Republicans held the White House, and the Greenspan who appeared before the Budget Committee was a very different man.

Suddenly, his greatest concern – the ‘emerging key fiscal policy need’, he told Congress – was to avert the threat that the federal government might actually pay off all its debt. To avoid this awful outcome, he advocated tax cuts.

And the floodgates were opened. As it turns out, Mr Greenspan’s fears that the federal government would quickly pay off its debt were, shall we say, exaggerated. And he has just published a book in which he castigates the Bush administration for its fiscal irresponsibility.

Well, I’m sorry, but that criticism comes six years late and a trillion dollars short.

Mr Greenspan now says that he didn’t mean to give the Bush tax cuts a green light, and that he was surprised at the political reaction to his remarks. There were, indeed, rumours at the time – which Mr Greenspan now says were true – that the Fed chairman was upset about the response to his initial statement.

But the fact is that if Mr Greenspan wasn’t intending to lend crucial support to the Bush tax cuts, he had ample opportunity to set the record straight when it could have made a difference.

His first big chance to clarify himself came a few weeks after that initial testimony, when he appeared before the Senate Committee on Banking, Housing and Urban Affairs.

Here’s what I wrote following that appearance: ‘Greenspan’s performance yesterday, in his first official testimony since he let the genie out of the bottle, was a profile in cowardice. Again and again he was offered the opportunity to say something that would help rein in runaway tax-cutting; each time he evaded the question, often replying by reading from his own previous testimony. He declared once again that he was speaking only for himself, thus granting himself leeway to pronounce on subjects far afield of his role as Federal Reserve chairman. But when pressed on the crucial question of whether the huge tax cuts that now seem inevitable are too large, he said it was inappropriate for him to comment on particular proposals.

‘In short, Greenspan defined the rules of the game in a way that allows him to intervene as he likes in the political debate, but to retreat behind the veil of his office whenever anyone tries to hold him accountable for the results of those interventions.’ I received an irate phone call from Mr Greenspan after that article, in which he demanded to know what he had said that was wrong.

In his book, he claims that Robert Rubin, the former treasury secretary, was stumped by that question. That’s hard to believe, because I certainly wasn’t: Mr Greenspan’s argument for tax cuts was contorted and in places selfcontradictory, not to mention based on Budget projections that everyone knew, even then, were wildly overoptimistic.

If anyone had doubts about Mr Greenspan’s determination not to inconvenience the Bush administration, those doubts were resolved two years later, when the administration proposed another round of tax cuts, even though the Budget was now deep in deficit.

And guess what? The former high priest of fiscal responsibility did not object.

And in 2004 he expressed support for making the Bush tax cuts permanent – remember, these are the tax cuts he now says he didn’t endorse – and argued that the Budget should be balanced with cuts in entitlement spending, including Social Security benefits, instead. Of course, back in 2001 he specifically assured Congress that cutting taxes would not threaten Social Security.

In retrospect, Mr Greenspan’s moral collapse in 2001 was a portent. It foreshadowed the way many people in the foreign policy community would put their critical faculties on hold and support the invasion of Iraq, despite ample evidence that it was a really bad idea.

And like enthusiastic war supporters who have started describing themselves as war critics now that the Iraq venture has gone wrong, Mr Greenspan has started portraying himself as a critic of administration fiscal irresponsibility now that President Bush has become deeply unpopular and Democrats control Congress.

 

Source: NYT (Business Times 18 Sept 07)

The writer is a professor of economics at Princeton University

Odds of recession in US at just above one-third now

Huge inventory of unsold homes adds to selling pressure

(NEW YORK) The probability of a US recession has increased and it is now slightly more than a third, said Alan Greenspan, who earlier in the year put the chances at one-third.

Mr Greenspan said there was a ‘very large’ inventory of unsold, newly built homes putting pressure on builders to sell them quickly, The Wall Street Journal reported in its online edition yesterday, citing an interview with him.

As a result, ‘we have the capability of far bigger price declines’, which will pinch home equity, lead to more defaults on sub-prime mortgages and pressure consumer spending, Mr Greenspan said, according to the Journal.

Mr Greenspan is giving interviews to promote his memoir, The Age of Turbulence: Adventures in a New World, which was being published yesterday.

In the Journal interview, Mr Greenspan said he had put the odds of a national decline in housing prices at less than 50-50, at least until a couple of months ago, based largely on the experience of Britain and Australia.

But he said he had become less optimistic since his book was finished, when it became clear the construction industry was unable to cut the number of housing starts below the rapidly falling level of home sales, the Journal reported.

Mr Greenspan also expressed dismay in the Journal at the Democratic Party. In his book, he criticises President George W Bush and congressional Republicans for abandoning fiscal discipline and putting politics ahead of sound economics.

He told the Journal he was ‘fairly close’ to former president Bill Clinton’s economic advisers, but ‘the next administration may have the Clinton administration name but the Democratic Party . . . has moved . . . very significantly in the wrong direction’.

He cited its populist bent, especially its scepticism of free trade. Mr Clinton’s wife, Senator Hillary Clinton, is the Democratic presidential frontrunner.

Mr Greenspan, a self-described libertarian Republican, said he was not sure how he would vote in the 2008 election, the Journal said.

‘I just may not vote,’ the paper quoted him as saying. ‘I’m saddened by the whole political process, and it’s not an accident that Republicans deserved to lose (congressional elections) in 2006 – it wasn’t that the Democrats deserved to win,’ the Journal quoted Mr Greenspan as saying.

‘When it came time to rule, all of a sudden their ratings collapsed, and the reason they collapsed is they’re just as negative as the Republicans.

 

Source: Reuters (Business Times 18 Sept 07)

CLOSING MARKET REPORT – US stocks end lower as credit worries spread

NEW YORK – US stocks dropped on Monday, led by financial shares, as a rush by savers to withdraw deposits at a large British mortgage lender fuelled concerns that turmoil in the credit markets would spread.

Lines of angry customers outside branches of Britain’s Northern Rock stirred fears that a crisis of confidence could befall other major banks around the world.

Shares of Citigroup, Bank of America Corp and other leading banks and brokerages fell after shares of Northern Rock’s shares plunged more than 35 per cent in London.

The Nasdaq suffered the biggest drop among the major US indices after a decisive antitrust ruling against Microsoft Corp in Europe. Microsoft dropped 1.1 per cent to US$28.72.

Oil prices rose to a record for a fourth session, fanning inflation concerns a day before the Federal Reserve is expected to cut interest rates. Higher prices could constrain the Fed as it works to cushion the US economy from the effects of the global credit squeeze.

The cautious mood was reinforced by comments by former Fed Chairman Alan Greenspan, who warned the risk of a recession had increased while inflationary forces loomed larger.

The Dow Jones industrial average declined 39.10 points, or 0.29 per cent, to close at 13,403.42. The Standard & Poor’s 500 Index slipped 7.60 points, or 0.51 per cent, to finish at 1,476.65. The Nasdaq Composite Index fell 20.52 points, or 0.79 per cent, to end at 2,581.66.

The US central bank is widely expected to lower rates on Tuesday to cushion the US economy from the financial turmoil. The Federal Reserve has not lowered rates by more than 25 basis points at a single meeting in almost five years, but this time, some analysts believe a deeper cut is needed.

Several big Wall Street companies will report earnings this week that investors fear could reveal a deeper impact from the credit rout.

Lehman Brothers, which is scheduled to report early Tuesday, was down 1.5 per cent at US$58.62. Morgan Stanley was down 1.8 per cent at US$64.91.

Merrill Lynch & Co, which said its subprime lending unit, First Franklin Financial Corp, is cutting jobs, dropped 2.4 per cent to US$72.85.

Bank of America dropped 0.9 per cent to US$49.51 and Citigroup lost 1.3 per cent to US$46.03.

Oil rose US$1.47 to settle at US$80.57 a barrel, and hit a fresh record intraday of US$80.70. The jump is a drag on the broader market because higher oil prices mean bigger expenses for consumers and business, but energy companies’ shares were among the market’s leading advancers. Exxon Mobil Corp rose 0.7 per cent to US$89.26.

 

Source: REUTERS (Business Times 18 Sept 07)

US is the No 1 risk to world economy: US prof

Other sources of political threats are China, Iraq and oil prices: US economist

(SINGAPORE) By far the greatest risk to the global economy is the United States – not least because some of its foreign policy decisions could well drive oil prices past US$125 a barrel, says an American political economist.

Marvin Zonis, a professor at the University of Chicago’s Graduate School of Business, places the US at the top of his list of threats to the global economic boom, ahead of China, Iraq and oil prices, in that order.

Speaking to BT during a visit here last week, he cited the US invasion of Iraq, ‘failure in Iraq and massive failures in dealing with its own economy’ as evidence of US policy disasters.

‘The reality is that the US government has been managing its affairs in the worst possible manner for many years,’ he said.

Prof Zonis heads a political risk consultancy, Marvin Zonis & Associates, in Chicago, and is a member of the board of advisers to the US Government Accountability Office (GAO), the investigative arm of Congress that scrutinises government spending.

Citing figures gleaned from his GAO role, in 2001, the present value of the US government’s unfunded liabilities amounted to US$20 trillion, he said.

In other words, the US government owed Americans US$20 trillion in terms of future pensions, social security and medical benefit payouts as at 2001.

By 2007, the present value of the sum has ballooned to US$50 trillion.

‘And that’s because the President, and the Republican-controlled Congress, increased all the benefits without any commensurate increase in taxation,’ Prof Zonis said.

‘And so the US, which has a GDP of US$14 trillion, has unfunded liabilities worth US$50 trillion in the same dollars. This is a country that is going bankrupt. That is reality. And people in America don’t want to hear this.’

And more than half of the US government’s outstanding obligations are owned by non-Americans. That, plus the ballooning US current account deficit, which is running at around US$900 billion a year, can only spell a weakening greenback.

China – with its myriad short-term and long-term ‘very serious’ problems – poses the second most important source of political risk in the world, Prof Zonis said.

While the US ‘and every rich economy in the world’ are driven by personal consumption, China, the world’s biggest factory, spends 45 per cent of its GDP on capital investment – the highest proportion anywhere in the world, ever. Consumer spending accounts for only about 40 per cent of the Chinese economy.

In Prof Zonis’s view, China has built its economy on capital investments, but at some point it will have to ’stop building more new factories, and start closing down the factories’. That will pose major socio-political problems in employment and urbanisation – and ultimately, possibly derail economic growth.

In any case, China faces the huge challenge of managing inflation in the face of growing food prices, ‘without powerfully slowing down the economy’.

Prof Zonis, who has been studying Middle Eastern affairs since the 1960s and who used to go to Iraq every two years for years, describes the third big risk – Iraq ‘and everything that comes from Iraq’ – as another US-inspired problem.

‘The invasion of Iraq is already the greatest disaster in the history of US foreign policy,’ he said, maintaining that it is a non-partisan remark.

And if the US does go on to attack Iran, there is the chance that oil prices – which hit a high past US$80 per barrel last week – could spiral into the US$125-US$150pb range, which would be ‘really devastating for the global economy’, he said.

 

Source: Business Times 18 Sept 07

Pound plunges on UK lender worries

THE British pound unexpectedly stole the show as the heaviest loser in Asia yesterday, ahead of a key US interest rate decision later this evening.

Traders reported that the pound fell back below US$2 for the first time in more than a fortnight, tumbled to a fresh 14-month low versus the euro, and slid to its weakest in a month versus the Singapore dollar – punished by news late last week that a British mortgage lender called Northern Rock had to seek Bank of England assistance for longer-term funding.

The currency’s woes accelerated at the European open yesterday on news that Northern Rock’s share price had fallen by more than a third. By the Asian close, the British unit was one per cent worse off at US $1.9975, 0.9 per cent weaker at 69.4 pence per euro and 0.7 per cent softer at S$3.0286.

The most conspicuous feature of the British mortgage lender’s funding problems has become an all too familiar one these days.

While, according to British regulators, Northern Rock is still solvent, the bank had been over-reliant on short-term inter-bank funding for its longer term loan assets. When access to such funds dried up in recent weeks, it was forced to secure funding directly from the Bank of England.

British investment bank Barclays Capital researchers cited a BBC report that Northern Rock had rapidly expanded its share of the UK mortgage market over the past year. It reportedly has total assets in excess of £100 billion (S$302 billion), against retail deposits of something like £24 billion.

The upshot was that the pound finished the day worst-hit versus the US dollar despite a widespread belief that the US Federal Reserve’s interest rate committee will trim its official short term interest rate later tonight.

Fed-watchers have forecast that it may trim its 5.25 per cent Fed funds interest rate by a quarter to half a per cent in response to an unhappy combination of worries traceable to the troubled US housing sector and the unexpected news of US job losses last month – not to mention the weaker than expected August retail sales number reported last Friday evening.

Elsewhere in Asia, Wall Street’s indifferent performance last Friday combined with news of weaker European stocks yesterday to punish selected Asian bourses – and in turn their currencies – yesterday. This notwithstanding a heroic bounce in Chinese stocks which blithely brushed aside news late last week of a fifth Chinese interest rate hike this year.

Conspicuous stock market-related losers yesterday included the Singapore and Taiwan dollars. By the Asian close, the greenback was between 0.2 and 0.3 per cent firmer at S$1.5162 and NT$33.12.

Further north, in contrast, Japan’s Nikkei stock index recorded a gain of almost 2 per cent as the US dollar attempted to push its way back above 115 yen for a third consecutive session.

Down Under, carry trades in favour of the Australian dollar and New Zealand dollar were also trimmed as the pound lost ground, traders suggested – leaving them 0.2 and 0.5 per cent worse off at 83.84 US cents and 70.94 US cents respectively.

 

Source: Business Times 18 Sept 07

More pain looms for British home owners

(LONDON) Britain faces higher interest rates and inflation, according to an interview published here yesterday.

Former US Federal Reserve chairman Alan Greenspan said there are ‘difficulties’ ahead for British home owners as rising interest rates put the brake on house price growth.

‘Can (the boom) last? No, you’re already beginning to see the mortgage rates are moving; a lot of the two year fixes are beginning to unwind and the teaser rates are going,’ Mr Greenspan said in an interview with the Daily Telegraph, referring to mortgage rates that rise after an introductory period.

Confidence in the UK’s economic outlook was dimmed last Friday when a survey by property website Rightmove pointed to a sharp slowdown in Britain’s property market.

Many investors have recently abandoned expectations of another hike in the Bank of England’s 5.75 per cent policy rate, as tensions in UK money markets show no signs of letting up and the housing market appears to be peaking.

However, the Daily Telegraph said Mr Greenspan w1arned that UK interest rates may have to hit double figures in the coming years to keep inflation at its current low level.

‘In Britain, the housing (market) hasn’t turned yet, and the consumer households are more subject to interest rate changes than in the US,’ Mr Greenspan said.

 

Source: Reuters (Business Times 18 Sept 07)

Fed slashes US interest rates to buffer economy

WASHINGTON – The Federal Reserve on Tuesday slashed US interest rates by a hefty half-percentage point in a bold bid to shield the economy from a housing slump and financial turbulence, sparking a big rally on Wall Street.

The unanimous decision by the central bank’s policy-makers took the benchmark federal funds rate, which governs overnight loans between banks, down to 4.75 per cent, its lowest since May of last year. The Fed also cut the discount rate it charges for direct loans to banks by a half-point to 5.25 per cent.

It was the first cut in the federal funds rate – the Fed’s main tool to influence the economy – since June 2003 and the first half-point cut since November 2002.

Financial markets had widely expected the Fed to lower overnight borrowing costs, but were surprised by the aggressive half-point move, the first rate cut since Ben Bernanke took over as chairman of the central bank in February last year.

Stock prices surged as the decision gave investors hope the housing and credit turmoil wouldn’t drag the economy down.

The blue-chip Dow Jones industrial average closed up 335.97 points, or 2.51 per cent, at 13,739.39. It was the Dow’s best daily percentage gain since 2003.

However, prices for long-term government debt fell, suggesting some investors worried the Fed would fail to keep inflation tamped down, although prices for short-term notes rose in anticipation of further rate reductions.

Others worried the Fed may be prematurely abandoning its vigilance against inflation to soothe markets.

Commercial banks swiftly followed the Fed and cut the prime rate they charge their best customers for loans.

In a statement outlining its decision, the Fed said its move was a pre-emptive strike to neutralise the impact of market turmoil on the economy.

‘Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time,’ it said.

The central bank said it still believed the economy faced some risk of inflation, but said market developments since its last meeting in early August had increased the uncertainty surrounding the outlook.

‘The committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth,’ it said.

There has been accumulating evidence that a prolonged US housing market downturn and a wild financial market ride over the summer have taken a toll on broader economic activity.

A decline in employment in August, the first drop in four years, appeared to confirm that housing-related strains were weighing on businesses and households.

In addition, reports on retail sales and industrial output in August also showed some softness.

At its previous regular meeting on Aug 7, the US central bank had said its predominant concern was inflation, even as it noted tighter credit and financial market volatility.

Within days, financial markets unraveled as French bank BNP Paribas froze three funds with US subprime mortgage market exposure. The Fed on Aug 10 said it would pump cash into the banking system as needed to keep markets functioning normally.

Even so, stock markets tumbled the following week, at one point plumbing declines of more than 10 per cent below 52-week highs before rebounding.

The Fed then stepped in on Aug 17 with a surprise cut to the discount rate and an explicit acknowledgment that risks to economic growth had ‘increased appreciably’. Tuesday’s rate cut seeks to address those risks.

 

Source: REUTERS (Business Times 18 Sept 07)

China to raise downpayment for second homes: sources

(BEIJING) China will soon raise the downpayment requirement for people buying their second home to 40 per cent, in an effort to curb speculation in the red-hot property market, banking and regulatory sources said yesterday.

It will also raise to 50 per cent from 40 per cent the downpayment requirement for commercial property like offices and retail space, the sources told Reuters. They did not provide a specific date for the changes, but one official said they would be unveiled ‘very soon’.

‘In order to curb the excessive rises in property prices, the government will on the one hand increase the supply of low-rent flats and on the other hand raise the downpayment requirement,’ said one source.

Annual property price inflation in 70 major cities accelerated to 8.2 per cent in August, with prices going up 20.8 per cent in the southern boomtown of Shenzhen and 12.1 per cent in Beijing. State media said the nationwide rise was a record high.

After the changes, there will be three different levels of downpayment requirements for people seeking mortgages to purchase a home. Anyone buying a second or subsequent home will need to put down 40 per cent; those buying their first home will pay 30 per cent if it is larger than 90 sq m (969 sq ft); and those buying a first home that is for their own use and is smaller than 90 sq m will need to pay 20 per cent.

It will be the second time in about 15 months that Beijing has raised downpayment requirements to try to cool down the property market. The Cabinet raised it for home mortgages to 30 per cent from 20 per cent in June 2006 as part of a package of measures to deter property speculation, exempting smaller, owneroccupied flats.

 

Source: Reuters (Business Times 18 Sept 07)

Surprising jump in new home sales last month

Private property sales up 25%; most were less pricey ones away from central area

SALES of new private property homes made a surprising jump last month, despite August being a traditionally slow month for property deals.

Home buyers seemed to brush aside the usual worries over buying property during the Chinese Hungry Ghost month – considered unlucky – which falls in August this time around.

In fact, they bought 25 per cent more new homes last month than in July.

And in a departure from previous months, most of the homes sold last month were less pricey ones away from the prime central area.

Indeed, mid-tier and cheaper private properties in suburban districts are being touted as the next big thing in the market, said property consultants.

Last month’s sales were boosted by strong response to cheaper developments such as The Parc Condominium in West Coast Walk and Soleil@Sinaran in Novena. Together, these two projects sold 1,053 units, or 61 per cent of all new homes sold in the month.

In all, developers sold 1,720 new homes last month, according to the latest figures released by the Urban Redevelopment Authority (URA) yesterday.

This compares with 1,381 deals in July and 1,150 in June, when the URA began tracking such data.

Of the new homes sold last month, almost half went for $1,000 per sq ft (psf) or less. There were 820 units sold in this price range last month, double that of July.

The number of pricey homes that cost more than $2,000 psf also plunged. Only 86 of these homes were sold last month, compared to 370 in July.

In general, price growth of new units was ‘muted’ in August, said Ms Tay Huey Ying, director for research and consultancy at Colliers International.

She added that despite the rise in new home sales last month, overall home sales still fell compared to July.

This was mainly due to a decline in secondary market sales, or re-sales of existing homes, she said. All things considered, total home sales dropped 36 per cent last month from July.

Sub-sales – which are re-sales of uncompleted homes and used to gauge property speculation – also fell by about two-thirds, she said.

Ms Tay attributed the fall to the Hungry Ghost month as well as the US sub-prime mortgage crisis, and said that ongoing credit woes may slow home sales this month too.

But she and other property experts agreed that market activity might pick up again in the last three months of the year, with a number of new launches in the pipeline.

The recovery is likely to be led by a long-awaited upswing in suburban home sales, said Mr Ku Swee Yong, director of marketing and business development at Savills Singapore.

He noted that prices of entry-level condos have already risen and will set new benchmarks in the months to come.

‘Last year, the market was defining mass market condos as those below $600 psf,’ said Mr Ku. ‘But now, we are moving out of that. Already in August, only 5 per cent of condos cost less than $750 psf, and soon, most new launches will be above $800 psf.’

 

Source: The Straits Times 18 Sept 07

Property investment sales may hit record $50b this year

MAJOR property deals in Singapore are set to reach an all-time high this year, according to property consultancy CB Richard Ellis (CBRE).

It predicted that a record $50 billion in investment property sales would be done by year-end. These are transactions above $5 million each.

CBRE said in a report yesterday that $37.91 billion worth of such sales have already been recorded since January, already surpassing last year’s total of $30.56 billion by 24 per cent.

CBRE’s prediction has been raised from an earlier forecast in June, when it said it expected $35 billion worth of investment deals.

The current pace of deals, however, has led it to raise its expectations by a substantial amount, Mr Jeremy Lake, CBRE’s executive director for investment properties, said.

Between June and September, $12.73 billion worth of investment transactions were carried out.

A quarter of these were in the public sector, where major deals included the $1.69 billion sale of a commercial site along Beach Road and the sale of two Anson Road office sites for $629.13 million in total.

Collective sales also remained strong for much of the third quarter, generating $1.74 billion in deals, said Mr Lake.

This helped the residential segment take the lion’s share of investment sales so far this year. Sales of residential properties accounted for 63 per cent of total sales, or $23.79 billion in all.

Offices made up 24 per cent, or $9.23 billion so far this year, while industrial properties contributed 4 per cent, or $1.51 billion.

 

Source: The Straits Times 18 Sept 07

Economy on track despite US sub-prime woes

THE Singapore economy is still on track to meet the official 7 to 8 per cent growth forecast even as world financial markets grapple with a credit crunch sparked by a United States housing crisis.

Ministers told Parliament yesterday that financial and property markets here are still in good health and that there is plenty of cash in the system.

But they said the risk of the money market woes spilling over to the real economy has risen, adding that the central bank is ready to intervene if necessary.

‘It’s too early to assess how the sub-prime mortgage problem in the US housing market will affect credit and other financial markets,’ said Minister of State for Trade and Industry S. Iswaran. ‘At this stage, although the risks have increased, it’s not clear that there has been a significant spillover to the real economy.’

In recent weeks, rising numbers of defaults of US home loans to risky or sub-prime borrowers have triggered a tightening of liquidity in money markets.

Since global money markets are interconnected, this has caused a wider aversion to debt financing as investors prefer to hold on to cash in these uncertain times.

If this uncertainty drags on, borrowing costs may rise sufficiently to curtail investment and consumption, especially in the US and Europe.

For export-oriented Singapore, a slowdown in its two biggest export markets would inevitably take some wind out of the local economy, said Mr Iswaran.

Second Finance Minister Tharman Shanmugaratnam, who is also Education Minister, said financial institutions here have been prompt in disclosing their small exposure to US sub-prime mortgages.

He added that the benchmark interest rates at which banks lend money to each other are at pre-crisis levels.

‘That’s a good indication that the market has been stable and liquidity has been ample.’

Mr Tharman said Singapore’s central bank, the Monetary Authority of Singapore, has not had to ‘do anything extraordinary’. But it is ready to inject liquidity if there is a systemic shortage where ‘normal borrowing and lending between banks is not taking place’.

National Development Minister Mah Bow Tan said the local property market has so far been unaffected by the US sub-prime woes. ‘New developments are still unfolding every day.’

 

Source: The Straits Times 18 Sept 07

Greenspan places recession odds at just above one-in-three

Former Fed chief also warns against cutting rates too aggressively, cites inflation threat

NEW YORK – FORMER United States Federal Reserve chairman Alan Greenspan has placed the probability of a US recession at slightly more than a third, after he put the chances at one-third earlier in the year, The Wall Street Journal reported in its online edition yesterday.

Mr Greenspan, 81, said there was a ‘very large’ inventory of unsold, newly built homes that builders need to sell quickly, the Journal reported.

As a result, ‘we have the capability of far bigger price declines’, which will pinch home equity, lead to more defaults on sub-prime mortgages and pressure consumer spending, he told the Journal.

Mr Greenspan told the Financial Times, however, that his successors at the Fed, who are meeting today to set interest rates, would have to be careful not to ease rates too aggressively because the risk of an ‘inflationary resurgence’ was greater now than when he was Fed chief.

The US central bank is widely expected to cut its benchmark federal funds rate – currently at 5.25 per cent – by at least a quarter of a percent age point to help the economy weather the housing downturn and a credit crunch.

Mr Greenspan, who stepped down as chairman of the Fed in January last year after more than 18 years at the helm, is giving interviews to promote his memoir, The Age Of Turbulence: Adventures In A New World.

In his book, he cautions that the biggest long-term threat to the US economy is not the current housing correction but the likelihood that inflationary pressures will resume over time.

As economic globalisation winds down – as workers from the former centrally planned economies of Eastern Europe are absorbed and as the costs of Chinese imports begin to rise – the forces that have kept prices down will disappear, he said.

The Fed could keep inflation at desired levels but might have to raise interest rates into the double-digit range to do so, he wrote.

In the Journal interview, Mr Greenspan said he had put the odds of a national decline in housing prices at less than 50-50, at least until a couple of months ago, based largely on the experience of Britain and Australia.

He said, however, that he had become less optimistic since his book was finished, when it became clear the construction industry was unable to cut the number of housing starts below the rapidly falling level of home sales, the Journal reported.

Mr Greenspan also told the Financial Times that the rise in defaults on sub-prime mortgages was only the trigger that set off a broad re-evaluation of risk.

He said the price of risk had fallen to unsustainably low levels beforehand, with investors addicted to assetbacked securities that offered some additional yield over Treasury bonds as if they were ‘cocaine’. Mr Greenspan said this demand induced the big increase in the origination of subprime mortgages by mortgage brokers.

He said the off-balance sheet investment vehicles that issued much of the asset-backed commercial paper represented a ’savings and loans disaster waiting to happen’ because of the mismatch between their assets and liabilities.

He said the issuance of asset-backed commercial papers and collateralised debt obligations – securities that slice up and repackage loans to meet the risk-appetite of different investors – ‘will never get back to the levels and structures that they were, because now everybody knows you cannot price them’.

Source: REUTERS, FINANCIAL TIMES (The Straits Times 18 Sept 07)

HDB move to cut concrete use pays off

It adopts alternative materials and techniques following Indonesian sand ban

STEEL, aluminium and even glass are to be the new concrete for many of the Housing and Development Board’s latest projects.

Materials and techniques which might not have been cost-effective in the past have become increasingly viable following the rise in the price of concrete caused by January’s ban on exports of sand from Indonesia.

The HDB says that initiatives it has already taken, such as using steel instead of concrete to construct lift shafts, have already achieved positive results.

The HDB told BT that using steel in a conventional 12-storey block has reduced the amount of concrete needed for lift shafts by 90 per cent. ‘This leads to an overall cost savings of about 20 per cent and a shortening of construction time by 20 per cent,’ a board spokesman said.

A conventional 12-storey concrete lift shaft can require up to 90 cubic metres of concrete.

This new method of construction was piloted in projects in Yishun, Jurong East and Marsiling and the HDB says that since April, use of the technique has been extended. Another upside of the new method is that an additional 250 blocks which previously exceeded the budget for the Lift Upgrading Programme now become eligible.

Following the sand ban, the HDB – probably Singapore’s biggest developer – said that it would try to cut the use of sand by as much as 30 per cent. By volume, sand is the main ingredient of concrete.

‘While engineers work towards economising on materials and designs, architects will continue to ensure that the outcome retains its desired aesthetics and functionality,’ said the HDB.

Building layouts and structures are being fine-tuned to optimise concrete usage. But some of the new architectureled initiatives include the simple tweaking of previous HDB design guidelines.

One new idea involves providing much larger glass windows. The HDB has been providing bay windows in flats since 2004. ‘Taking this a step further to improve economy and reduce sand use, we now provide three-quarter and full-height glass windows for bedrooms and living rooms respectively,’ the board said.

Other simple solutions include changing the design of concrete parapets along corridors. Since 2000, most parapets have been built using perforated aluminium panels. HDB says that all HDB buildings tendered from June onwards will have parapets designed with slits or perforations to reduce the concrete use – or simply have metal parapets.

Other solutions involve replacing concrete designs with metal ones. For new shelters and linkways, HDB plans to use steel columns instead of concrete.

Modular steel ramps were tried out at Woodlands Street 83 and will be introduced to more HDB estates in line with its Barrier Free Access initiative.

The HDB said: ‘As the industry exploits new materials, methods and technology in our move towards sustainable construction, we believe home buyers will also grow more receptive to the use of these new materials and designs.’

 

Source: Business Times 17 Sept 07

Tan Chong’s property assets catching Guoco’s eyes

TAN Chong International appears now to be more of a property play than a seller of motor vehicles. That’s why several analysts, including Singapore’s Kim Eng Research, are calling a buy on the stock at current prices – on Friday, it closed 2.5 Hongkong cents lower at HK$2.325.

Kim Eng on Sept 5 set a target for the stock at HK$3.62 – 4 per cent down from an earlier target of HK$3.77. It attributes the downward revision to the recent change in development charges, which it said affected its valuation of Tan Chong, as it had earlier factored in the combined redevelopment of Tan Chong Motor Centre and The Wilby Residence, both off Bukit Timah Road.

Kim Eng said: ‘The higher DC rates resulted in a higher development charge and consequently our valuation for the company’s investment properties has decreased from HK$2,591.1 million to HK$2,293.8 million.’

Although the property scene in Singapore has been somewhat dampened by the hike in development charges and the more recent changes in en bloc rules, most property players and observers are still bullish on the sector’s long-term outlook.

It’s Tan Chong’s property assets that have perhaps also attracted Malaysian business tycoon Quek Leng Chan to increase his stake in the company through his Guoco Group. Guoco increased its stake in Tan Chong from 11.02 per cent at the end of last year to 12.11 per cent at end-June this year.

Everyone knows that Mr Quek is a shrewd investor and he perhaps also sees an opportunity to increase his stake even further, given market talk about the house of the Tans who currently control Tan Chong.

According to previous media reports, there is little love lost between the Singapore and Malaysian side of the founding family – between Singapore-based company chairman Tan Eng Soon and his uncle Tan Kim Hor.

In recent years, the chairman appears to have consolidated his position, with the latest annual report showing he has 16.66 per cent of the company. In total Tan Chong Consolidated, the holding company of the founding family, owns 45.34 per cent.

While the trigger point for a compulsory general offer for a listed company in Hong Kong is 35 per cent, this should pose little difficulty for a takeover artiste like Mr Quek, nor is he short of the resources to make a takoever offer for a company with a market capitalisation of under $1 billion.

In the meantime, the company’s car sector is doing less well as sales of its main line – Nissan – continue to decline in the face of fierce competition from the likes of Toyota and Honda and from parallel importers. Sales of Nissan fell from 10,045 units in 1H06 to 6,746 in 2H06 and to 6,106 in 1H07.

Things are brighter, however, at its Subaru and Nissan heavy commercial vehicle divisions, with sales of the former rising from 1,836 units in 1H06 to 2,323 units in 2H06 and to 3,185 in 1H07.

Kim Eng’s target price is based on the sum-of-the-parts of Tan Chong’s vehicle distributorship business, its high net cash position of about HK41 cents a share, and the estimated market values of its investment and held-for-sale properties.

Details like these must surely have not escaped the eyes of Mr Quek and his advisers.

A takeover attempt by Mr Quek would be a boost to the fortunes of weary minority investors.

Source: Business Times 17 Sept 07

Private home deals hit hefty $32.8b in first half

DTZ expects transactions this year to significantly surpass last year’s record $36b

(SINGAPORE) A hefty $32.8 billion worth of private residential properties changed hands in the first six months of this year – more than double the $15 billion chalked up in the same period last year.

And the number is just about 9 per cent shy of the record $36 billion for the whole of 2006, according to an analysis of caveats by DTZ Debenham Tie Leung.

Driving the robust first-half showing has been the rapid escalation of private home prices and rising sales activity including collective sales.

DTZ expects the value of private homes transacted for the whole of this year will ’significantly surpass’ last year’s record high.

Despite a slowdown in August, the firm’s executive director Ong Choon Fah expects strong sales in the primary as well as secondary markets in the coming months. She is of the view that confidence in the Singapore property market remains good and that ‘there’s still liquidity here’ despite the sub-prime mortgage problems in the US.

Private apartments and condos accounted for $26.4 billion, or 80 per cent, of the value of H1 2007 private home deals. This is a 126 per cent jump from the same year-ago period, and is close to the $28.8 billion for the whole of 2006.

The average value per non-landed private residential transaction was $1.61 million in H1 2007. This is about 7 per cent higher than the $1.51 million average value per deal for full-year 2006.

‘This was due to the continued interest for high-end residential properties, a significant price increase and rising land values which bolstered premiums achieved in collective sales,’ DTZ said in its report.

The traditional prime districts of 9, 10 and 11 made up slightly over half, or about $13.8 billion, of the total value of non-landed private home transactions in first-half 2007. And DTZ reckons the full-year 2007 figure is very likely to surpass the record $16.2 billion for the whole of 2006.

The average value per transaction for prime district apartments and condos also hit a record $2.84 million in H1 2007, which was 7 per cent higher than the $2.67 million average for the whole of last year.

DTZ’s analysis was based on caveats captured by the Urban Redevelopment Authority’s Realis system dating back to 1995. The analysis showed that the secondary market made up slightly over two-thirds of transaction values for islandwide non-landed homes in H1 2007, and the same was true for the prime districts, in tandem with strong secondary market activity seen in the first half.

The secondary market covers both resale and subsale deals. Resale deals are secondary market deals in projects that have received their Certificates of Statutory Completion, while subsales involve developments that have yet to do so.

In total, $3.5 billion worth of apartments and condos changed hands in H1 2007 in the subsale market, 12 times the $290 million in the same year-ago period.

The H1 2007 subsale value trailed only the $3.9 billion for the whole of 1996, when property speculation was rampant. DTZ expects the full-year 2007 value of subsale apartment and condo deals to exceed 1996’s, supported by rising property prices.

The average value per transaction of subsale apartments and condos was at a record high in H1 2007, at $1.62 million, surpassing the $1.35 million average for full-year 2006.

DTZ’s Mrs Ong is confident about the momentum of private home sales in the coming months in both the primary and secondary markets.

Prices in the secondary market have risen but there’s still a significant price gap between new launches and older properties, even for those that received Temporary Occupation Permits just about a year or so ago. So resale will continue to do well.

In the prime districts, demand for resale properties will also continue to be supported by strong investor interest, as rents increase amidst tight supply in the short term, as numerous sites sold through collective sales will be torn down for redevelopment,’ she says.

‘In the primary market, developers will do well for mass-market project launches. Housing and Development Board resale flat prices have started to recover and this is providing bottom-up support for the property market. In the high-end segment, some niche projects in the prime districts may be relatively small but these are big-ticket items so that will still chalk up the sale value tally,’ Mrs Ong says.

On the US sub-prime mortgage problems, Mrs Ong says: ‘When there is uncertainty, there is a flight to safety and gateway cities like Singapore are perceived to be safer than others,’ she says.

Drop in subsales points to more stable prices ahead.

 

 

Source: Business Times 17 Sept 07

Drop in subsales points to more stable prices ahead

Speculation window seen closing, with prices in high-end sector peaking

(SINGAPORE) The number of property subsales – an indicator of speculative activity – appears to be stabilising, possibly even falling.

Some industry players even believe that this could mark the beginning of more stable prices in the months to come.

Official property statistics for the third quarter will not be out until next month but monthly figures tabulated by CB Richard Ellis show a surprising dip in the number of subsales between the months of June and July.

The July figures will be updated in time but the drop is still likely to be an estimated 5-10 per cent. This comes after numbers that have been rising consistently for the three months in the second quarter of 2007.

One explanation for this could be that the window of opportunity for speculators is closing, with prices in the highend sector peaking.

CB Richard Ellis executive director Li Hiaw Ho said: ‘If you don’t have sharp increases in prices, you don’t have property speculation.’

