Housing crisis heats up White House race

Bush sees limited govt role but rivals say more to be done

(WASHINGTON) The maelstrom engulfing the US housing market and threatening to throw millions onto the streets is moving up the agenda in the race for the country’s most prestigious address, the White House.

US President George W Bush unveiled last Friday measures to help some Americans keep their homes during a credit crunch that has up-ended financial markets, saying that it was a top priority.

He acknowledged that there had been ’some excesses’ in the lending market that helped fuel the nation’s housing boom in the early 2000s.

But he insisted that the federal government has only a ‘limited’ role to play in helping millions of people now struggling to hold onto their homes amid rising interest rates.

‘It’s not the government’s job to bail out speculators. Or those who made the decision to buy a home they knew they could never afford,’ he said.

However, his view is not shared by many of the candidates eyeing his job in the November 2008 presidential elections. The crisis, fuelled by the so-called sub-prime mortgages granted to those with risky credit histories, attacks the heart of the American dream of home ownership.

Democratic Party presidential hopeful Barack Obama warned in the Financial Times last week that it was ‘more than a temporary blip in our economic progress, it is a cancer that threatens to spread with devastating impact to housing and to our economy as a whole’. He proposed that unscrupulous lending companies should be penalised and that borrowing criteria should be standardised.

Former Democratic senator John Edwards has proposed setting up a national fund which would allow those property owners facing foreclosure to refinance their loans without losing their homes.

And former Cleveland mayor Dennis Kucinich, also running for president, has been scathing in his attacks on mortgage lenders snaring vulnerable clients by offering low-interest rates which soar after an initial introductory period.

Christopher Dodd, another Democratic hopeful, urged the Federal Housing Administration to take action after talks with Treasury Secretary Henry Paulson and the Federal Reserve chairman, Ben Bernanke.

In Mr Bernanke’s first speech since the global markets were roiled by fears of a housing-sparked liquidity crisis, he said that the Fed wanted to avoid ‘further tightening of credit conditions’, which could have ‘adverse effects on consumer spending and the economy more generally’. Markets viewed the chairman’s remarks as opening the door to a potential rate cut that could lower overall borrowing costs and stimulate frozen credit markets.

As for the leading Democratic favourite, New York Senator Hillary Clinton, she has urged that borrowers be given access to expert advice on mortgages and their risks.

Republican candidates have been less ambitious in their proposals. Former Massachusetts governor Mitt Romney said that the ‘bad actors’ in the crisis should be punished and lending procedures simplified so borrowers know exactly what they are getting into. Former New York mayor, Rudolph Guiliani, who leads Republican hopefuls in the polls, was even more cautious about any government intervention. ‘Let’s get ourselves through this first, then take a look back and see what more could be required,’ he told CNN recently.

 

Source: AFP (Business Times 3 Sept 07)

Sub-prime will hit global economy: bank CEO

(FRANKFURT) Global economic growth will take a hit as a result of the US sub-prime mortgage crisis, says the chief executive of Deutsche Bank, Germany’s biggest bank.

‘Growth, especially of private consumption in the United States, will suffer because of the housing crisis and that can naturally not go without negatively affecting the world economy overall,’ Josef Ackermann said in a guest column to be published in the German business daily Handelsblatt today. The daily made a summary of the column available to other media at the weekend.

Mr Ackermann said that many banks and investors affected by the credit market turmoil that arose in the wake of the sub-prime crisis had apparently taken risks that exceeded their size and risk-bearing capacity.

‘This is, to say it clearly, above all negligence on the part of the managements of these houses,’ he said. The distribution of credit risks in the international financial system had not been transparent to supervisory authorities and market participants, Mr Ackermann said.

Deutsche Bank has shut down its proprietary credit trading desk in London and is laying off some of the 14-strong team, a source familiar with the matter said on Friday.

Earlier last month a source close to Deutsche Bank told Reuters the bank was set to ditch its credit relative value trading strategy used by the London proprietary trading desk after losses of about US$135 million.

Deutsche Bank has declined to comment.

Two German banks, SachsenLB and IKB, have been bailed out after running into trouble due to their exposure to US sub-prime mortgages.

 

Source: Reuters (Business Times 3 Sept 07)

Harvard economist warns of recession, urges rate cut

FED CONFERENCE

Key rate slash to shield US economy from sub-prime fallout: Feldstein

(JACKSON HOLE, WYOMING) Harvard University economist Martin Feldstein said that the United States housing slump threatens a broader recession, and the Federal Reserve should lower interest rates.

‘The economy could suffer a very serious downturn,’ Mr Feldstein, head of the group that charts America’s business cycles, told a Fed conference here on Saturday. ‘A sharp reduction in the interest rate, in addition to a vigorous lender-of-last-resort policy, would attenuate that very bad outcome.’ Mr Feldstein made a case for lowering the overnight lending rate between banks to 4.25 per cent from 5.25 per cent to cushion the economy from the fallout of defaults on sub-prime mortgages.

Chairman Ben Bernanke told the same gathering on Friday that the Fed will do what’s needed to stop this month’s credit-market rout from ending the six-year expansion.

Lowering interest rates may result in a ’stronger economy with higher inflation than the Fed desires’, a situation that Mr Feldstein described as the ‘lesser of two evils’.

‘If that happens, the Fed would have to engineer a longer period of slow growth to bring the inflation rate back to the desired level,’ said Mr Feldstein, 67, president of the National Bureau of Economic Research (NBER).

Some investors speculated that Mr Feldstein was a candidate for Fed chairman before Mr Bernanke was picked to succeed Alan Greenspan. Mr Bernanke wasn’t in the room for Mr Feldstein’s speech, though most other Fed officials were, along with central bankers and economists from around the world who travelled to the annual mountainside conference hosted by the Kansas City Fed bank.

‘Marty is a guy of good judgment,’ said former Fed governor Lyle Gramley, who attended the event. ‘Everybody in the room recognises that. Everybody, including the people at the Fed, will think carefully about what he said.’

The US economy expanded at a 4 per cent annual rate in the second quarter, the fastest pace in more than a year, before turmoil in the credit markets forced the Fed to warn in an Aug 17 statement that risks of slower growth had increased ‘appreciably’.

Already, some indicators are suggesting a weakening economy. First-time applications for jobless benefits rose to the highest level since April in the week ended Aug 25. Property values in 20 metropolitan areas fell 3.5 per cent in June from a year earlier, according to an Aug 28 report by S&P/Case-Shiller.

The economy was last in recession from March to November 2001, according to NBER. Mr Feldstein outlined a ‘triple threat’ from housing: a ’sharp decline’ in home prices and construction; higher borrowing costs and a ‘freeze’ in credit markets stemming from sub-prime-mortgage losses; and fewer home-equity loans and refinanced mortgages, leading to less consumer spending.

Investors expect the Fed to cut the federal funds rate on overnight loans between banks to 5 per cent on Sept 18 and at least another quarter-point by year’s end. The central bank has left the rate at 5.25 per cent since June 2006 after raising it from one per cent over a two-year period.

Mr Gramley, a senior economic adviser at Stanford Group Co in Washington, said he was surprised by the gloominess of Mr Feldstein’s 25-minute speech, which capped a conference where many participants were pessimistic.

Kansas City Fed President Thomas Hoenig, speaking briefly after Mr Feldstein, said that the symposium gave him and probably his colleagues ‘a lot of useful information to use as we deal with some difficult issues that confront us all’.

Earlier in the day, Fed Governor Frederic Mishkin presented a paper in which he said that US banks can cope with ’stressful’ conditions and that the financial system is in ‘good health’ even with the disruptions of the mortgage market.

Mr Feldstein had said in an interview on Friday that there is a ’significant risk’ of a downturn and urged the Fed to cut borrowing costs.

 

Source: Bloomberg (Business Times 3 Sept 07)

Wild ride for investors ahead: analysts

WALL STREET INSIGHT

But they expect rally once sub-prime uncertainty clears

IN NEW YORK

ON Wall Street, stock market analysts and money managers see stocks ready to register gains once the considerable cloud of dust kicked up by the turmoil in the world’s credit markets sparked by the sub-prime mortgage market settles in the weeks ahead.

But stock traders warned that investors should prepare themselves for potentially huge short-term dips and advances as the market reacts to a steady stream of data leading up to the all-important meeting of the Federal Reserve’s interest rate policymaking committee on Sept 18, which will coincide with the beginning of a pivotal third quarter earnings reporting season.

‘The only thing I’m ready to predict for this month is a wild ride for investors,’ said Hugh Johnson, chief investment strategist of Johnston Illington Investors.

The US stock market’s performance last week could have been a microcosm for the entire summer. Huge ups and treacherous downs leaving the major stock indexes, in the end, pretty much at the same point at which they started the week off.