Speculators could also be discouraged by the volatility in the global markets. ‘Because of the sub-prime crisis, a lot of buyers are exercising caution,’ said Mr Li.

Another indication that speculators could be cooling off is that the number of returned options to buy new condos also appears to be dropping.

In January, the high-profile launch of One Shenton attracted many punters hoping to flip units before exercising their options. And even though it was fully booked within days of the launch, industry watchers believe that as much as 15-25 per cent of the options were returned in the following months when speculators failed to get their target prices.

Since then, there have been several more high-profile launches. Among the most notable ones were Orchard Residences – which has since set the record for the most expensive property in Singapore at $5,500 psf – and Scotts Square.

Both developers declined to reveal the number of options returned. But persistent talk in the market has it that ‘many’ options were returned for Scotts Square.

A source said that the figure was closer to about 5-10 per cent, which in comparison is perhaps not as high as might be expected for such a prime location.

CapitaLand’s Seafront on Meyer was launched in Q2 and saw queues of buyers forming at its showflat. Now 80 per cent sold, CapitaLand said that only 3 per cent of the options were not exercised.

One Rochester, another hot property launched in Q2, also saw queues at its showflat. Developer United Engineers Ltd (UEL) said that it was surprised that only 10 per cent of the options for the fully sold condo were returned.

UEL CEO and group managing director Jackson Yap said: ‘Initially, we had some concerns about the number of returned units as the option period coincided with the sub-prime crisis. We are rather happy that the number of returned units eventually stabilised at 10 per cent, which reflects a high proportion of genuine buyers who are confident of the strong fundamentals of the development.’

Speculators are very much a part of the market and do actually have a function as they help set the threshold prices that buyers are willing to pay.

UEL’s Mr Yap added: ‘We are in no urgency to sell the returned units, although there is a waiting list of genuine buyers, in this current market. We have more than covered our costs through the rest of the sales, and feel there is a need to protect the selling prices for a high-quality development like ours.’

One Rochester was sold at a price ranging between $900 psf and $1,600 psf. Whether these prices will go up could depend on how gung-ho speculators will be in the coming months.

The Soleil at Novena was launched last month and is almost fully sold. Developer UOL said that to-date, 42 per cent of its buyers have exercised their options. The remaining 58 per cent have until the end of the month to exercise theirs.

 

 

Source: Business Times 17 Sept 07

CapitaLand sells its stake in Hong Kong’s AIG Tower

The developer will book S$260.7m gain on completion of the divestment

CAPITALAND has sold its entire 45 per cent effective stake in AIG Tower in Hong Kong in a deal that values the asset at HK$8.1 billion (S$1.6 billion).

Upon completion of the divestment – due on or around Nov 30, 2007 – CapitaLand will recognise a gain of about S$260.7 million in its group consolidated accounts.

The HK$8.1 billion valuation reflects a price of HK$22,042 per square foot (psf) based on AIG Tower’s net lettable area of 366,072 square feet. The Grade A office building at No 1 Connaught Road, Central has 999-year leasehold tenure and was completed in 2005. It was developed on the former Furama Hotel site that the former Pidemco Land bought a stake in from Lai Sun Group in 2000.

Pidemco, which later merged with DBS Land to form CapitaLand, subsequently sold half of its stake in the site to American International Assurance Company (AIA).

AIA is also the party that is buying CapitaLand’s 45 per cent effective stake in the building under the latest deal announced yesterday. This will boost AIA’s stake in the property to 90 per cent with Lai Sun holding the remaining 10 per cent.

Major tenants in the building, which is fully leased, include AIA, Bank of Tokyo-Mitsubishi, Royal Bank of Scotland and Wachovia Bank.

CapitaLand has also been divesting some of its Singapore office assets. Late last month, it sold its 50 per cent stake in Chevron House along Raffles Place in a deal that valued the asset at $730 million, or $2,780 psf of net lettable area.

Earlier last month, CapitaLand also paid $590.3 million for the remaining 50 per cent stake in Eureka Office Fund, which owns One George Street. This valued the award-winning office block at $1.2 billion, or about $2,700 psf.

In March, CapitaLand divested its effective 90.04 per cent stake in Temasek Tower, which was sold for $1.04 billion or $1,550 psf.

During the group’s first-half results briefing on July 31, CapitaLand Group president and CEO Liew Mun Leong stressed that the Singapore office sector will remain ‘a core holding’ to the group but that it will restructure its portfolio by divesting some existing office assets and investing in new developments.

He cited as an example of the latter the group’s bid for the former NCO Club and Beach Road Camp grounds. Last week, the Urban Redevelopment Authority awarded the site to a consortium led by City Developments.

 

Source: Business Times 17 Sept 07

Nomura eyes property to grow in Asia

It forms unit to develop Reit business in S’pore

(HONG KONG) Nomura Holdings, the top brokerage in Japan but a smaller player elsewhere in Asia, has launched a property investment business and is investing in companies before they go public to help build up its equities business in the region, a top banker said.

Philippe Espinasse, who joined Nomura as co-head of Asian equity capital markets two months ago, said that the brokerage wants to grow beyond selling deals to Japan’s vast investor base. ‘We’re definitely expanding the focus beyond the Japanese distribution channel,’ said Mr Espinasse, who was previously head of Asia equity capital markets at Macquarie Bank .

Nomura ranks far down the league table this year in 70th place for equity capital markets deals in Asia-Pacific outside Japan, well below its 16th and 15th place finishes for 2006 and 2005, respectively, according to Thomson Financial.

‘As one of the very top investment banks in Asia including Japan, definitely, I’d like to get back in the Top 10 for Asia ex-Japan ECM,’ said Mr Espinasse, who has spent a big chunk of his first months on the job flying around the region to meet clients.

Nomura is looking to put more of its own capital to work by investing in companies ahead of their initial public offerings (IPOs), which would put it in pole position for underwriting mandates. ‘You have to select your niches, go after transactions in sectors where you have a competitive edge,’ he said.

Powered by China and India, Asia is a growth engine for global investment banks and Nomura is battling established players in the region such as UBS, Goldman Sachs and Morgan Stanley, as well as banks that have been recently beefing up operations in the region, such as Lehman Brothers and Bear Stearns.

‘At the end of the day, it’s about being more aggressive and confident, going on the road and meeting clients and explaining how and where Nomura can add value,’ Mr Espinasse said.

Nomura, which has said that it is weighing acquisitions to enter the booming stockbroking business in India, was one of five banks to help India’s HDFC Bank Ltd raise US$698 million through an American Depositary Share issue.

Mr Espinasse said that while Nomura would continue to take advantage of its distribution capability in Japan, where cash-rich retail investors are increasingly buying overseas assets, the brokerage also wants to leverage its network of 340 global sales staff who focus on Asia outside Japan. ‘The key for my side of the business is to significantly expand the business beyond our highly successful Japanese primary equity distribution franchise.’

To that end, the brokerage in July started its Asia Asset Finance unit in Singapore, which will invest in property around Asia and develop a real estate investment trust (Reit) business.

‘That is something we are keen to do more of in Asia ex-Japan,’ said Mr Espinasse, who has Reit experience from his stint with securitisation specialist Macquarie. He said that the property arm would grow to about a dozen people.

Singapore is the top property trust market in the Asia-Pacific after Japan and Australia.

 

Source: Reuters  (Business Times 17 Sept 07)

INSIDE MARKETS – Sellers outweigh buyers in bearish trading

Asean China Investment Fund was one of the top sellers as it lowered its stakes in Unionmet and SunVic Chemical, writes ROBERT HALILI

BEARISH clouds are looming as the trading environment turned negative last week. In all, 28 companies saw 100 director and substantial shareholder disposals while 35 firms had 72 acquisitions. The number of disposals was more than double the previous week’s 48 sales while the number of purchases was sharply lower than the 124 acquisitions in the first week of September.

Last week’s trades were also significant in that it was the first time since the end-July market correction that sellers recorded more trades than buyers. Funds were also bearish with nine asset managers posting 43 disposals against eight institutional shareholders with 30 acquisitions. The number of disposals was nearly triple the previous week’s 16 sales.

Among the top sellers last week was Asean China Investment Fund LP as the group lowered its respective stakes in Unionmet (Singapore) Ltd and SunVic Chemical Holdings to below 5 per cent.

Also bearish was The Capital Group Companies – the group unloaded more shares of ComfortDelGro Corporation at sharply lower than its sale price in June. Investors should also watch out for Shining Corporation Ltd as heavy sales by Louisson Investments Pte Ltd lowered its stake by 79 per cent to 1.8 per cent.

On the positive side, the executive chairman of Hong Kong-based English language newspaper South China Morning Post, Kuok Khoon Ean, boosted his stake in Wilmar International Limited by 257 per cent last week at sharply higher than his purchase price last month.

Unionmet (Singapore) Ltd

Asean China Investment Fund LP ceased to be a substantial shareholder of metals producer Unionmet (Singapore) Ltd on Sept 12 following the sale of five million shares at an undisclosed price, which reduced its direct holdings by 25 per cent to 15 million shares or 4.1 per cent of the issued capital. Investors should note that the counter surged on that day from the previous day’s 25 cents close to 37 cents. Prior to that price surge, the stock had been on a downtrend since the first week of February from 91 cents. The disposal by Asean China Investment Fund was a very bearish signal for the stock as the group previously sold 16.6 million shares on the stock’s trading debut on Jan 31 at an estimated price of 75 cents each. That sale in January was made at a huge profit, given the IPO price of 37 cents each. Unionmet (Singapore) announced its interim results in July with net profit down by 52 per cent to US$1.938 million for the six months to May 31, 2007. The stock closed at 34 cents on Friday.

SunVic Chemical Holdings Ltd

Asean China Investment Fund LP ceased to be a substantial shareholder of chemical producer SunVic Chemical Holdings on Sept 12 following the sale of 22 million shares at an estimated price of 39 cents each. The trade reduced its direct holdings by 43 per cent to 29.4 million shares or 4.9 per cent. The disposal was made on the back of the 64 per cent decline in the share price since the second week of February from $1.08. The sale by Asean China Investment Fund was likely made at a profit based on the stock’s IPO price of 30 cents each. The sentiment is not entirely negative as chief executive officer Sun Liping recorded his first trades since listing with 1.36 million shares purchased on Sept 10 at 30 cents each. The trade boosted his deemed holdings to 325.2 million shares or 53.9 per cent. Alternate director Teo Yi-Dar also acquired an initial 50,000 shares on Aug 30 at 26 cents each.

SunVic Chemical Holdings announced its Q2 results on Aug 14 with net profit down by 42.9 per cent to 23.307 million yuan (S$4.7 million) for the three months to June 30, 2007. Earnings in the first half fell by 50 per cent to 31.65 million yuan. The counter, which was listed on Feb 5, closed sharply lower from its trading debut price of 81 cents to 36.5 cents on Friday.

ComfortDelGro Corporation Ltd

The Capital Group Companies, Inc unloaded more shares of bus and taxi services provider ComfortDelGro Corporation at sharply lower that its disposal-related filing price in June. The group reported a disposal-related filing on Sept 11 of 25.4 million shares, which reduced its deemed holdings by 18 per cent to 119.9 million shares or 5.8 per cent of the issued capital. The filing stated that the sales were made from June 21 to Sept 11. The stock during that period fell from $2.30 to $1.86. Capital previously sold 508,000 shares on June 20 at an estimated price of $2.26 each. The sales since June were made at a profit based on the net 30 million shares that the fund manager acquired from May 2005 to Jan 11 this year at $1.43 to $1.65 each. Capital became a substantial shareholder in May 2005 following the purchase of 12.9 million shares at $1.64 each, which raised its interest to 5.6 per cent.

ComfortDelGro announced its Q2 results on Aug 13 with net profit up by 19 per cent to $70.8 million for the three months to June 30, 2007. Earnings in the first half rose by 10.8 per cent to $138.1 million. The stock closed at $1.96 on Friday.

Shining Corporation Ltd

Heavy sales of 10.1 million shares by Louisson Investments Pte Ltd in construction contractor and building materials distributor Shining Corporation this month reduced its stake by 79 per cent to 1.8 per cent. The disposals were made from Sept 6 to 13 at estimated prices of 17.5 cents to 23 cents each. The sales, which accounted for 31 per cent of the stock’s trading volume, were made after the counter rebounded from 10 cents on Aug 29. Louisson Investments last sold 6.5 million shares on Sept 13 at 19 cents to 23 cents each, which lowered its direct holdings by 71 per cent to 2.7 million shares or 1.8 per cent. The group previously sold 610,000 shares on Sept 7 and 3.1 million shares on Sept 6 at estimated prices of 17.5 cents to 19.5 cents each. The heavy sales this month were not surprising as the shareholder also disposed of 3.8 million shares in July at an estimated price of 18.5 cents each.

The sales in the past three months were made at a profit based on the group’s initial filing in 2004. Louisson Investments became a substantial shareholder in December 2004 following the purchase of 14 million shares at 15 cents each, which raised its interest by 539 per cent to 17.3 per cent. The stock closed at 17.5 cents on Friday.

Wilmar International Ltd

Non-executive director Kuok Khoon Ean acquired more shares of agribusiness firm Wilmar International (formerly Ezyhealth Asia Pacific Ltd) at sharply higher than his purchase prices last month. The director bought 180,000 shares on Sept 12 at $3.56 each, which boosted his deemed holdings by 257 per cent to 250,000 shares. He previously acquired 20,000 shares on Aug 29 and an initial 50,000 shares on Aug 16 at $2.94 each. The fact that he acquired significantly more shares this month at a sharply higher price is a very bullish signal for the stock. Also positive earlier this year was PPB Group Berhad with 987,000 shares purchased on July 31 at an estimated price of $3.40 each. The trade increased its direct stake to 559.1 million shares or 8.8 per cent. The group also has a deemed interest of 604.2 million shares or 9.5 per cent. Wilmar International announced its Q2 results on Aug 14 with net profit up by 142.4 per cent to US$39.553 million for the three months to 30 June 2007. Earnings in the first half rose by 105 per cent to US$65.583 million. The stock closed flat from Kuok Khoon Ean’s purchase price to $3.56 on Friday.

The writer is managing director of Asia Insider Limited

Sales of office units jump amid space crunch

SALES of office units have shot up this year in the face of a crunch in office space here.

An impressive $491.79 million worth of single units in larger office buildings has changed hands since January.

This already outstrips the $386.39 million in deals for the whole of last year, according to new figures from property firm CB Richard Ellis (CBRE), which tracked deals above $5 million.

The price of each unit has also surged. Last year, a record 24 office units were sold, but only 19 have been sold so far this year.

This means that, on average, each of the units sold this year is fetching a much higher price than those sold last year.

Compared with earlier years, this year’s sales look even more impressive. Only $95.21 million in single office deals were done in 2005, and $8.14 million in 2003, said CBRE.

These standalone office spaces, called strata-titled office units in the property industry, are owned by one-off investors or businesses, as opposed to an office block that belongs to a single owner.

Price rises have been dramatic. In buildings such as Suntec City, the prices of strata-titled office units have trebled over the past 18 months, CBRE data showed.

Demand for office space here has been soaring in recent months, pushing up both sale prices and rental levels, as a shortage of prime office buildings coincides with booming investor and business demand.

Due to the limited supply of buildings in the Central Business District (CBD), investor interest has extended to strata-titled office properties in the fringe areas of the CBD, said Mr Jeremy Lake, CBRE’s executive director of investment properties.

‘The rising number of strata-titled office transactions is a logical consequence of a tight office rental market,’ he said. ‘Rather than pay rentals of $12 per sq ft (psf) per month, investors are finding it attractive to buy a unit and cash in on the high rentals.’

The most popular buildings for such deals this year are International Plaza and Suntec City, Mr Lake said.

There were 43 office sales in International Plaza this year, just shy of its 45 deals for the whole of last year.

However, these deals ranged in price from $215,000 to $3.3 million, so they were not captured by CBRE’s analysis of strata office deals above $5 million.

In Suntec City Tower One and Two, seven deals had taken place this year, at prices starting from $4.61 million.

Mr Lake also said the prices of units in these buildings had skyrocketed in the past 18 months. At International Plaza, they jumped from $491 psf in January last year to $1,150 psf in July.

In the same period, prices of units in Suntec City Tower One nearly tripled from $850 psf to $2,200 psf.

In Suntec City Tower Two, prices doubled from $1,148 psf in March last year to $2,360 psf last month, a new high for the tower.

‘Investors’ demand for office units at these buildings has been strong due to the scarcity of this type of medium-sized office space located in the core business districts,’ explained Mr Lake.

He suggested that some buyers of these units could be ’small- and medium-sized businesses’ whose space needs can be met by small office units, unlike multinational companies, which take up entire floors in a single building.

Other buyers could include investors ‘who have pocketed some gains in the stock market and are looking at attractive investment options’, Mr Lake said.

He expects the number of strata-titled office deals above $5 million to hit a new record this year.

 

Source: The Straits Times 17 Sept 07

CapitaLand reaps $261m from selling HK tower

CAPITALAND will book a gain of about $260.7 million from selling a 45 per cent stake in a prime office building in Hong Kong.

The property developer, South-east Asia’s largest, said yesterday that it had sold its share of AIG Tower, located in the territory’s central business district.

The deal values the building at HK$8.1 billion (S$1.57 billion), which works out to HK$22,042 per sq ft of net lettable area.

CapitaLand’s share of the building is worth about HK$3.6 billion, including the repayment of shareholder loans.

The stake was sold to American International Assurance (AIA), a unit of American International Group (AIG), the largest insurer in the world.

The transaction will add to AIA’s existing 45 per cent interest in the high-rise building. The remaining 10 per cent stake is held by Hong Kong’s Lai Sun Group, which is involved in property development and investment.

The 999-year leasehold property was built in April 2005 and is currently fully occupied.

Major tenants include AIG, Bank of Tokyo-Mitsubishi UFJ, CapitaLand, Kohlberg Kravis Roberts & Co, Lai Sun Group and Oaktree Capital Management.

CapitaLand’s sale of its stake in AIG Tower comes after it sold a 50 per cent interest in Chevron House for a record price last month. It booked a gain of about $150.8 million from the deal.

 

Source: The Straits Times 17 Sept 07

Caution still needed despite market rebound

It may take more than rate cuts by central banks to sustain the recovery

IT IS almost certain the United States Federal Reserve will answer the prayers of stock market traders across the globe and cut rates when it meets tomorrow.

A lower benchmark interest rate would mean more cash flowing into corporate coffers, which would have positive knock-on effects on markets globally, at least over the short term.

From the way international equity markets have regained their poise, one might be tempted to believe the problems that have beset the global financial system in recent months are over.

At home, the Straits Times Index (STI) closed at 3,536.4 points last Friday, after regaining lost ground, up 19.4 per cent from its Aug 17 intra-day low of 2,962.01. On Wall Street, the Dow Jones Industrial Average rose to within 4 per cent of its all-time highs.

Still, the situation might not be quite that simple.

The STI rebounded strongly after a boost from stocks linked to the booming offshore marine sector, as crude oil prices hit record highs. This more than made up for the pallid performance of the three local bank stocks, which make up about a third of the STI. These banks are still assessing the impact of the credit crunch plaguing global financial markets.

Despite the overall rally, DBS Group Holdings is trading 21.6 per cent off its year’s high, while OCBC Bank and United Overseas Bank are both about 10 per cent below their 12-month highs.

Risk of stagflation

INVESTORS could well be placing too much faith in a few rate cuts by major central banks such as the Fed.

The provision of this form of cheap credit by central banks in recent years was what caused the massive mispricing of risky loans to borrowers with poor credit histories.

The picture is further muddied by soaring crude prices, which hit US$80 a barrel last Wednesday, and by a falling greenback. It is hard to gauge how the global economy will react to the heady brew of a US Fed rate cut and high oil prices.

The conventional wisdom is that in times of rising prices – caused perhaps by higher oil prices – monetary policy should be tighter, not looser.

Such a scenario has not been seen for nearly 30 years. Those with long memories will recall that this mix pushed the US and the rest of the world into a long period of stagflation, characterised by a deep recession and high jobless rates with rampaging levels of inflation.

This vicious cycle was finally broken only when then Fed chairman Paul Volcker ignored the shrill screams of politicians and Wall Street, and relentlessly drove up interest rates to break the back of the inflationary cycle.

Wall Street’s sway factor

WHAT about the argument, increasingly peddled, that Asia has finally unhooked itself from Wall Street – so the credit crunch is a problem for the West, but not Asia?

It is an attractive notion, after years of Asian markets slavishly following the US lead, but it might be wishful thinking, for now at least.

True, China’s decisive intervention last month – it announced that it would allow its citizens to invest in Hong Kong equities – curbed the plunges on Asian bourses and sent the Hang Seng Index to record highs.

But the sheer size of Wall Street means Asia simply cannot ignore any wild US swings as investors sort out the mess surrounding sub-prime loans and agonise over a possible recession in the US economy.

With a market value of US$16 trillion (S$24.2 trillion), US bourses are still bigger than their Tokyo and European counterparts combined, and eight times larger than China’s, even after the giddy run-up there this year.

Therefore, it might be better to remain cautious, as all of the signs point to further trouble over the next 12 to 18 months.

Over the short term, central banks could literally paper over the problems caused by the credit crunch, flooding the markets with billions in fresh cash.

Seeds of trouble

HOWEVER, one big immediate problem remains unresolved: International banks are still struggling to borrow, either from each other or from external sources.

Last Wednesday, for instance, the European Central Bank had to pump another 75 billion euros (S$157.4 billion) into the region’s banking system to reduce the interest rate gap between overnight funding and lending over longer maturities.

And the cost of funds in the hard-hit interbank money markets – where banks borrow from each other – has surged to peaks last seen two decades ago, as the scramble for cash by financial institutions shows little sign of easing.

Observers say investors could be neglecting one key warning sign as they celebrate any easing by the Fed: the gridlock now experienced by the US$2 trillion market for short-term commercial bonds.

Most of these short-term bonds are sold to rich investors and cash-rich firms by special investment vehicles owned by banks. As such bonds mature within 30 or 40 days, this could intensify the credit crunch over the next few weeks, if investors refuse to extend the credit by rolling over their purchases.

In many cases, the sponsoring banks will have to take the risky assets back onto their balance sheets, which will force them to hoard their cash. This, in turn, will cause liquidity to dry up in the money market, whether central banks cut rates or not.

Some market experts have also argued that the current rebound has shaky foundations, as share prices are gaining ground on lacklustre volumes.

Over the past two weeks, average daily volumes on the STI have only reached 2.33 billion shares worth $2.03 billion, a far cry from the 4.4 billion shares worth $2.95 billion that changed hands daily in July when the STI was at a similar level.

More sober-minded observers with good memories suggest that 1998 offers a likely guide to the future direction of the stock market. Back then, panic selling in January was followed by an almost miraculous recovery, but that was snuffed out by a fresh round of bad news.

As the old maxim goes: One swallow does not make a summer. Investors might have to realise that a Fed rate cut is hardly likely to spur a renewed global bull-run that is sustainable.

 

Source: The Straits Times 17 Sept 07

China needs more rate hikes to curb overheating

Central bank likely to act aggressively given high inflation, heavy speculation

BEIJING – CHINA will need to implement further tightening, even after the fifth interest rate hike this year, to curb the fastest inflation since 1996 and dampen speculation in stocks and real estate, experts said.

‘The economy is really showing signs of overheating,’ said CFC Seymour strategist Dariusz Kowalczyk. ‘This makes China nervous enough to be more aggressive in its monetary policy.’

The benchmark one-year lending rate has increased to a nine-year high of 7.29 per cent from 7.02 per cent, with effect from last Saturday, the central bank said on its website.

A record trade surplus of US$161.8 billion (S$244.6 billion) in the first eight months of this year has flooded the economy with cash, pushing up consumer prices at twice the central bank’s target pace.

The benchmark CSI 300 Index for China’s yuan-denominated A shares has quadrupled in the past 12 months as investors sought better returns than those on offer at banks.

Home prices in cities have risen too, up by 8.2 per cent last month from a year earlier.

‘This is doing nothing to help stem the flow of money into the A-share market,’ said Societe Generale economist Glenn Maguire.

‘There’ll likely be one more move on lending rates this year. Deposit rates will also go up because, with inflation rising, real interest rates are negative.’

The central bank said it wants to strengthen monetary and credit controls, guide investment growth and stabilise inflation expectations.

The one-year deposit rate will rise to 3.87 per cent from 3.6 per cent.

Last Friday’s action on rates came after the statistics bureau said spending on factories, equipment and property had climbed 26.7 per cent in the eight months to August from a year earlier.

Soaring food costs also pushed inflation to 6.5 per cent in August, more than double the 3 per cent annual target set by the central bank.

‘We were too conservative and we are now bringing forward our forecasts,’ Standard Chartered economist Stephen Green wrote in a report after the bank’s decision. ‘We now think one more 27-basis-point hike this year and then another two in the first quarter.’

 

Source: BLOOMBERG NEWS (The Straits Times 17 Sept 07)

Dawson estate to get boost in value

Prices expected to rise as new generation of public housing will replace HDB blocks

THE laid-back feel of the old Dawson estate in Queenstown will give way to a lot more hustle and bustle when new, designer-looking HDB flats go up in several years’ time.

Property experts say the estate’s impending transformation will give the wider area an added premium.

Property values there already benefit from the fairly central location and proximity to the Queenstown MRT station.

‘The estate is dated, but prices in and around the area should rise as the whole environment will improve with the transformation,’ said ERA Singapore assistant vice-president Eugene Lim.

The 60ha estate was cited by Prime Minister Lee Hsien Loong in his National Day Rally speech as an old estate with great redevelopment potential.

The Government has since displayed designs for three precincts in the estate by leading local architectural firms – Surbana International Consulants, Woha Architects and SCDA Architects – and is inviting public feedback.

Construction of this new generation of public housing is expected to begin within the next three to four years, said HDB.

Some new flats have already been put up in the estate, under the Selective En bloc Redevelopment Scheme, which allows residents to be resettled in new flats after their old blocks are torn down for redevelopment.

As at July, about 2,970 flats had been completed, while another 794 flats are being constructed in the Strathmore Avenue area.

Nearby flats in the Stirling Road and Mei Ling Heights areas command a premium for their location, property agents say. Some buyers like Mei Ling Heights as it sits on higher ground.

Two low-floor, five-room flats on Mei Ling Street were sold last month: one for $570,000 and the other for $600,000.

In the Queenstown area in the second quarter, the average cash amount over valuation recorded for a fiveroom flat was relatively high at about $42,000. The average for Ang Mo Kio was $25,000; for Seng Kang, $5,000.

Prices in and around Dawson could rise by 20 per cent once plans for the estate are firmed up, said Mr Ku Swee Yong of property consultancy Savills Singapore.

The area might get a boost in value if the Government turns the entire Singapore River stretch, all the way to Alexandra Canal, into a family-friendly recreational area, said an industry observer.

Dawson does not have any private housing now, but the Government has plans to change this. Its projection of 10,000 dwelling units for the estate includes both public and private housing.

In the neighbouring Redhill area, which has a cluster of private housing, sub-sale prices have moved up in the past year.

Two 1,109 sq ft units at Tanglin Regency were sold for $884 per sq ft (psf) last month. At The Metropolitan Condominium, deals done in July and August ranged from $677 psf (for a 1,033 sq ft unit) to $1,119 psf (for a 2,680 sq ft unit).

‘In Dawson, most of the private housing is likely to be targeted at upgraders in the estate,’ said Mr Ku.

Thus, while the estate’s value is expected to climb, the rise should be limited because it is essentially an HDB area, he said.

The area has upside potential but the extent of any price climb will depend on the market situation down the road, said Mr Lim.

 New Face For Old Estate

 

Source: The Sunday Times 16 Sept 07

Punggol waterway project sparks interest and ideas

THE proposed 5.5-km waterway cutting across Punggol town drew enthusiastic discussion yesterday at a dialogue on the Housing Board’s future plans for its estates.

While there were concerns over its safety from the 500-strong audience – made up of residents, potential flat buyers and grassroots leaders – there were also calls for less rules on how the future waterway could be used.

The ambitious project in Punggol involves the building of a roughly 4.4-m deep waterway linking two reservoirs that would be created after Sungei Punggol and Sungei Serangoon are dammed.

When completed by 2013, it will be the centrepiece of Punggol, by which time new homes and its future town centre will be built.

The proposal was unveiled about a week ago through the HDB’s Remaking Our Heartland exhibition which showcases its future plans for public housing estates. Yesterday’s dialogue was meant to draw feedback on the plans and was chaired by Minister of State for National Development Grace Fu.

Preliminary results of an HDB survey on the visitors to its exhibition showed that 94 per cent of the 2,800 respondents liked the idea of the waterway running through Punggol. Eighty-one per cent said they were prepared to pay more service and conservancy charges to enjoy the new housing designs, which included flats with balconies overlooking the waterway.But residents and prospective flat buyershoped that new types of public housing would not be too expensive.

The Remaking Our Heartland exhibition will be held at various housing districts until Oct 3. More details can be found at http://heartland.hdb.gov.sg/ .

 

Source: The Sunday Times 16 Sept 07

Green hotels gain, others spew hot air

Saving the environment can go with lower power bills, but many still reluctant to change

(SINGAPORE) In some parts of the world, conviction is driving hotels to go green. But, as several hotels in Singapore have concluded, common sense points to the same path.

The Far East Organization, for example, realised that its corporate electricity bill for all its properties across Singapore was $33 million a year. ‘Imagine if we can cut that by 10 per cent,’ said Chia Swee Cheng, assistant director of the group’s central engineering & operations department.

And so its Changi Village hotel has new boiler and chiller systems in place and a far more efficient energy use.

Over at the Grand Hyatt, Singapore’s first plant to produce electricity, steam and chilled water at a hotel is under construction. Along with the solar panels planned for a new garden conference room, the plant could slash Hyatt’s energy use by a third and save it $800,000 in bills.

While critics say that many local hotels pay only lip service to eco-programmes, there are others, led by Hyatt, who are changing mindsets, going green – and finding that it pays.

‘My impression is that all the hotel operators are serious about sustainability, but not necessarily all the owners, who have to pay for changes,’ said Robert Hacker of Horwath, a hotel consultancy. ‘Generally, all the international chains are taking on board green principles.’

The Regent Singapore, for example, in late 2005 replaced a diesel boiler for heating water with a heat exchanger that produces hot and cold water at the same time. This has cut energy use by a fifth.

And at the Shangri-La, energy use improved over 10 per cent through better work processes, such as using small ovens to prepare meals on demand, rather than keeping a large oven fired up all day just to reheat food. But critics like Tay Kheng Soon, architect and promoter of socially and environmentally conscious architecture in Singapore since the 1970s, say Hyatt is the only energy-efficient hotel in Singapore.

And though the National Environment Agency handed out the new Energy Smart label to some hotels last month, that is only a starting point, said Mr Tay. A more basic change might come about, in his opinion, if there were incentives to use renewable energy sources, like wind and solar energy.

Many hotels ‘hand-wave’ over cosmetic eco-programmes, like using hybrid cars to ferry guests or planting trees, but miss the ‘elephant in the room’ – like the efficiency of their chiller systems – said Lee Eng Lock, general manager of Trane, a US-based energy solutions firm and an accredited Energy Service Company (ESCO) here.

The Hyatt sets the bar but there is no reason why others should not follow suit, with high returns and backed by bank guarantees, said Mr Lee.

But business in the hotel sector is negotiated on the basis of relationships, so it is not necessarily the most efficient solutions that get selected, he said.

Luxury hotels in Singapore run at an energy intensity of 427 kilowatt hours of electricity per square metre of gross floor area, according to a study by the National University of Singapore (NUS) last year. This is down from the 468 KWh/m2 reported by Apec in 1999, but pales beside the under-300 KWh/m2 averages achieved in parts of Europe and Australia.

In other words, local hotels could be using up to 40 per cent more electricity than ideal.

Dr Lee Siew Eang, head of NUS’s Energy Sustainability Unit and leader of the study, recalls some four and fivestar hotels saying during the study that energy efficiency was ‘not relevant’ to them – since, as ‘posh hotels’, it was ‘their duty to be extravagant’.

Many hotel managers were not aware of how much energy their buildings were using. One hotel, which had wanted to apply for an eco-award, was found by NUS to be using an exceptionally high 800 KWh/m2, said Dr Lee.

That’s almost twice the industry average. According to the Singapore Hotel Association (SHA), which represents about 90 per cent of the total number of gazetted hotel rooms here, most hotels in Singapore pay attention to water and energy conservation. ‘In the long run, it makes good corporate sense for hotels to go green as it not only saves the environment but reduces costs,’ said SHA president Kay Kuok.

Whether the message has sunk home is another matter. With the two integrated resorts set to help up Singapore’s hotel room stock by over 10 per cent by 2010, it is a critical time to move into energy efficiency, said NUS’s Dr Lee. ‘The designs are being drawn right now. If we miss this chance, we have to wait another 20 years.’

 

Source: Business Times 15 Sept 07

Job growth revised upwards as wages rise 8.5% in Q2

Updated figure is 64,400 , an all-time quarterly high, up from 61,900 earlier

(SINGAPORE) The record number of jobs created in the April-June quarter has been revised upward as employment kept surging, pushing monthly earnings to a level not seen since the last economic boom in 2000.

Updated figures released yesterday by the Ministry of Manpower (MOM) in its quarterly Labour Market report show the economy added 64,400 jobs in Q2 – an all-time quarterly high, exceeding the increase of 49,400 in the previous quarter and 36,400 in Q2 last year.

Earlier preliminary data showed total employment jumped 61,900 in Q2.

Accordingly, the unemployment rate in June has been adjusted from a preliminary 2.4 per cent – a six-year low – to 2.3 per cent, down from 2.9 per cent in March.

The resident jobless rate – covering Singaporeans and permanent residents – was similarly revised from 3.2 to 3.1 per cent, down from 4 per cent in March.

The tighter labour market has put even more pressures on wages, raising monthly earnings 8.5 per cent over the year in Q2, up from 5.5 per cent in Q1. After adjusting for inflation, real earnings in Q2 rose 7.5 per cent, against 5 per cent in Q1.

‘The increase was the highest registered since the last economic boom in 2000 when earnings rose by 8.9 per cent in nominal and 7.5 per cent in real terms,’ MOM’s report says.

Productivity also increased, though marginally by 0.4 per cent. But the rise ended two straight quarters of decline.

‘The improvement in productivity helped moderate the increase in overall unit labour cost (ULC) to 5.7 per cent over the year in Q2 07, after a 5.9 per cent increase in the previous quarter,’ the report says.

In the manufacturing sector, ULC grew 3.1 per cent, sharply down from 7.1 per cent in Q1.

The services sector led the hike in earnings in Q2, posting a real increase of 8.6 per cent. Real earnings in manufacturing and construction actually eased in Q2.

The new jobs in Q2 brought total employment growth to 113,800 in the first six months of the year, against 81,500 in the same period in 2006.

The services sector, led by gains in community, social and personal services, continued to account for the biggest chunk of the employment growth in Q2. It added 36,800 jobs, up from 33,700 in Q1.

Construction, fuelled by a building boom, posted the biggest jump in employment, doubling the jobs created to 10,900 compared with the previous quarter.

‘Brisk hirings in marine and offshore engineering more than offset job losses in electronics, leading to growth in manufacturing employment of 15,900,’ MOM’s report says. In Q1, manufacturing created 10,100 new jobs.

But the improvement on the retrenchment front was less stark in Q2 – 1,918 workers were axed, marginally below the 1,964 laid off in Q1. Over the first six months, the improvement was more significant, with the number down to 3,882, from 6,916 in the first half of 2006.

Job-hopping in Q2 was not as rampant as feared, despite the labour pool drying up, according to the report.

The resignation rate among professionals, managers and executives rose. But the increase was small – up from 1.6 per cent in Q2 last year to 1.7 per cent. Among production operators, cleaners and labourers, it remained the same as a year ago.

 

Source: Business Times 15 Sept 07

I was late to see sub-prime storm brewing: Greenspan

(WASHINGTON) Former US Federal Reserve chairman Alan Greenspan said he was late to see the storm gathering around US mortgage lending practices and commended his successor Ben Bernanke’s handling of the crisis, saying he would likely be responding in a similar fashion. ‘I think he is doing an excellent job,’ Mr Greenspan said of Mr Bernanke in a television interview scheduled to air tomorrow.

Mr Greenspan was asked if he would lower interest rates as dramatically and quickly now as he did just ahead of, during and in the wake of the 2001 recession, according to excerpts of the CBS 60 Minutes interview released on Thursday.

‘I’m not sure that’s true,’ he said. ‘We were dealing with an environment back then when inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can’t do that anymore . . . I’m not sure I would have done anything different (if chairman today).’

The comments from Mr Greenspan, who was tested early in his tenure by the October 1987 stock market crash, come as Mr Bernanke’s skills are challenged by rising defaults in the US sub-prime mortgage market, which caters to risky borrowers, and a related global credit squeeze.

Mr Bernanke’s Fed has come under fire from some quarters for not acknowledging quickly enough how deeply the current crisis could harm the economy or responding aggressively enough to keep the US expansion on track. Some analysts have speculated that Mr Greenspan would have acted more swiftly.

Mr Bernanke and his colleagues will meet on Sept 18. They are widely expected to lower benchmark overnight interest rates, which the Fed has held at 5.25 per cent since June 2006, by at least a quarterpercentage point.

Mr Bernanke had justified holding rates at that level despite some clamouring in markets for lower borrowing costs, on the grounds that inflation has remained troublingly high and needed to recede first.

Only in recent weeks, as credit stress mounted in financial markets and it became clear a housing recovery was a long ways off, have Fed officials suggested that worries about growth have supplanted longstanding concerns on inflation. The Greenspan interview – on the No. 1 US news programme with an average 13.2 million viewers – is the first in a series of public appearances the former Fed chairman is making to publicise his memoir, The Age of Turbulence, which is being released on Monday.

Mr Greenspan, who stepped down from the helm of the US central bank in January 2006, said that as Fed chief he knew about questionable lending practices that were leaving sub-prime borrowers with adjustable rate loans vulnerable to harm from rising interest rates, but did not recognise those loans would trigger broader problems until fairly recently, CBS said. ‘While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,’ Mr Greenspan said. ‘I really didn’t get it until very late in 2005 and 2006.’

Mr Greenspan, 81, has received credit for leading the economy to its longest-ever expansion in the 1990s and many economists have praised his handling of a sequence of crises.

Indeed, some have hailed him as the greatest central banker in US history. However, others criticise him for sowing the seeds of successive asset bubbles, first in US stock markets and later in housing.

He has also come under fire for suggesting during his Fed tenure that adjustable rate mortgages could be a cost-saving financing option for many borrowers, just shortly before the Fed embarked on a long push to move rates higher.

In the interview, Mr Greenspan defended the Fed’s decision under his leadership to hold interest rates at or near lows not seen in four decades between December 2001 and June 2004, a period in which the economy was enjoying only a lacklustre recovery from recession. The interview is scheduled for broadcast at 2300 GMT tomorrow.

 

Source: Reuters (Business Times 15 Sept 07)

US consumer spending, global growth may cushion slowdown

Consumption one reason for mild instead of serious downturn: analysts

(NEW YORK) When Annie Cox is unsure if the economy is headed south – a question on the minds of many on Wall Street and Main Street these days – she keeps an eye on the orders for beverages at the diner she runs in Oklahoma City.

In recent weeks, Ms Cox said that she has seen a slight drop off, leading her to believe business could slow in the coming months. ‘When they start ordering water instead of tea or Pepsi, that means they’re cutting back,’ said Ms Cox, who runs the 1950s-style restaurant, Sherri’s Diner, which is named after her mother.

Leon Tuberman, the chief executive of the Barn Furniture Mart in Southern California, is similarly wary. Despite widespread troubles in the housing market, business is down only about 5 per cent. But Mr Tuberman said that he is not replacing the five employees who have left the store voluntarily in the last six months, because he suspects spending will remain sluggish.

Across the nation, the impact of the turmoil in the housing and credit markets on the broader economy has been relatively modest so far. But just as some of Ms Cox’s customers are becoming more cautious and Mr Tuberman is holding back on hiring, many people are preparing to hit some economic headwinds.

Whether that caution on the part of consumers and business translates into little more than a modest economic slowdown or turns into a full blown recession will depend on a variety of factors. But perhaps the most important is whether jobs remain plentiful and consumers keep spending.

That is what was so ominous about the government’s report last week that businesses reduced total employment by 4,000 jobs in August and that payroll gains for previous months were being lowered. Another important labour market indicator – the share of the working-age population that reports holding a job – has fallen to its lowest level in nearly two years. And consumer spending, while it continues to grow, has slowed in recent months.

‘Large numbers of people are leaving the job market,’ said Jan Hatzius, chief US economist at Goldman Sachs.

‘That is not just a sudden bout of laziness, but it’s a response to reduced labour market activity.’

Mr Hatzius and his peers on Wall Street now put the risk of a recession at about one third, which is significantly higher than earlier this year but far from a sure thing.

They note that in recent years consumer spending was led higher by the torrid boom in housing, especially in big states like California, Florida, Arizona and New York. Now, as home prices fall, loans are harder to get and home equity borrowing is tapering off. As a result, consumer spending is likely to suffer.

Those downward pressures, though, are being offset by a robust global economy that is providing a significant boost to exports, corporate profits and real wages, which finally picked up in the last year after stagnating for much of the decade. Optimists note that consumer spending is unlikely to slow down as long as hourly wages are perking along at a nominal annual pace of about 4 per cent, about 1.5 per cent above the inflation rate.

‘There clearly is a problem in mortgages,’ said David Kelley, an economist at Putnam Investments, the mutual fund company in Boston.

But ‘outside the mortgage market, we don’t really see the consumer stopping spending’. Consumer spending has often defied dour predictions. There was no decline in spending during the recession of 2001, even as job losses mounted and business sentiment sank after the technology bubble burst.

That’s one reason the downturn was so mild compared with the harsher recessions of the early 1980s and early 1990s.

 

Source: NYT (Business Times 15 Sept 07)

PLAY OF THE WEEK – CDL attracts heavy buying after clinching iconic site

CLINCHING the historic Beach Road military camp site helped ignite fresh buying interest in property giant City Developments (CDL).

The site, which cost the CDL-led consortium $1.69 billion, is just a stone’s throw from the upcoming Marina Bay Sands integrated resort and the Formula One street circuit.

Observers believe the acquisition will enhance CDL’s already high-quality portfolio, which includes top-notch commercial buildings and condos like Republic Plaza and The Sail@Marina Bay.

CDL yesterday surged 50 cents to $15.40 on a heavy volume of 5.8 million shares. It hit an intra-day high of $15.60. Its total gain for the week was 40 cents.

Kim Eng Research analyst Wilson Liew said the iconic Beach Road site is slated to include premium offices, two luxury hotels, exclusive residences and retail space with a total gross floor area of 1.58 million sq ft.

‘Assuming a breakdown of 40 per cent for office use, 30 per cent for hotel use, 15 per cent for residential use and 15 per cent for retail use, we estimate the total development cost at around $2.6 billion, should add 25 cents per share to revalued net asset value (RNAV),’ he said.

Mr Liew raised his target price for CDL to $18, based on a 20 per cent premium to his RNAV of $15.66.

The heavy buying of CDL shares also reflected investors’ conviction that demand would stay buoyant in the red-hot residential market.

On Thursday, BNP Paribas noted that developers had maintained their selling prices ‘and have no intention of lowering them at this juncture’.

This was despite a slowdown in property sales last month, which could have been due to buyers here also taking a ‘wait-and-see’ attitude, as the United States mortgage crisis deepened.

On the secondary resale market, the wide disparity between sellers’ asking prices and buyers’ offer prices is narrowing, suggesting that demand in the property market is sustainable.

‘Singapore developers are currently trading at around 6 per cent to 37 per cent below the peak share price prior to the market correction in late July, which presents an attractive discount, especially as property market fundamentals have not changed much over the period.’

BNP Paribas also expects developers with a big exposure to the Singapore mass market, such as CDL, to benefit from opportunities for collective sales still available on the city’s fringes and in suburban areas where land is still affordable.

 

Source: The Straits Times 15 Sept 07

Wages rising faster than at any time since 2000

Productivity also up, but experts fear high labour costs could dent competitiveness

LABOUR-SHORT bosses are raising wages faster than at any time since 2000, but the good times for workers could dent Singapore’s competitiveness.

Workers’ earnings have recorded a year-on-year increase of 8.5 per cent, the largest rise since the economic boom seven years ago.

Labour experts are worried that the higher labour costs could put a dampener on the economy.

But one positive from the current boom is that, overall, workers also appear to be slightly more productive than before.

Fresh figures released yesterday by the Manpower Ministry covering the April to June period showed the 8.5 per cent increase was an improvement from the 5.5 per cent growth in the first three months of this year.

At the peak of the 2000 economic boom, wages rose 8.9 per cent.

Labour economist Cheolsung Park said this rise in wages was to be expected during the sustained strong economic growth. ‘The market seems to have very little room to supply more labour because the demand has been so high and workers have had little trouble in finding jobs.’

Singapore National Employers Federation (SNEF) executive director Koh Juan Kiat reckons employers could be hiring in anticipation of better business or greater staff turnover. ‘This could slow down when they have full strength,’ he said.

The Manpower Ministry report illustrated just how tight the labour market has become.

The construction, marine and offshore engineering sectors helped pump a record 64,400 new jobs into the pool from April to June. This added to the increase of 49,400 in the previous quarter.

Unemployment also fell. The overall rate was 2.3 per cent in June, down from 2.9 per cent in March. Fewer people were also laid off, and of those who were, more had found jobs within six months.

Also up: the number of job vacancies, at 37,400 in June this year. This is a 16 per cent rise from the previous quarter.

The increase in wages was matched with labour productivity rising by 0.4 per cent in the second quarter of this year, from the same period in the preceding year. The construction sector powered ahead with a 6.4 per cent increase, a reflection of the growth in building activity.

The improvements in productivity across the board helped moderate the rise in the overall unit labour cost – a measure of wages, levies and other labour costs against output – to 5.7 per cent in the second quarter.

Professor Park noted that rising labour costs may slow down the economy in the long run. But he expects more foreign workers to be hired, and immigration policies used to ’stem excessive increase in labour costs’.

SNEF’s Mr Koh believes employers should rely not only on wage increases to attract and retain talent, but also on offers of good career paths, flexible work arrangements and training and development opportunities.

Added National Trades Union Congress assistant secretary-general Halimah Yacob: ‘They should also make better use of the available pool of older workers and the women, particularly housewives who are seeking to re-enter the labour market.’

Jobs created

• Jan-June 2007: 113,800

• Jan-June 2006: 81,500

Unemployment rate

• June 2007: 2.3 per cent

• l March 2007: 2.9 per cent

Job vacancies

• June 2007: 37,400

• March 2007: 32,200

Wage increase (year-on-year)

• April-June 2007: 8.5 per cent

• Jan-March 2007: 5.5 per cent

Labour productivity (year-on-year)

• April-June 2007: 0.4 per cent

• Jan-March 2007: -1.3 per cent

Source: The Straits Times 15 Sept 07

Is red-hot property market starting to slow down?

Possible correction seen but underlying demand is still strong, say experts

AFTER months of racing along at a feverish pace, Singapore’s residential property market seems to be finally taking a breather.

Home sales and collective sales slowed last month, and property watchers have started to speak of a possible correction in the market.

‘A correction is going to take place. The question is: How severe?’ OCBC Investment Research analyst Winston Liew told Reuters.

Experts agree, however, that underlying housing demand is still strong, and that home prices will keep rising, although at a slower pace. Prices surged 13.5 per cent in the first six months of the year alone.

‘Property market fundamentals have not changed much over the period,’ said French bank BNP Paribas in a report on Thursday.

It is tipping mid-tier and suburban homes as the big growth areas for the rest of the year. These have lagged in the rebound, which has been led mainly by high-end homes setting new record prices.

‘We still see opportunities available on the fringe of the city and suburban areas, where land remains affordable to developers,’ BNP said.

It noted, however, that home sales had been falling since June, according to caveats lodged. Sales fell from 4,921 in May to 3,917 in June to 3,540 in July.

So far, just 1,127 sales have been lodged for last month, partly due to a time lag in caveats. BNP estimates, however, that even when all the data is in, last month’s sales will hit about 2,500 only.

Collective sales, which set a string of record land prices earlier this year, have also slowed to a trickle, with only one deal recorded last month.

Property analysts have offered several reasons for the current slowdown.

One is the sub-prime home loans crisis in the United States, which triggered weeks of stock market volatility in Singapore and in the rest of the region. Developers say this has led to more caution among foreign investors, some of whom are the biggest buyers of luxury homes in Singapore.

Consultants have also blamed the sharp run-up in property prices since the beginning of the year. With asking prices breaching the stratosphere, many buyers are now holding out for better deals.

Upcoming changes in rules on collective sales and higher development charges are also dampening the collective-sale market, previously a major source of housing supply and demand.

A fourth reason could be the month-long hungry ghost festival that ended last week. Fewer projects were launched during this time compared to previous months.

But projects that did go on sale last month. including The Parc in West Coast Walk and Soleil@Sinaran in Novena, received a strong response.

MCL Land has also quietly sold more than half its strata titled terrace homes in Bukit Timah since Monday, even before official previews. About a third of the 168 units at Hillcrest Villas have been taken up by the developer’s close associates at between $2.5 million and $3 million apiece.

‘Residential demand remains healthy, even though homebuyers and investors will tread cautiously,’ CB Richard Ellis executive director Li Hiaw Ho said.

He and other market experts agree that while market activity has slowed somewhat, the pace of growth will pick up again at year-end.

‘The stock market has started to stabilise and, come November, things will probably go back to the way they were before August,’ said Mr Lui Seng Fatt, regional director at Jones Lang LaSalle.

 

Source: The Straits Times 15 Sept 07

No signs of bubble in property sector, say two bankers

SINGAPORE’S buoyant property market shows no signs of a speculative bubble, two leading bankers said yesterday.

DBS Group Holdings chief executive Jackson Tai said home prices may have risen but this simply reflects the strong fundamentals of a balanced economy.

Mr Philip Lee, senior country officer of investment bank JPMorgan Chase, echoed Mr Tai’s views.

‘There’s no bubble in Singapore…while luxury prices have soared recently, mass-market prices have not gone up yet.’

They were among five corporate bigwigs from the thriving finance and property sectors who discussed Singapore’s booming economy at an annual Leadership Forum organised by newswire Bloomberg.

Four other speakers from sectors such as consulting and asset management spoke about the global risks at the 90-minute session held at the Ritz-Carlton Milennia Hotel.

Singapore does not face the same problems as the United States, where the US Federal Reserve has created ‘a housing bubble, inducing people to refinance their homes’ with ’spicy loans’ and ‘artificially low rates’, said Mr Tai.

In contrast, 90 per cent of people own their own homes in Singapore, so ‘the culture here of protecting one’s home is very different from that in the US,’ he noted.

While acknowledging that ’speculation is always in the marketplace’, Mr Tai said Singapore is ‘not a one-trick pony’ but has a well-diversified economy.

Property prices and broader economic growth will be sustained by a ‘rising population’ and more diversified economy, added Mr Chris Fossick, South-east Asia managing director at Jones Lang LaSalle, pointed to a ‘rising population’.

Singapore will enjoy new booster engines to its growth with the upcoming integrated resorts which will boost tourism and attract more high-networth clients, said Mr Kenneth Sit, chief executive of Bank Sarasin-Rabo (Asia).

Even in the event of a downturn in Asia or globally, Singapore may benefit from a ‘capital flight to quality’ because it is a reputable Asian financial hub, noted Mr Lim Cheng Teck, chief executive of Standard Chartered Singapore.

 

Source: The Straits Times 15 Sept 07

China’s tallest tower caps Shanghai skyline

Final beam is laid for the skyscraper to be completed by 2008 Olympics

SHANGHAI – AFTER more than a decade of delays, China’s tallest building is slicing through Shanghai’s hazy, skyscraper-studded skyline – a new trophy built by Japanese property tycoon Minoru Mori.

The 101-storey Shanghai World Financial Centre, a 492m wedge-shaped tower with a rectangular hole at the very top, was topped out yesterday as its last beam was laid amid a drizzle which obscured the building’s panoramic view of the winding Huangpu River and endless highrises.

With China’s economy growing nearly 12 per cent a year and stock and real estate prices soaring, ‘the timing is just about the best it could be’, Mr Mori said on Thursday.

‘When I saw the building this morning, at its full height, I thought it’s really beautiful. I think we’ve really succeeded,’ he told reporters at Shanghai’s Jinmao Tower, a silver spire next door to the World Financial Centre that, at 421m, was China’s tallest building until now.

Mr Mori’s visions of a ‘vertical garden city’ have transformed the landscape of his hometown Tokyo with mammoth, mixed-use redevelopment projects such as Roppongi Hills, Ark Hills and Atago Green Hills.

The 115 billion yen (S$1.5 billion) Shanghai project by the developer’s flagship Mori Building Co, which is due for completion in time for the 2008 Beijing Olympics, is also evidence that despite the political tensions that flare up between China and Japan at regular intervals, business is business.

The developer acquired the land for the huge project, in the city’s Lujiazui financial district, in 1994. Piling work began in 1997, and then halted for six years after the Asian financial crisis wiped out demand for new office space.

By the time the project was revived in 2003, he had proposed and won approval from the Shanghai authorities to expand its size to make it the world’s tallest – a symbol of China’s growing affluence and economic might.

The tower, buttressed by a conference centre and shopping mall, will eventually house 70 floors of office space meant to accommodate 12,000 people, with a hotel, restaurants and an observatory at the top.

However, Taiwan’s Taipei 101, at 508m beat the building’s height, taking the tallest sweepstakes in 2004.

Developers of a skyscraper in oil-rich Dubai recently declared theirs the world’s tallest building when construction reached 512m – and the building is still far from completion.

After the Sept 11, 2001, terrorist attacks in the United States, the building was redesigned into a so-called ‘megastructure’ with four huge pillars to make it stronger, Mr Mori said.

Later, the builders altered another key design feature – a circular cutout near the top – after complaints that it resembled the rising sun on Japan’s flag, a symbol reviled by many Chinese because of Japan’s brutal occupation of the country during World War II.

Mr Mori obliged, changing it to a rectangle.

‘For us it wasn’t such a big deal to change it and it pleased the Shanghai authorities,’ he said.

Given strong interest from many international financial firms, Mori Building expects occupancy in the new building to be at 90 per cent by the end of next year, said Mr Hiroo Mori, the senior Mori’s son-in-law and a managing director of the company.

He said plans call for rents of more than US$3 (S$4.5) per square metre per day – possibly the highest ever for the city.

Higher than forecast profitability means that the company expects to recoup its investment within 15 years.

 

Source: ASSOCIATED PRESS (The Straits Times 15 Sept 07)

Gardens and sea to frame new Marina South homes

60 hectares set aside for 11,000 units in latest makeover move

(SINGAPORE) A landmark residential district – with lush gardens by its side, a spectacular view of the sea and the Sands Integrated Resort a mere stone’s throw away – will rise over the next few years to add further gloss to the Marina Bay area.

Some 60 hectares of land, on which 11,000 homes will be built, has been set aside for the project. The Marina South Residential District (MSRD) will also have 1.6 million sq ft set aside for hotel use, another 678,000 sq ft of commercial space and even a primary and a secondary school. There will also be community facilities for all to enjoy, the government announced yesterday.

The entire project will be developed over a 15 to 20-year period once the supporting infrastructure has been put in place, said the Urban Redevelopment Authority (URA).

URA also said given the size of the area, it is likely that the land parcels will be released in phases.

The government agency is master planning the project as the next stage of development for the Marina Bay area.

Marina Bay, which is touted as the centrepiece of Singapore’s urban transformation into a vibrant, global city, is already home to several upcoming prime projects – including the Marina Bay Sands Integrated Resort and the 100-ha Gardens By the Bay.

This residential site is located between the upcoming Garden at Marina South and the Straits of Singapore. URA hopes that MSRD will offer its residents the best of both worlds – a rare opportunity to experience waterfront living together with the lush greenery provided by the garden.

‘Obviously, it is a choice location – right between the garden and the sea,’ said Knight Frank managing director Tan Tiong Cheng. ‘The view will be even better than that from the Marina Bay integrated resort.’

Said Colliers International’s director for research and consultancy Tay Huey Ying: ‘The area will provide a very wholesome residential environment.’

The bid to develop MSRD is in line with the government’s 2001 Concept Plan – a long term plan that guides Singapore’s development over the next 40 to 50 years – which called for more city living options for Singaporeans.

Then, URA said that those who like the downtown buzz can look forward to having 90,000 more units to choose from, mostly in the New Downtown at Marina South.

Experts expect that homes in MSRD will be popular, especially with foreigners.

‘It is possible that the primary and secondary schools could be foreign schools,’ said Colin Tan, Chesterton International’s head of research and consultancy.

However, market watchers mostly said that even when boosted by this latest news, home prices in the Marina Bay area are not likely to reach those fetched by luxury projects in the Orchard Road vicinity anytime soon.

‘I don’t think the development will overtake Orchard Road in terms of prices and appeal to foreigners,’ said Ms Tay. Facilities catering to foreign residents, such as foreign schools and embassies, are now located in the Orchard Road vicinity, she said.

Knight Frank’s Mr Tan agreed: ‘At the end of the day, Marina South is a new district; it is not tested.’

In addition, concerns exist about the infrastructure in the area. For one, the road network in the Marina Bay area will have to be improved, analysts said.

Right now, URA is looking to garner new and innovative ideas to distinguish MSRD.

Together with the Singapore Institute of Architects, it is organising a competition, which will close on November 12, for design ideas for the district. A sum of $50,000 has been set aside to be awarded for up to 10 best ideas.

 

 

Source: Business Times 14 Sept 07

Horizon sellers miss deadline; hearing expected in 2 weeks

Majority sellers still trying to form sales committee; some keen to contest suit

THE majority sellers of Horizon Towers missed a deadline to extend the completion date for the collective sale of the development.

And the buyers are now set to make good on their threat to haul each and every one of the sellers to court and sue them for millions of dollars.

The buyers of the Leonie Hill property – Hotel Properties Ltd (HPL), Morgan Stanley Real Estate-managed funds and Qatar Investment Authority – had given the majority sellers until Tuesday this week, Sept 11, to meet their demands for an extension of the completion date.

The deadline was set after repeated requests earlier for an extension were ignored. BT understands the sellers did not respond to the latest deadline or extend the completion date.

It is understood that a High Court hearing is set for Sept 27. At the hearing, the buyers will ask the court to declare the majority sellers in breach of a collective sale agreement signed by both sides in February.

They will also ask the court to award them damages of between $800 million and $1 billion, as well as interest and costs.

This means the 270 owners – of 173 units – who signed off on the en bloc sale are now personally liable for $3.7 million each, or $5.78 million per unit. It is believed that the enormity of the personal liability has splintered the sellers as a group. Some owners have indicated they want to extend the deadline, while others are keen to contest the lawsuit.

This has driven several owners to seek their own legal representation – apart from group representation in the form of law firm Tan Rajah & Cheah.

The Horizon Towers sales committee disintegrated last week. The last three members resigned on Friday, after four other members quit in the days before.

The majority sellers are now scrambling to assemble a new sales committee so there will be some sort of representation for the entire group, to manage the en bloc saga going forward.

The en bloc sale collapsed in August after the Strata Titles Board (STB) refused to grant a collective sale order on the grounds that Horizon Towers filed a defective application.

STB’s decision, just days before the sale completion deadline, meant there was no time to file a fresh en bloc application.

The buyers wanted the majority sellers to extend the sale completion deadline by four months, appeal against STB’s decision and file a fresh application if needed.

The sellers have appealed against STB’s decision but have not extended the deadline. Nor have they indicated whether they intend to file a fresh application with STB.

It has been reported that the majority sellers regretted their decision to sell Horizon Towers for $500 million to HPL and its partners after neighbouring developments began fetching much higher prices in the months that followed.

HPL and its partners allege that the sellers have not done everything in their power to file a proper application to STB – a condition of the sale agreement – and are suing them on this basis.

 

Source: Business Times 14 Sept 07

HDB upgraders are back in force

Big hike in secondary market deals shows genuine demand: analysts

(SINGAPORE) The broad-based recovery in the property sector is gathering pace with data showing a spike in the number of property transactions by Housing and Development Board (HDB) upgraders.

Looking at data which captures transactions made by buyers with registered HDB addresses – traditionally considered HDB upgraders – Citigroup noted that, in Q2 2007, HDB upgraders made about 1,750 transactions in the secondary market, an increase of 75 per cent from the previous quarter when around 1,000 transactions were recorded.

On the significance of secondary market transactions, Citigroup analyst Wendy Koh said that these represented ‘genuine demand as full payment is required for completed developments’.

Although there is always some level of speculation in a rising market, the mass market appears to be safe for now, with Citigroup noting that subsales in the mass market segment stood at about 9 per cent of total sales compared to 27 per cent at the peak of 1995/1996.

DTZ Debenham Tie Leung executive director Ong Choon Fah also believes buyers in this segment are genuine.

‘Most speculation still takes place in the prime districts because price increases (in the mass market) are still not as significant,’ she said

Mrs Ong added that the recovery of prices for the HDB resale segment has also boosted the number of upgraders and noted that about 70 per cent of resale flats transacted at above valuation in Q2.

DTZ’s figures show that combined primary and secondary market transactions by upgraders increased by about 50 per cent in Q2 over the previous quarter. Popular new developments among upgraders were The Quartz near Buangkok MRT Station, Northwood in Sembawang and Ferraria Park Condo in Pasir Ris. Upgraders made up 80 per cent, 58 per cent and 54 per cent of the buyers respectively.

‘There is also now more urgency to buy because there is the belief that prices seen in the prime areas will filter out into the suburban districts,’ she added.

Upgraders have also bought into more upscale developments.

A spokesman for UOL said that they formed about 16 per cent of the buyers for Pavilion 11 at Minbu Road while Frasers Centrepoint said a similar 16 per cent have bought into The Soleil at Novena. Even at the more expensive The Seafront on Meyer, CapitaLand said that just under 5 per cent are buyers with HDB addresses.

HDB upgraders are still, however, price sensitive and Mrs Ong attributed the spike in secondary market transactions to this as the secondary market offers lower-cost private residential alternatives.

Speculation could, of course, raise prices. A recent report by Credit Bureau (Singapore) revealed that people living in the heartlands of Serangoon Gardens, Hougang and Punggol recorded the highest number of borrowers with multiple property loans, suggesting that they owned homes for reasons other than to live in.

Savills Singapore director (marketing and business development) Ku Swee Yong, who also believes speculation has yet to hit the mass market, reckoned that the increase in the number of borrowers with multiple loans could be due to the fact that several developments in the area, including Kovan Melody and Tangerine Grove, have obtained temporary occupation permits (TOP), requiring existing homeowners who opted for deferred payment schemes to apply for loans.

He also noted that some collective sale beneficiaries have had to apply for housing loans because more banks are refusing to give bridging loans.

CB Richard Ellis executive director Li Hiaw Ho does believe that speculation is increasing in new suburban projects like One Rochester and Sky@Eleven. Although Mr Li said that it is still ‘quite minimal’, he believed that it will impact overall prices, and that mass market projects will not be spared. ‘You just have to look at the recent land sales price at Ang Mo Kio,’ he added. The site in question sold for about $600 per square foot per plot ratio and is expected to sell for over $1,000 psf.

Source: Business Times 14 Sept 07

Singapore to be Lippo’s springboard to Asia

Group in expansion mode to make Republic its international HQ

(SINGAPORE) The Lippo Group will use Singapore as its international headquarters as it grows its presence in Asia, chief executive James Riady told BT in an interview.

Right now, about 70 per cent of the group’s assets are in Indonesia, but the figure could fall to around 50 per cent in a few years’ time as the group expands in the rest of Asia, Mr Riady said. Mr Riady was in Singapore on Wednesday to receive an honorary Doctor of Letters degree from Australia-based La Trobe University, which held one of its graduation ceremonies here.

‘I think our perspective is now more Asian, and Singapore provides a good base for us to open up in markets across Asia,’ he said.

He identified China as a big market for the group going forward. In South-east Asia, Lippo is looking at Malaysia, Thailand and Vietnam, he said.

But going forward, the bulk of Lippo’s economic base will continue to be in Indonesia, Mr Riady said. Right now, the group has about 70 per cent of its assets in Indonesia, while Singapore accounts for another 15 per cent.

In Singapore, Lippo will continue to grow its property, retail and food businesses, he said. Lippo bought a stake in historic Singapore retailer Robinson last year and also has a majority stake in Auric Pacific, a Singapore-listed food and property company.

Opportunities for property investments are going to be harder to come by in future compared to the past few years, said Mr Riady.

‘I suspect that while the opportunities will still come up, they will not be as many, as the supply (of sites) will not be as much as during the last three years,’ he said.

Lippo will therefore not ‘expand for the sake of expanding’, instead, it will ‘intensify’ what businesses it already has here. For one, the company will look to build up its brand name in Singapore, he added.

Mr Riady received his honorary degree from La Trobe for his accomplishments as a global business leader and education advocate. As chairman of the Pelita Harapan Educational Foundation in Indonesia, Mr Riady has helped set up 18 schools and three universities in Indonesia.

Also, the foundation set up a teacher training college to produce qualified teachers four years ago. And every year, it gives out 500 full scholarships to teachers for the college. The first batch of 500 teachers will graduate in May next year.

As the ‘education centre’ of South-east Asia, it is Singapore’s duty to raise awareness of the importance of education, Mr Riady said.

At Wednesday’s ceremony, close to 100 La Trobe students graduated. Present at the event were Temasek Holdings executive director Ho Ching, who was the guest-of-honour, the university’s vice-chancellor Paul Johnson and Murli Thadani, director of La Trobe’s international arm.

 

Source: Business Times 14 Sept 07

Marina South: New choice area for homes

60ha site earmarked for ‘waterfront-garden living’; design contest seeks fresh ideas

THE Government yesterday earmarked a giant 60ha site right on the coast at Marina South for what it bills as ‘waterfront-garden living’ in the heart of the city.

The site, not far from the upcoming Marina Bay Sands integrated resort, is already being touted as Singapore’s future No.1 residential hot spot by property analysts.

The Marina South Residential District has spectacular sea views in one direction and lush greenery in the other, as it is right next to the upcoming Garden at Marina South.

Up to 11,000 homes are expected to be built in the district, which will also boast shopping malls, hotels, parks and schools.

The site will have roughly the same number of units as District 11, which covers Newton, Novena and Thomson.

To garner fresh, innovative ideas as inspiration for its development, the Urban Redevelopment Authority (URA) and the Singapore Institute of Architects yesterday launched a design competition for the site.

This is a first in the planning for residential districts, said URA yesterday. The competition calls on budding student and professional architects alike – local and foreign – to design a mini-city based on the experience of living in a waterfront garden.

It must also be distinctive, eco-friendly, and promote a strong sense of community.

The institute’s president Tai Lee Siang, one of the judges, told The Straits Times that ‘now is the perfect time to explore…ideas that have never been seen or tested here before’.

Yesterday’s announcement also marks a new chapter for Marina South.

The site is now home to SuperBowl Marina South and Victor’s Superbowl, along with seafood restaurants and wide open spaces.

These buildings will eventually have to make way for the new residential district.

Guidelines from the competition brief, available on the institute’s website www.sia.org.sg gives the project’s gross floor area as 1.5 million sq m and a gross plot ratio of five.

This sets the scene for high-rise, high-density housing, typical of the 50-storey public housing at the Pinnacle@Duxton and the 70-storey apartments at The Sail@Marina Bay, said property analysts.

It will cater to Singaporeans’ growing appetite for high-rise apartments with stunning views. Property analysts anticipate that demand for the site will be red-hot, if the economy remains robust.

‘This has all the makings to be Singapore’s number one residential hot spot,’ said Colliers International’s director for research and consultancy Tay Huey Ying.

When asked if any public housing will be built in the district, URA said detailed plans have not been finalised – but property consultants said this was very unlikely.

URA added that the project’s implementation will be decided when plans are finalised. It expects the district to be developed over a 15- to 20-year period.

The closing date for the competition is Nov 12. Up to 10 of the best ideas will be selected to share a cash prize of $50,000. The winning entries will be announced during the Singapore Design Festival 2007 in November.

Marina Bay Developments  

 

Source: The Straits Times 14 Sept 07

District 19 – home of property investors

Data shows area has highest number with multiple home loans

(SINGAPORE) It may not top Singapore’s wealth charts, but Hougang has plenty of property investors – or speculators. District 19, which includes Serangoon Gardens, Hougang and Punggol, has the highest number of borrowers with multiple property loans, at 3,263.

According to data from Credit Bureau Singapore (CBS), which analysed loans and looked at where borrowers live, investors are defined as people with two home loans and more. They live all over Singapore and are not confined to the rich districts of 10 and 11 or 15.

In fact District 9, which includes Orchard, Cairnhill and River Valley, has only 716 borrowers with at least two home loans. This is much lower than districts 16, 18, 20, 22 and 23, each of which has between 2,000 and 2,700 borrowers with more than one loan.

People with multiple home loans totalled 38,520 in June – a 64 per cent jump from 12 months earlier.

And District 19 took the top prize in this category – at 3,263. CBS general manager Mark Rowley said this could be due to the number of property launches in the area, although the data would include residents who have bought elsewhere.

While the rich residents of districts 15, 9 and 10, which include Katong, Orchard, Ardmore, Bukit Timah and Holland Road, figure prominently in terms of people owing banks more than $1 million on property loans, the data shows people who owe more than a million dollars on homes live all over the island. The number jumped a hefty 26 per cent to 12,884 in June from a year ago.

‘The value of properties has gone up,’ said Mr Rowley who does not consider the jump in big loans a matter of concern, given the low rate of delinquency among borrowers.

District 10, which is made up of Ardmore, Bukit Timah, Holland Road and Tanglin, has the most million-dollar borrowers at 2,033, up 30 per cent from a year ago.

Again District 19 didn’t do too badly. It has 618 such borrowers, a slight gain of 2 per cent from June 2006.

District 24, which comprises Lim Chu Kang and Tengah, has a grand total of 6 people who owe more than $1 million on their home loans, a 100 per cent jump from 12 months ago.

Interestingly, Kranji and Woodgrove in District 25 are the only places where residents who owe more than $1 million showed a drop – 117 versus 119 a year ago. They also seem the most conservative area, with only 20 people having multiple home loans.

And District 25 had a 16 per cent fall in new property loans. This translated to 1,666 people getting a loan, down from 1,984 a year ago.

It was one of five districts that showed a negative in new property loan approvals. The other four were districts 22, 24, 27 and 20.

CBS gets its property loan data from 10 financial institutions, eight banks and two finance companies.

They are ABN Amro Bank, CitiBank, DBS Bank, HSBC, Maybank, OCBC, Standard Chartered Bank, United Overseas Bank, Hong Leong Finance and Sing Investments & Finance.

 

Source: Business Times 13 Sept 07

New rule may result in lumpy property earnings

Proposed change requires developers to book revenue only on completion

(SINGAPORE) A new accounting interpretation standard being proposed will require property developers to recognise revenue from their projects only on completion and not in phases.

Developers are said to be resisting the proposed change in accounting standard which, they say, will result in greater fluctuations in earnings reported by listed property companies.

The new standard is put forward by the Council on Corporate Disclosure and Governance (CCDG) which adopted it from the UK-based International Accounting Standards Board. The CCDG sets accounting standards in Singapore.

The Institute of Certified Public Accountants of Singapore vice-president Ernest Kan said: ‘This will cause earnings of property companies to be more erratic.’

‘Currently, if I started an 18-month project in January, and I complete two-thirds of the project this year, the 2007 financial statement looks nice because I can recognise two-thirds of the revenue and profit.

‘But under the new standard, there will be nothing to show for it in the 2007 financial statements, but next year when the project is completed there will be a sudden surge of revenue and profit which is recognised.’

The proposed change aims to standardise accounting practices among real estate developers for sales of units such as apartments before construction is complete.

The Real Estate Developers’ Association of Singapore said yesterday that it has given feedback to the CCDG on behalf of developers but declined further comments.

Hiap Hoe executive director Cindy Lim said: ‘Financial accounting should reflect the business and economic value generated by companies.’

‘If we were to recognise revenue only upon the completion of a property, it would not be a fair reflection of a company’s performance. Commercially speaking, revenue would have already been generated once the property is sold – even if it is only half completed.’

And the chief financial officer of a listed property developer said: ‘Most developers would prefer the status quo because we don’t want gyrations in earnings.

‘Besides, home buyers here make progressive payments based on completion, and risks are passed on to them accordingly, so developers should be allowed to recognise revenue.’

Dr Kan said the change could be implemented as soon as the financial year beginning on or after Jan 1 next year. The CCDG has gathered feedback on the proposed change and will pass it on to the IASB, which is inviting comments until Oct 5.

‘It will be interesting to see if Singapore will adopt this. It generally wants to adopt international standards, and has only resisted doing so in very unique circumstances,’ Dr Kan said.

 

Source: Business Times 13 Sept 07

Boom resonates in home loan numbers

Number of people with multiple home loans up 64% in June as applications surge

(SINGAPORE) For thousands in Singapore, a single home – or a single loan – is no longer enough. Riding the property boom, with its promise of huge gains, the number of people with multiple home loans soared to 38,520 in June this year.

This represented a 64 per cent jump from 12 months ago. In June 2006, the number of people with two home loans or more stood at just 23,541, according to the Credit Bureau (Singapore) Pte Ltd (CBS), which released data on property loans for the first time yesterday.

In tandem with rising property prices, new home loan applications surged to 17,323 in May. If the past 30 months are a benchmark, then the average month sees just 10,000 new home loan applications.

Also, over the past two-and-a-half years, an average of 4,000 applications have been approved each month. But in May, a total of 4,856 applications were approved, suggesting that while banks had stepped up the pace of approvals, the applications had flooded in even faster.