‘There’s an old saying on Wall Street: go away in May, don’t buy until Labour Day,’ observed Joe Battipaglia, the chief investment strategist at Ryan & Beck, who has seen more than his share of stock market gyrations, volatile markets, bull runs and short term meltdowns over more than 30 years of stock market forecasting.

‘And if investors had followed that rule, they’d have made themselves some very nice returns from the beginning of the year, and be in a situation to enjoy what I think will be a strong run sometime this fall, once the uncertainty over the credit market meltdown, how it’s affecting the economy, and what the Fed will do in response, calms down,’ he said.

Mr Battipaglia’s prognosis sounds simple enough, but investors probably will have several more weeks of the kind of volatility witnessed throughout the summer months and typified in last week’s often frantic trading action, before answers to those three key questions become clear.

The market remains on the edge, poised to either jump in with both feet and start a buying frenzy like the one witnessed following the late February plunge, which eventually sent the Dow to new record highs in July; or to cut and run, pull money out of the market at the dizzying pace seen in August’s sell-off, which brought the stock indexes to the brink of a full-blown bear market.

‘It’s going to be a wild and crazy September,’ echoed Joe Kalinowski, chief investment strategist at Grace Financial.

‘You’re going to see a lot of speculative buying and selling until the dust clears on the economy.’

September is known as the worst month of the year for stocks, with the Dow losing an average of 1.2 per cent for the first month of fall since 1929, and it could happen again if the Fed does not act to cut rates, as the investment community is clearly expecting at this point. The Federal Open Market Committee convenes on Sept 19.

Speculation over the likelihood of the first cut in the Federal funds rate has been running hot and heavy since the Fed took the unusual action of raising the discount rate target by 50 basis points two weeks ago in order to keep liquidity from drying up in the credit markets and to reassure the world that it would not allow the financial system to be plunged into chaos by the greed and speculative behaviour that led to the sub-prime mortgage crisis, which has spread to all financial markets.

On Friday, Fed chairman Ben Bernanke’s much-anticipated comments at a conference in Jackson Hole only stoked those expectation to a higher degree. ‘Everybody thinks they heard what they wanted to hear from Bernanke,’ said Mr Kalinowski. ‘Bernanke said the Fed would not let the credit crisis spread to the economy. The market took that to mean he’s more than likely to cut rates at the Sept 18 meeting,’ he said.

Indeed, investors responded strongly to Mr Bernanke’s speech, sending the Dow Jones Industrial Average soaring 119 points, or up 0.9 per cent to 13,357.74. It was a broad-based rally, too: of the Dow’s 30 components, 27 finished higher. The S&P 500 rose 16.35 points, or 1.1 per cent, to close at 1,473.99. The Nasdaq closed up 31.06 points or 1.2 per cent, at 2,596.36.

For the week, the blue chip index advanced nearly 1.2 per cent while the S&P 500 finished with a loss of 0.4 per cent, and the Nasdaq gained 0.7 per cent.

All three indexes registered gains of more than one per cent for the month of August, with the S&P 500 leading the way with a 1.28 per cent gain. The Dow and the Nasdaq posted 1.1 per cent advances.

The coming holiday-shortened week will get off to a fast start for traders coming off their Labour Day break, concerns over the credit crunch and its effects on the economy remaining front and centre.

Tomorrow, the Institute for Supply Management’s August manufacturing index will be released. That will be followed two days later by the ISM services index, which gives a similar snapshot of the non-factory sector. ‘These are both important and timely indicators and are some of the earliest readings on economic activity for August and do include the period of market turmoil,’ said Joel Naroff, president of Naroff Economics.

Exactly how much the real economy has been affected will have a direct bearing on the Fed’s interest rate decision at its Sept 18 meeting. The Fed funds futures market is pricing in a 100 per cent chance of a quarter-point cut, with another quarter-point cut expected by year-end.

The credit markets will also face a big test starting tomorrow, when investment bankers will be looking to finance several major buyouts, including the US$26 billion buyout of First Data Corp by Kohlberg, Kravis, Roberts.

‘If that deal goes smoothly, it could give a big boost to the credit market and would be a step in the right direction of reassuring investors that liquidity is not still in crisis,’ said Mr Johnson.

 

Source: Business Times 3 Sept 07

DC rates hoisted by as much as 112%

Average rate raised by 58% for non-landed residential use, and 42% for commercial use

(SINGAPORE) The government yesterday announced what is possibly the sharpest hikes in development charge (DC) rates, which are payable for enhancing the use of some sites or building bigger projects on them.

The Ministry of National Development (MND) cited the rise in market values as the reason for the increases.