Loan approval data lags applications as it refers to disbursements which could be a few months later or even as long as two years down the road for borrowers who bought on deferred payment schemes.

June saw 4,794 approvals against 16,017 applications. The breather that the property market then took was echoed in the number of new loan applications, which fell to 13,870 in August.

Property loan approvals increased 12 per cent in June 2007 to 50,514 from a year ago.

Explaining the relatively low rate of approvals compared to the applications flowing in, Mark Rowley, CBS general manager, ventured that people making ‘multiple applications’ could have something to do with it – as could the credit policy of banks.

And while there has been some anecdotal evidence of banks tightening credit, he said it was too early to say if the low rate of approval was a result of that.

Said Helen Neo, head of consumer banking of Maybank in Singapore: ‘A home loan application may be rejected if the applicant’s repayment ability is in doubt taking into account his overall financial commitments.’

Tan Chia Seng, Citibank Singapore business director, said that in the last 12 months, there had been a noticeable increase in big ticket mortgages and multiple home loan borrowers.

‘At Citibank, we always take a prudent approach towards mortgages,’ said Mr Tan.

‘For multiple home loans, it is particularly important to consider the applicant’s aggregate servicing capability for all his loans, especially his home loans,’ he added.

He ventured that one possible reason for the low approval rate could be that the applicants’ aggregate servicing capability for all his loans has fallen below an acceptable level.

‘If the applicant has a disproportionately high debt-servicing ratio, a prudent bank may not approve his application for a second or third home loan,’ said Mr Tan. ‘In our case we have been declining loans to applicants where the debt-servicing ratio exceeds our comfort level.’

CBS said the data, which have been compiled over the 30 past months and used to develop a property loan index, show a hunger for credit to finance properties under the current property boom.

The index showing credit hunger climbed to a high in May, 71 per cent above the baseline or 17,323 new loan applications. Single-day sellouts at various property launches also repeatedly made the headlines.

Home loan approvals jumped 23 per cent in May to 4,856. In April, the number stood at just 3,967.

The good news is that along with the relentless climb in property prices, the delinquency rate, or the proportion of borrowers behind with their home loan instalments, is falling.

CBS also charted a delinquency index which shows the percentage of people being late in payments has been declining from the average delinquency rate of 2.35 per cent to just 2.04 per cent as of June 2007.

That works out to 5,448 delinquent borrowers out of the total 266,512.

From a credit risk perspective, it is very positive, said CBS’s Mr Rowley.

‘We will always focus on delinquency as the indicator – it’s low at this point,’ he said.

 

Source: Business Times 13 Sept 07

HK property deals surge to 2-year high in August

Number of deals in August soars to two-year high of 13,664

IN HONG KONG

A SURGE in property deals has fuelled hopes that Hong Kong’s mass market is poised to catch up with the city’s runaway luxury sector.

The number of deals surged last month to a two-year high of 13,664, an increase of 22.9 per cent from July and a rise of 58.3 per cent from August 2006. In the past six months, the figure has exceeded 10,000, signalling a consistent shift upwards.

The total amount paid for these sale and purchase agreements came to HK$44.2 billion (S$8.6 billion), an increase of 16.3 per cent over the previous month.

The figure represents a hefty 76.3 per cent increase compared to the amount paid in August 2006.

Hong Kong’s mass residential market has been a notable laggard over the past two years as the luxury sector took off. Sales in up-market locations such as the Peak and the South Side of Hong Kong Island have well outstripped 1997 levels.

Luxury residential sales in Hong Kong are expected to post double-digit growth this year as limited supply and an influx of capital to the city pushes up prices. Property firm Savills expects the luxury sector to post growth of 16 per cent in the 12 months to April 2008.

This follows stellar growth in 2006, in both sales and leasing.

However, the mass market has grown by just a few percentage points each year, and still remains below 1997 levels. This is against a backdrop of strong economic growth, the city experiencing GDP of 6.8 per cent last year and unemployment standing at just over 4 per cent.

While luxury sales are at 1997 levels or above, the mass sector is still about 20 per cent short. Residential property on Hong Kong island is 20-25 per cent below 1997 prices, while prices out in Kowloon and the New Territories could be as much as 40 per cent below.

Market players are hoping the latest transaction figures signal healthy buying power and renewed interest in buying a home.

Others are however sceptical. ‘The mass market is ticking over quite nicely,’ said Maggie Brooke of Professional Property Services. ‘But we don’t see anything major.

‘I know things are going well, but people are still nervous about buying . . . they really aren’t inclined to get in above their heads. It (the property downturn of 1997-98) is still in peoples’ minds.’

Many home buyers are still stinging from the Asian financial crisis, after which the value of their homes fell by up to 40 per cent, often to less than the level of the housing loans they took out to buy the homes.

Another factor potential buyers are taking into account is that developers have been reluctant to drop their prices, despite ample supply in the mass sector.

‘People buying have to ask themselves, ‘is it worth it?’ Ms Brooke said.

In its annual property review, the rating and valuations department of the government said it expects less property completions in 2007, reflecting a year of modest demand, but said they should bounce back again in 2008.

Take-up rates for domestic properties were down 6 per cent overall last year, while prices went up by just 3 per cent.

 

Source: Business Times 13 Sept 07

CBRE, Savills open new offices

PROPERTY firm CB Richard Ellis (CBRE) is set to open its office in Koh Samui, Thailand, while its competitor Savills officially opened its office in Dalian, China, yesterday. CBRE’s office opens tomorrow.

The group, which already has offices in Bangkok and Phuket, said in a press statement yesterday that the move was in response to growing investor demand, and the number of quality developments on the market.

The Koh Samui office will offer a full range of services, including residential sales, investment and land services, research and consulting, and valuation services.

It will be supported by CBRE’s regional offices in Asia and will be part of a larger business plan to roll out a high-end luxury properties platform.

Separately, integrated property services provider Savills yesterday launched its Dalian office, bringing the group’s total number of offices in China to eight, with staff strength estimated at 3,000.

Earlier this year, Savills also opened offices in Tianjin and Chengdu. Savills Dalian offers full agency services, including residential sales, commercial and retail leasing, property management, research, development and consultancy, and valuation.

Shu Zhong Hua, a real estate veteran with over 10 years’ experience in China, has been appointed general manager of the Dalian office.

At the opening ceremony, Savills also announced their appointment as property management consultant for Jguang East Coast, a 120,000 sq metre high-end residential project located in Dalian’s eastern Zhongshan district. The project is expected to be launched at the end of this month.

 

Source: Business Times 13 Aug 07

Jones Lang plans mall mgmt JV in China

(BEIJING) Global real estate services company Jones Lang LaSalle (JLL) is in talks with a shopping centre management firm to establish a 50-50 joint venture in China, a senior company executive said yesterday.

Managing director David Hand said the company ‘is looking at doing a merger – a joint venture with an overseas expert in shopping centre management’ to strengthen its hand in a market where the world’s top retail brands are swarming in.

If everything goes smoothly, ‘by the end of the year, we will be able to announce it’, he told reporters.

Mr Hand, who is also head of Jones Lang LaSalle’s China retail division, did not name the prospective partner.

He said the deal would make JLL the largest shopping centre management company in China and in Asia as well.

JLL provides management and leasing services to many shopping malls in China, including new developments in downtown Beijing. Its rivals include DTZ Holdings and CB Richard Ellis.

Mr Hand added that JLL would move its regional headquarters to China from Singapore to capitalise on Bejing’s drive to spur consumption in order to wean the economy off investment and exports.

He did not say when the move would occur. ‘In the future, China will be our strongest growth engine,’ he said.

Mr Hand said he expected Beijing to roll out more measures to rein in foreign investment in Chinese property.

China has ordered foreign investors to register onshore and put more of their own money into their China ventures.

Mr Hand said the process of investing in Chinese real estate had become more cumbersome, but added: ‘It’s not stopping money coming in and out.’

 

Source: Reuters (Business Times 13 Sept 07)

House prices in Chinese cities up 8.2% in August

The government has pledged to tame the wild property market

(BEIJING) House prices in 70 large and medium-sized Chinese cities were up 8.2 per cent in August compared with last year, as the rising trend continues to show no sign of stopping, according to latest statistics released yesterday.

The rise actually hit a new high and was 0.7 percentage points higher than the July figure, according to a report by the National Bureau of Statistics (NBS) and the National Development and Reform Commission.

The prices of newly-built commercial housing units were up by 9 per cent in August, 0.9 percentage points higher than the rise in July.

The prices of low-cost housing rose 3.1 per cent and the prices of luxury housing went up 10 per cent.

The cities of Beijing, Shenzhen, Beihai and Urumqi saw price hikes of more than 10 per cent, with Beihai the highest at 18.2 per cent.

The housing prices in Beijing went up 13.5 per cent and the prices in Shenzhen were up 17.6 per cent. Prices of second- hand houses in those cities were up by 7.8 per cent.

Rising house prices have been a major concern of the Chinese people in recent years as new houses are too expensive for most urban residents.

Ordinary consumers are often scared into buying a house for fear that they will pay even more if they keep waiting as prices continue to rise.

The Chinese government has pledged to tame the wild property market but house prices have rocketed over the last few years despite round after round of government measures including restrictions on housing ownership by foreigners. Speculation by domestic and overseas investors has been blamed as one of the main reasons for the price hikes.

China’s real estate investment soared 28.5 per cent from a year earlier to 988.7 billion yuan (S$200.3 billion) in the first half of 2007, according to the NBS.

Analysts attributed the rising investment to booming housing demand, excessive liquidity and robust housing price hikes.

 

Source: Xinhua (Business Times 13 Sept 07)

Ascott’s China service residences lauded

It plans to grow its China portfolio to 10,000 units by 2010

THREE service residences managed by The Ascott Group have been named ‘China’s Best Serviced Apartments’ by Forbes China magazine.

Ascott Beijing, Ascott Shanghai Pudong and Somerset Olympic Tower, Tianjin were among 15 winning projects chosen from 100 short-listed in Beijing, Dalian, Guangzhou, Shanghai, Shenzhen and Tianjin.

Ascott bagged the most awards in the service residence category, created this year to recognise excellence in service, stay experience, facilities and location.

The awards are part of Forbes magazine’s ‘China’s Best Business Hotels 2008′ awards.

Ascott’s CEO for China Ee Chee Hong said: ‘Winning three out of 15 awards is a validation of Ascott’s focus on delivering service and product excellence.’

Ascott is the largest international service residence owner-operator in China, with a total of about 4,000 units in Beijing, Dalian, Guangzhou, Shanghai, Shenzhen, Suzhou, Tianjin, Xi’an and Hong Kong.

The group plans to grow its China portfolio to 10,000 units by 2010. It has won numerous brand and property awards.

In April this year it clinched the China 2007 ‘Top 100 Serviced Apartments Award’ for the fourth year running.

 

Source: Business Times 13 Sept 07

Sub-prime crisis needs multilateral solution

By ANTHONY ROWLEY

TOKYO CORRESPONDENT

NORMALLY, when there is a major financial crisis of one kind or another, it is easy to find someone to blame. In the case of the Asian crisis 10 years ago, for example, fingers were quickly pointed at the International Monetary Fund (IMF). When Japan’s bubble economy collapsed, the Bank of Japan (BOJ) was identified as the villain. Also, former US Federal Reserve chairman Alan Greenspan blamed ‘irrational exuberance’ among investors for the rise and fall of the IT bubble.

But whom are we supposed to blame for the crisis that is still evolving out of the sub-prime mortgage market debacle in the US? No one has mentioned the IMF this time and the BOJ has been only indirectly implicated for allowing the yen carry trade phenomenon to swell to proportions where it contributed to a global liquidity bubble. As for irrational exuberance, stock markets can scarcely be blamed this time around.

It is no use pointing fingers at the likes of any single institution. The truth of the matter is that none of these institutions has been given the authority to deal with a ‘new style’ financial crisis such as the current one. I was chatting about this the other day with Japan’s former vice-finance minister for international affairs, Eisuke Sakakibara and he was quick to go to the heart of the matter. The IMF, he declared has become ‘irrelevant’ as an agent for dealing with global financial issues and so has the G-7/G-8. Both should be ‘abolished’, he (only half) joked.

What does this have to do with the sub-prime crisis? A good deal, because the same kind of outdated mentality which allows seven or eight countries (half of them European) to pronounce upon global economic issues, and control the IMF, is also responsible for allowing problems for global fall-out to develop within national borders.

On top of that, there is the arrogance of financial markets which until recently were bold in declaring that multilateral institutions such as the IMF were no longer necessary and that the markets could police the new world financial order by themselves.

If the current financial crisis does not convince both governments and markets of the need for a ‘new financial architecture’ then surely nothing ever will. Money moves around the world nowadays in amounts that make official resources look puny and with a speed and complexity that is matched only by rockets and rocket science. Financial engineering produces products of such complex nature that they can be understood only by rocket scientists. The potential that these developments have to do harm as well as good is enormous, and yet the ‘control centre’ is still in the steam age.

True, there are institutions such as the Bank for International Settlements (BIS) to deal with central banking issues on a global basis and there are any number of national financial and accounting regulatory bodies. But none of these has the power to demand the kind of information that might have indicated just what kind of risks were developing in the sub-prime mortgage market, the financial derivatives market, the yen carry trade area and so on. What then of the IMF? Mr Sakakibara has little doubt about what is wrong there. ‘The IMF is too macro-oriented’, he told me. ‘It needs to go deeper into finance. World finance has changed and they need to address issues like sub-prime issues or systemic risks in international financial markets, rather than sticking to outdated macro-economic analysis.’ Some might add that since the days of former managing director Michel Camdessus, the IMF has become too preoccupied with Third World issues of poverty and development, to be able to focus on global financial market and exchange rate issues.

But this is not so much the fault of the IMF as of the G-7 governments who insisted that they could manage complex issues of global finance on their own, forcing the IMF to find new activities at the margin. This is as absurd as it is presumptuous. No national government has the intellectual resources (or the budget) to analyse the global financial system in all its evolving complexity, let alone the authority to intervene when problems arise. In Mr Sakakibara’s view, the only hope is a new and expanded government group, such as the G-20, to consider global policy issues and a more focused IMF to provide the analytical and research back-up needed.

Yet, the kind of arrogance which allows so-called superpowers to ignore the United Nations in security matters and to prefer unilateral solutions would surely doom any such initiative from the outset. Perhaps the failure of military intervention in Iraq – based on the doctrine of pre-emptive strike – to secure any lasting solution to the problem of ‘terrorism’ might induce sufficient humility to consider reverting to multilateral solutions. But that won’t happen before the sub-prime crisis has done a lot more damage than it has already.

 

Source: Business Times 13 Sept 07

Billionaire expects to do well in Marina Bay Sands gambit

WITH just one competitor in town, Las Vegas Sands chairman Sheldon Adelson believes his company has a winning hand in its upcoming Singapore venture.

Even as costs of building the Marina Bay Sands integrated resort look set to swell, the American billionaire is counting on the two- horse race – and a big bet on the convention business – to translate into big bucks.

‘This will be a duopoly and, of course, any place that has a duopoly will be very profitable,’ said Mr Adelson yesterday at the Forbes Global CEO Conference.

Speaking in a public interview after receiving a lifetime achievement award from Forbes magazine president Steve Forbes, Mr Sheldon added that his mega project will have enough space to host the world’s biggest conventions.

Las Vegas Sands pipped three other rivals last year with a $3.85billion bid for a government tender to build Singapore’s first integrated resort.

But rising construction costs amid a building boom and refinements to the project’s design may bump up the amount, which excluded a fixed land price of $1.2 billion, by as much as 40 per cent, The Business Times quoted chief operating officer William Weidner as saying last month.

Malaysia’s Genting International is building Singapore’s second gaming development on Sentosa island.

Las Vegas Sands’ Singapore resort will be the company’s second foray into Asia, after it opened a US$2.4 billion (S$3.6 billion) casino resort in Macau last month.

Mr Adelson said the region has room for 10 more of these mega developments, as gaming becomes increasingly accepted as just another form of entertainment.

‘I see the gaming industry as being in its infancy.

‘Gaming has evolved from gambling dens into Disneylands for adults,’ said Mr Adelson, who reckons that other parts of the world, such as Europe and India, could do with more mini Las Vegas-styled casino resorts.

These developments, he said, are really ‘cities of entertainment’ where gambling is just one of the elements.

Gaming takes up just 1 per cent of the space of the company’s flagship Venetian resort in Las Vegas, and just 5 per cent in its Macau outfit, he added.

‘This will be a duopoly and, of course, any place that has a duopoly will be very profitable.’

He is counting on the two-horse race between his firm and Malaysia’s Genting – and a big bet on conventions – to result in big bucks.

 

Source: The Straits Times 13 Sept 07

More consumers with two or more property loans now

Number surges by 64% from a year ago; level of new loans rises by 12%

AMID Singapore’s property boom, the number of investors with two or more property loans shot up by 64 per cent in June from a year earlier.

And the number of borrowers owing more than $1 million in property loans was up nearly 26 per cent that month, according to new figures from Credit Bureau (Singapore). New property loans, too, rose 12 per cent from a year earlier to hit 50,514 in June.

All these inaugural figures from the bureau’s latest property market credit analysis show a surge in demand for credit amid Singapore’s property boom.

The trend is captured by the consumer credit bureau’s property loan index unveiled yesterday.

The bureau is an independent body that collates data on borrowing trends in Singapore.

The data is derived from loan data provided by 10 members including ABN Amro Bank, CitiBank, DBS Bank, OCBC Bank, Standard Chartered and United Overseas Bank. It includes loans for private and HDB properties, and other types of properties.

A total of 38,520 consumers were holding multiple property loans in June, the data showed.

The largest number of these consumers was concentrated in District 19 (Serangoon Gardens, Hougang and Punggol) with 3,263 borrowers. Other districts with a relatively large number include District 10 (Ardmore, Bukit Timah, Holland Road), District 15 (Katong, Joo Chiat, Amber Road) and District 23 (Hillview, Dairy Farm, Bukit Panjang).

In June, there were 12,884 consumers owing more than $1 million in property loans. Most of them were from District 10 (2,033) and District 15 (1,218).

Apart from the demand for new loans, the index tracks the approval rate of new loans and the rate of delinquency for such loans.

In June, just over 2 per cent of consumers holding on to about 181,000 loans were delinquent – meaning that they have loans that were more than 30 days overdue. This is healthier than the baseline average of 2.35 per cent.

The bureau’s general manager, Mr Mark Rowley, said it devised the index to provide an early insight into the developing trends in property loans as there is ‘a lot of heat’ in the property market.

‘Delinquency is low at this time, but it is a lead indicator. From a credit risk perspective, if delinquency goes up, that is when we take note of a trend change.’

The data comes amid much talk that banks are tightening the way they lend money to finance home purchases.

‘If banks tighten their lending policy, there would be a widening gap between credit demand and approvals,’ said Mr Rowley.

The demand for new loans, which peaked at 71.77 points on the index in May, slipped in July and last month.

But it is still above the average.

Mr Rowley said the loan approval figures for July appear to be tapering off, as there is a time lag in the bureau getting the credit approval figures.

‘They would be around the baseline figure, which shows that the gap is still maintained.’

The bureau will post an updated monthly property loan index on its website. It can be accessed free of charge.

The bureau will also soon issue similar indexes for credit card loans, personal loans and motor vehicle loans.

Property Loan Index 

 

Source: The Straits Times 13 Sept 07

Plan for property developers to change way of reporting revenue

Call for income to be booked only upon completion of a project, not gradually

MANY real estate developers may soon have to change the way they treat sales revenue in their financial accounts.

Under a proposal submitted by the Council on Corporate Disclosure and Governance, developers will have to recognise revenue only upon completion of their projects – instead of doing so gradually, as the projects are being built.

Mr Ernest Kan, vice-president of the Institute of Certified Public Accountants of Singapore (Icpas), which assisted in preparing the proposal, said yesterday: ‘Most developers now recognise revenue progressively.

Under this new interpretation, you can only recognise it as revenue upon a temporary occupation permit, unless you are providing construction services.

‘Most developers here would not fall into that category, as they are only involved in sales, not construction and allowing the buyer to decide what to build.’

Dr Kan said the proposal has been submitted to the industry’s international body. It should make a decision by year-end.

‘The earliest it would have an impact here is during financial year 2008,’ he added.

He said the current interpretation meant revenue flow is more even. Under the proposal, revenue will tend to ‘become more lumped up’. This move aims to standardise the accounting practice among developers.

Currently, developers interpret the global Financial Reporting Standards (FRS) differently and record revenue for the sale of units at different times.

Some record revenue only when they have handed over the completed unit to the buyer, while others book gains earlier, as construction progresses.

This move proposes that revenue should be recorded as construction progresses only if the developer is providing construction services, rather than selling units.

In some countries, the prevailing practice has been to view the FRS as contracts for the sale of goods; in this case. completed real estate units, for which FRS 18 is the applicable accounting standard.

Applying this standard, revenue is recorded only when control – and the risks and rewards of ownership – are transferred to the buyer, typically when the unit is ready for occupancy and handed over to the buyer.

In other countries, the practice is to view the sales agreements as construction contracts, for which FRS 11 is the applicable standard.

Applying this standard, revenue for constructing an asset for a customer is recorded as construction progresses – by reference to the stage of completion of the construction.

The new draft proposes that FRS 11 be used only if the sale agreement is a contract to provide construction services to the buyers’ specifications.

Analysts say the proposed change will result in more volatile earnings. However, it should not affect pricing and cash flow.

Said DBS Vickers property analyst Wallace Chu: ‘The money’s still in the bag. It’s just how you recognise it when it comes in.

‘It will affect those developers who are involved in long projects more. Revenues are likely to fluctuate for those with big projects, especially when there’s a long construction period.’

 

Source: The Straits Times 13 Sept 07

Rising costs here a big problem, say finance execs

Higher rents, property prices cited in survey of 508 professionals from S’pore and HK

MORE than six out of 10 finance industry professionals in Singapore, both locals and expats, regard the rising cost of living here as ‘a big problem’, a recent poll has found.

This hike in living expenses may ’cause the city to lose its appeal among finance professionals, both locally and abroad’, according to eFinancialCareers.com, a global online network site for jobs in asset management and investment banking.

Its poll of 508 professionals – 390 from Singapore and 118 from Hong Kong – found that 56 per cent of them considered Singapore’s rising cost of living to be ‘a big problem’.

Of the Singapore-based professionals, 246 of them, or 63 per cent, felt that way. The poll, which focused only on Singapore, sought the views of Hong Kong-based professionals too as they might consider a job here.

Still, some professionals point out that while costs have risen in Singapore, the Republic is still far cheaper than centres like London.

The other respondents in the poll saw no problem in higher costs (6 per cent of them), or felt it was ‘to be expected’, ’slight’ or ‘very small’.

Higher rentals and property prices were cited as the biggest bugbear. But rising parking costs and relatively pricey cars were also becoming a bigger concern.

ABN Amro’s head of business banking sales for Asia, Mr Jan-Arie A. Bijloos, moved here a year ago and has watched rents ‘go up quite dramatically’ in the River Valley area where he lives.

‘Cost of accommodation would be a concern in a year’s time if my salary does not rise in tandem to compensate for it,’ he said.

But the Government has said that it will monitor the market to ensure there is sufficient supply of homes. It will also be releasing more residential sites for sale in the second half of the year.

Investment banker A. Cohen, a self-termed ‘Broadway arts buff’ who moved here from Manhattan in May, groused about ‘unpalatable ticket prices’ for artistic performances.

Indeed, Singapore overtook New York in a recent ranking of the world’s most expensive cities by Mercer Human Resource Consulting.

Hikes in accommodation costs catapulted Singapore to 14th place, from 17th place a year ago, in the ranking.

Meanwhile, Hong Kong dropped from fourth to fifth place this year. This prompted Ms Sarah Butcher, global editor of eFinancialCareers.com, to note that the shrinking gap between the two cities could impact the ‘movement of finance talent between the two markets’.

But costs here were ’still manageable’ compared to elsewhere, where prices have also risen, said bankers such as Mr Salman Haider, from Citibank Singapore.

Moving here from London a year ago, he found Singapore also boasts pull factors such as ’security and a great educational system’.

‘Singapore is one of the most liveable cities in the world and certainly one of the best to bring up young children,’ he said.

 

Source: The Straits Times 13 Sept 07

Ang Mo Kio condo site sets record

Far East’s $202.9m winning bid means suburban project may eventually launch at over $1,100 psf

(SINGAPORE) A plum condominium site in the heart of Ang Mo Kio has set a new record for suburban land prices, fetching some $601 per square foot per plot ratio (psf ppr).

And when the project is eventually launched, it could set a record for private home prices outside the central areas, analysts said.

Yesterday, HDB said that Far East Organization put in the top bid for the 0.6-ha mass market condo site at Ang Mo Kio Avenue 8. The developer beat 13 other bidders with its bullish offer of $202.9 million – which works out to $601 psf ppr .

‘The price is probably the highest paid for a suburban site in recent years,’ said Donald Han, managing director of property firm Cushman & Wakefield.

Analysts said that Far East’s bid for the 99-year leasehold site beat market predictions that the top bid would be around $500 psf ppr.

Far East’s break-even cost for the site is now estimated to be in the region of $900-$1,000 psf, which means that units in the project could eventually be launched at $1,100-$1,200 psf – a record for private home prices in the suburbs.

‘If Far East can achieve prices of around $1,200 psf for the project, then yes, it will be a record for the suburban areas,’ said Ku Swee Yong, Savills Singapore’s director of marketing and business development.

By comparison, units in other projects in the vicinity – albeit in less attractive locations – are mostly going for around $400-$600 psf.

Far East’s bid was 11.8 per cent higher than the next highest bid of $538 psf ppr put in by Chip Eng Seng.

The bid was 68.9 per cent higher than the lowest bid of $356 psf ppr bid jointly put in by Wing Tai Holdings and United Engineers.

Far East also beat out other big names such as CapitaLand, Hong Leong Group and Frasers Centrepoint.

Experts said that the high prices and large number of bids signalled that developers had confidence in the strengthening suburban residential market – notwithstanding the US sub-prime mortgage fears that rattled stock markets here.

The plot also drew strong interest due to its good location. It is situated right next to Ang Mo Kio MRT station, and is just 15 minutes away from Orchard by train.

‘With an increase of 4.2 per cent in overall HDB resale prices in the past six months, more HDB households would be poised to upgrade to this conveniently located private development,’ said Li Hiaw Ho, executive director at CB Richard Ellis’ research unit.

Units in the project could be sought-after by HDB upgraders in the Bishan and Toa Payoh estates – where HDB resale prices command a premium – as well as Ang Mo Kio itself, Mr Li said.

In addition, the project may also prove to be attractive to private homeowners in Serangoon and the Thomson / Upper Thomson Road areas, he added.

The site, which was on the government’s reserve list, was launched in July after an unnamed developer bid $102 million, or $302 psf ppr area for it.

 

Source: Business Times 12 Sept 07

HDB launches design, build and sell site at Ang Mo Kio

THE Housing and Development Board has launched a third Design, Build and Sell Scheme (DBSS) site for sale. The latest site, which is at Ang Mo Kio Street 52, is the second to be launched for sale this year.

The site area is 16,789.1 sq m (180,716 sq ft), with an allowable gross floor area of 58,761.85 sq m (632,506 sq ft). It is close to the Ang Mo Kio town centre with its MRT station, bus interchange and the AMK Hub.

Noting the attractive location of the new site, Savills Singapore director of marketing and business development Ku Swee Yong said that he believes the site could fetch between $110 million and $125 million or about $170 to $200 per square foot per plot ratio (psf ppr).

The development is targeted at HDB upgraders or en bloc sale downgraders, and Mr Ku said that he expects a good take-up because the stock of vacant HDB flats has fallen of late.

Mr Ku highlighted that recent suburban condominiums like The Parc condominium in the West Coast and The Soleil at Novena had sold well, ‘even though this is traditionally a quiet month for property sales’.

The successful developer will be required to build a minimum of 30 per cent of the flats with a floor area of 95 sq m or less – equivalent to flats of four rooms or smaller.

CBRE Research estimated that the site can yield more than 500 units. CBRE added: ‘Given the established residential environment in Ang Mo Kio, together with the known popularity of DBSS units, we expect a good response from mid-sized developers and joint venture of contractors and developers.’

Upon building completion, the successful developer will hand over the entire development site to the HDB for lease administration, and to the Town Council for maintenance of the common areas and car parks.

The tender will close at noon on Tuesday, Nov 27.

The second DBSS site, at Boon Keng Road, was awarded in June. It sold for $233.74 psf ppr – double the $113.64 psf ppr price for the first DBSS site in Tampines sold in Jan 2006.

 

Source: Business Times 12 Sept 07

Q3 may see slowdown in private home sales

But new launches may accelerate activity again, say market watchers

(SINGAPORE) Private home sales are expected to slow this quarter – the result of the twin effects of the US subprime woes which made the headlines in August and the just-ended Hungry Ghost month.

But the pace of activity is expected to pick up again as developers step up launches and confidence recovers, say property market watchers.

Fresh price benchmarks may still be set for projects offering compelling propositions, but developers are likely to tread carefully before upping prices.

CB Richard Ellis (CBRE) estimates that the total number of new private homes sold by developers in the primary market during Q3 will be 3,500-4,000 units including sales from ongoing projects. This is lower than the 5,129 units sold in Q2 and 4,783 units transacted in Q1 this year.

Activity also decelerated in the secondary market in Q3. ‘Whereas the first and second quarters saw resale volumes of 4,645 units and 6,514 units respectively, it is likely that Q3 figures will be lower, probably in the region of 4,000 to 4,500 units,’ CBRE executive director Li Hiaw Ho says.

‘Anecdotal evidence suggests that subsale activities have been muted as investors become more cautious,’ Mr Li added. Subsales as a percentage of total private housing sales are likely to fall below the 7.4 per cent and 9.7 per cent in Q1 and Q2, he predicts.

Subsales, often used as a gauge of speculative activity, involve projects that have yet to receive a Certificate of Statutory Completion, while resales, which are also secondary-market transactions, cover completed developments.

But the current slowdown in activity is not such a bad thing, says DTZ Debenham Tie Leung executive director Ong Choon Fah.

‘The market has been going up quite dramatically. It’s good that people step back and evaluate their positions before moving on. This window also creates an opportunity for people to enter the market. When the market is so hot, everytime you put in an offer at the seller’s asking price, he raises his price,’ she says.

Ong Chong Hua, executive director of Ho Bee Investment, also describes the current slowdown as ‘a healthy consolidation after a robust period of growth in sales volumes as well as prices’.

‘Activity will start picking up slowly and I think confidence will come back, as developers start launching more projects. Buyers will be cautious but underlying demand is still strong. The share market seems to have consolidated and strong economic fundamentals are still in place for Singapore and the Asian region,’ he said.

Among the projects expected to be released soon are MCL Land’s Hillcrest Villas cluster terrace homes along Dunearn Road, Ho Bee’s Turquoise condo at Sentosa Cove, Bukit Sembawang’s Paterson Suites and SC Global’s Hilltops in so said to have Cairnhill. CapitaLand is albegun selling Latitude at Jalan Mutiara at around $2,800 per square foot on average.

Projects that are slated for launch in Q4 include Lippo’s condo on Sentosa Cove, Ritz-Carlton Residences at Cairnhill, and the second phase of Marina Bay Financial Centre.

Says DTZ’s Mrs Ong: ‘Sales activity may be slow for the next couple of months, but this will depend on the type of projects launched and their price points. If developers release projects that are targeted at home owners, demand is still very much there. But if they’re targeting investors or want to set benchmark prices, buyers will take a longer time to consider.’

Ho Bee’s Mr Ong said: ‘Developers will definitely be more cautious in moving up prices and trying to set benchmarks all the time. They will test the waters.

‘But I don’t think anybody will cut prices because fundamentals are still strong. There’s still a shortage of homes, with a lot of those who sold their homes in en bloc sales looking for replacement properties.’

CBRE’s executive director (residential) Joseph Tan reckons that the market could still see benchmark prices if the right kind of products are offered, such as branded residences.

Looking to the final quarter of 2007, the residential market will remain active as the government’s projected economic growth rate of 7 to 8 per cent for 2007 remains on track. ‘If developers sell around 3,000 to 4,000 units in Q4, then the total number of new homes sold in 2007 will be a new record of 17,000 to 18,000 units,’ CBRE’s Mr Li said.

This will be significantly higher than the 11,147 units sold in the primary market last year.

 

Source: Business Times 12 Sept 07

Property boom far from over: Kwek Leng Beng

CITY Developments executive chairman Kwek Leng Beng believes that the property boom here is far from over, despite the current financial market turmoil.

‘The boom actually just started in 2005, and if you’re thinking of a relapse, I don’t think that is possible,’ he told chief executives yesterday at the Forbes Global CEO Conference.

‘Sub-prime has to some extent affected Singapore … there’s a psychological fear of what will happen.’

But ‘our banks are still lending a lot of money’, Mr Kwek noted. ‘They’re a little bit more cautious, but we have plenty of liquidity.

‘The banking and financial systems here are very well controlled … they are well regulated and the central bank has taken action to pre-empt crises like what you’ve seen in sub-prime.’

The property tycoon, who is also chairman of Millennium & Copthorne Hotels, was speaking at a panel discussion on global real estate trends.

He said that, after adjusting for inflation, high-end residential property prices have risen only about 10 per cent in real terms from their lowest level over the past decade, ‘which is not alarming’.

He said: ‘My advice is, look at it realistically – crisis means opportunity. I’m a bottom-fisher, I like to go in when the market is bad.

‘I believe there’s still a lot of upside. The mid-end is still 19 per cent below the peak of ‘96.’

In addition, he said Singapore had introduced a lot of initiatives over the past 10 years to attract foreigners to live and work here, which has fuelled demand for property.

‘You may say it’s very dull, but we are going to have the integrated resorts, Formula One, and a host of other events that will make Singapore an exciting city to live, work and play.’

Other panellists were also optimistic on the prospects for further growth in property development in China, India, and the Middle East.

Vincent Lo, the chairman and chief executive of Hong Kong-based Shui On Group, who was also on the panel, said he was ‘very bullish’ on the property market in China. ‘We have waiting lists for our office space till 2010.’

Kushal Pal Singh, chairman of DLF Group, the largest real estate developer in India, said there remained a ‘huge gap between demand and supply’ of residential property there.

Hayan Merchant, chief executive of Dubai-based Ruwaad Holdings, said the current pace of development in Dubai and the United Arab Emirates more generally was ‘unprecedented’.

The property, hospitality and tourism investment and development company is looking at moving into Asia ‘in the next three to five years’, Mr Merchant told reporters in a separate briefing. He said Ruwaad was looking particularly at Singapore, Malaysia, China and India for expansion opportunities.

 

Source: Business Times 12 Sept 07

Big fall in Hungry Ghost month auctions this year

Market conditions cited for sale of only 10 out of 131 properties offered

OF the 131 properties put up for sale by auction during this year’s Hungry Ghost month, just 10 were sold – for a total value of $9.56 million – new data from property firm Colliers International shows.

This figure is one of the lowest seen in the past 10 years. The Hungry Ghost month was from Aug 13 to Sept 10 this year.

Colliers attributed the low sales volume to the current property market condition, factors affecting the world economy and new government policies – rather than buyers holding back their purchases during the Hungry Ghost month.

‘Given the good property market performance, many sellers have raised their expectations and upped their asking price; this is especially so for properties with en bloc potential,’ said Grace Ng, Colliers’ auctioneer. ‘This, coupled with the newly announced rules governing en bloc sales as well as the stockmarket turmoil amidst the US subprime woes, has caused a slowdown in the market as buyers took a cautious stand.’

Just three residential properties were sold during the Hungry Ghost month this year, generating a total sale value of $4.07 million – a far cry from last year’s $108.41 million, which was mainly contributed by the sales of 12 bungalow parcels in Sentosa Cove.

The number of properties put up for auction during the Hungry Ghost month this year – at 131 – was also a substantial 64 per cent drop compared to last year’s Hungry Ghost month.

Last year, the market saw a total of 359 properties being put up for auction sale as the Hungry Ghost month was spread across two calendar months.

Colliers also said that the total number of repossessed properties seen at auction sale during the Hungry Ghost month this year was only 43 – the lowest figure since 1998.

‘This decline is largely due to the buoyant economy and robust property market,’ the firm said. ‘Owners who faced difficulties servicing their loans were able to dispose of their properties in the open market before their bank or financial institution had a chance to repossess their properties.’

However, the auction method continued to be popular with owners for selling their properties during the Hungry Ghost month.

Colliers’ data shows that this year, some 88 properties were put up by owners for auction sale during the period.

This is the second highest number registered in a decade after 2006.

‘The continued high number of owners choosing auction to dispose of their properties indicates that the market is maturing, with an increasing number of property owners becoming less mindful of conventional taboos,’ Ms Ng said.

 

Source: Business Times 12 Sept 07

Dreaded R-word heard again amid credit crunch

THE dreaded R-word is now becoming commonplace as the complex sub-prime and credit crisis takes hold in the US and Europe.