On average, the DC rate for non-landed residential use was raised by 58 per cent and that for commercial use by 42 per cent. The average DC rate was also increased 23 per cent for hotel use, 11 per cent for landed residential use, and 2 per cent for industrial or warehouse use.

But the escalations were much bigger in certain locations – as high as 112.1 per cent for non-landed residential use in the Everton/Spottiswoode Park vicinity and 104.5 per cent for commercial use in the Maxwell Road/Telok Ayer St and Anson Road areas, based on Jones Lang LaSalle’s analysis.

The latest increases, which take effect today, are in addition to the 40 per cent across-the-board appreciation in DC rates announced on July 18 arising from a change in formula for computing DC.

While yesterday’s increases look steep, they did not surprise most market watchers given the substantial appreciation in land values over the past six months.

As to whether the latest hikes will further slow en bloc sales, which have decelerated lately as developers become more cautious about land-banking amid the stock market rout and credit tightening fears, property agents offered a range of views.

Credo Real Estate’s managing director Karamjit Singh estimates that probably only about 20 to 30 per cent of all collective sale sites have substantial DC components amounting to 10 per cent or more of total land value. ‘For many of these sites with high DC component, the increase may have been anticipated and priced in, so things can move on. For those that haven’t, their progress for an en bloc sale could be affected if owners are unwilling to lower their price expectations.’

Jones Lang LaSalle’s regional director and head of investments Lui Seng Fatt too said: ‘Despite the stellar increases in DC rates, the impact of the DC hike on en bloc residential developments remains marginal on most sites, especially freehold sites. Some leasehold sites with substantial DC components, however, may feel the heat.’

CB Richard Ellis executive director Li Hiaw Ho said the hikes will to ‘a small extent, slow down collective sales’.

‘Coupled with homeowners’ expectations of high prices for their properties, developers might not be as aggressive in acquiring sites,’ he added.

Colliers International’s director for research and consultancy Tay Huey Ying said two rounds of DC hikes in July and September, and global credit tightening, will likely lead to more cautious bidding by developers and more realistic price expectations by sellers.

Ms Tay said that increases in land prices may not be as phenomenal in the coming six months compared with the past six months. ‘But demand for development land should stay healthy as the end-market for residential property is expected to remain healthy on the back of strong economic prospects,’ she added.

Analysts noted that in any case, the supply of collective sale sites will slow due to impending changes to en bloc sale rules requiring more safeguards and procedures.

DC is specified according to use groups and is listed by 118 geographical sectors or locations across Singapore.

The 112 per cent hike in non-landed residential DC rates in the Everton/Spottiswoode Park area was attributed by most analysts to the Spottiswoode Apartment and Oakswood Heights collective sales in April and June at $732 psf per plot ratio and $740 psf ppr respectively – more than twice the land value of $307 psf ppr implied by the July ‘07 DC rate for the location.

And the DC rate hikes of 107.5 per cent each in the Newton/Surrey/Lincoln roads and River Valley/Jalan Mutiara areas were attributed to the collective sales of Lincoln Lodge for $1,449 psf ppr, and Bishopswalk for $1,544 psf ppr respectively, which are about three times the $492 psf ppr land value implied by the July ‘07 DC rate for the locations.

The Maxwell Road and Anson Road areas topped the increases for commercial use with gains of 104.5 per cent each, likely due to prices achieved at two recent state tenders for commercial sites at Anson Road. The same two locations also recorded the biggest increases in hotel use rates, at 66.7 per cent each, and again, this was probably due to two hotel sites at Gopeng Street and Tras Street sold by the state at significantly higher land values than implied by July DC rates.

As for industrial DC rates, the highest increase of 15.8 per cent was for the Pasir Panjang/Science Park area, followed by 11.1 per cent hikes in 15 other locations including Henderson Industrial Park, Bukit Merah View, Redhill and Hoy Fatt Rd/Alexandra Road, according to JLL’s analysis.

 

Source: Business Times 1 Sept 07

TAKING STOCK – Market lifted by hopes US mortgage crisis will ease

Bush, Bernanke seen taking steps to help sub-prime creditors pay their mortgages THE local bourse yesterday shrugged off losses on Wall Street to post strong gains amid hopes that United States authorities would soon tackle the sub-prime mortgage crisis.

The Straits Times Index (STI) surged 71.76 points, or 2.1 per cent, to 3,392.91 points, helped in large measure by the three local banks’ solid rises.

The surge came despite the Dow Jones Industrial Average’s fall of 50.56 points to 13,238.73 points on Thursday.

Investors are hopeful a speech by US Federal Reserve chairman Ben Bernanke, due last night, and moves by US President George W. Bush will ease the crisis that has rocked markets.

President Bush is set to announce plans to help US home owners with sub-prime mortgages pay their loans, The New York Times reported.

Analysts said moves like these helped push up the local market yesterday. Another possible factor for the sharp uptick was month-end ‘window-dressing’, when fund managers tidy up their portfolios.

The local benchmark index hit an intra-day high of 3,399.35 points in early afternoon trading before declining.

Just before the close, however, a sharp spike in the index brought it to within points of its intra-day high.

Despite the strong STI upswing, volume was thin – at only 1.93 billion shares, down from 2.49 billion shares on Thursday.

The value of the shares was higher, though, at $2.39 billion, compared with $1.99 billion the previous day.

Dealers said retail investors stayed on the sidelines. Trading activity was largely confined to traders and investors who were ‘bottom-fishing’ for bargains.

‘With the lack of liquidity, it is easy for the index to move up or down,’ said one.

DBS Group Holdings rose 50 cents to $20, likely buoyed by a Standard & Poor’s report that its exposure to collateralised debt obligations is unlikely to affect its ratings.

Other banking stocks also enjoyed a reprieve. United Overseas Bank rose 50 cents to $20.80, while OCBC Bank improved 10 cents to $8.55.

SingTel rose 10 cents to $3.64 and contributed 10.3 points to the STI’s rise.

On the economic front, there was good news on tourist arrivals, with Singapore receiving 951,000 visitors in July, up 4 percent from a year earlier and a record number for any month.

Labroy Marine continued its slide, after CLSA raised concerns over its head of rig building, Mr K.K.Ng, moving to a business development role. It fell four cents to $1.98.

The usual suspects featured on the top volume list. Centillion was unchanged at 11 cents, with a volume of 128 million shares. Genting International was also unchanged at 63.5 cents with 108.2 million shares.

Construction company Yongnam Holdings rose two cents to 43.5 cents, while Liang Huat Aluminium was two cents weaker at seven cents. Volume was 58.5 million shares.

 

Source: The Straits Times (1 Sept 07)

Home owners’ compensation is a legal right

BEIJING – CHINA’S real estate law has been amended to ensure home owners will be compensated for property taken from them by the government.

Parliament voted on Thursday to add a clause to the law regarding the expropriation of buildings in the public interest while promising compensation to owners, the Xinhua news agency reported yesterday.

The new clause also underscores protection of legal rights of the owners and guarantees concerning residence conditions for private owners after their resettlement, it said.

Analysts said the amendment was the first time that the compensation of house owners was mentioned in the real estate law, whereas before it was only mentioned in less authoritative administrative rules.

‘Writing (the compensation clause) into the law will ensure the local governments and authorities will respect it more,’ said Mr Sun Cunxin, a lawyer at the Beijing Hengsheng Law Firm.

China has struggled to control mushrooming illegal land seizures and development, typically caused by the collusion of business interests and local officials.

The country sees regular protests by farmers and other citizens angered by having their land snatched at cutrate prices or seized outright.

Reflecting the saliency of the issue, the Property Law, which guarantees protection for the state-owned, the collective and the private sectors, triggered unprecedented debate before being passed by the legislature in March.

It went through a record 13 years of debate, passed seven readings and had been the subject of criticism and proposals from 47 government departments and 11,500 members of the public.

Old-school Marxists have been its fiercest opponents, arguing that the law is a sell-out, pushing China dangerously close to capitalism.

Source: AGENCE FRANCE-PRESSE (The Straits Times 1 Sept 07)

Outsourcing firms on edge as sub-prime crisis buffet US clients

Fallout for now limited to those that process mortgages

(BANGALORE) Indian outsourcing firms nervously hope the US loan crisis does not deteriorate as the business of processing mortgages in their biggest market dries up and some clients keel over.

Firms such as iGate Global Solutions and WNS that serviced American mortgage lenders are already feeling the impact of the crisis, which a US survey this week called the biggest short-term threat to the world’s largest economy.

India’s outsourcing industry is now worrying about the crisis impact and a possible slowdown in the US economy on technology budgets of banking, financial services and insurance clients that farm out work to India to cut costs.

‘The impact is now limited to individual companies that had a reasonable amount of mortgage servicing business,’ said Kiran Karnik, president of the National Association of Software and Services Companies.