The International Monetary Fund (IMF) and the Organisation For Economic Development (OECD) have cut their US and global growth forecasts. Blue Chip Economic Indicators surveyed 50 economists who believe that there is a one in three chance that there will be a recession in the US. A tiny minority predict that it will spread to Europe and parts of Asia.

The global economy’s prospects can no longer be divorced from the banks’ credit crunch. The crisis is the result of excessive lending, not only in the US but in Europe, China and other parts of Asia.

American, British, French, Spanish and Italian consumers, comfortable with the rising value of their homes, borrowed as much money as possible to finance spending on a variety of goods and holidays.

Huge flows of money poured into stocks, real estate and commodities. Hedge and private equity funds and other speculators leveraged themselves to the hilt. They borrowed excessive amounts to trade and purchase a variety of inflated assets.

The Bank of International Settlements and economists such as Brendan Brown of Mitsubishi UFJ Securities International and Stephen Roach of Morgan Stanley warned of the excesses.

So did Yale’s behavioural finance professor Robert Shiller. But in the heady final phases of bull markets, participants are only too happy to cast derision at their views.

As so often happens during rampant speculation, a single, relatively unimportant event, has changed the course of the market. The June collapse of two Bear Stearns hedge funds precipitated the current credit crunch.

Compared with the trillions that wash around the financial markets and much bigger recent hedge fund collapses, the US$1.6 billion bankruptcy seemed ’small potatoes’ as the Guys & Dolls humorist Damon Runyon put it.

But those funds had borrowed US$10 billion to US$20 billion and punted on sub-prime debt and other junk. Their failure made the market stop and think. How many others were caught? The result was a vicious circle.

Banks began to scrutinise their credit lines to hedge funds, forcing them to dump assets, causing price declines, losses, investor withdrawals, loan reductions, more sales and hedge fund closures.

The jittery state of the markets indicates that the circle is still turning, although bargain hunters are precipitating rallies from time to time.

The big question for the global economy is to what extent will banks rein in credit and put the screws on consumers and businesses.

Goldman Sachs, Morgan Stanley and several other investment banks are taking a sanguine view. They believe that there will be a downturn in the US economy, but interest rates and the US dollar will fall.

A recession is unlikely and Europe and Asia could well decouple from the US. The proverbial American sneeze will not be contagious.

Tighter credit and higher interest rates have already brought about a slide in American real estate prices.

Mr Brown of Mitsubishi UFJ Securities International contends that the decline is already dampening business and consumer spending and a recession has already begun.

Most economists and the financial press are examining dated statistics, so they wrongly believe that the US economy is yet to turn downwards, contends Mr Brown.

Prof Shiller of Yale, who predicted the current American property slump, the worst in 16 years, agrees with Mr Brown that Europe cannot be isolated from American economic trauma.

He believes that there is a ’substantial probability’ that the housing slump in the US could well spread to the UK. There are ‘remarkable’ similarities between the property markets in cities such as Boston and Los Angeles and British cities, he says.

‘People are so accustomed to rising house prices, they do not believe it when someone tells them it will come to an end . . . What we have may be the makings of an economic crisis,’ maintains Prof Shiller.

‘Other countries that are vulnerable to a property slide are Spain and France,’ fears Mr Brown. Banks there are exposed.

Other economists fear that high European exchange rates and tighter credit are already denting the German economy. Saudi officials are worried that high oil and gasoline prices could be pushing some countries toward recession. Since Asia is dependent on exports to the US and Europe, any downturn there would have an impact. It seems the day of economic reckoning is at hand.

 

Source: Business Times 12 Sept 07

Fed officials see threat to growth in sub-prime mess

Concrete risks of broader slump pose downward pressure on economic activity

(WASHINGTON) Three senior Federal Reserve officials said on Monday that the turmoil in housing and mortgage lending had begun to threaten the overall economy, a condition policy makers have said is the crucial test for deciding whether to lower interest rates at their meeting next Tuesday.

A Fed governor, Frederic Mishkin, told an audience in Manhattan that the risk of a broader downturn ‘cannot, in my view, be ruled out’ and ‘poses an important downside risk to economic activity’.

In unusually direct language for a Fed policy maker, Mr Mishkin said that inflation pressures had become less of a problem – a judgment that, if embraced by other Fed officials, would remove a major argument against lowering interest rates.

‘I believe that the risks to the inflation outlook have become more balanced,’ he said, ‘given the greater downside risks to real growth’. Mr Mishkin is a relatively new member of the Fed board, but he was a well-known specialist in monetary policy at Columbia University with longstanding ties to the chairman of the Federal Reserve, Ben Bernanke. In 1997, while Mr Mishkin and Mr Bernanke were university professors, they wrote a book that called on central banks to base policy around a public target for inflation.

In speeches on Monday, two other Fed officials sent a similar message. Janet Yellen, president of the Federal Reserve Bank of San Francisco, predicted that the housing decline would probably continue and would impose ’significant downward pressure’ on consumer spending.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, admitted that an unexpectedly bleak unemployment report on Friday made him more worried about a slump. Neither Mr Lockhart nor Ms Yellen are currently voting members of the Federal Open Market Committee, which sets interest rates. But both sit in on the meetings.

On Wall Street, the debate among analysts was no longer about whether the Fed would reduce rates but by how much.

Several analysts predicted that the central bank will lower the Federal funds rate, for overnight loans between banks, by half of a percentage point, to 4.75 per cent from 5.25 per cent. Until a few days ago, most analysts were betting on a quarter-point cut.

Fed officials in their comments said nothing about how much they wanted to lower rates.

In Monday’s speeches, given before the central bank begins a week-long silent period ahead of its policy meeting, several made it clear they now see concrete risks of a downturn.

In Atlanta, Mr Lockhart went so far as to retreat from a more optimistic stance he had taken a few days ago. He said last Thursday that he had not seen any ‘conclusive signs of weakness in the broader economy’. On Monday, he delivered the same speech but acknowledged that he had been jolted by last Friday’s surprisingly dismal report that the economy had shed 4,000 jobs in August.

In her speech, Ms Yellen said that a housing downturn and tighter credit were likely to cause ’significant downward pressure’ on consumer spending and thus on economic growth.

‘The financial market turmoil seems likely to intensify the downturn in housing,’ she predicted. Even if investors overcome some of their fears, mortgage rates are likely to remain higher on a long-term basis and could continue to push housing prices down.

 

Source: NYT (Business Times 12 Sept 07)

The Fed likely to cut, but cautiously

TO many observers, it appears a foregone conclusion that when the US Federal Reserve meets on Sept 18, it will cut short-term interest rates, possibly by as much as 50 basis points. Some have even called for a 100 basis point cut. It is hoped the subsequent easing of pressure in credit markets will spill over into equities.

While this happy scenario is plausible, it would be wise for investors not to expect too much. While it is likely that the Fed will indeed cut rates, it might not do so as aggressively as many market players predict or hope.

First, too-high rates are not the cause of the problem: much of the blame for the sub-prime mess can be apportioned to outright fraud by the real estate and finance industries and poor risk assessment. Cutting rates will be of limited use in resolving the problem.

Second, at Monday’s G-10 meeting of central bankers, one message was stressed above all others – that although central banks have an interest in securing market stability, it would be a huge mistake to bail out bad investors. Third, Fed chief Ben Bernanke, who was present at that meeting, is well aware that one of the culprits behind the sub-prime crisis was his very own organisation.

In December 2000 following Nasdaq’s crash, the Fed, then under previous chairman Alan Greenspan, began an unprecedented year-long series of rate cuts, reducing the federal funds rate from over 6 per cent to just 1.75 per cent – a level last seen in the 1950s. By mid-2003, two further cuts had reduced the rate to just one per cent. History has shown that when rates fall this low, what typically ensues is a real estate boom or worse, a real estate bubble. This is exactly what occurred in the US, where lax banking and credit industry practices helped fuel speculative demand for housing between 2003-2006, thus sowing the seeds for the present sub-prime crisis.

However, when inflation became a problem and the Fed was forced to raise rates to cope, the resulting pressure on mortgages then triggered the present collapse. Mr Bernanke, well aware of recent economic history, may be keen to impose his own personal stamp on US monetary policy and hold off on a rate cut for the time being.

In fact, there is actually very little reason to bail out Wall Street. Despite all the doom-laden headlines of the past seven weeks, the Dow Jones Industrial Average is still 5 per cent up for the year while Nasdaq’s gain is 6 per cent. From its all-time high, the Dow has only lost 6 per cent, hardly a catastrophic fall that cries out for Fed intervention.

The main reasons markets believe rates will be lowered are last Friday’s weak jobs report and comments earlier this month by Mr Bernanke that the Fed is ready to take action to provide liquidity and promote the orderly functioning of markets.

While the balance of the evidence suggests the Fed will indeed lower rates, it will probably do so in cautious calibrated fashion. Expectations of a hefty rate cut are likely to be misplaced.

 

Source: Business Times 12 Sept 07

Lessons from a blow-up

SHANE OLIVER goes back to the scene of the crime and uncovers the damning caveats

THE last month or so has seen big swings in markets on the back of the turmoil in credit markets. By and large though, most investors should have come through reasonably unscathed. However, some would not have been so lucky. Funds reported to have had the greatest losses seem to fall into three categories – funds with a heavy direct and geared exposure to US sub-prime debt, some of which have seen 80 per cent to 100 per cent of their capital wiped out; funds with a geared exposure to corporate debt which has been caught up in the fallout from the subprime problems; and quantitative equity hedge funds which have been caught out by the volatility in investment markets.

While conceding that the period of share market weakness and credit turmoil ‘ain’t necessarily over yet’, and without getting into the surrounding economic issues and the outlook going forward (which I have covered in previous reports), the blow-up in credit markets provides a number of lessons for investors. Specifically, these relate to financial engineering, diversification, gearing, the fact that there is no such thing as a free lunch and the need to invest in only what you understand.

Lesson 1: Beware of financial engineering

Financial engineering is at the centre of the storm now engulfing credit markets. Mortgages to very low quality borrowers (sub-prime mortgage borrowers) were packaged up into securities (collateralised debt obligations, or CDOs) which were sold off in various parcels, some of which came with high risk like equity but some of which came with AAA credit ratings (the highest possible credit rating).

So, due to the magic of modern finance, a portion of something which was regarded as high risk was able to be marketed as low risk. Hence it was always an artificial construct. And more fundamentally, because of a limited track record (usually just covering the last few years of relatively favourable conditions) risk was dramatically underestimated. Risk was underestimated both in terms of the performance of the underlying sub-prime mortgages and how the securities themselves would behave in times of market stress and poor liquidity (like we have seen over the last few months).

What’s more, this re-packaging and underestimation of risk arguably made the whole situation worse. By encouraging demand for the securities more money became available for lending to sub-prime borrowers which meant that lending standards became ever more lax. Such complex arrangements also led to a poor alignment of interests. Everyone was paid up front – the mortgage originators, the banks underwriting the securities, the ratings agencies, the CDO managers – except the end-investor who held all the risk. And mortgage originators had an incentive to write loans regardless of the quality of the borrowers. On top of all this, these complex securities were poorly understood and irregularly traded, adding to the difficulties involved in undertaking a decent risk analysis.

So when all is going well, there are no problems. But once the underlying investment (ie, mortgages to borrowers with poor credit histories) started to turn sour, the credit ratings proved unreliable. The securities proved impossible to sell because they were so complex and no one really understood them, let alone knew their true worth. And everyone ran for the exits at once.

The key lesson for investors from all this is to be sceptical of investments which rely heavily on financial engineering to meet their objectives, particularly if they haven’t been tested in both good and bad times. Such constructs often have a poor alignment of interests, the true risks may be poorly understood or hidden and, because so many parties are involved, the underlying fees may be excessive.

Lesson 2: Gearing is great – till it isn’t

We all know the benefits of gearing. Investing $1 of borrowed capital for every $1 of your own capital can turn a 10 per cent gross return into a 20 per cent gross return. But of course when returns are negative it can go badly wrong. In fact, very high gearing (eg 5 to 10 times) was at the centre of most of the big fund losses announced recently. For example, if debt is running at five times capital then just a 5 per cent drop in the value of the underlying investments will lead to a 30 per cent drop in the value of the fund for investors, viz: If initial capital in a fund from investors is $1 million and $5 million is borrowed, then the fund’s total investment is $6 million. If the underlying investments fall in value by 5 per cent to $5.7 million the lenders to the fund are still owed $5 million, but the investor’s capital in the fund drops to $0.7 million, or a 30 per cent decline.

Excessive gearing on top of the losses in the underlying securities explains why some funds with direct exposure to sub-prime debt have seen all or most of their value wiped out. It also explains the severity of the decline in value for some funds which were not directly invested in sub-prime related investments, but may have had an exposure to high yield corporate debt, where the decline in value has been modest.

A high level of gearing of this nature can also make the problem a lot worse. An ungeared fund might (depending on the ‘patience’ of its investors and whether it can freeze fund withdrawals if they are not patient) be able to ride out any market turmoil until pricing improves or the underlying securities simply mature by which time any actual losses (eg. owing to mortgage defaults) may be far less than current market conditions imply. But when gearing is huge, the fund’s creditors may seize the assets and sell them into weak markets pushing down their value even further (the equivalent of margin calls). Such fire sales only lock in the losses for investors.

It should also be noted that not only were the funds investing in sub-prime related securities geared, but there was additional gearing in the securities themselves. For example, CDOs that contain sub-prime debt could be up to 25 times geared. In this context it only takes a small increase in mortgage defaults to start causing big losses. As a result, there was effectively gearing on top of gearing.

So be wary of investments that rely on excessive gearing, both at the fund level and in the underlying investments.

Lesson 3: Diversification is good

Many of the funds at the centre of the recent storm appear to have been poorly diversified (particularly those with an excessive exposure to sub-prime related debt) and this has only magnified their losses. More diversified credit focused funds have held up much better.

Similarly, the events of the past month or so have also highlighted the downside of concentrated exposure to hedge funds. Some hedge funds, particularly quantitative long/short equity funds, had a particularly rough month with losses of around 30 per cent being reported at one point.

However, well-constructed funds-of-hedge-funds have generally come through in far better shape.

The point is that investors are always wise to make sure that funds they invest in are well diversified and not overly reliant on a particular type of investment or investment strategy.

Lesson 4: There is no such thing as a free lunch

Investor interest in credit investments and more recently in highly complex yield-based securities has its origin in the long-term decline in interest rates and bond yields on the back of the shift to low inflation over the last two decades.

Somehow, getting a 6 per cent return from government bonds in a world of 2.5 per cent inflation doesn’t sound quite as good as getting a 12 per cent return from bonds in a world of 8.5 per cent inflation (the 1980s). So investors with a desire for a high income flow, such as self-funded retirees, have been prepared to go in search of higher returns moving from government bonds into corporate debt. This was probably all fine because most corporate debt has a long history and so the risk involved can be reliably estimated and managed. In recent years though this has started to morph into funds investing in highly complex securities such as CDOs where risk was less well known.

However, while risk may remain dormant for many years leading investors to forget about it, the events of the past few months highlight that higher returns also come with higher risk. In other words, there is no such thing as a free lunch. The trick for investors is to make sure that they are aware of the extra risk they are taking on and to then make sure that it is managed appropriately in terms of diversification and gearing levels.

Lesson 5: Only invest in what you understand

A key lesson for investors from the events of the last few months is to only invest in what you understand. Modern credit instruments are incredibly complex and it would appear that many (including market participants) did not understand the nature of the investments being undertaken. Until recently most investors would not have known what a sub-prime mortgage was and most would have thought that a CDO was just another acronym for a senior company executive.

The writer is head of investment strategy and chief economist at AMP Capital Investors

 

Source: Business Times 12 Sept 07

Happy investing

Investors need to look within themselves to determine their life goals, before embarking on the road to financial contentment, financial planner Arun Abey tells GENEVIEVE CUA

WHAT does happiness have to do with financial planning? Some may say happiness is the fruit of a well-laid financial plan. After all all, such a plan should foster greater confidence in the future, leading to financial security – and, hopefully, happiness.

But what of the reverse?

Ipac group co-founder and executive chairman Arun Abey believes that getting your life together – in term of your goals and choices – should come first, and financial planning follows. Ipac manages US$9 billion in client assets globally, advising some 20,000 individuals and institutions. It began in Australia and has operations in Hong Kong and Singapore.

‘People use the phrase ‘lifestyle financial planning’ as a slogan. But it’s a real thing. It’s about putting the ‘life’ into financial planning. It’s how the two integrate.

‘I’ve increasingly become convinced that the financial planning part is an outcome. You get the ‘life’ part right and the financial planning is actually easy.’

He adds that the biggest hurdle in financial advisory is that clients typically do not have a clear idea of what they want. ‘I’ve become convinced that an important part of financial planning is getting clients to want what they need.

Clients come in with a list of ‘wants’. Those ‘wants’ are completely unrealistic.

‘They say I want to make a lot of money, but I don’t want to lose any money. That doesn’t work. As Warren Buffett says, give me a bumpy 15 per cent any time. I’d rather take a bumpy ride than no returns.’

Drawing on the experiences of clients, Mr Abey has just published a second book How much is enough?, in which he tackles the amorphous question of happiness and the more mundane but no less challenging issues of financial planning and investing. The book is co-authored with Andrew Ford.

The book is meant to be a companion to his first book Fortune Strategy, published in 2000 , which delves into portfolio construction against a backdrop of the historical pattern of risk and return. Fortune Strategy, he says, explained the behaviour of markets. This time, taking centrestage is the behaviour of investors themselves.

‘If you understand markets, you can do something. I’ve come to understand that that’s not enough. You need to look within to understand your behaviour… People who can be confident, who can manage their behaviour and not worry about what others are doing, are also people who can control their behaviour in investment markets. It’s the same neural pattern, I hadn’t realised that before.’

The book draws on the growing body of research on happiness and behavioural finance, written in a readable, down-to-earth fashion. A few chapters are devoted to the behaviours that can undo the best laid investment plans.

These include loss aversion as a wealth hazard – that is, in seeking to avoid loss, investors actually incur greater losses. In a chapter ‘The Madness of Myopia’, he writes that the more frequently investors evaluate their returns, the more likely they are to make inappropriate decisions.

Several of the foibles come up repeatedly among clients, he says. One is unrealistic expectations. Two is a poor understanding of risk. Risk covers not just a probability of loss, but also the failure to beat inflation. ‘With cash you’ll never see a negative return, but with inflation you’re losing buying power every year. That’s pretty serious. A capital guarantee doesn’t protect you from that.’

Manage your time

A third mistake is the belief that the right timing could be the ticket to success. ‘It’s a very naive belief that you can get the timing right. Over 4,000 days there may be 40 key days. If you miss those days you miss the returns of the whole market. You have a 1 per cent chance to get it right and you don’t do something for a 1 per cent chance.

‘Fortune Strategy and this book use the same core investment strategy. If you apply that, the odds are in your favour. The only thing you have to manage is time.’

Ipac advocates four key principles in investments. These are to invest in quality companies; to diversify; to avoid overpaying for assets; and to give your portfolio time.

But there is yet one more mistake – as Mr Abey sees it – that may be hard for Singaporeans to swallow. That is the tendency to over-invest in property. ‘Investing in residential property other than your family home is likely to result in higher risk and lower returns than investing in quality shares,’ he writes.

He argues that the risks of a property investment tend to be understated, and the returns overstated because of flaws in measurement. Assessment of values, for one, is infrequent and informal.

‘Property investors never see red ink on a statement unless it is on the day of sale. And most property investors never formally evaluate the performance of their investments at all.’

Mr Abey lives in Australia, where cities like Melbourne and Sydney, and more recently Perth saw the strongest home prices until recently. He himself does not ‘invest one cent in residential property outside of my family home’.

Perhaps the key chapter in the book is the one that presents a framework for understanding the role of money, which he calls the ‘bridge of well being’. The process of developing and implementing this framework is the essence of lifestyle financial planning itself.

There are three steps to this. One is to understand your goals. Two is to apply your resources towards those goals.

That includes saving and investing. The third is to have a simple investment strategy.

‘You need to develop a financial plan for yourself – not for your money … The aim … is to help you experience the good life you want to live, knowing sufficient money is there to support you.’

 

Source: Business Times 12 Sept 07

US home sales not likely to recover next year

Moody’s says slump may last till 2009 as buyers struggle to get mortgages

(NEW YORK) The US housing slump will probably last until 2009 and home sales will take a ’substantial hit’ in the next several months as borrowers struggle to get mortgages, Moody’s Investors Service said.

‘The downturn is more severe and more protracted than we had expected,’ Joseph Snider, a credit officer at Moody’s, said. Home sales will be hurt by the lack of sub-prime and Alt-A mortgage lending and the difficulty borrowers with good credit are having obtaining mortgages, Moody’s said on Monday.

A glut of new and existing homes for sale is prompting potential buyers to wait for prices to fall before purchasing.

The Moody’s forecast contrasts with the National Association of Home Builders, which expects housing to begin rebounding in mid-to-late 2008. It also came as Federal Reserve Bank of San Francisco president Janet Yellen said the economy is under ‘downward pressure’ from turmoil in credit and housing markets.

The worst housing market in 16 years has sent a Standard & Poor’s measure of 16 US homebuilders down 49 per cent this year.

Moody’s said on Monday it has taken 38 negative ratings actions on the 22 US homebuilders it rates over the past year and more downgrades are possible. Builders may also begin violating credit agreements and banks may tighten restrictions placed on companies.

‘Tighter lending and credit standards, diminished consumer home-buying confidence, rising cancellation rates, and falling home prices – especially in the most reliable strong real estate markets prior to 2006 – have exacerbated the industry’s woes and further deepened our year-long negative view,’ the report said.

A recovery for housing could be hastened should the Federal Reserve take ‘frequent and concerted action’, the report said. Moody’s said it doesn’t expect that kind of action to occur unless the economy heads into a recession.

Mr Snider said that Moody’s had estimated there might be a second-half housing recovery in 2008. That forecast has now ‘been pushed back some’, he said.

Meanwhile, Fannie Mae and Freddie Mac, the biggest sources of money for US home loans, adopted rules intended to discourage the funding of high-risk sub-prime mortgages, the Office of Federal Housing Enterprise Oversight said.

The rules require Fannie Mae and Freddie Mac to buy home loans from originators that ‘help prevent abuses’ in mortgage lending, Ofheo said on Monday.

The two companies can only purchase home loans after verification of the borrowers’ income and ability to adjust to higher interest rates, according to the guidelines.

 

Source: Bloomberg (Business Times 12 Sept 07)

MONEY MATTERS – Time to get domestic

Recession in the US used to be the kiss of death for emerging economies, but that may no longer be the case

By MICHAEL PREISS

THERE was something inevitable about the worst US job reports in four years. They suggest that the American economy has now ‘officially’ slipped into recession and will ensure that the Bernanke Fed cuts the overnight borrowing rate at the next three open market committee meetings, starting Sept 18. Net-net, a 4 per cent Fed Funds rate is the last antidote to the liquidity squeeze and credit shock that has delivered a deflationary blow to Wall Street and the international banking system. Global stock markets are on edge, amid fear that the correction in equities could morph into something far nastier.

The risk is that the US stock market could re-test its August lows, because even a Fed rate cut cannot magically end the distress of millions of bankrupt homeowners and the financial bomb that has hit the mortgage-backed securities and credit derivatives markets. Main Street is going down and Ben Bernanke and his merry men at the Fed must act fast or risk economic disaster.

Fear cannot be captured in any economic model but it is the one human emotion more powerful than greed during a psychological U-turn.

Not even the most soothing words from Mr Bernanke can change the fact that as long as US house prices continue to fall, the leverage-embedded mortgage-backed securities and collateralised debt obligation markets – and investors in these markets – are in deep trouble.

The meltdown in sub-prime mortgages is not the real malaise affecting the capital markets. The real time bomb is the coming end of the structured finance business, in which financial innovation has often been nothing more than collusion between investment banks and ratings agencies to disguise highly risky mortgage and corporate debt as AAA securities.

When even the Bush White House is compelled to fulminate against Wall Street, a Congressional witch-hunt and more restrictive regulatory protocols are inevitable.

The Day After

The macro-economic impact of ‘The Day After’ on Wall Street will be a deflationary shock as broker-dealers and institutional investors de-leverage their exposure to mortgage-backed securities and structured finance. This means that new issues of corporate bonds and leveraged buyout loans will plummet because investment banks can no longer underwrite or syndicate credit risk, even though it has been re-priced higher since August.

Asset-backed commercial paper liquidity lines have come back to haunt the world’s largest banks, which must now necessarily cut bank credit growth. The markets are witnessing the dark side of securitisation as international banks are caught with untold billions of off-balance-sheet exposure. This is the real reason that central banks are desperate to pump huge amounts of liquidity into money markets frozen with fear.

Emerging markets have not escaped unscathed from the trauma in the world financial markets since August. Apart from China’s Shanghai A shares, market indices as diverse as Brazil’s Bovespa, South Korea’s Kospi, India’s Sensex and Russia’s RTS plunged 10-20 per cent in just four weeks as the Japanese yen carry trade unwound with a vengeance in the foreign exchange market and triggered a global scramble to sell risk.

This meant that billions of dollars fled emerging market equities, that spreads on emerging market sovereign debt widened above 200 basis points on US Treasuries and that the Chicago Volatility Index doubled in a month.

But what will be the end-result of the US credit bust on emerging markets?

In my view it will be a strong de-coupling from the now outdated and wrong assumption that the US dollar and US rates are the global benchmark and the so-called risk-free rate.

Emerging market spreads recently have been the narrowest in history. Does this mean that all emerging markets are over-valued? Or that the underlying assumption that US-dollar rates are the ‘risk-free-rate’ needs to be rethought?

Do the lessons of 1998 have any relevance in the months ahead? I believe so.

As US economic growth decelerates, the Fed will do its best to reduce the real cost of borrowing to zero – a prerequisite to avoid recession and re-liquify the banking system. This means the Fed Funds rate can well fall below 4 per cent some time next summer.

While this will most probably help the US equity market, it will mean a much lower value for the US dollar in the foreign exchange markets.

Ordinarily and in the past, a US recession is or was the kiss of death for emerging markets.

But this may not be the case now, particularly if the Fed, at the expense of a much weaker US dollar, cuts rates aggressively to pre-empt recession and global GDP growth, led by China, India, Brazil and Russia, anchors domestic demand and export growth in emerging markets.

As the US Treasury bond yield falls to 4.25 per cent, emerging market equities will be the biggest beneficiaries, as more and more global investors realise that the real victim of the sub-prime mess is the US dollar.

However, I recommend buying domestic demand, not export, plays in emerging markets in order to insulate a portfolio from the very real risk of a US slowdown.

Russian banks and telecom shares such as Sberbank, Vimplecom, MTS and Comstar provide exposure to one of the world’s highest-growth consumer stories in a petro-dollar state with 160 million citizens and US$400 billion of reserves.

The credit crunch may actually prove beneficial to the Russian stock market because it will force the postponement of many London floats, which cannot take place amid a mood of risk aversion.

The Singapore market was also victim of the stockmarket sell-off on Wall Street and the Asian bourses. In fact, Singapore property shares fell far more than even the Straits Times Index, as much as 20-30 per cent in some cases.

The Singapore Reit sector’s cost of capital has risen, but its growth prospects are tied to South-east Asia’s most compelling asset reflation story.

After all, the forward yield on the sector is now 5.2 per cent – a compelling value metric for long-term exposure. It is imperative to seek Reits that offer long lease contracts, high-quality assets and acquisition strategies, proven business models and attractive discounts to net asset value.

It is ironic that the largest, most liquid Singapore Reits have been hit the hardest, proving once again that during moments of panic, emerging market managers do not sell what they must, they sell what they can.

So CapitaCommercial Trust, CapitaMall Trust, Ascendas and Mapletree are all down 20 per cent from their August highs. The spread between the Singapore Reit forward dividend yield and the island’s bellwether 10-year government bond rate is now the highest since at least May 2006.

Singapore Reit shares will be the natural beneficiaries of central bank easing in the US and Europe, somewhat akin to Nasdaq stocks after the Greenspan Fed bailed out Long Term Capital Management in 1998.

Asian property in local currency could be the next big thing in emerging markets, especially as the US dollar takes a tumble when the Fed cuts rates aggressively.

Michael Preiss is a chartered wealth manager and can be reached at Michael@michaelpreiss.net

Source: Business Times 12 Sept 07

American jobs outlook steady for Q4: survey

(NEW YORK) Weak US housing and trouble in the credit markets are, for now, having limited impact on job plans, according to a survey released yesterday.

Employers remain confident about hiring for the fourth quarter, Manpower Inc said. Its poll of 14,000 employers found the net employment outlook – the difference between those adding jobs and those cutting them – was unchanged for the fourth quarter from the third.

The seasonally adjusted level of 18 compares with a reading of 20 a year ago, Manpower reported.

The Manpower report comes after the government last week reported a surprise drop in US non-farm payrolls in August, which raised fears that the US economy was shifting to a much lower pace of growth or could tip into recession.

Most industries reported steady demand for workers, but employers in mining, transportation and utilities have lower confidence about hiring compared to the previous quarter.

When compared with a year ago, hiring expectations are weaker in six of the ten industry sectors surveyed by Manpower.

Expectations are unchanged in three sectors and higher in one: education and public administration.

A slowdown in the US housing market is being felt among finance companies, especially in the northeast, and in construction, but companies without direct exposure to housing remain reasonably confident about the health of their business, Manpower CEO Jeff Joerres said.

‘They say, ‘I’m going to be in the marketplace but I’m going to hire very judiciously. I will only add what I need to add’,’ Mr Joerres said. ‘That means there’s not as much to drop out if there are some more difficult times.’

Job prospects are again strongest in the west and weakest in the north-east, Manpower said, where there is particular softness in transportation, utilities, education and mining.

A separate, international poll of 52,000 employers, also conducted by Manpower, found positive hiring prospects in all 27 countries and territories it surveyed.

Employers in Australia, Germany, Japan and India, among others, reported their best optimism in the survey’s history.

By contrast, those in Italy, France, the Netherlands and Belgium are less optimistic.

Job projections in China were lower both from the previous quarter and from a year ago, in part reflecting concern ahead of new labour laws coming into effect at the start of 2008.

‘They’ve been growing so quickly for so long that they’re going to be cautious,’ Mr Joerres said.

 

Source: Reuters (Business Times 12 Sept 07)

Shanghai stocks dive as inflation soars

Interest rate fears fuel 4.5% plunge in Shanghai market

(BEIJING) Soaring food prices propelled China’s annual consumer price inflation to 6.5 per cent in August, the fastest pace in nearly 11 years, cementing expectations the central bank will defy the global trend and keep raising interest rates.

The inflation rate published yesterday, up from 5.6 per cent in July, easily surpassed economists’ forecasts of 5.9 per cent. It was the highest reading since December 1996.

Shanghai stocks plunged 4.5 per cent, the biggest daily drop in two months, as investors fretted that higher borrowing costs could help bring the market’s dizzying rally to a halt.

‘Going forward we believe there are non-trivial risks that inflation may continue to edge up,’ economists at Goldman Sachs said in a note to clients. ‘We expect the central bank to respond to higher inflationary pressures with decisive tightening measures, including two interest rate hikes to the benchmark lending and deposit rates by the end of this year.’

China also reported a trade surplus for August of US$24.97 billion. It was the second-biggest on record but slightly lower than forecast as the ending of some tax rebates dented exports.

The ruling Communist Party, aware that inflation has touched off unrest in China down the ages, has voiced increasing concern about the speed of price rises.

A senior party researcher warned on Monday that inflation becomes difficult to control once it exceeds 5 per cent, while a local paper said Beijing had told schools and colleges in the capital not to raise canteen food prices as inflation climbs.

The National Bureau of Statistics said inflation was driven by an 18.2 per cent leap in the cost of food, which accounts for a third of the consumer price basket.

Meat prices rose 49 per cent in August from a year earlier, reflecting a shortage of pork, China’s staple meat.

China’s pig population has fallen 10 per cent due to blue-ear disease and reduced incentives to rear hogs, including fast-rising foodgrain costs and low prices last year.

China, the world’s biggest producer and consumer of pork, could quadruple its imports of the meat this year to 100,000 tonnes to ease the shortage, industry sources said yesterday.

To keep a lid on inflation and prevent the world’s fourth-largest economy from overheating, the central bank has raised interest rates four times this year and ordered banks on seven occasions to tie up more of their deposits in reserve.

As for the market plunge, analysts said that after more than doubling this year to last Thursday’s all-time high, the benchmark stock index might finally be starting a substantial pullback, even though they believe a full-fledged bear market remains very unlikely.

‘All the government policies will have a cumulative impact on the market – eventually, there will be a last straw on the camel’s back,’ said Liu Lifeng, fund manager at BOCI Securities.

Many traders think the market will in coming days slip to psychological support around 5,000 points.

A drop to technical support in the 4,700-4,800 area, where the index’s mid-August peak roughly coincides with the 38.2 per cent retracement of its rally since early July, also looks quite possible.

 

Source: Reuters (Business Times 12 Sept 07)

Will China’s central bank hike rates again?

From a macroeconomic point of view, it might not be in a rush for an increase this month

THE People’s Bank of China (PBOC), China’s central bank, issued 151 billion yuan (S$30.6 billion) of directional bills to selected commercial banks last week. Unlike the ordinary central bank bills distributed in the open market, PBOC made it compulsory for the commercial banks to purchase its tranche of directional bills.

This is the fifth time the central bank has wielded such a tool to restrain domestic banks from expanding credit too fast. While the term remains the same, the size of the current bill issuance is bigger than the previous four batches of 101 billion yuan.

Moreover, while the yields of the previous four batches of directional bills were only two to six basis points lower than normal central bank bills, the spread between the yield of the new batch and that of the ordinary ones widened to 10 basis points.

The issuance of directional bills came only one day after PBOC announced an increase in bank reserve ratio of 0.5 percentage points to 12.5 per cent, effective from Sept 25. It is the seventh time the central bank has increased the bank reserve ratio this year.

Contrary to general expectation, China’s economy didn’t slow in 2007. Instead, China’s economy has been accelerating despite a series of macro economic control measures.

In the first half of 2007, China’s GDP grew by 11.5 per cent, 0.6 percentage points higher than the same period in 2006. In particular, the investment growth remains at an uncomfortably high level.

In the first seven months, fixed asset investment in urban China grew by 26.6 per cent, which is partly driven by excess liquidity.

According to the central bank, M2, the broad measure of money supply, went up 18.48 per cent by the end of July 2007, over the same period last year. The growth rate is 1.42 percentage points higher than that of the end of June, indicating acceleration in money supply.

Currently, directional bills, bank reserve ratio requirements and interest rates are the three major instruments the PBOC uses to adjust liquidity in China’s financial market.

So far, PBOC has increased the interest rate four times within this year. Therefore the question we are left with is whether PBOC will increase the interest rate again this month after last week’s tightening move.

Usually, the decision of an interest rate hike is made at a weekend after major economic statistics, such as the consumer price index (CPI) and fixed asset investment in urban areas, are released by the National Statistics Bureau (NSB). According to the data release schedule, the next possible interest rate hike may be announced on Sept 14.

It does seem that the forthcoming August figure would trigger a new interest hike. It is widely expected August CPI will go beyond 6 per cent, provided food prices, the major drive for a high CPI rate, continue to pick up. The July figure hit a 33-month high to reach 5.6 per cent.

However, from a macroeconomic point of view, we reckon that even if a high CPI rate comes together with a high fixed asset investment figure, PBOC might not be in a rush for a new interest rate hike this month.

First of all, the high CPI rate might not be a bad thing in China. In fact, the CPI figure in July was less than one per cent, if food prices, which account for about one-third in the price basket, is excluded.

The food price surge will eventually benefit the farmers and help the country to narrow the widening income gap between the urban population and the rural one.

In the first half of 2007, net income of farmers grew by 13.3 per cent, which is a 20-year high.

Additionally, it is a common practice that Chinese banks extend loans much faster in the first half of one year.

Thus PBOC is under less pressure to control bank credit expansion in the second half.

Therefore, the current stronger-than-usual directional bill measure, together with a new bank reserve ratio hike, might allow PBOC more time to see the result of its actions.

Tiger Tong is an analyst with China Knowledge, a premier provider of trade and investment information on China

 

Source: Business Times 12 Sept 07

Plunge in August auction sales partly due to US sub-prime woes

Total value hits $11m, one-fifth of previous month’s showing: Colliers

SALES of properties on auction here plummeted last month, in one of the first signs that the global credit crunch may be taking a toll on Singapore’s property market.

Only $10.79 million of properties were sold under the hammer in the month, less than one-fifth of what was fetched in each of June and July, said property firm Colliers International, one of the biggest auctioneers here.

Since March, the value of properties sold via auction each month has ranged from $33 million to $108 million.

But this plunged last month, said Colliers, which released a report on auction sales yesterday.

In previous years, August has traditionally been a slow month for property sales due to the Hungry Ghost Festival.

But superstitious buyers were not the reason auction sales turned in an exceptionally poor showing in this year’s hungry ghost month, which stretched from Aug 13 to Monday.