‘We are hoping that it will blow over soon, but if the ripples travel to other areas of the US economy, it could be bad for the industry,’ Mr Karnik said on Wednesday.

Processing loan mortgages during the US housing boom was a profitable line of business for pure-play outsourcing firms that logged 47 per cent growth to 209 billion rupees (S$7.8 billion) in revenue during the year to March.

The mortgage business has virtually dried up as US financial firms try to weather the sub-prime crisis, caused by defaults on loans made to home buyers with patchy credit histories, by staunching credit.

‘In the US, sub-prime loan originations have almost ceased and, consequentially, the demand for origination services has dropped,’ said N Ramachandran, chief financial officer at iGate Global Solutions.

The company’s revenue from mortgage servicing fell to 7 per cent of sales for the three months ended June 30 from a peak of 10 per cent for the previous quarter, he said.

‘That said, these revenues continue to be at risk due to the ongoing sub-prime market turmoil,’ Mr Ramachandran said, adding that iGate had assigned other duties to about 100 employees that used to process mortgages.

The outsourcing arm of Infosys Technologies, India’s second-biggest software maker, and iGate Global Solutions, both based in Bangalore, lost a major client when GreenPoint Mortgage was shut down by parent Capital One Financial Corp.

Mumbai-based outsourcer WNS said last month that it expected to lose business from US mortgage firm First Magnus Financial, which had been expected to contribute 5 per cent of its revenue for the nine months ending next March.

First Magnus has filed for bankruptcy, forcing WNS to assign other duties to about 500 staff, a press report said on Wednesday.

Software firms such as Infosys are better protected from the US loan market turmoil than companies that earn revenue from back-office services such as transaction processing and risk management.

Still, any US slowdown would hit the entire information technology industry, which earns two-thirds of its US$50 billion annual revenue from the US.

‘We have been speaking to our clients, economists and financial analysts every 15 days,’ said Infosys chief executive officer Kris Gopalakrishnan.

‘There have been concerns of a slowdown in the US economy for two quarters . . . but our clients do not anticipate an actual slowdown,’ he said.

Clients concerned about declining profits tend to initially cut costs, including on outsourcing, but will farm out more work over the ‘medium term’ as they try to increase revenue, Mr Gopalakrishnan said.

Some outsourcing companies scent an opportunity in the crisis.

Quatrro BPO Solutions last month paid an undisclosed amount to acquire the mortgage processing business of USbased Preferred Financial Group.

 

Source: AFP (Business Times 1 Sept 07)

Fed ready to act to limit damage from sub-prime: Bernanke

But Fed chief gives no clear signal for interest rate cut at next meeting on Sept 18

(JACKSON HOLE, Wyoming) Ben Bernanke, chairman of the Federal Reserve Board, declared yesterday that the central bank ’stands ready to take additional actions as needed’ to prevent the chaos in mortgage markets from derailing the broader economy.

Mr Bernanke offered no explicit hint that the central bank will reduce the benchmark federal funds rate at the next policy meeting on Sept 18, and his remarks suggested that the Fed was unlikely to take any action before that date unless economic conditions deteriorate.

But he said nothing to dissuade investors from expecting a rate cut at that meeting, and financial markets have been betting on the near-certainty of such a move ever since the Fed took a partial step on Aug 17 of reducing its discount rate, which applies to emergency short-term loans to banks.

In anticipation of the speech, Wall Street rallied, with the Dow Jones industrial average jumping as much as 140 points.

Once Mr Bernanke’s remarks were released at 10 am, investors trimmed those gains slightly. But all three major American stock indexes remained up nearly one per cent at 11 am.

In the long-awaited speech, his first since the nation’s credit markets began to seize up several week ago, Mr Bernanke made it clear that the Fed’s decision to cut interest rates will heavily depend on what happens to the housing and housing finance.

‘Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the rest of the economy,’ he told listeners at the Federal Reserve’s annual symposium here in the Grand Tetons. ‘We are following these developments closely,’ he added.

Mr Bernanke walked a tight line between trying to reassure financial markets and locking the Federal Reserve into a rescue effort that could prove either unwarranted or unwise over the longer term.

Investors around the world had awaited his speech with an almost obsessive fixation in recent days, as what began as a panic in sub-prime mortgages for people with weak credit continued to freeze up lending on scores of other fronts, from ‘jumbo’ mortgages to borrowers with good credit to a growing number of billion-dollar leveraged buyouts.

Mr Bernanke spelled out a much tighter and more explicit link between the next decisions on interest rates and what happens in the housing market.