Colliers said the nosedive in sales was mainly due to the recent stock market volatility caused by United States sub-prime mortgage worries, new government policies, and higher asking prices by sellers.

‘Given the good property market performance, many sellers have raised their expectations and upped their asking prices, especially for properties with en bloc potential,’ said Ms Grace Ng, Colliers’ auctioneer and deputy managing director.

She added that these properties have also become less appealing, thanks to the newly announced rules governing collective sales, which will make it more difficult for developments to sell en bloc.

In addition, the ’stock market turmoil amid the US sub-prime woes’ has also contributed to the ’slowdown in the market, as buyers take a cautious stand’, Ms Ng said.

Only 10 properties were sold via auction in this year’s hungry ghost month, less than one-tenth of the 131 that were put up for sale in the period.

The properties that were sold fetched $9.56 million in all – a tiny fraction of the $133.86 million achieved in last year’s double hungry ghost month and ‘one of the lowest seen in the past 10 years’, Colliers added.

Although the hungry ghost month typically sees fewer property sales due to superstitious buyers and sellers, the firm said this is unlikely to be the reason for the plunge in auction sales of property.

Indeed, the number of properties put up for auction by their owners in the period surged to 88, the highest level in at least a decade.

On the other hand, the number of repossessed properties – traditionally the main source of supply for auction sales – fell to 43, down from 239 last year and the lowest level since 1998. This was largely due to the buoyant economy and climbing property prices, said Colliers.

All this shows that auction sales in the hungry ghost month were being moved more by market conditions than superstitious beliefs, the firm added.

But Ms Ng was quick to point out that the firm is still receiving plenty of inquiries about auction properties from potential buyers.

‘The inquiries are still there, but people are thinking twice before jumping in,’ she said. ‘They may be taking a step back and reassessing the prices.’

Colliers also noted that while auction sales may have plunged in the hungry ghost month, other segments of the property market appeared to still be going strong.

For instance, the total number of homes sold in the period is ’still at a very healthy level’, although it has been falling since May, the firm said.

 12sept07_st_plungeinaugauctionsalespartlydue2ussubprimewoes2.pdf 

 

Source: The Straits Times 12 Sept 07

WARRANT WATCH – Investors load up on property contracts

THE turmoil which has engulfed financial markets globally has hardly dented investor enthusiasm in Singapore’s red-hot property market.

The swift recovery of property giants such as City Developments (CDL) and CapitaLand after a region-wide selloff two weeks ago suggests that the Singapore equities market has decoupled itself from the volatility on Wall Street.

Yesterday, covered warrants on property developers were among the most actively traded contracts on the Singapore Exchange.

These included a call warrant issued by Deutsche Bank on CapitaLand which closed 0.5 cent lower at 21.5 cents on a volume of 8.15 million units, and a contract issued by Macquarie Bank on CDL which ended one cent down at 14 cents, with 6.67 million units traded.

Interest in these warrants was spurred by the $1.69 billion winning bid by CDL and partners for a plum commercial site at the old Beach Road military camp.

‘This hotly-contested bid is a strong testimony of the keen interest in the property market by foreign developers and the big boys here,’ said a dealer.

Deutsche Bank vice-president Sandra Lee expects warrants on property counters to remain popular with investors. These include a Deutsche Bank call warrant on CapitaLand which requires its holder to use five warrants after paying a strike price of $7.80 for conversion into one share.

 

Source: The Straits Times 12 Sept 07

Third site for condo-like public flats in Ang Mo Kio

A CHOICE site close to amenities in Ang Mo Kio has been earmarked for the third public housing project to be designed, built and sold by private developers.

The site, which analysts estimate can fit about 550 flats, and blocks that rise up to about 36 storeys, will be launched for tender by the HDB today. The tender closes on Nov 27.

Already, property analysts expect strong demand from developers, and later, by home-hunters. This comes after red-hot demand when the first public-private project went on sale in Tampines last year.

The 1.7ha plot in Ang Mo Kio Street 52 is a stone’s throw from Ang Mo Kio town centre and the recentlyopened commercial and transport complex Ang Mo Kio Hub.

Some of the flats will appeal to homebuyers on lower budgets. The developer that snags the Ang Mo Kio site will have to reserve at least 30 per cent of the project for four-room or smaller units.

Property analysts say the site is set to be a winner. It is near the leafy Ang Mo Kio Town Garden East, as well as Ang Mo Kio MRT station and a host of shops in the mature town.

Property agency Propnex’s chief executive, Mr Mohamed Ismail said: ‘This is a sure-sell location.’

Dennis Wee Properties director Chris Koh expects the land to fetch $125 million, while Savills Singapore’s director of marketing and business development Ku Swee Yong predicted a range of $100 million to $125 million.

Mr Mohamed expects the flats there to go for between $350,000 and $400,000 each.

The land parcel has a 103-year lease, and the developer will have to complete the project within four years of buying the land. The apartments will come with elderly-friendly features, as seen in new HDB flats now.

Under the hybrid scheme launched two years ago, developers design, build, price and sell flats built according to the broad rules of public housing. This means that common spaces have to be easy to maintain, that buyers have to meet ethnic quotas, and that only family units can buy the flats, for example.

Interest in these flats has been keen so far because they are located in mature estates and come with fittings more commonly found in private housing, such as bay windows.

The first batch of 616 Tampines units, being developed by Sim Lian Land, received close to 6,000 applications last year. Most were five-room units in blocks up to 17 storeys high, priced at between $308,000 and $450,000.

The second batch of about 700 flats in Boon Keng Road will be launched for sale later this year by a consortium led by Hoi Hup Realty. It will comprise three 40-storey blocks.

12sept07_st_3rdsite4condolikepublicflatsinamk2.pdf 

 

Source: The Straits Times 12 Sept 07

Plenty of upside left in mid-tier property market: Kwek Leng Beng

DESPITE woes in the United States’ housing market, there is still plenty of zing in Singapore’s red-hot property market.

Banks are still lending a lot of cash and mid-tier homes are still on offer at prices below 1996’s peak, says Mr Kwek Leng Beng, executive chairman of leading developers City Developments and Hong Leong Group.

‘I believe that there is still a lot of upside. At the mid-tier, prices are still less than 90 per cent of the peak in 1996,’ he told delegates yesterday at the Forbes Global CEO Conference.

His bullish view was echoed by his counterparts from other parts of Asia, including China, India and the Middle East.

They agreed that real estate remains hot property in their countries even as problems in the US have thrown global financial markets into a tizzy.

‘The (Shanghai) market is very strong because the inherent demand is just tremendous,’ said Hong Kong developer Shui On Group chief executive (CEO) Vincent Lo.

Residences next to the hip Xintiandi area are commanding prices of up to US$10,000 (S$15,236) per sq m, he said, adding that the waiting list for office space in the city stretches to 2010.

In the United Arab Emirates (UAE), property development is growing at unprecedented rates, said Dubai 9 Group managing director Hayan Merchant, noting that 26.5 per cent out of the world’s 130,000 cranes are in the UAE.

About 30 million sq ft of office space will be added in Dubai next year, he said, while another 42 million sq ft – equivalent to all the office space in downtown San Francisco – will come online the following year.

Singapore’s boom should continue even though psychological fears over the ongoing global credit crunch may take a little of the fizz out, said Mr Kwek. He said that lenders in Singapore are a little more cautious but there is still plenty of liquidity.

He added that historic prices over the past 10 years imply that the ‘right’ selling price for top-end properties should be about $3,600 per sq ft on average.

‘We are doing about $4,000. It’s about 10 per cent up, which is not alarming.’

The Government’s efforts to make Singapore a ‘global city’ that attracts foreigners to live here will help sustain the property bull run, he said.

He said that last weekend, he had met a group of foreigners, some of whom were developers, visiting Singapore for the first time. After four or five days, they started asking about buying high-end condominiums and office blocks.

‘All the real estate sectors – industrial, retail, commercial and residential – have kicked off. And this has to do with growing interest in Singapore as a global city.’

 

Source: The Straits Times 12 Sept 07

Housing turmoil ‘threatens US economy’

Fed officials say there is a risk of broader downturn; comments set stage for rate cut

WASHINGTON – TWO senior Federal Reserve officials said on Monday that the turmoil in housing and mortgage lending has begun to threaten the overall US economy.

Their statements set the stage for a likely cut in the Fed’s benchmark interest rate next week.

Fed governor Frederic Mishkin told a group of investors on Monday that the risk of a broader downturn ‘cannot, in my view, be ruled out’.

Mr Mishkin said inflation pressures had become less of a problem – a judgment that, if embraced by other Fed officials, would remove a major argument against lowering interest rates.

Fed Bank of San Francisco president Janet Yellen said a housing downturn and tighter credit were likely to cause ’significant downward pressure’ on consumer spending and, thus, on economic growth.

Even if investors overcome some of their fears, mortgage rates are likely to remain higher on a long-term basis and could continue to push housing prices down, she said.

‘Should the decline in house prices occur in the context of rising unemployment, the risks could be significant,’ she added.

Her comments highlighted a point recently stressed by Fed chief Ben Bernanke, that officials do not plan to wait for irrefutable statistical evidence of an economic downturn.

Rather, they are ready to act on warning signs, including anecdotal business reports, that the probabilities of a downturn are too high to ignore.

In response to the comments, Fed watchers said it seems likely that an interest rate cut will take place.

However, they said it is not clear if Mr Bernanke and his colleagues are ready to cut as much as investors expect, and many economists say they must, to keep the United States out of a recession.

The contrasting remarks made by two other Fed officials indicated that there may be some divide among the policymakers themselves as to what to do next week.

Dallas Fed president Richard Fisher said on Monday that the bleak jobs report was merely a ‘discordant note’, and that he was still unpersuaded about a broader downturn.

Philadelphia Fed president Charles Plosser said earlier last Saturday that policymakers should not put too much stress on the loss of jobs last month, and that he had not made up his mind yet on a rate cut.

The scope of remarks may reflect a debate inside the US central bank over whether to lower the benchmark rate on Tuesday by a quarter-percentage point, or a half-point, as some investors expect.

Meanwhile, market conditions have turned investors jittery.

On Monday, European Central Bank president Jean-Claude Trichet warned of ‘hectic behaviour’ in the global economy and urged central bankers to keep a close eye on the US for signs of an economic slowdown.

‘This is no time for complacency. The current situation calls for close observation and monitoring,’ said Mr Trichet at a gathering in Basel, Switzerland, of the world’s top central bankers, including US Federal Reserve chairman Ben Bernanke and the Bank of Japan governor Toshihiko Fukui.

A survey by the US National Association for Business Economics, meanwhile, lists a recession as the greatest risk to the US economy over the next year, outpacing inflation as the biggest concern by a two-to-one margin.

The economists forecast a half-point cut in the federal funds rate by the end of the first quarter of 2008, up from May’s forecast of a quarter-point cut.

Source: NEW YORK TIMES, REUTERS, BLOOMBERG NEWS (The Straits Times 12 Sept 07)

Malaysia’s private sector will drive development projects: Abdullah

KL will not build fast train track to S’pore, neither will it stop firms from doing so

MALAYSIA will rely on the private sector to drive its developmental projects from now on, departing from its previous practice of putting government agencies and civil servants in charge, its Prime Minister said yesterday.

Prime Minister Abdullah Badawi told 400 captains of industry this when fielding a slew of questions from American publishing tycoon Steve Forbes, after he delivered the keynote address at the Forbes Global CEO Conference gala dinner at the One Degree 15 Marina Club in Sentosa Cove last night.

As an example of what he meant, he said his government will not build a bullet train track between Singapore and Kuala Lumpur, but will not stop the private sector from taking on such a project.

‘If you are going to spend your money on this, I will allow you to do it,’ he said. ‘You spend the money, you build the train, you decide on the fares.

‘We will not maintain it, because we are not in the business of running a train. We don’t want the train.’

Datuk Seri Abdullah added that, in any case, the government wanted to spend what money it did have on improving the quality of education in Malaysian schools, so that the country had better human capital ‘to go up the value chain’.

The Singapore-Kuala Lumpur fast train idea was mooted by Malaysian construction conglomerate YTL Corporation twice – in 1998 and again last year. But, for various reasons, YTL’s proposal ran into delays while awaiting the official go-ahead.

In his remarks yesterday, Datuk Seri Abdullah also sounded a word of warning to the private sector: If you fail in your projects, don’t expect the government to come running to your rescue.

‘If you have built this, and it doesn’t work…I am not bailing you out,’ he said. ‘You may need the money, but we are not bailing you out.’

He did not cite examples but in the past month, there was much talk that the government’s soft loan to the private-driven Port Klang Free Zone project was in effect a bailout. This was after the project’s costs ballooned from RM1.1 billion to RM4.63 billion (S$477 million to S$2.01 billion).

There were two caveats to Malaysia’s new push for private-led ventures for big projects.

First, the government will set aside money for a facilitation fund. Called the Private Financial Initiative (PFI), it could be used to acquire land, build roads and help link utilities to the projects, he said.

Second, if foreign firms needed workers, the Malaysian government will train them at its own cost.

When Mr Forbes asked Datuk Seri Abdullah about apparently prevalent cronyism in Malaysia, he replied: ‘I don’t understand this word cronyism now. Everyone has a chance.’

Datuk Seri Abdullah reiterated that ‘everyone has a chance’ when Mr Forbes asked him later whether Chinese and Indians had a place in Malaysia’s future.

Referring to Malaysia’s longstanding affirmative action policies to help the Malays, Datuk Seri Abdullah stressed: ‘All these policies that you say favour the Malays are government policies. They are a product of a decision taken by a multiracial Cabinet.

‘Nobody said ‘I’m out’. No one disagreed or said ‘I’m seeking an exception’. None.’

UP TO YOU

‘If you are going to spend your money on this, I will allow you to do it. You spend the money, you build the train, you decide on the fares.’ – DATUK SERI ABDULLAH, saying he will not stop the private sector from building a bullet train track between Singapore and Kuala Lumpur

ON YOUR OWN

‘If you have built this, and it doesn’t work…I am not bailing you out. You may need the money, but we are not bailing you out.’ – DATUK SERI ABDULLAH, sounding a word of caution

Source: The Straits Times 12 Sept 07

The green route to en bloc redevelopment

Demolition is wasteful and not environmentally friendly, says Hillcrest MD

THE property boom here prompted Hong Kong- based Hillcrest Capital to buy the 34-unit Anderson Green in February for $112 million in February. But instead of tearing it down to build a new condo, it will gut it, then reuse the existing structure.

Hillcrest managing director Lyon Lau says: ‘It is not environmentally friendly to demolish a perfectly fine building only to rebuild something similar.

‘Although the concept of alteration and addition might be new to Singapore, in Hong Kong it has been practised widely.’

More than 160 residential buildings have been sold en bloc for redevelopment here in the past two years, but many are still structurally sound.

Architect Tai Lee Siang, president of the Singapore Institute of Architects (SIA), says: ‘Buildings are designed to stand for as long as the materials they are built of allow them to stand. This can be hundreds of years or less than a week – think of cardboard houses.’

Most of the buildings that have been sold are about 20 years’ old, but the sites they sit on can house bigger and taller projects, so it makes business sense to demolish them.

Anderson Green, which will be relaunched for sale as 21 Anderson, is already built up to its maximum potential, so strictly speaking the decision to not demolish was not completely for the love of the environment.

But perhaps what is really not sustainable are periodic increases in plot ratios.

The National University of Singapore’s Assistant Professor Hee Limin (Department of Architecture, School of Design and Environment) says: ‘In a way our planning system encourages this redevelopment.’

According to her, it’s a shame that economic forces ‘control’ the landscape. And these economic forces do not take all factors into consideration.

There is also a cost implication in the ‘embodied energy’ in buildings, she says. This refers not only to the energy it uses once it is up and running, but the resources exhausted to build and possibly recycling it.

The study of a ‘life cycle’ of a building is still relatively new. But considering US National Institute of Standards and Technology figures, which reveal that building construction consumes 40 per cent of the raw stone, gravel and sand used and 25 per cent of the virgin timber used worldwide each year, the price of a new building is actually considerably higher.

City Developments Ltd (CDL) recently won the Building and Construction Authority’s Green Mark Platinum award and is probably the greenest developer in Singapore. Its general manager Eddie Wong concedes: ‘While there are negative environmental and social impacts from en bloc redevelopment, we must also be mindful of the tremendous positive effects of such redevelopment’.

He highlights a reduction in long-term energy consumption through more energy-efficient buildings.

CDL does recycle some building debris, but recycling or reusing a whole building is a different matter.

The most environmentally friendly solution would be to not demolish buildings at all, but ‘economic forces’ are not likely to support this.

Pioneer architect Tay Kheng Soon of Akitek Tenggara says the simplest solution would be to allow the transfer of development rights.

‘Owners of a site that has been given increased plot ratio should be able to sell to a developer who wants higher plot ratio on another site. This would also require a masterplan that allows for plot ratio increases above those pegged at a certain level. All in all, it requires a more sophisticated planning process than the present one.’

Other ways suggested by Mr Tay include rating existing buildings based on heritage. ‘The lower the rating, the more demolition is permitted. Correspondingly, a higher-rated property will enjoy a property tax rebate to balance out the benefits.’

SIA’s Mr Tai adds: ‘The attitude of keeping and maximising the value of old buildings for urban renewal requires a complete change of mindset. This is not always possible as it is human nature to yearn for growth, change and improvement.’

The Building and Construction Authority is encouraging the use of recycled materials in construction.

It promotes the use of Eco-concrete made from recycled material used in pilot projects for non-structural works such as pavement slabs in housing estates, linkways and park connectors.

 

Source: Business Times 11 Sept 07

KepLand in deal to develop luxury homes in Jeddah

It will hold 51% stake in the project, with an investment cost of $387.6m

KEPPEL Land and Saudi Arabian wealth management company Saudi Economic and Development Co (Sedco) will invest $760 million to jointly develop about 1,000 luxury apartments in Jeddah, Saudi Arabia, the two companies said yesterday.

KepLand will hold a 51 per cent stake in the project, with an investment cost of $387.6 million. Sedco will own the other 49 per cent.

The development, on a 3.6 ha site along the corniche waterfront in Jeddah, will comprise three high-rise towers with sea-facing apartments.

Development will be undertaken in phases according to demand. The project will target high-end buyers and is expected to be launched in 2008.

‘We are excited that our first foray into Saudi Arabia is a landmark waterfront development in Jeddah,’ said Kevin Wong, KepLand’s managing director.

‘This development will enable Keppel Land to quickly establish its track record and open other opportunities in Saudi Arabia and other fast-growing markets in the Middle East.’

Located on the west coast of Saudi Arabia by the Red Sea, Jeddah, with a population of 3.4 million, is the gateway to the two holy mosques of Makkah and Medinah.

The development site is a five-minute drive from Red Sea Mall – a 240,000 sq m shopping mall being developed by Sedco and other partners, which will be the largest retail hub in Saudi Arabia when completed at end-2007.

‘With strong economic growth and accelerated economic reforms in Saudi Arabia, Jeddah has enjoyed high growth in the real estate sector in recent years,’ said Ang Wee Gee, KepLand’s director for regional investments.

KepLand’s shares closed five cents lower at $7.70 yesterday. The company’s stock has climbed 11.6 per cent so far this year.

 

Source: Business Times 11 Sept 07

Japan economy in shock Q2 contraction

Revised data stokes fears of growth recession; Nikkei takes a hit with 2.2% fall

IN TOKYO

JAPAN’s economy shrank by a bigger than expected 0.5 per cent in the second quarter of this year, according to revised official data published yesterday.

The news sent Tokyo stock prices plunging and reinforced concerns that the long-lasting recovery in the economy has finally come to an end. It also appeared to rule out any early rise in interest rates.

Initial figures had suggested that gross domestic product expanded 0.5 per cent in the second quarter, but revised data released last week showed that corporate capital expenditure in the April-June period fell by more than 12 per cent. That led economists to re-do their GDP calculations – but even so, the 1.2 per cent annualised decline announced yesterday caught analysts off-guard.

Finance Minister Fukushiro Nukaga tried to put a brave face on the situation. ‘The GDP data showed that consumption is growing moderately,’ he said.

‘Capital spending fell but corporate earnings have been improving. Overall, I don’t think there has been a big change in the economy. I expect the economic recovery to continue.’

But the market delivered a more bearish verdict on the news. The Nikkei 225 stock average fell a hefty 357.19 points or 2.2 per cent to 15,906.52.

The yen, meanwhile, continued its climb against other major currencies, casting doubts on the future strength of exports, which have been a mainstay of the economy, along with corporate capital spending.

With personal consumption remaining stagnant and government spending set to contract further in 2008, some economists are now beginning to acknowledge the possibility of a ‘growth recession’ (declining rates of growth) or even an absolute recession (where the economy contracts for two consecutive quarters) by next year.

Some analysts are also saying that the Bank of Japan may be unable to raise interest rates this year given the clouds on the economic horizon and the prospect of continuing turbulence in global financial markets.

The bank’s policy board, due to meet next week, is likely to hold its short-term policy lending rate at 0.5 per cent rather than raise it to 0.75 per cent, as had been expected earlier.

 

Source: Business Times 11 Sept 07

Horizon Towers canvassing for sales committee

(SINGAPORE) Some majority sellers of Horizon Towers who have been trying to find volunteers to form a new sales committee are understood to have found five – just enough to meet the quorum needed.

With a handful of willing candidates, they are trying to arrange for a meeting to be held on Sunday to discuss the election of a new committee, a source said.

The remaining three members of the previous sales committee of nine quit in a meeting last Friday. The others quit in the days leading up to the meeting as pressure mounted, along with threats of legal suits. If the majority sellers succeed in getting a new committee together, it will be the third for the Horizon Towers sale.

At the meeting on Friday, the majority sellers were supposed to decide on how to respond to a lawsuit brought by Hotel Property Ltd (HPL) and its partners after the en bloc sale of their Leonie Hill property fell through last month.

The Strata Titles Board (STB) refused to grant a collective sale order, saying that Horizon Towers had filed a defective application.

HPL and its partners are suing the majority sellers for failing to file properly.

However, sellers that BT spoke to said that the meeting was more focused on the issue of finding enough volunteers to form a sales committee, rather than deciding on the next course of action.

A lawyer that BT spoke to said that under the current Land Titles (Strata) Act, which governs en bloc sales, there is no mention of needing a sales committee for a collective sale to go through.

He said that having a sales committee is more of a practical issue, as it would be impossible to manage such a big en bloc sale without one.

However, under proposed new rules, an en bloc sales committee must be set up and its members elected at an extraordinary general meeting convened by the estate’s management corporation.

This will apply to all projects which have yet to obtain the required majority consent from owners at the time the amendments are passed by Parliament, most likely this quarter.

HPL and its partners have given the majority sellers up to today to extend the en bloc sale completion deadline to Dec 11 and ‘do everything necessary to obtain the collective sales order’.

Should they lose their case, each of the 255 owners of 173 units who signed off on the en bloc sale may be liable for about $4 million.

 

Source: Business Times 11 Sept 07

Lifestyle hub at one-north could boost housing prices, retail rents

THE upcoming integrated development at one-north is expected to generate more interest in the area and drive up housing prices and retail rents there, market watchers said.

On Sunday, property giant CapitaLand and New Creation Church’s Rock Productions said they will be investing some $660 million to build a lifestyle hub in one-north, JTC Corporation’s science hub. The project will be located right next to Buona Vista MRT station.

The hub, which will be the biggest retail development by far in the area once it comes up by 2011, will push up residential prices and rents as well as rentals for retail space in the vicinity, experts said.

‘You probably will see residential and retail prices going up in the area,’ said Mavis Seow, CB Richard Ellis’ executive director for retail services.

‘The Holland area is already a very much sought after location. Once the project is developed, it will only get better.’

Rents in the Holland Village area are now between $8 and $15 per square foot per month (psf pm), she said.

CapitaLand, which will invest some $380 million, will own the retail and entertainment component of the project, which will have some 180,000-200,000 sq ft of net lettable area.

Rock Productions will invest $280 million. The company, which is the business arm of the 16,000-strong New Creation Church, will manage the hub’s civic and cultural zone, which will include a 5,000-seat stateof-the-art theatre. The civic and cultural zone will have a gross floor area of some 323,000 sq ft in all.

Pua Seck Guan, chief executive of CapitaLand’s retail arm, said that in line with the developer’s asset-light strategy, the retail and entertainment component could eventually be injected into the developer’s listed real estate investment trust (Reit) CapitaMall Trust.

‘The hub will not be a traditional shopping mall,’ he said. ‘As the developer, we will take the risk – until investors are convinced it is sustainable – before selling.’

The mall will have mostly F&B and entertainment units as is the case with Clarke Quay, Mr Pua said. The retail component will be smaller than in CapitaLand’s other malls.

Possible tenants could include a gourmet supermarket, trade services catering to people living and working in one-north, and even a dance club, he said.

The hub is however guaranteed some footfall from New Creation Church’s congregation, said Matthew Kang, director of Rock Productions.

New Creation Church will be the theatre’s ‘anchor tenant’ and will hold both its Sunday and weekday service there.

At present, the church uses the Rock Auditorium at Suntec City, which seats about 1,400 people.

‘We wanted to look for a place to move to; the congregation was getting bigger,’ Mr Kang said.

 

Source: Business Times 11 Sept 07

Aussie prime mortgage arrears decline on jobs

Higher interest rates are likely to affect arrears in third quarter, says Fitch

(HONG KONG) Delinquencies on Australian prime mortgages fell in the second quarter as unemployment declined to a 33-year low, according to Fitch Ratings.

Non-conforming home loans that were at least 30 days in arrears declined to 1.48 per cent of mortgages used to secure bonds, from 1.54 per cent in the first quarter, the credit assessor said yesterday.

‘Despite the disruption to international capital markets, increasing interest rates and contrary to press reports of local mortgage stress, Australian residential mortgage-backed securities continue to perform well,’ Sydney-based Ben McCarthy, head of Fitch’s Australian structured finance team, said in a statement.

Australian employers hired almost twice as many extra workers in August as economists had forecast after mining companies expanded to meet soaring demand for commodities for China and retailers opened new stores. The jobless rate was 4.3 per cent.

Fitch expects higher interest rates to affect arrears in the third quarter. The Reserve Bank of Australia raised the overnight cash rate target by 25 basis points on Aug 8 to an 11-year high of 6.5 per cent.

The ‘buoyant Australian property market has ensured that even those under stress have been able to avoid mortgage default through refinancing or sale’, Mr McCarthy said.

Delinquencies for so called ‘low-doc’ low-home loans which require less documents and income proof than standard mortgages increased to 4.54 per cent from 4.45 per cent. Borrowers in the loans, ‘being primarily self-employed borrowers, are more affected by shifts in the economy such as interest rate movements’, said Jason Hughes, a senior analyst at Fitch.

‘What we’ve seen is house prices go up,’ said David Verschoor, a Hong Kong-based trader of Australian credit default swaps at BNP Paribas SA. ‘When that’s the case, if someone can’t afford their house any more, they sell it.’

Moody’s Investors Service said on Aug 27 arrears on Australian home loans made to borrowers with poor credit histories rose to a record of 6.5 per cent in the second quarter.

The average household’s debt-to-income ratio has more than doubled to 158 per cent in the past decade, according to Moody’s. 

 

Source: Bloomberg (Business Times 11 Sept 07)

Asia still looking rosy in medium term: Tharman

(SINGAPORE) The repricing of risk sparked by the crisis in sub-prime debt in the US is not over, but there is no reason to downgrade Asia’s economic prospects in the medium term, said Tharman Shanmugaratnam, Second Minister for Finance. Speaking yesterday at the opening of SG Private Banking’s new office, he pointed out that the current turbulence does not alter the basic story of an ‘ascendant Asia’.

‘It introduces significant near term uncertainty, both for the markets and for economic growth, but it does not alter the picture of an increasingly dynamic and resilient Asia in the coming years and decades.’

He said that the growth of SG Private Bank, along with that of the private banking industry, reflected a few fundamentals. One of these is the emergence of Asia as the big story in the global economy. ‘Global investors have good reason to believe Asia will continue to outperform other regions for at least another two decades to come.’

Mr Tharman said the fallout in Asia has so far been limited. MSCI Asia ex-Japan is down 1.6 per cent since mid-July and is still up 24 per cent in the current year. Excluding China, Asian markets are up 22 per cent since the start of the year, and 45 per cent since the middle of last year.

Credit bond spreads in Asia have widened but the correction has been healthy and spreads remain below their historical levels. Average credit spreads in Asia recently rose by 100 basis points over US Treasuries to reach about 234 basis points currently. But they remain well below the 400 basis points seen between 2000 and 2003.

He said that there is increased uncertainty over the US near-term outlook, which could impact Asia. But Asian producers will continue to make productivity strides, and Asian consumers will provide an independent growth engine. ‘Global investors will, therefore, continue to seek out higher returns in Asia.’

Steve Forbes, Forbes magazine publisher, said in an address that Forbes has a great affinity with private banking as it monitors private wealth. Forbes publishes annual listings of the world’s wealthiest individuals. Asia’s 160 billionaires, he said, now account for 17 per cent of the world’s wealthiest, compared with a share of 14.5 per cent a year ago. This represents several hundred individuals, with assets of over US$650 billion. ‘The current crisis is a temporary one. We had a far worse one 10 years ago. The long-term dynamics are very positive,’ he said. Forbes is hosting its Global CEO conference in Singapore, bringing together top CEOs with a combined net worth of US$130 billion.

SG’s new office is at One Raffles Quay. SG chief executive for private banking Pierre Baer said the move is part of efforts to stay ‘at the forefront of this robust trend (in wealth creation), but at no compromise to our service quality’. The office is also its regional hub.

 

Source: Business Times 11 Sept 07

Shui On to double China land bank

(SINGAPORE) Chinese developer Shui On Land will double its land bank in China over the next three years from 12 million square metres, said its founder and chairman yesterday. ‘China’s property market is still strong despite the macroeconomic controls by the government. Market demand is tremendous because the economy is growing,’ said Vincent Lo.

He began his career in construction as head of Shui On Construction and made a name for himself by turning some century-old houses in Shanghai into the trendy Xintiandi bar and dining area.

 

Source: Reuters (Business Times 11 Sept 07)

Hang Lung may see China returns rising 25% in 2 yrs

It plans to spend US$5b in mainland over next 10-15 years

(SINGAPORE) Hong Kong’s Hang Lung Properties could see its investment returns from its China projects hit 25 per cent in two years time, its top executive said yesterday.

‘We are currently getting 20 per cent returns unleveraged (on our China properties). Starting in 2009 and 2010, our new projects will hit the market,’ said Ronnie Chan, the firm’s chairman.

The company, Hong Kong and China’s third largest real estate firm by value, has two developments in Shanghai and plans to spend US$5 billion in mainland China over the next 10-15 years.

Mr Chan said the firm has earmarked US$2 billion so far for its investments. It plans to spend a further US$3 billion building retail and office complexes in China.

‘Frankly, I don’t know why people want to build residential (properties) for sale (in China). It’s a fool’s game. The government wants a harmonious society and high residential prices are a great way to destroy social harmony,’ he said.

He added that the firm would not need to raise debt for its China investments.

Mr Chan, who also heads the developer’s parent Hang Lung Group, said that China property stocks were overvalued. ‘I say there is no bubble in the real estate market but there is a bubble in the real estate stock market.

The average China real estate company (stock) is selling at 70-80 times PE (price-to-earnings ratio). Now that’s a bubble. No stock market in the history of mankind can sustain that PE,’ he said.

Mr Chan also ruled out divesting its Chinese properties into a listed real estate investment trust . ‘Why would you want to tie your hands?’ he said.

 

Source: Reuters (Business Times 11 Sept 07)

Bulls may resume charge soon?

THE next bull market in equities is just around the corner despite the current turmoil in financial markets, a top US investment manager said here yesterday.

According to Ken Fisher, founder and chief executive officer of private money management firm Fisher Investments, which looks after US$35 billion of assets, investors should be ‘aggressive’ in buying shares.

He recommends that the materials, industrials and energy stocks but not big blue chips. And he expects ‘a big up-move ahead later in the year tied to takeovers and share buy-backs’.

He also reckons the current uncertainty in the financial markets is encouraging companies and investors to hoard cash, which ‘at some point comes out’.

Mr Fisher, who writes a regular investment column for Forbes magazine, is in town for the three-day Forbes Global CEO Conference which started yesterday.

Another guest speaker at the conference, Prof Michael Spence, who won the 2001 Nobel Prize for economics, said that the problems in the US sub-prime mortgage market are unlikely to have an ‘excessive impact’ on the global economy or Asia. ‘I don’t think Asian countries are particularly vulnerable now,’ he told reporters.

Mr Fisher argued that despite fears of a credit crunch, the cost of borrowing for an average company with a triple-B credit rating is still cheaper than in June, before the current financial market turbulence started.

‘The only part of the world where the rates have gone up is at the junk-end.’

On average, corporate earnings yields, or a company’s earnings per share as a proportion of its share price, are still above 6 per cent for a typical company that trades at 15 times earnings per share, he said. This compares with after-tax borrowing costs of about 4 per cent for an average company with a triple-B credit rating.

The difference in borrowing costs and earnings yields still makes it highly attractive for companies to issue debt and buy back their own shares or acquire other companies, which Mr Fisher predicts will drive the next round of share price increases once investor confidence returns, which he expects will happen by Christmas.

Meanwhile, with investors demanding higher returns for staking money on ‘junk’ or high-risk bonds, smaller companies with poor credit ratings will be less able to defend themselves against a takeover by borrowing to raise cash, he said. ‘Sub-prime actually sets the stage for the next level of takeovers.’

Rather than buying blue chip shares, he advises investors to look at ‘companies that seem a little junkier’ because these are the most likely to see their share price rising when the takeover wave resumes.

 

Source: Business Times 11 Sept 07

Sub-prime crisis may envelop whole of US economy

Central banks say they will remain alert but won’t bail out bad investors

(BASEL) The crisis in the US housing market risks spreading to the whole of the nation’s economy, European Central Bank chief Jean-Claude Trichet said yesterday on behalf of world central bankers.

He was speaking in his capacity as head of the G-10 group of central bankers from industrialised and emerging economies, who met at the Bank for International Settlements here.

‘There is a probability of fallout on the real economy in the USA,’ Mr Trichet said. ‘We will have to follow very carefully what happens particularly in the USA. We will remain . . . alert, (there is) no time for complacency,’ he added.

Mr Trichet said central banks had an interest in securing market stability but this did not extend to giving lifelines to imprudent investors who have got their fingers burned in the recent turbulence.

‘It’s certainly the sentiment of central bankers who are around the table that bailing out bad investors would be the worst thing to do,’ he said.

US Federal Reserve chairman Ben Bernanke, Bank of Japan governor Toshihiko Fukui, Bank of England governor Mervyn King, Zhou Xiaochuan from the People’s Bank of China and Bank of Canada Governor David Dodge were among those who attended the meeting.

Mr Trichet stressed the relative good health of the rest of the global economy outside the US, and of emerging markets in particular. ‘The global economy has solid fundamentals,’ he said. ‘Very significant progress has been made in the emerging world. The fundamentals have been considerably improved, progress has been made in fostering local financial markets,’ he added.

The ECB last Thursday voted to keep its interest rates on hold amid financial market and credit jitters. The US Federal Reserve is widely expected to trim borrowing costs at a scheduled Sept 18 meeting.

The US home loan trauma has prompted banks to choke off lending to each other as they strive to calculate exposure to the sector, forcing central banks to pump emergency funds into the financial system.

Official figures yesterday showed that Japan’s economy shrank more than expected in the second quarter. The 0.3 per cent fall was bigger than forecasts for a 0.2 per cent contraction.

That followed data on Friday showing US payrolls shrank in August for the first time in four years. The twin reports hardened prospects that the Bank of Japan will hold interest rates steady and the Fed will cut them to temper the worst effects of the crisis.

 

Source: AFP, Reuters, Bloomberg (Business Times 11 Sept 07)

US sub-prime woes just a correction, experts say

THE sub-prime mortgage crisis in the United States that battered the world’s bourses recently is just a correction that has a few months left, at most.

So say two financial experts who are in town for the Forbes Global CEO Conference taking place this week.

Best-selling author and Forbes magazine portfolio strategy columnist Ken Fisher said at a press conference yesterday that he expects a resurgence in takeovers and mergers-and-acquisition activities as early as next month.

He said: ‘What people are not talking about at the moment is the fact that earnings yields are actually higher than bond yields.’

This, coupled with average corporate borrowing rates that are lower now than three months ago in all segments except for ‘junk’ firms, meant that such firms will become prime targets for takeovers by other companies, he added.

‘People believe there is a credit crunch, but we are actually seeing cash- hoarding in anticipation of a real crunch.

‘I believe we will see the resumption of a bull market in a few months, with heightened takeover activity as early as Halloween.’

Nobel laureate Professor Michael Spence backed Mr Fisher’s optimism. A dramatic impact from the sub-prime crisis on the global economy is unlikely, he said.

He cautioned, however, that while the sub- prime crisis was caused by ‘irresponsible lending abetted by liquidity flows’, there are also ‘underlying structural problems’ that go beyond it.