That was important, because the Fed has generally focused on the health of the overall economy rather than individual sectors. In an added attempt to soothe investors, Mr Bernanke also suggested that the central bank would focus less heavily than usual on incoming economic data, which has yet to signal a clear downturn.

‘Economic data bearing on past months or quarters may be less useful than usual for our forecasts,’ he said. ‘As a result, we will pay particularly close attention to the timeliest indicators, a well as information gleaned from our business and banking contacts around the country.’

Meanwhile, US President George Bush yesterday pledged to help people with risky sub-prime mortgages keep their homes and tighten safeguards against predatory lending, while rejecting a bailout for ’speculators’. ‘I plan to help homeowners, the government’s got a role to play,’ Mr Bush said. ‘But it’s not the government’s job to bail out speculators or those who made the decision to buy a home they couldn’t afford.’ Mr Bush said that he will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favourable rates.

Tighter credit and higher borrowing costs threaten the housing market, which has been an engine of U.S. economic growth.

Source: Bloomberg, NYT (Business Times 1 Sept 07)

Cutting-edge HDB designs on display

Ideas include ‘granny flats’, pick-your-own unit facades and ’sky villages’

EXTENDED families could live side by side, in separate but specially designed flats, while other home buyers could pick the specific facade they want for their unit.

These are some of the new faces of public housing and will soon be found first in Queenstown and then across the country.

These cutting-edge proposals were on show last night at the HDB Hub as part of a Housing Board exhibition. If the public backs them, work will start in three to four years.

Dawson Estate, highlighted by Prime Minister Lee Hsien Loong in his National Day Rally speech last month, will be the testbed for such ideas.

Residents will eventually have their pick of more than 3,000 homes in three developments designed by awardwinning Singapore architecture firms – Surbana International Consultants, Woha Architects and SCDA Architects.

The companies were told to design estates with spaces for neighbours to linger and chat while retaining the area’s heritage.

‘They have more than fulfilled this brief,’ said National Development Minister Mah Bow Tan last night as he opened the exhibition, which also showcased plans for Punggol and Yishun.

SCDA’s housing blocks, for example, will be more than 40 storeys high, comprising flats with lofts that could be joined to smaller adjacent units if extended families choose to live together.

If built, they will mark a return of the HDB’s multi-generation flats, or ‘granny flats’, which were introduced in 1987 for extended families.

They comprised a four- or five-room flat with an adjoining studio apartment with a separate entrance. A total of 367 units were built before they were scrapped due to poor demand.

Another idea, put forward by Woha, allows buyers to pick from a range of facades for their flats – which include balconies, monsoon windows, planter boxes and bay windows.

Woha also mooted the idea of ’sky villages’ – common high-rise spaces shared by every 10 floors – to encourage interaction.

There are also plans to retain the now defunct market along Commonwealth Avenue and integrate it with new developments, which would include a new plaza for community events.

Longtime Queenstown resident Hu Nguk Mee, 57, looks forward to the return of the district’s former bustle. It was one of the first new towns to be built by the HDB and used to teem with banks, eateries and entertainment outlets.

‘The new designs look really beautiful,’ said Madam Hu.

Singapore Institute of Architects president Tai Lee Siang said giving residents more flexibility in flat design and configuration will allow them to stay longer even as their household needs change over time. This will help foster a stronger sense of community spirit.

 

Source: The Straits Times 1 Sept 07

Lease Buyback Scheme: Govt to give extra cash subsidy to home owners

A flat’s value will be based on current market value: Mah

THE government will hand out an additional cash subsidy to encourage elderly owners of public housing flats to join its proposed Lease Buyback Scheme (LBS).

About 25,000 HDB flat owners are already eligible for this scheme and the number is set to rise.

Speaking on the sidelines of the launch of the Housing and Development Board’s Remaking Our Heartland exhibition yesterday, National Development Minister Mah Bow Tan said the government will ‘top up the cash value’ that flat owners receive after HDB buys back the tail end of a lease from them.

The value of a flat will be based on current market value.

The news comes two weeks after Prime Minister Lee Hsien Loong first said the government was working on a scheme to allow elderly people to monetise their HDB flats to provide them with retirement income.

Mr Mah said LBS could be finalised next year, around the time of the Budget debate in Parliament.

Elderly owners who sign up for the scheme will be left with a 30-year lease on their HDB flats.

Mr Mah said the scheme will pay cash from the buyback of a flat in three tranches – a lump sum, monthly payments for a fixed number of years and longevity insurance.

He also said LBS is likely to ‘ride on the Central Provident Fund (CPF) scheme when it is ready’.

The onus will, however, be with HDB.

The housing board now has a bigger role, Mr Mah said: ‘It is a provider of a roof over people’s heads through the subsidies; it maintains value (of property) through upgrading schemes; and it is an old-age pension scheme as it were.’

He said the new Home Improvement Programme that replaces the Main Upgrading Programme ‘gives residents what they want, and they pay less for it because the government is going to increase subsidies’.

Mr Mah also revealed that HDB has comprehensive plans to upgrade old, middle-aged and new housing estates, starting with Dawson Estate, Yishun and Punggol 21+.

Dawson Estate could see a ‘new generation’ of public housing designed by local award-winning architects, while Yishun’s new town centre could be home to a large educational institution. The most ambitious plans are for Punggol 21+, which is envisioned as a waterfront community that could eventually have up to 92,000 flats.

Mr Mah said development of a town centre could start as early as 2010, when work to create new reservoirs there is completed.

A spokesman for PUB confirmed that construction work on dams to create reservoirs at Sungei Punggol and Sungei Serangoon started at the end of 2006 and will be completed in 2009.

So far, at least one commercial-cum-residential development site in Punggol 21+ has been identified for the Government Land Sales Programme and could be made available within five years.

Punggol 21+ will have a 60:40 public-private development ratio.

Noting that as a development model Punggol 21+ resembles Sentosa Cove in its infancy, property consultant Cushman & Wakefield’s managing director Donald Han said: ‘There should be some buyers looking to have the first-mover advantage there.’

 

Source: Business Times 1 Sept 07

25,000 may gain under HDB lease buyback scheme

Payouts will be in 3 parts: a lump sum, instalments and insurance

THE new HDB lease buyback scheme, which allows flatowners to sell back a portion of their lease, could mean as many as 25,000 elderly folk cashing in.

That number – an initial estimate – will increase over the years, revealed National Development Minister Mah Bow Tan last night.

The scheme, announced by Prime Minister Lee Hsien Loong last month, will be open to people at least 62 years old who own a two- or three-room unit and who have had only one HDB subsidy.

It is is designed to supplement the retirement savings of older, low-income owners while allowing them to continue living in their own homes.

Under the plan, the Government will shorten a lease to 30 years and pay the owner for the amount of time that has been deducted.

Take a 99-year leasehold flat with 50 years left to run. That 50-year balance would be shortened to 30 and the owner compensated when the HDB buys back the 20-year portion.

The actual amount ‘unlocked’ by the buyback will depend on each flat’s market value, said Mr Mah, who opened an exhibition showcasing future public housing projects last night.

But the Government will give owners a subsidy on top of the market value as a way of encouraging people to sign up for the scheme.

The payout will be divided into three parts. The first is an initial lump sum, followed by monthly instalments over a fixed number of years.

If the owner dies during that period, the unpaid amount will go to his family.

The third portion of the payment, said Mr Mah, will go to an insurance plan that will give owners an income for life after the first two payment batches run out.

Mr Mah said his ministry and the HDB are still working out the details of this ’safety net’ with agencies like the Central Provident Fund Board, which is looking into a way to ensure people have enough savings to get by.

Mr Mah also guaranteed home owners who join the buyback scheme that they will still have a roof over their heads if they outlive the 30-year lease. But some may not be able to continue living in their own flats.

The full details of the plan are expected to be ready by next year’s Budget.

Mr Mah also unveiled a wide range of proposals for housing in Punggol, Yishun and the Dawson estate in Queenstown last night.

On display were designs by three leading architectural firms – Surbana International Consultants, WOHA Architects and SCDA Architects. They conceptualised 3,000 cutting-edge homes in three housing precincts in Dawson Estate in Queenstown.

The new generation of public housing will give buyers more choices of homes and landscaped community spaces while bringing greenery and waterscapes to their doorstep, said Mr Mah.

Punggol, for example, will get a 4.2km waterway that will link two future reservoirs and become a centrepiece for housing.

But, Mr Mah cautioned: ‘All these plans…are really premised on continued growth.

‘That is unspoken, but that must be so. If there is another major crisis or slowdown, it’s not just a matter of building it – who’s going to buy it?’

The exhibition will be at the HDB Hub in Toa Payoh until Sept 8 and then moves to various estates.

The HDB will gather feedback before proceeding with the plans.

 

Source: The Straits Times 1 Sept 07