These structural issues include information gaps in a complicated global economic system where ‘people don’t really know who is at risk’.

 

Source: The Straits Times 11 Sept 07

Shophouse sales treble as firms seek cheaper rentals

33 units worth $308m sold so far this year but prices and rents are also rising, says consultancy

SHOPHOUSE sales have been shooting through the roof recently, as escalating office costs drive smaller businesses to seek out cheaper alternatives.

The number of shophouses that have changed hands so far this year is already more than treble that in an average year, according to new figures from property consultancy CB Richard Ellis (CBRE).

And as demand for shophouses soars, the sale prices and rents of such properties are also quickly climbing, added the company.

Its figures show that since January, 33 shophouses have been sold for a combined $308.2 million.

This is a huge jump from just two years ago, when only 10 such properties were sold. Their total value: a mere $85.1 million.

The booming demand is mainly coming from smaller firms that are being squeezed by soaring office rents, said Mr Li Hiaw Ho, executive director of CBRE Research.

Singapore’s strong economy and appealing business environment have prompted many companies to start a new business or expand their existing operations, he said.

But this comes at a time when office space is in acute short supply, thus driving up office rents and values continuously over the last year.

‘While multinational corporations, especially the banking and financial institutions, seek the prestige of prime office locations and are willing to pay a premium for it, small and medium- sized companies are feeling the pinch,’ said Mr Li.

‘To ease their expenditure on rents and with their options running out, some companies have creatively sought alternative spaces such as shophouses.’ The types of firms that use shophouses range from creative agencies and architectural practices to recruitment companies and financial advisers, he added.

But with more firms turning to shophouses as an substitute for offices, the cost of this space is starting to increase, according to CBRE data.

A row of eight shophouses in Telok Ayer Street sold for $18.6 million in November 2005. In March this year, they changed hands again – for almost double the price, at $35 million.

In Tras Street, four units with a total strata area of 6,311 sq ft were sold en bloc for $7.7 million in November last year. But two months ago, a single 3,618 sq ft unit right across the road managed to fetch $9.42 million.

Rents are also on the rise. In the prime shophouse areas downtown – including Tras Street, Boon Tat Street, Amoy Street and Telok Ayer – current asking rents are between $5 and $6 per sq ft (psf) a month, said CBRE.

This has doubled from the beginning of the year, it added.

In the fringe areas, such as Beach Road, monthly rents are also up, from $2 to $3 psf earlier this year to between $3 and $5 psf currently.

However, Mr Li notes that while the rises seem ‘hefty’, the rents are ‘reasonable considering the prime location’. Prime office buildings are now asking about $12 psf per month in the Central Business District, and $6 to $8 psf in the fringe areas.

‘For the same amount of space, companies renting shophouses are paying about 50 to 60 per cent less in rental compared to a prime office building,’ he said. ‘This is extremely attractive, especially for small or medium-sized companies which are able to operate without the glossy facade and facilities of a prime office building.’

Such facilities include security features and reserved parking lots. But ‘the savings in rents and building maintenance often more than make up for it’, added Mr Li.

11sept07_st_shophousesindd2.pdf 

Source: The Straits Times 11 Sept 07

US economy easing but may pick up next year: Forbes

Slowdown won’t hurt rest of world much due to strong global growth: Media baron

THE United States economy is slowing down this quarter and next but a recession is unlikely as growth may rebound next year, Mr Steve Forbes told an audience of top executives here yesterday.

Mr Forbes, president and chief executive of top business magazine Forbes, said the fundamentals for expansion are still in place.

They include a productivity boom, strong US consumer balance sheets and strong corporate balance sheets, he said at the Forbes Global CEO Conference gala dinner held at the Ritz-Carlton Millenia hotel.

The US sub-prime housing loans crisis will also ‘quickly pass’, he said, but only if the US Federal Reserve cuts interest rates by a full percentage point at its meeting next Tuesday.

It must also maintain liquidity – the ‘oxygen and life blood’ of financial markets – in the system to make sure the markets do not ’seize up’, he added.

All this will be good news for the global economy, as it is still vulnerable to a slowdown in the US economy, which makes up about 30 per cent of the world’s total.

‘We are more integrated than ever before, so if the US economy is in trouble, it will have global impact,’ he said.

But ‘the global economy is growing even more powerfully than ever’, so there ‘won’t be a repeat of the Asian financial crisis of 1997′, he said.

He dismissed notions of a decoupling of growth between regions, asserting that global markets are ‘in fact more tied together’, as global supply chains become more complex and risks are spread across markets.

Still, a US economic slowdown may force China to raise its own consumption, which is ‘not a bad thing for China and the rest of the world’, said Mr Ronnie Chan, chairman of Hang Lung Properties, a property developer in China.

China is ‘not spending enough’ relative to its economic output, so higher consumption would help to address the trade imbalance that China has with key countries such as the US, he said. He was one of five panellists who spoke at the gala dinner, on issues that drive or derail global economic growth.

He noted that China’s ’systematic weaknesses’ in the use of technology, corporate governance and social institutions have been overlooked by the world. These may trigger a slowdown in China.

Another key concern for the global economy was oil prices, which rose above US$75 per barrel recently. Dr Gary Ross, chief executive of Pira Energy Group, predicted that ‘prices will continue to be very high, and rise even higher next year’.

‘The fundamentals are still there for expansion – there is a productivity boom, there are strong US consumer balance sheets and corporate balance sheets are in strong condition overall.’

MR FORBES, on the upbeat outlook

 

Source: The Straits Times 11 Sept 07

CapitaLand, Rock to build $660m integrated hub

Hub at one-north to boast civic, cultural, retail and entertainment facilities

(SINGAPORE) CapitaLand and Rock Productions will spend a whopping $660 million to develop an integrated civic, cultural, retail and entertainment hub at Vista Xchange, one-north, which is expected to be completed by 2011.

The hub will comprise two zones – a Civic and Cultural Zone measuring over 30,000 square metres in gross floor area, and a Retail and Entertainment Zone spanning 24,000 square metres in GFA.

JTC Corp awarded the tender to build, lease and operate the entire hub to Rock on Friday, on a 60-year lease term at a land bid price of nearly $189 million.

Upon award of the tender to Rock, CapitaLand, through an indirect wholly-owned subsidiary, One Trustee, acquired the Retail and Entertainment Zone from Rock.

Rock will develop the Civic and Cultural Zone at a cost of about $280 million, while CapitaLand will invest another $380 million into developing the Retail and Entertainment Zone.

Designed by Andrew Bromberg of the commercial architecture firm Aedas Hong Kong, the hub will have eight levels of the former zone type and four levels of the latter.

The Civic and Cultural Zone is ‘envisaged to become the new dynamic art, cultural, meeting, convention and exhibition centre in Singapore’, a release said. It will contain a proposed 5,000-seat, state-of- the-art theatre for touring concerts, family entertainment, and other large-scale conferences or events.

It will also contain secondary performance and event spaces, like multi-purpose function rooms and outdoor amphitheatres. IMG Artists has been appointed to consult on and develop the strategies for the marketing and programming efforts.

The Retail and Entertainment Zone will comprise two levels above ground and two below. It will have an ‘open concept with a spiral design’, allowing visitors to stroll casually along a gently sloping spiral walkway to visit the various floors. These will contain restaurants, cafes, supermarkets, fashion and other stores. The zone is envisaged to ‘replicate the atmosphere at Clarke Quay, the premier riverfront F&B, lifestyle and entertainment precinct in Singapore’, the release said.

Director of Rock Productions, Matthew Kang, said his firm’s ‘extensive research indicates an overwhelming need for a sizeable performance venue, away from the city’ but ‘well-equipped with state- of-the-art facilities’.

Pua Seck Guan, CEO of CapitaLand Retail, said the hub represents a chance for CapitaLand to extend its presence to the Buona Vista area in Singapore.

It is expected to ‘benefit from the natural visitor catchments from the one-north communities, surrounding housing estates, as well as tertiary institutions close by’.

The hub will be directly linked to the Buona Vista MRT and also be served by a Circle Line MRT station currently under construction.

Vista Xchange is the first of three ‘centres of excellence’ under JTC’s one-north masterplan. Besides the hub, it will house offices, a business hotel and residential buildings over 17 hectares.

 

Source: Business Times 10 Sept 07

Ascott in serviced residence tie-up

(DUBAI) Ascott Group Ltd, the biggest serviced-residence operator in Asia and Europe, and a group of Middle Eastern investors have started a venture to buy and manage properties in Persian Gulf Arab states.

Bahrain-based Nuzul Holding BSC has US$100 million of start-up capital from founding shareholders including Qatar’s pension fund, Barwa Real Estate Co, and Saudi Economic & Development Co, the new company said in a statement posted on Dubai-based business website Ame Info yesterday.

‘Partnering with the reputed Ascott International has enabled us to introduce high-quality serviced residences to the Gulf states for the first time,’ Nuzul’s chairman Ali al-Obaidli said in the statement.

CapitaLand Ltd, Ascott’s parent company, in May said it agreed to invest US$130 million in a fund to develop residential and retail projects in Bahrain.

Ascott and Nuzul aim to manage 15 serviced residences in the Gulf by 2010 and at least 50 by 2017 to meet demand from business travellers and tourists, according to the statement.

 

Source: Bloomberg (Business Times 10 Sept 07)

A quick guide to sub-prime issues

How individual loan defaults in a faraway land can have a domino effect all over the world – including here

PAUSE for a moment to consider these facts: HSBC, the world’s third-largest bank, announced that 50 per cent of its earnings in 2006 were wiped out by sub-prime losses from its US subsidiary. Since the beginning of that year, over 50 US mortgage companies have put themselves up for sale, closed or been declared bankrupt. In July this year, Bear Stearns closed two of its ailing hedge funds, while in June, BNP Paribas announced the suspension of three of its funds due to exposure to US mortgages.

With news like this making waves in financial markets lately, it is hardly surprising to see the proliferation of doomsday headlines like ‘Market falls parallel previous collapses’, and ‘Anxiety attack knocks markets down’. No longer confined to the US real estate or financial markets, the topic of America’s sub-prime mortgage market has taken centre-stage, as fears of a spillover spread to financial markets in Europe and Asia – even Singapore.

How did it all begin?

Before the US real estate bubble burst, sub-prime lending was a rapidly growing segment of the mortgage market.

It worked by banks extending credit to borrowers who, for a number of reasons, would otherwise be unable to qualify for credit. According to the US Department of Treasury guidelines issued in 2001, ’sub-prime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments and bankruptcies’.

Most US sub-prime mortgages have an attractive initial fixed-rate mortgage payment for a few years, followed by a higher adjustable rate for the remaining life of the mortgage. The sub-prime mortgage industry began to proliferate earlier this century and estimates say that about 21 per cent of all mortgage originations from 2004 to 2006 were sub-prime – a sharp increase from 9 per cent in 1996-2004. At its height in 2005, sub-prime mortgages were worth US$805 billion.

Although not all sub-prime loans are necessarily high-risk, many of them were made to homebuyers with poor credit or little income. As the US housing market boomed, thousands of lenders greedily sought greater profits by aggressively touting loans to individuals with poorer credit ratings and making greater exceptions to guidelines. In certain cases, individuals were not even required to produce any proof of their income.

These sub-prime loans were bought mainly by big banks which bundled the debt and sold them to Wall Street firms. To sell these ticking time bombs, Wall Street packaged these risky loans with supposedly safer loans to create instruments known as collateralised debt obligations (CDOs) – making them more attractive to risk-averse investors. In 2006, an estimated US$100 billion of sub-prime debt went into US$375 billion worth of CDOs.

In pursuit of higher yields, investors stretching from Europe to Asia invested in these instruments for their potentially higher returns, as compared to bonds with the same ratings.

What went wrong?

Trouble started brewing when the US economy began showing signs of slowing down. Interest rates crept up, house prices tumbled and sub-prime mortgage defaults began climbing at an alarming rate, reaching 12.6 per cent at one point.

As default rates soared, creating losses on the underlying mortgages of CDOs, investors began to question the reliability of the models and ratings which valued these CDOs; indeed, credit rating agencies like Moody’s have come under fire for misjudging default rates in sub-prime mortgages. With the uncertainty surrounding the current analysis and valuation of credit risk, many investors have decided to pull back on investments in CDOs and hedge funds with stakes in such securities.

Explained Jeremy Goh, an associate professor of finance at the Singapore Management University (SMU): ‘When investors heard all these negative things about default rates in the news, they started withdrawing their money from hedge funds and parked them in safer money market instruments like treasury bills.’

The result was a triggered chain of reactions which affected markets worldwide. Hedge funds were forced to unload their assets in order to raise cash.

The scattered ownership of CDOs has in turn created widespread loss of confidence in financial markets. Besides affecting all holders of sub-prime-related assets, the greater and more serious implication of the sub-prime crisis is a squeeze on liquidity. Due to the uncertainty over other financial institutions’ exposure to sub-prime losses, they became unwilling to lend to each other.

A tsunami or ripple effect?

However, central banks around the world have responded by injecting liquidity into the markets to ease fears of a liquidity crunch. The US Federal Reserve has also cut its discount rate (which it charges for emergency lending to banks) from 6.25 per cent to 5.75 per cent.

Asian equity funds have also been hit hard, and among those affected the most are funds from Singapore and Malaysia. Data from Morningstar Asia showed that funds from both countries sank an average of 10 per cent.

Asian stock markets has also been tumultuous, spreading fears that a slowdown in the US economy will extend to the rest of the world.

Although the sub-prime crisis in the US may be a cause for concern, investors here should not be overly worried as Asian fundamentals remain strong. Many industry watchers agree that Asia’s economies are no longer as reliant on the US as in the past. As intra-regional trade grows, Asian giants like China and India have become increasingly important trade partners for other Asian countries instead of the US.

Fundamentals of Singapore’s economy remain firm as well, analysts agree. With the introduction of Formula One and the integrated resorts in the coming years, demand and consumption is likely to continue to propel Singapore’s growth.

Prof Goh concurs: ‘I think the jittery stock market in Singapore is only temporary, and I believe that highly-rated CDOs are still safe. Even if the US economy is heading for a recession, it will be a mild one, so the problem could be due to panic selling in the markets or hedge funds unloading some illiquid assets.

‘ As a result, it triggers fear in the lending market. Lenders are more reluctant to lend, which might have some effect on the economy – but nothing major, in my opinion.’

 

Source: Business Times 10 Sept 07

More market panic ahead as banks ‘fess up’ on sub-prime

Confidence in banks exceptionally low, says JP Morgan Asia

(SINGAPORE) Be prepared for more market panic as major banks continue to ‘fess up’ to their holdings of US subprime mortgage securities over the next several months, said Ivan Leung, JP Morgan Asia chief investment strategist.

The world’s financial markets are in turmoil as worries over exposure to the US sub-prime mortgage debt has led to a freeze in the credit market with global central banks having to step in to provide liquidity.

Around the world, banks are under intense pressure as investors and analysts cast a spotlight on their exposure to sub-prime, or high-risk, property loans in the US through their investments in collateralised debt obligations, known as CDOs.

There is little information on the amount of CDOs held by banks, which has led to ‘exceptional low’ confidence in the banks, said Mr Leung in an interview last week. In the past month, European and Asian banks including DBS Group Holdings and United Overseas Bank have revealed their CDO holdings.

‘(US banks) originate it, they package it, they sell it – but it doesn’t necessarily mean they hold on to it,’ Mr Leung said.

He said that, often, US banks do hold on to some of these CDOs in structured investment vehicles – off their balance sheets – so there is no transparency on their holdings. He described this as scary.

‘European banks, and to a lesser extent – so far as we have seen – Asian banks, were purchasers of these products,’ Mr Leung said.

‘So the crisis in confidence is not so much that there could be a 80 billion or even a 200 billion dollar loss of subprime; the confidence issue is that we don’t know exactly who is holding all this debt,’ he said.

And we don’t really know the prices of all this debt, and how much of it will be subject to default, he said.

‘The confessions, you see them once in a while; that’s why we think this is an issue, because over the next three to six months, some banks will begin to confess that they have some on their balance sheet, and some off-balance sheet, but clearly right now, nobody really has a true picture of what’s going on. ‘It’s the worst of all situations – nobody knows.’

Mr Leung expects the markets to veer between confidence and ‘blind panic’ each time there is another disclosure.

Bank shares skidded on Aug 24 after DBS and three of Asia’s biggest banks revealed bigger-than-expected exposure to the US sub-prime mortgage crisis.

DBS said that it had US$1.6 billion (S$2.43 billion) in holdings of CDOs – more than the S$1.3 billion disclosed on Aug 7.

An additional 1.5 million sub-prime borrowers may fall behind on their mortgage payments as introductory interest rates on those loans rise this year and next, US Federal Deposit Insurance Corp chairman Sheila Bair said last week.

Among the 2.5 million sub-prime mortgages with interest rates that are expected to be reset this year and next, ‘1.5 million will be in financial distress’, Ms Bair said.

Getting any kind of centralised data collection will be very challenging, she said.

JP Morgan estimates that US$600 billion worth of adjustable rate mortgages will be reset over the next 12 months.

But, following the adage that there are always opportunities when risks are high, Mr Leung said that one way for investors to take advantage of the current extreme volatility in the markets is to buy ‘plain vanilla’ short-term structured notes with capital protection.

The notes are designed to give a high payout even if the stock markets move only slightly higher, he said. ‘When volatility is as high as it is right now, we can go for simple structures,’ Mr Leung said.

The notes that JP Morgan is offering are meant for investors who share the view that the US mortgage crisis will not lead to a recession. Lower growth, yes, and therefore moderately bullish stock markets still.

Mr Leung said that JP Morgan was positive on undervalued markets such as Thailand and South Korea and favours Singapore and China companies which have superior corporate and economic fundamentals.

 

Source: Business Times 10 Sept 07

Rate cut not always needed: Fed official

Market disruptions can be addressed using tools available

(NEW YORK) Federal Reserve Bank of Philadelphia president Charles Plosser said there is an ‘underlying stability’ in the US economy and officials need not always cut interest rates in response to turmoil in financial markets.

‘Disruptions in financial markets can be addressed using the tools available to the Federal Reserve without necessarily having to make a shift in the overall direction of monetary policy,’ Mr Plosser said on Saturday at a conference in Waikoloa, Hawaii.

Mr Plosser said while the housing slump has lowered forecasts for the expansion and there is ‘considerable uncertainty’ about the outlook, he expects economic growth to return ‘toward trend later in 2008.’ The drag from housing will ‘gradually’ ease, concluding sometime next year.

The comments suggest that Mr Plosser has yet to conclude a reduction in the Fed’s benchmark rate is critical to safeguard the economy, which lost jobs for the first time in four years in August. The Philadelphia Fed chief doesn’t vote on the rate-setting Federal Open Market Committee until next year.

Lowering the benchmark rate is an ‘option if financial sector problems spill over to significantly harm the outlook for the broader economy,’ said Mr Plosser, 58, who took office a year ago. And, when shocks threaten market stability, a central bank ‘must be prepared to act promptly,’ he said.

Mr Plosser said that the US has coped with blows in the past, such as the devastation of Hurricane Katrina in 2005 and oil-price shocks, and that a decline in one industry ‘does not always imply major problems in the economy as a whole.’

‘It is important to understand and appreciate this underlying stability of the economy in the face of temporary disturbances as we seek to assess monetary policy,’ Mr Plosser told the Pennsylvania Association of Community Bankers convention.

Investors and economists said on Friday there’s little doubt Fed policy makers will lower the main rate after a government report that day showed employers unexpectedly cut 4,000 from payrolls in August.

‘The committee usually does not base its decision to change monetary policy on any one number,’ Mr Plosser said, without referring specifically to the August jobs report.

Answering questions following his speech, Mr Plosser said the outlook for inflation is ’still up in the air,’ and it’s not clear that the moderation in prices of recent months will be sustained.

 

Source: Bloomberg (Business Times 10 Sept 07)

Fed has effectively cut funds rate: analysts

They say unusually large spread between fed funds target and effective rates signals Fed’s next move

(NEW YORK) Here’s a secret: The Federal Reserve has already cut the fed funds rate.

Yes, the Fed’s target rate is still the same 5.25 per cent it has been since June 2006, and the US central bank has only formally cut the less-used discount rate on loans it makes directly to banks.

But going back to Aug 9, when global central banks started flooding financial systems with cash to prevent a complete shutdown of credit markets, the actual rate at which US banks are providing each other overnight funds, the fed funds effective rate, has averaged just under 5 per cent, according to Federal Reserve data.

That’s equivalent to the 25-basis-point reduction in the fed funds target rate that many investors expect US monetary policy-makers to announce at their next meeting on Sept 18.

‘The Fed already eased,’ said Jim Bianco, president of Bianco Research in Chicago, a member of the bond market camp that says a de facto rate cut happened a month ago and a formal announcement of one on the 18th would be little more than a rubber stamp.

‘This is really hard for many market participants. They are so locked into the target rate that they cannot see the game has changed. The target rate is meaningless,’ Mr Bianco said.

Mr Bianco’s view is not universal, however. Others counter that the Fed’s out-sized liquidity injections are strictly temporary measures to ease credit conditions and are not the equal of a formal policy change by the Federal Open Market Committee.

This group does agree, though, that rubber stamp or not, the unusually large spread between the fed funds target rate and the effective rate is a clear signal of the Fed’s next move.

Typically the effective rate rarely sways beyond a few basis points on either side of the target rate. But through last Thursday, the 21-day moving average on the effective rate has been 4.99 per cent – a 26-basis point spread.

In fact, the last time such a significant deviation between the two occurred for a persistent period was after the Sept 11 attacks. The Fed kept the banking system flush with cash and followed through with two rate cuts by the first week of October, including a rare inter-meeting cut on Sept 17, 2001.

The effective fed funds rate – a weighted average of where federal funds trade over one session – was 4.98 per cent last Thursday, well below the 5.25 per cent target rate.

‘Federal funds typically would move only 5 basis points around the target,’ said Kenneth Kim, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.

Normally, ‘maybe not until a day or two before the meeting you could see some slippage.’ ‘But these are extraordinary circumstances,’ he said.

Since Aug 9, the Federal Reserve has added US$199 billion of temporary reserves to the banking system. These operations have eased the pain for banks struggling with the US subprime mortgage debt crisis and have also contributed to striking volatility in the overnight money market.

And, despite the sudden gap between the target and effective rates, some analysts say the recent moves in federal funds simply reflect those upheavals and fast-changing credit conditions.

‘While the Fed may very well cut the funds target on the 18th, I don’t think you can make the leap of faith that the effective fed funds rate being below target was the signal,’ said Kevin Flanagan, fixed income strategist for global wealth management with Morgan Stanley in Purchase, New York.

In fact, the daily trading in the fed funds rate has been the most volatile since at least 1994, careening from effectively zero to as high as 6.05 per cent in just one session on Aug 10.

Before 1994, federal funds traded rates were a main tool for tracking Federal Reserve policy, and big swings then were a signal of a policy change. In 1994, though, the Fed adopted the current system of targeting a specific rate and announcing changes to its target the same day, as part of an effort to increase transparency to markets.

Since then, the effective rate has lost some of its predictive power, and for clues to pending rate moves investors have turned instead to rate futures markets.

Still, the current gap probably cannot continue for much longer. Either the Fed has to cut the target rate, as most now expect, or it has to ease up on the liquidity injections to allow the effective rate to float back up to a more typical spread.

 

Source: Reuters (Business Times 10 Sept 07)

Some Katong commercial properties going for en-bloc sale

Buildings include Katong Shopping Centre; sales could help rejuvenate area and boost image

FACED with flagging businesses and dwindling human traffic, the shop owners of several commercial buildings in Katong are coming together to sell their properties en bloc.

This has led to renewed interest in the old East Coast hot spot recently, sparking hopes among residents and shopkeepers nearby that the area – famed for its good food and old-world charm – will get the rejuvenation that it needs to boost its image.

At least five commercial buildings along Mountbatten Road and East Coast Road have, or are in the process of engaging marketing agents to launch their collective sales. These include Katong Mall, Paramount Hotel and Shopping Centre, Roxy Square, Katong Plaza and the iconic Katong Shopping Centre, said Mr Lui Seng Fatt, the regional director and head of investments at Jones Lang LaSalle.

In its heyday, Katong Shopping Centre was the heart and soul of the East. But as the years wore on, the lack of entertainment facilities and an attractive retail mix made it a poor rival to malls like Parkway Parade.

Many of these buildings in Katong are more than 20 years old and, in the case of Katong Shopping Centre, which opened in 1973, more than 30.

Dr Lim Un Huat, an owner of several shops at Katong Mall, told The Straits Times most shop owners were in favour of a collective sale, and were waiting for the right price to sell.

Mr Lui said the ‘tired-looking’ buildings were overdue for a revamp, especially since residential projects in the area have gone upmarket.

Prices of homes in the Katong, Meyer and Amber Road residential enclave have soared recently with the property boom. The area’s proximity to the upcoming Integrated Resort in Marina Bay is an added lure.

United Industrial Corporation’s One Amber and Grand Duchess sold out around $700 to $800 per sq feet (psf) recently. CapitaLand’s The Seafront on Meyer and GuocoLand’s The View @ Meyer fetched new highs of between $1,500 psf and $1,800 psf.

While the shop owners do not expect to make a ‘huge windfall’, Mr Lui said selling en bloc would help them unlock the value of their shops.

He estimates that the prices transacted would be between $500 psf and $1,000 psf, depending on the building.

Colliers International’s executive director for investment sales, Mr Ho Eng Joo, said Katong’s rejuvenation would be a ‘natural progression’ following the influx of residents living in the area’s new condominiums.

‘Katong’s residential area is getting quite vibrant, so the commercial side has to catch up now,’ he said.

The only setback, he added, would be the new rules for collective sales – expected to kick in next month – which will prolong the sale process.

But in three or four years’ time, Katong could be transformed, he added.

However, while some property consultants remain optimistic about Katong’s future, others remain cautious.

Director of marketing and business development Ku Swee Yong at Savills Singapore said the area was a ‘bit of a mixed bag’ – comprising offices, residential apartments, hotels and retail space – which makes it ‘neither here nor there’ for redevelopment.

‘The area’s physical limitations mean a very creative approach is needed to redevelop it,’ he added.

From a conservation perspective, the revitalisation of Katong is desirable if done properly, said Singapore Heritage Society president Kevin Tan.

Over the years, the retail business in the area has withered, and given way to maid agencies, pubs and video arcades. But this can be changed by injecting some new life and a new trade mix into the area, he added.

He hopes, however, that the architecture of Katong Shopping Centre will be conserved as it was ‘very important in East Coast’s history’.

Shop owner Dr Lim concurred: ‘We all hope to bring back the hustle and bustle of the old Katong.’

 

MOVING FORWARD

‘Katong’s residential area is getting quite vibrant, so the commercial side has to catch up now.’

MR HO, Colliers International executive director for investment sales

OBSTACLES TO BEAT

‘The area’s limitations mean a very creative approach is needed to redevelop it.’

MR KU, Savills Singapore director of marketing and business development, on the area’s mixed developments

 

Source: The Straits Times 10 Sept 07

Strata landed homes look set to be big trend

AUGUST and September are typically slow months for new property launches, due to the superstition surrounding the Hungry Ghost month.

But developers are not sitting idly by this year. Several launches are in the works for the last months of the year, and one of the big emerging trends appears to be strata-titled landed homes, or cluster housing projects.

Property firm CB Richard Ellis (CBRE), for one, identifies at least 21 such projects in the pipeline.

For the uninitiated, cluster homes look exactly like conventional landed homes. They are usually at least two storeys high and come in a variety of sizes, ranging from terrace houses to bungalows.

The main difference is that cluster homes come with strata titles, as do condominiums, rather than land titles.

In a cluster project, the land is shared by all the owners, explained Mr Li Hiaw Ho, an executive director of CBRE Research.

This has two main implications. First, cluster projects can be sold en bloc as long as the minimum required owner consensus is met. This means an 80 per cent agreement for projects more than 10 years old and 90 per cent for younger estates.

Second, owners of strata houses do not have the flexibility of tearing down and rebuilding their properties.

Owners of conventional landed homes, on the other hand, can make additions and alterations that affect the external appearance of the homes.

Generally, cluster housing projects tend to be more standardised in appearance than the usual landed houses.

Each unit is typically two to three storeys high, and most come with four to six bedrooms, attics or roof terraces, and basements, said Mr Li.

Parking spaces are also a plus in cluster projects, which usually include one or two basement carpark lots for each house.

The built-up area for each house ranges from about 2,500 sq ft for a terrace house to 3,500 to 4,000 sq ft for a detached house, added Mr Li.

The larger bungalows can go up to almost 6,000 sq ft, with roof terraces usually accounting for another 500 sq ft.

Cluster housing is not a new concept in Singapore, having first made an appearance in 1993. But these projects became more mainstream only from 2000 onwards, and have taken off in a big way just recently.

‘More customers are accepting the product now, so developers are also encouraged to build more of these houses,’ said Mr Ku Swee Yong, the director of marketing and business development at Savills Singapore.

He noted that Far East Organization’s Greenwood series of landed homes, one of the more popular landed housing projects in recent years, is planning to release its next phase in a cluster housing style.

Anecdotal evidence from property agents also seems to indicate that foreigners find it easier to get approval to buy strata landed homes than to buy conventional landed homes.

‘Cluster homes are strata-titled, so in such a development, there would be a good balance of voting share rights between foreigners and Singaporeans,’ said one agent. ‘Also, generally, the smaller the property, the easier it is to get approval if you are a foreigner.’

For the individual home buyer, there are several advantages to strata homes that conventional landed housing do not offer.

Among the greatest draws of cluster houses are the communal facilities and security features. Facilities often include at least one swimming pool, jacuzzis, a gym, a clubhouse and barbecue areas.

But these perks come at a cost: Strata home owners have to pay a monthly maintenance fee, much like condominium owners, to maintain these facilities.

Previous estimates by consultancy Colliers International have put these fees at $250 to more than $400 a month, depending on the size of the estate and the facilities available.

Apart from the maintenance cost, cluster homes and landed homes in the same location are usually similarly priced, said CBRE’s Mr Li. ‘The facilities provided in a cluster project will be a trade-off against the loss of the private enjoyment of land.’

For a home buyer who is trying to decide between strata and conventional landed homes, ‘it will ultimately boil down to a question of lifestyle’, said Mr Li.

While some home owners might prefer a landed home with large common areas and some facilities within the compound, others might want to have the land title to their landed property, he added.

 

9sept07_st_stratalandedhomessetnextnewtrend2.pdf 

Source: The Sunday Times 9 Sept 07

Time to raise the $8,000 income ceiling for HDB flat buyers?

THE economy is booming and property prices are heading north. Although the housing market moves at a frenetic pace these days, one thing has stayed the same for more than 12 years now – the $8,000 ceiling on monthly household income for those buying new Housing Board flats.

Of late, some people have wondered if home prices are getting out of reach. The Government appeared to try to tackle those concerns last month by expanding the pool of low-income households which qualify for extra housing aid.

Households earning up to $4,000 a month, instead of up to $3,000 previously, are now eligible for grants of as much as $30,000 to buy their first home. With this change, more people now qualify for the aid, and households already qualifying will now get an even bigger grant.

But what about the $8,000 income ceiling? Will it be raised too? The current cap has not changed since it was last raised from $7,000 in December 1994. For most of 1992, it stood at $6,000.

Yet many things have changed since 1994.

Data from the General Household Survey, which is conducted once every 10 years, shows that the proportion of resident households earning $8,000 and above every month has nearly doubled from 10.85 per cent in 1995 to 19.9 per cent in 2005.

This means that the proportion of households qualifying to buy new flats shrank by roughly 9 percentage points.

More recent data from the Department of Statistics shows that the proportion of employed households earning $8,000 or more stood at 23.4 per cent last year.

This means that the proportion of households not qualifying for new public housing is even bigger when we factor out the number of households made up of unemployed people, who probably would not be in a position to buy homes.

And in real terms, taking into account inflation, $8,000 in 1994 had the same spending power as $9,110 in July.

Meanwhile, the price index of HDB resale flats grew 36 per cent from 1995 to June this year.

New HDB flats are the cheapest homes in Singapore, a refuge for home seekers feeling the heat from the buoyant private and HDB resale market.

So the real question for policymakers is this: Have market conditions changed sufficiently since 1994 that households earning somewhat more than $8,000 now need the option of buying new HDB flats?

One can tell what a difference that option makes by comparing the prices of flats within one area. A batch of new four-room flats in Sengkang were offered at $145,000 to $200,000 in May. Resale four-room flats in the same area, for the period from April to June, changed hands at a median price of $245,000, notably higher.

In the more volatile private market, prices of 99-year leasehold condominiums – a typical choice for many home buyers who could otherwise have picked HDB flats – grew 11 per cent between the third quarter of 1999 and the second quarter of this year. Given the massive slump that followed the 1997 Asian financial crisis, there’s a chance they could be cheaper now than they were in 1994.

But families with only a little more than $8,000 in monthly income may not be in a strong position to buy a home for $600,000.

New HDB flats, by comparison, are a ’safer’ choice. Although their prices generally follow market trends, it is understood that the changes are moderated by the Government in order to keep public housing affordable.

The Singaporeans caught between public and private housing are the proverbial ’sandwich class’ – not well off enough to cruise into private housing but not poor enough to be entitled to much government aid.

Is housing becoming less affordable for them? Are they left with the option of spending an increasing – or perhaps disproportionate – part of their income on housing?

If so, is it time to adjust the $8,000 income limit to put them back under the HDB umbrella?

After all, a household earning above $8,000 a month is not just barred from new HDB flats, but also disqualified from subsidised housing loans and housing grants of up to $40,000 to buy resale flats. (Those earning not more than $4,000 a month are entitled to additional grants, as explained above.)

The HDB does ‘exercise flexibility on a case-by-case basis’ for home buyers whose household incomes marginally breach the limit.

But rather than bending the rules occasionally, perhaps it should be reviewing the limit instead.

For if encouraging home ownership is a key strategy to root Singaporeans to Singapore, then shouldn’t the Government be concerned about the increasing proportion of Singaporeans possibly finding homes less affordable?

Public housing here plays a different role from that in other countries, where it is often merely a roof for the poor. In Singapore, more than 80 per cent of the population live in HDB flats. These properties are seen not just as a store of value but also a source of retirement income.

To be fair, the HDB has to perform a delicate balancing act. It cannot lift the income ceiling by too much lest demand for resale flats collapse. This would depress the value of what, for many people, is their single biggest asset.

But perhaps the balance has now swung too far against the middle-income group.

It could have been something on the minds of policymakers when they recently decided to raise the income limit of families receiving aid for their children attending independent schools. From next year, the ceiling will be set at $7,200 monthly, almost double the current cap.

The HDB income ceiling question rings even louder these days as the Government looks at ways of getting its rapidly ageing population to save enough for retirement.

An obvious way of doing so is simply by not overspending on housing in the first place. And that can best be done when someone actually has the choice of buying the cheapest home available.

 

Source: The Sunday Times 9 Sept 07

Horizon Towers deal in limbo as sales committee quits

(SINGAPORE) The majority sellers of Horizon Towers were supposed to get together last night to resolve a problem, but things ended up being possibly worse.

The sales committee quit last night at the meeting held at Holiday Inn Park View Hotel, and even up to 11pm, no new committee had been formed, BT understands.

The majority sellers who arrived with their lawyers in tow were supposed to decide how to respond to a lawsuit which they face brought by Hotel Property Ltd (HPL), Morgan Stanley Real Estate managed funds and Qatar Investment Authority after the en bloc sale of their Leonie Hill property fell through last month.

The Strata Titles Board (STB) refused to grant a collective sale order, saying that Horizon Towers had filed a defective application. HPL and its partners are suing the majority sellers for failing to file a proper application.

HPL and its partners in February signed a deal with 84 per cent of the owners of Horizon Towers to buy the property en bloc for $500 million, for redevelopment. There have been media reports that some sellers regretted their decision to sell at that price when neighbouring developments later sold for twice as much per square foot.

Last night’s meeting plunged into limbo when the sales committee quit. Sellers who appeared at the meeting said volunteers were being asked to serve on a new sales committee, and that two men stepped forward on condition they would be granted blanket immunity from legal proceedings.

However, they did not get their condition, and no conclusion was reached.

BT understands that by the time the meeting started, there were only three people left on the committee as the other members had quit in the past weeks. This fails to meet the quorum needed of five people on the committee.

Throughout the meeting that started at 8pm and was scheduled to end by 11:59pm yesterday, groups of people and individuals were seen leaving the ballroom at different times to discuss and to smoke.

The meeting was tightly monitored by about six security officers who made sure only majority sellers were allowed into the ballroom. Applause interspersed with cheering was heard at different intervals of the meeting.

The majority owners whom BT spoke to estimated there were more than a hundred people who turned up.

They had a mixed response regarding the outcome. One man seemed upset that the sales committee had quit and said: ‘I don’t know what’s going to happen now. Who cares?’ Another seemed pessimistic about the chances of another committee being formed: ‘Who would want to be on the sales committee now with the threats of legal suits?’

At press time, the meeting was still going on, BT understands.

 

Source: Business Times 8 Sept 07

Wing Tai leads 800m yuan development in Chengdu

Consortium to carry out 900,000 sq ft project due for completion in 2011

A CONSORTIUM led by Wing Tai Holdings will develop an 800 million yuan (S$161.1 million) real estate project in Chengdu, China.

Under a memorandum of understanding that Wing Tai signed yesterday with China’s Chengdu Jinli Group, the consortium will own ‘more than 60 per cent’ of the joint venture, which means its investment will be at least 480 million yuan.

The project, in Chengdu’s city centre, will have a gross floor area of about 900,000 sq ft. It will comprise hotel/ serviced apartment, residential, office and retail space.

This is the consortium’s first move to create a real estate development and investment platform in China after it was set up earlier this year.

Wing Tai said in May that it would lead a multinational consortium to invest in and develop about US$1 billion of real estate in China.

The company entered into a strategic relationship with Germany’s SEB Immobilien-Investment, Forum Partners of the US and Israel’s Eilam Group.

The consortium said then that it would inject a total of US$450 million into the venture.

Wing Tai said that it will lead the consortium in identifying business opportunities and managing the venture and its assets.

It also said that the venture with the three investors is in line with its strategy to embark on a pan-Asian drive to increase its overseas earnings.

The consortium is now looking at other Chinese cities to expand into. The Chengdu project is expected to be completed in four years.

‘I am confident that we will successfully develop a premier real estate model that will serve and benefit Chengdu in its rapid economic development and growth as one of China’s leading cities,’ said Wing Tai chairman Cheng Wai Keung.

Wing Tai’s shares closed six cents higher at $3.36 yesterday. The stock has climbed 47.4 per cent this year.

 

Source: Business Times 8 Sept 07

Home shopping scales new heights

Two new stores widen consumers’ choices in picking the finest for their personal and office spaces as well as travels

FROM fashion, WingTai Asia Group subsidiary Wing Tai Branded Lifestyle has expanded into a retail segment that one would have expected it to move into much earlier.

As a leading Singaporean property developer, one would have thought that Wing Tai’s retail arm might have added furniture and home decor stores to its retail offerings long ago.

But better late than never, as they say. And now that Wing Tai Branded Lifestyle has stepped into this space, it’s not pulling any punches.

Zone Singapore is a one-stop store for home, bathroom, kitchen and office ware – the first franchise store in Asia for a Danish brand founded by Poul Jepsen.

Making its debut at Raffles City, the 2,500 sq ft store is set up to furnish all areas and rooms of a house. The 2,000-plus products are categorised into PersonalZone (bath accessories), LivingZone (living area), FoodZone (kitchen) and WorkZone (office).

Zone has teams of designers in Denmark, Hong Kong and China that conceptualise Scandinavian-style products.

The focus is on classic functionality and quality, says Mr Jepsen, who was in Singapore for the launch of the Raffles City store this week. ‘But we also want to reach out to the younger crowd, so there’s a variety of new materials used, like rubber and silicone.’

Mr Jepsen founded the brand in 1991, having grown up as part of a family with a homeware business.

Helen Khoo, executive director of Wing Tai Branded Lifestyle, says that Zone is an extension of the group’s lifestyle activities. ‘Shopping for the home has also become like buying fashion. Home furnishing is an expression of the owner’s personality. We had to look for the right partner to bring in – and Zone was just what we were looking for.’

Zone is run on a franchise basis, a proven and systematic retail model. ‘We’re not wasting a lot of time and effort reinventing the wheel,’ says Ms Khoo. ‘We just need to understand local consumers’ needs.’

Zone is distributed in the United States and some European countries and has standalone stores in Cyprus, Greece, Sweden, Bahrain, Dubai, Kuwait, Oman, Qatar and Hong Kong.

The company aims to have 100 stores by 2011.

In Singapore, Wing Tai Branded Lifestyle plans to set up three to five stores over the next two years, plus at least one in Kuala Lumpur by next year.

With products ranging from a slim satin-steel sugar dispenser at $12.50 to a saucepan with lid at $702 and a sevencm satin-steel York candlestick holder at $22 to a coconut designer vase at $162 as well as cotton washcloths at $8.50 to five-litre stainless steel pedal bins at $192, Zone is pretty much the equivalent of a high street fashion brand for homeware.

‘The choice of Zone as a partner reflects WingTai’s retail outlook,’ says Ms Khoo.

‘We started with mass brands that are affordable and accessible, like G2000, before we moved up the market to UK high street brands. Now, we’re concentrating on the mid to mid-high range of brands. We’re moving in sync with our property arm,’ which is now building luxury properties.

Mr Jepsen chose Wing Tai Branded Lifestyle as its local partner because of its retail experience.

‘We also prefer to partner with fashion retailers because they understand the way we display our products,’ he says.

‘Like fashion, we’ll have new products in the shop every month to create the demand among consumers.’

Zone is located at Raffles City, #03-25.

 

Source: Business Times 8 Sept 07

HK not hit by sub-prime woes: central bank

(HONG KONG) Information provided by locally incorporated banks indicates that their aggregate exposure to the US sub-prime mortgage market will not have systemic implications for Hong Kong’s banking sector, according to Hong Kong Monetary Authority chief executive Joseph Yam.

In his weekly Viewpoint column published on the Hong Kong central bank’s website on Thursday, Mr Yam said, however, that banks and other market participants should watch for risks and uncertainties.

‘Thanks in part to comparatively slower development of the credit derivatives market in Hong Kong, the risk arising from exposure to securities and credit derivatives with a sub-prime component is closely monitored by banks in Hong Kong,’ he said.

‘While some in the market are hoping for more government intervention in the form of interest-rate cuts or government-sponsored entities buying more mortgage-backed securities to keep the market going, others are projecting that the US mortgage credit quality will weaken further in the second half of 2007 or even well into 2008 as more sub-prime adjustable-rate mortgages reset to higher floating rates.’

He said the outcome of the sub-prime mortgage problem and its effect on the global economy are still unpredictable, and market participants should watch developments closely.

 

Source: Xinhua (Business Times 8 Sept 07)

Still no decision by Horizon Towers sellers as deadline looms

HORIZON Towers sellers met last night to discuss their next step in the face of a huge lawsuit from the developer which wants to buy the estate for $500 million.

The meeting ended late at night, with no decision made. The last three members of the sale committee resigned, after four other members resigned over the past week.

As next Tuesday’s deadline given by the would-be buyers looms, a range of sellers expressed their opinions on what step to take next.

One of the issues raised at the meeting was the need for more sale committee members.

The sellers’ meeting, held at the Holiday Inn Parkview, started half an hour late at 8.30pm. It was the second major meeting held after the developer sued 255 sellers for failing to go through with the deal.

Hotel Properties (HPL), Morgan Stanley Real Estate-managed funds and Qatar Investment Authority have been trying to buy Horizon Towers collectively for $500 million, a price inked in February.

But the sale hit a snag about a month back when the Strata Titles Board threw out the estate’s sale application because of a technical error over paperwork.

On Thursday, the buyers filed an affidavit in the High Court, which was served on some of the sale committee members yesterday morning. It claimed that some members had tried to scupper the collective sale by trying to get other majority owners to go back on their agreement to sell the property.

In mid-week, the buyers had sent a letter to all the sellers on a ‘without prejudice’ basis – delivered to their mailbox.

In the letter, they explained the situation they are in and urged the sellers to extend the sale deadline by four months to Dec 11.

The Horizon Towers sale application could be refiled if not for the Aug 11 deadline in the contract.

The buyers now allege the sellers did not do their utmost to get the collective sale order from STB.

‘There’s an obligation in law for them to use their best endeavours,’ said a lawyer. ‘Their best bet is therefore to reapply.’

If the sellers do not, they can fight the suit.

 

Source: The Straits Times 8 Sept 07

A Wall Street trader draws some sub-prime lessons

SO right after the Bear Stearns funds blew up, I had a thought: This is what happens when you lend money to poor people.

Don’t get me wrong: I have nothing personally against the poor. To my knowledge, I have nothing personally to do with the poor at all. It’s not personal when a guy cuts your grass: that’s business. He does what you say, you pay him. But you don’t pay him in advance: That would be finance. And finance is one thing you should never engage in with the poor. (By poor, I mean anyone who the SEC wouldn’t allow to invest in my hedge fund.) That’s the biggest lesson I’ve learned from the sub-prime crisis.

Along the way, as these people have torpedoed my portfolio, I had some other thoughts about the poor. I’ll share them with you.

1) They’re masters of public relations.

I had no idea how my open-handedness could be made to look, after the fact. At the time I bought the subprime portfolio I thought: This is sort of like my way of giving something back. I didn’t expect a profile in Philanthropy Today or anything like that. I mean, I bought at a discount.

But I thought people would admire the Wall Street big shot who found a way to help the little guy. Sort of like a money doctor helping a sick person. Then the little guy wheels around and gives me this financial enema. And I’m the one who gets crap in the papers!

Everyone feels sorry for the poor, and no one feels sorry for me. Even though it’s my money! No good deed goes unpunished.

2) Poor people don’t respect other people’s money in the way money deserves to be respected.

Call me a romantic: I want everyone to have a shot at the American dream. Even people who haven’t earned it. I did everything I could so that these schlubs could at least own their own place. The media is now making my generosity out to be some kind of scandal.

Teaser rates weren’t a scandal. Teaser rates were a sign of misplaced trust: I trusted these people to get their teams of lawyers to vet anything before they signed it. Turns out, if you’re poor, you don’t need to pay lawyers. You don’t like the deal you just wave your hands in the air and moan about how poor you are. Then you default.

3) I’ve grown out of touch with ‘poor culture’. Hard to say when this happened; it might have been when I stopped flying commercial. Or maybe it was when I gave up the bleacher seats and got the suite. But the first rule in this business is to know the people you’re in business with, and I broke it.

People complain about the rich getting richer and the poor being left behind. Is it any wonder? Look at them! Did it ever occur to even one of them that they might pay me back by WORKING HARDER? I don’t think so.

But as I say, it was my fault, for not studying the poor more closely before I lent them the money. When the only time you’ve ever seen a lion is in his cage in the zoo, you start thinking of him as a pet cat. You forget that he wants to eat you.

4) Our society is really, really hostile to success. At the same time it’s shockingly indulgent of poor people. A Republican president now wants to bail them out! I have a different solution. Debtors’ prison is obviously a little too retro, and besides that it would just use more taxpayers’ money. But the poor could work off their debts. All over Greenwich I see lawns to be mowed, houses to be painted, sports cars to be tuned up.

Some of these poor people must have skills. The ones that don’t could be trained to do some of the less skilled labour – say, working as clowns at rich kids’ birthday parties. They could even have an act: put them in clown suits and see how many can be stuffed into a Maybach.

It’d be like the circus, only better. Transporting entire neighbourhoods of poor people to upper Manhattan and lower Connecticut might seem impractical.

It’s not: Mexico does this sort of thing routinely. And in the long run it might be for the good of poor people. If the consequences were more serious, maybe they wouldn’t stay poor.

5) I think it’s time we all become more realistic about letting the poor anywhere near Wall Street.

Lending money to poor countries was a bad idea: Does it make any more sense to lend money to poor people? They don’t even have mineral rights! There’s a reason the rich aren’t getting richer as fast as they should: they keep getting tangled up with the poor. It’s unrealistic to say that Wall Street should cut itself off entirely from poor – or, if you will, ‘mainstream’ – culture.

As I say, I’ll still do business with the masses. But I’ll only engage in their finances if they can clump themselves together into a semblance of a rich person. I’ll still accept pension fund money, for example. (Nothing under US$50 million, please.)

And I’m willing to finance the purchase of entire companies staffed basically with poor people. I did deals with Milken, before they broke him. I own some Blackstone. (Hang tough, Steve!) But never again will I go one-on-one with poor people.

They’re sharks.

Michael Lewis is the author, most recently of ‘The Blind Side’, and is a columnist for Bloomberg News.

The views he expresses are his own.

 

Source: Business Times 7 Sept 07

HPL: Horizon Towers sales committee tried to scupper deal

(SINGAPORE) Several members of the Horizon Towers sales committee tried to scupper the en bloc sale by rallying the rest of the majority sellers into going back on their collective agreement, according to an affidavit filed in the High Court yesterday by the buyers.

The claim is one of several in the late-night filing made yesterday by Hotel Properties Ltd (HPL), Morgan Stanley Real Estate-managed funds and Qatar Investment Authority.

HPL and its partners had in February signed a deal with 84 per cent of the owners of Horizon Towers to buy the Leonie Hill property en bloc for $500 million. The sale fell through last month when the Strata Titles Board (STB) refused to grant a collective sale order, saying that Horizon Towers had filed a defective application.

HPL and its partners, through their lawyers Allen & Gledhill, are suing the majority sellers for failing to file a proper application.

In its affidavit – a copy of which was obtained by BT – HPL and its partners alleged that some members of the Horizon Towers sales committee tried to defeat the collective sale by encouraging the other majority sellers to go back on the agreement.

The affidavit said an anonymous circular was sent to all residents of Horizon Towers in late April. The circular said: ‘If enough like-minded owners rescind the agreement and the majority falls below 80 per cent, the application to the STB can be repealed . . . With cohesive cooperation, this movement can be successful.’

The circular included a blank ‘Letter to rescind participation in the collective sale agreement of Horizon Towers’ and urged owners to send their replies to two mailboxes – which the affidavit claims belong to two current members of the sales committee.

The affidavit also quoted from other anonymous flyers sent to the residents of Horizon Towers, which said the sellers were being paid a ‘paltry sum’ for their development.

HPL and its partners charge that some of the sellers want to back out of the deal because they were unhappy with the price offered for the development.

There had been several media reports that some sellers regretted their decision to sell Horizon Towers to HPL and its partners for $500 million, when neighbouring developments – such as The Grangeford – subsequently sold for double the per-square-foot amount.

The buyers’ case is that the majority sellers of Horizon Towers did not do their utmost to submit a proper application for a collective sale order to the STB.

They said the sellers filed the application only in April – two months after the deal was signed, and just four months ahead of the deadline for the completion of the sale. The buyers said this was a ‘breach of (the sellers’) express obligation to apply expeditiously for the collective sale order’.

They also claim the sellers were ambivalent about the dates for the STB hearing and were slow in releasing documents which the objectors – the minority sellers who objected to the en bloc sale – had requested.

This affidavit comes just ahead of a meeting today of all the majority sellers of Horizon Towers. They are meeting to decide how they should respond to HPL’s suit.

The sellers need to decide if they should accede to HPL’s demand that the sellers extend the deadline of the sale by four months, appeal against the STB’s decision and file a fresh application to the STB, if necessary. Alternatively, they can contest the suit.

 

Source: Business Times 7 Sept 07

JTC launches Tuas industrial site for sale after $5.9m bid

ON the back of good demand for industrial space, JTC Corporation yesterday launched a 235,400 sq ft land parcel at Pioneer Road/Tuas Avenue 11 for sale, and market watchers estimate that the site could fetch as much as $7.6 million – or $23 per square foot per plot ratio (psf ppr).

JTC launched the site after it received a bid of $5.9 million on July 18. Observers, however, said that the site could fetch more than the initial bid.

Savills Singapore’s director of industrial business space Dominic Peters pointed out that in February, an industrial site at Tuas Bay Drive/Tuas South Avenue 3 was awarded for $23 psf ppr. That site had a 60-year lease.

While the lease for the site launched yesterday is for 30 years, Mr Peters expects the site to fetch $20-23 psf ppr due to good demand. The price translates to between $6.6 million and $7.6 million.

‘We anticipate very strong demand from end-users,’ he said. Companies in certain sectors – such as oil & gas and construction – are doing well at the moment and could be interested in the site, he said.

The site has a 1.4 plot ratio, giving it a gross floor area of 329,600 sq ft. It is zoned for ‘Business 2′ use, which means it can be used for clean, light and general industrial purposes, and warehousing.

The land parcel was on the Reserve List before its sale was triggered by the $5.9 million bid. Now, it is being launched under the Confirmed List.

The government had previously announced that it will launch two industrial sites under the Confirmed List and seven industrial sites under the Reserve List in the second half of 2007 under its Government Land Sales programme.

The tender for the site will close at 11 am on Oct 18.

 

Source: Business Times 7 Sept 07

Fengshui defence helps couple avoid property deal tax

A COUPLE who were taxed on the profits they made on a property deal appealed – and have won their case against the taxman.

Their argument in this unusual case: they sold the apartment because of its bad fengshui.

Although Singapore does not have capital gains tax, which is charged on profits from the sale of assets, many people may not know that the Inland Revenue Authority of Singapore (Iras) can tax individuals it deems to have traded in property.

The couple found themselves in that situation.

But they appealed to the High Court, and Justice Judith Prakash accepted their contention that the 1993 sale of the Waterside condo was not a trade – they had been compelled to sell it.

It is believed to be the first time Singapore courts have accepted bad fengshui as a legitimate reason for a property sale in a tax case.

But Justice Prakash did not accept the couple’s reason for the sale of another property – a bungalow in Watten Close – which they said they sold after five months to avoid a lawsuit.

Under the Income Tax Act, profits made from property trades are taxable. The Act does not, however, define ‘trade’, but the courts consider a list of factors when assessing whether a transaction was a trade.

The criteria include the motive of the taxpayer, the length of ownership, reasons for the sale and whether the taxpayer has had many such transactions to his name.

In this current case, the couple bought eight properties and sold seven between June 1988 and March 1996.

In 1999 and 2000, Iras charged the couple tax on the Waterside apartment, the Watten Close house and two houses in Jalan Sejarah and Chatsworth Avenue.

They had made profits of over $1 million; the tax on that was about $250,000.

The couple asked Iras to review the case but this was rejected in July 2004. They next appealed to the Income Tax Board of Review on all except the Chatsworth Avenue purchase.

In December 2006, the board allowed their appeal on the Jalan Sejarah house but dismissed those on the Waterside unit and Watten Close house.

The couple then took the case to the High Court, which heard the case in May.

Their lawyer, Mr Nicholas Lazarus argued the couple had bought the properties as homes and sold them for non-commercial reasons.

A fengshui master had told them that the Waterside unit was bad for their careers and for the health of their unborn child.

As for the Watten Close house, the couple said they had a dispute with their renovation contractor, who threatened to sue them for breach of contract, so they hurriedly sold the house.

In her written judgment published yesterday, Justice Prakash said it was clear the couple were believers in fengshui, and noted that their case was supported by the fact that the money from the Waterside flat had gone into buying the Watten Close house.

But she rejected their explanation for the sale of that house as improbable.

Mr Lazarus, who has not decided whether his clients will appeal, said that this case was a timely reminder in the heat of the current property market: ‘The law has always been there, but newcomers in the market may be happily buying and selling without being aware of it.’

 

Source: The Straits Times 7 Sept 07

ECB, Britain’s central bank leave rates unchanged

This comes as US Fed pumps $48b into banking system to bring down lending rate LONDON – THE European Central Bank (ECB) and Bank of England (BOE) held interest rates steady yesterday, saying it was too soon to gauge the damage wrought by a global credit crisis.

The ECB also pumped 42.2 billion euros (S$87.6 billion) into money markets to lower borrowing costs and said there was more to come.

Across the Atlantic, the United States Federal Reserve added US$31.25 billion (S$47.8 billion) to the banking system, the most in almost a month, pushing down the overnight lending rate to the central bank’s target of 5.25 per cent.

The cash infusion was the largest since the Fed added US$38 billion in reserves on Aug 10.

After leaving euro zone rates at 4 per cent, ECB president Jean-Claude Trichet cast doubt on further increases, dropping his key phrase ’strong vigilance’ that he has consistently used to signal a looming hike and pledging to watch developments in turbulent financial markets closely.

‘Given the high level of uncertainty, additional information is needed before further conclusions for monetary policy can be drawn,’ he told a news conference.

The BOE left its rate at 5.75 per cent and issued a statement saying it was too soon to fathom the crisis’ impact on the British economy.

Before the liquidity crisis, stemming from mass defaults on US sub-prime mortgages, both central banks had been expected to tighten policy again.

‘Heightened concerns about a variety of asset-backed securities have led to disruption around the world, not only in markets for those financial instruments but also in money markets more generally,’ the BOE said.

‘It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households.’

On Wednesday, the BOE acted for the first time to temper sky-high money market rates, something which other central banks have been attempting for a month with limited success.

Mr Trichet said the ECB would hold an extra tender to allot three-month refinancing for euro zone banks on Wednesday to ease money market conditions, which have seen rates soar to a near six-year high above 4.5 per cent.

‘This operation aims to support a normalisation of the functioning of the euro money market,’ the ECB said in a statement.

The global credit squeeze remained as tight as ever.

Banks have shied away from lending over the past month, as they scrambled to calculate exposure to the US sub-prime mortgage sector.

Source: REUTERS, BLOOMBERG NEWS (The Straits Times 7 Sept 07)

En bloc sales slow to a trickle, may pick up later

Just one sale sealed in August, but some say lull presents a chance to buy

(SINGAPORE) After the breathless rush earlier in the year, there was just a single collective sale in August – that of Margate Mansion at a modest $58 million.

In contrast, the first seven months of 2007 saw a total of 62 collective sale transactions worth about $11.86 billion, based on industry figures compiled by Credo Real Estate. This reflects an average of around nine deals each month, worth almost $1.7 billion between them. The impact of the sub-prime mortgage woes in the US and the stock market rout that followed was obvious.

Credo managing director Karamjit Singh observed that the Singapore property market usually tends to take a breather in the third quarter.

But he expects the pace of collective sale transactions to pick up again in Q4 – assuming that the sub-prime crisis does not escalate further. Still, he does not expect activity to be as intense as in the first seven months of this year, before the current lull set in. ‘Any recovery in land buying would be resuming from a high base. Some developers have already bought sites, so their appetites are satiated and they would need to offload some new projects before they replenish their landbanks,’ Mr Singh added.

CB Richard Ellis executive director Jeremy Lake expects the number of collective sale transactions to average about two to three per month for the rest of the year. Contributing to this trend are high asking prices on part of the owners and upcoming changes to the en bloc legislation that could lengthen the gestation period before sites can be launched for tender.

Both Mr Lake and Mr Singh believe that benchmark prices may still be achieved for residential land in the months ahead. ‘The critical factor will be how the end-product market fares. If developers see strong home buying at their launches, they will keep replenishing their landbanks. If not, developers may be more selective about their land acquisitions,’ Mr Lake says.

DTZ Debenham Tie Leung director (investment advisory services) Shaun Poh reckons that over the next couple of months one is unlikely to see any benchmark residential land prices being achieved through en bloc sales. He felt that deals were likely to be in the $50 million to $100 million range and the buyers were likely to be smaller developers and contractors.

On a more positive note, Cushman & Wakefield managing director Donald Han felt that the current lull in the collective sales market presented buying opportunities. ‘For investors who’ve missed out on the action earlier, especially international funds, because the pace of transactions was too quick for them to do due diligence, this is the best time to come in and negotiate – on their (buyers’) terms,’ Mr Han added.

Credo’s Mr Singh noted that fundamentals in the property market were still very strong. ‘There’s still an undersupply situation, created by strong home buying since 2005 and exacerbated by the strong wave of en bloc sales which will cause a temporary withdrawal of supply as sites sold through collective sales are redeveloped.

International funds are still prepared to invest in Singapore property because this place seems to have some exciting years ahead,’ he said.

 

Source: Business Times 6 Sept 07

Economists hike growth forecasts to median of 7.5%

Distribution of forecasts skewed towards higher end of official 7-8% prediction

(SINGAPORE) Taking a cue from the government, private-sector economists have bumped up their forecasts of Singapore’s 2007 economic growth to a median of 7.5 per cent, with the most optimistic gunning for 8.1 per cent.

The 7.5 per cent forecast from 18 respondents to the Monetary Authority of Singapore’s quarterly survey of professional forecasters last month is 1.5 percentage points higher than the May poll’s results – and smack in the middle of the latest revised 7-8 per cent official growth forecast.

The 2007 growth forecasts from the latest MAS poll – which range from 6.7 to 8.1 per cent – are heavily skewed towards the high end.

The survey respondents put a near-50 per cent chance on the economy growing 7 to 7.9 per cent this year and a 23 per cent probability that growth will be in the 8 to 8.9 per cent range.

The economy grew 7.6 per cent in the first six months of 2007, and the forecasters expect the pace to continue in the second half.

The economists see third-quarter growth at a median 7.8 per cent, and fourth quarter at 7.6 per cent. Growth this year is expected to be driven by two resurgent sectors in particular – financial services and construction.

The forecasters see financial services growing a median 12.2 per cent in Q3 and 13.5 per cent year-round.

For construction, the estimates are a median 15 per cent growth, for both Q3 and year-round. The sector grew 17.6 in Q2, when overall GDP expanded a blistering 8.6 per cent.

Among other key indicators, the economists forecast inflation to come in at 1.5 per cent this year and the jobless rate to edge down to 2.5 per cent by year-end.

Next year, GDP growth is projected to moderate to 6.5 per cent. This too has been raised from an earlier estimate of 5.8 per cent in the previous survey. The economists reckoned that the Singapore economy will most likely grow between 6 and 6.9 per cent.

 

Source: Business Times 6 Sept 07

ExxonMobil backs S’pore with big bet

US$4 billion second cracker project will crank up petrochemicals output, export to China, India

(SINGAPORE) A giant petrochemical complex, whose significance to Singapore was highlighted by Prime Minister Lee Hsien Loong in the run-up to the last General Election, finally got the green light yesterday.

ExxonMobil’s second complex on Jurong Island will become operational in early 2011 and will export to booming Asian economies like China and India.

The new Singapore Parallel Train (SPT) complex – estimated to cost at least US$4 billion, or double that of ExxonMobil’s first 900,000 tonnes per annum (tpa) complex alongside it – will boast the largest single ethylene steam cracker here with capacity of one million tpa. Just six months back, rival Shell broke ground on its new 800,000 tpa cracker complex here and, between them, the two facilities could increase Singapore’s petrochemical output by 40 per cent when they are operational.

SPT will take ExxonMobil’s total investment in Singapore to around US$11 billion. The oil giant has already invested US$6.5 billion so far in its first petrochemical complex and its 605,000-barrel refinery here.

After detailed studies that started in June last year, Michael Dolan, president of ExxonMobil (EM) Chemical Company announced yesterday that the new project was ready to roll. Said Mr Dolan: ‘The project supports Singapore’s vision to be a global petrochemicals hub and enhances EM’s ability to meet increasing demand for our products in the region.’

The SPT investment was first mooted back in 2004 and, in the run-up to the last election, Prime Minister Lee had mentioned that global investors like EM would be reassured by Singapore’s stability before sinking their billions here.

The two new crackers by EM and Shell will eventually give Singapore a total of five crackers with a total capacity of 4.1 million tpa – more than half of Japan’s seven million tpa capacity.

‘The impact of Shell’s and EM’s crackers will be very significant,’ Aw Kah Peng, deputy managing director of the Economic Development Board, said. ‘Together, they will increase Singapore’s petrochemical output by 40 per cent when they are operational.’

This is considerable as in 2006, petrochemicals accounted for $22 billion of the total chemicals industry output here of $75 billion, she added.

Apart from the main cracker, EM said that SPT comprises six secondary plants and also significantly, its own dedicated 220 megawatt cogeneration unit, which EM will build, own and operate to supply electricity, and other utilities like steam and cooling water, to the complex. It is negotiating to buy gas from Borneo for its cogen plant.

The six downstream plants comprise two 650,000 tpa polyethylene units, a 450,000 tpa polypropylene unit, a 300,000 tpa specialty elastomers unit (its first in Asia), an aromatics extraction unit to produce 340,000 tpa of benzene and an oxo-alcohol expansion of 125,000 tpa.

These will produce a broad range of intermediates for industrial customers to convert to higher-value, end-products like plastics with elastic qualities, and also high-performance products for film applications in China and other parts of Asia.

EM officials earlier indicated that China would be a significant market. In the coming decade, some 60 per cent of the world’s petrochemicals growth will be in Asia, with China accounting for one-third of that. That is why EM is also building a joint venture petrochemical complex in Fujian to cater to this demand.

To kickstart SPT, EM has awarded the construction contract for the steam cracker recovery unit to The Shaw Group, and that for the steam cracker furnaces to Mitsui Engineering and Shipbuilding and Heurtey. Mitsui was also given the building contracts for the polypropylene and specialty elastomers units, while that for the two polyethylene units went to Mitsubishi Heavy Industries.

More than 10,000 workers will be employed on the project at the peak of construction, adding to the 6,000 to 8,000 people working on Shell’s Houdini project in 2008-2009.

‘We will manage the construction issues,’ an EM spokeswoman said, when asked if it anticipated building bottlenecks.

SPT will create 400 new plant and business positions, EM said. There will also be business spin-offs for SMEs, added EDB’s Ms Aw.

 

Source: Business Times 6 Sept 07

UK house prices rise for 8th month in a row: report

August average up 0.4% at £199,700, says lender HBOS

(LONDON) UK house prices rose for an eighth month in August, a sign that five interest rate increases have yet to curb demand for property, a report from HBOS plc showed.

The average cost of a home climbed 0.4 per cent last month to £199,770 (S$613,000), compared with 0.8 per cent in July, the UK’s biggest mortgage lender said in a statement on the Regulatory News Service. Prices rose 11.4 per cent in August from a year earlier, up from an 11.2 per cent annual gain the previous month.

The report adds to evidence of resilience in the property market as a shortage of housing offsets the impact of higher borrowing costs. The Bank of England may keep the key interest rate at a six-year high tomorrow as policy makers gauge the effects of previous increases and financial market turbulence on the economy.

‘A sound economic background, together with an on-going shortage of both new house building and secondhand properties for sale, should continue to support house prices,’ HBOS said.

The central bank, which announces its decision at noon in London today, will keep the key rate at 5.75 per cent, according to all 60 economists in a Bloomberg survey.

Prime Minister Gordon Brown is trying to spur home building after house prices tripled in a decade. Building stagnated at 148,000 new units a year on average between 1989 and 2005, down from a peak of 425,000 in 1968, government figures show.

Demand for property has yet to show signs of cooling. UK banks approved 115,000 mortgages for house purchase in August, more than economists forecast and the same as the previous month.

House price reports have been mixed. The cost of a home rose 0.6 per cent in August, up from a 0.1 per cent in July, Nationwide Building Society said last week.

Hometrack, a property research company based in London, said that prices stagnated for the first time in 20 months in August.

 

Source: Bloomberg (Business Time 6 Sept 07)

Property bubble may burst: Daiwa House

A concerned CEO of Japan homebuilder aims to cut costs and expand in China

(TOKYO) Daiwa House Industry Co, Japan’s second biggest homebuilder by market value, wants to cut local costs and expand in China as the developer is concerned a property ‘bubble’ may burst, slashing land prices.

‘The property market has become dangerous,’ Takeo Higuchi, chairman of the Osaka-based homebuilder, said in an interview. ‘I wouldn’t be surprised if the real estate bubble goes bust.’

Land prices are key for Japanese homebuilders like Daiwa House because declines in population are shrinking the residential construction market. Housing starts in the first half of this year averaged about 23,000 a month fewer than they did 20 years ago.

Daiwa House wants to build condominiums in China and Vietnam and is increasing sales of cheaper steel-frame homes in Japan. The company is also investing in energy and research into rechargeable batteries.

The Ministry of Health, Labour and Welfare in December predicted Japan’s population would drop to 95.2 million by 2050 from 127.8 million in 2005 because people are marrying later in life and having fewer children. That compares with a January 2002 forecast for a 21 per cent decline in the population to 100.6 million by 2050.

The homebuilder’s overseas expansion plan is a positive move, considering the shrinking market at home, said Yoji Otani, an analyst at Credit Suisse Group. Even so, it may be difficult for Daiwa House to meet the needs of consumers in foreign markets, he said.

‘Homes are a highly local product,’ Mr Otani said. ‘It may be risky for a foreign builder to expand broadly into another country’s market.’

Annualised housing starts fell 23 per cent in July from a year earlier to 947,088, after surging 6 per cent to 1.35 million in June after changes to construction laws prompted companies to apply for building permits the previous month. Under the new rules, approvals can take as many as 70 days, compared with 21 days before the change.

Daiwa House, whose shares have dropped 27 per cent this year, plans to spin off a real estate investment trust (Reit) within a year as Japan’s real estate market rebounds from a 15-year slump.

The Reit will contain 100 billion yen (S$1.32 billion) worth of properties, including warehouses, rental apartments and commercial buildings, Mr Higuchi said. The properties will be mainly located in Tokyo, Osaka and Nagoya.

Japan’s land price growth quickened last year to 8.6 per cent from 0.9 per cent in 2005. The gain was the fastest since the National Tax Agency started to compile national land figures. The rapid gain in land prices has become worrisome for Daiwa House, Mr Higuchi said.

Osaka’s Midousuji, one of the city’s main streets for office centres, experienced the most rapid growth, with prices soaring 40 per cent to 6.96 million yen per square metre, the tax agency said on Aug 1.

Daiwa House forecasts profit will surge 25 per cent to 58 billion yen for the year ending March 2008, as sales are expected to advance about 5 per cent to 1.7 trillion yen.

The company is cutting costs by increasing sales if its ‘xevo’ line of two-story, steel-framed houses.

The company plans to sell 1,200-1,300 xevo houses a month this year, exceeding an earlier goal for 1,000 a month.

From next year, Daiwa House expects all of the new homes it sells to be based on xevo frames, up from about 85 per cent now, Mr Higuchi said.

Daiwa House will next month start selling 830 apartments in the seaport of Dalian, north-east China. The developer also plans to build 10 condominiums with 1,200 units in Suzhou, near Shanghai, seeking to meet its two trillion yen sales goal by 2010.

In Vietnam, Daiwa House plans to build 200 units of rental apartments near Japanese schools in Hanoi by 2010.

‘In the long run, it is impossible to achieve such growth if we only focus on the Japanese market,’ Mr Higuchi said.

The company is also looking to expand into energy. Daiwa House bought 52 per cent of Eneserve Corp, which makes electricity generators, for 2.51 billion yen in April.

In addition, it has invested an undisclosed sum in research on lithium-ion batteries, a type of rechargeable battery commonly used in consumer electronics, for residential usage to combat carbon emissions contributing global warming.

The homebuilder plans factories in the Tokyo and Osaka regions and may start producing rechargeable batteries for properties by 2009.

Daiwa House also plans to start producing power- assisted walking devices for the disabled from next year, Mr Higuchi said.

 

Source: Bloomberg (Business Times 6 Sept 07)

LATEST US DATA – US home sales dip; layoffs worsen

Reports show that labour market is cracking: analyst

(NEW YORK) Pending sales of previously owned US homes plunged 12.2 per cent in July and planned layoffs by US companies surged 85 per cent in August due to turmoil in the sub-prime mortgage market, independent reports showed yesterday.

Also, employers added jobs at the slowest pace in four years in August, according to a separate private report.

Together, the data raised expectations of a weak employment from the government tomorrow and added to the view that the Federal Reserve could lower its overnight benchmark interest rate at its Sept 18 monetary policy meeting.

The National Association of Realtors’ Pending Home Sales Index, based on contracts signed in July, fell to a reading of 89.9, the lowest since September 2001 when the index stood at 89.8.

The association attributed some of the decline to mortgages falling through at the last moment.

The fall was much bigger than the 2 per cent decline in the index economists were expecting for July and helped paint a bleaker picture of the housing market moving forward.

‘The decline in the pending sales index in the past three months has been by far the fastest at any time since the housing market began to slow,’ said Ian Shepherdson, chief US economist at High Frequency Economics in Valhalla, New York. ‘This is disastrous.’

Stocks weakened following the data, with the Standard and Poor’s 500 index and the Dow Jones industrial average both falling more than one per cent in late morning trade.

The US dollar tumbled, falling more than one per cent against the yen and dipping against the euro. US government bond prices rose sharply.

Mortgage market troubles also played a big role in announced layoffs in August, which rocketed to 79,459 from 42,897 in July, according to Challenger, Gray & Christmas Inc, an employment consulting firm. August’s job cuts were the highest since February, when they totalled 84,014.

‘Nearly half of the August cuts came from the financial sector, as dozens of mortgage and sub-prime lenders caved under the pressure of a sinking housing market,’ Challenger, Gray & Christmas said in a statement.

Financial job cuts totalled 35,752 in August, the highest monthly total for the industry since Challenger, Gray & Christmas began tracking in 1993, the firm said.

Separately, a report from ADP and Macroeconomic Advisers LLC showed that US private employers added 38,000 jobs in August, well below the 83,000 that analysts had expected and the slowest rate of growth in four years.

July’s private sector job growth was revised downward to 41,000 from the originally reported 48,000 jobs.

‘In short, evidence is starting to emerge that the labour market is finally cracking,’ said Mr Shepherdson.

Economists reckoned the Fed will not cut interest rates until signs of stress emerge in the labour market, which has remained relatively tight despite the slowdown in the housing market.

According to the latest Reuters poll of economists, the US Labour Department is expected to report tomorrow that 110,000 non-farm payroll jobs were created in August, down from 92,000 in July