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.

 

Source: Reuters (Business Times 6 Sept 07)

Hedge fund investors withdrew US$32b in July

Outflows may increase in August, industry survey finds

(NEW YORK) Investors withdrew a net US$32 billion from hedge funds in July, the most in any month since at least 2000, helping to spark global stock and bond sell-offs, according to a new industry survey.

Funds of hedge funds, which invest clients’ money with other managers, pulled US$55 billion, according to the TrimTabs BarclayHedge Flow Report. That was partially offset by US$23 billion in direct investments into hedge funds. Outflows may increase in August, the report said.

Withdrawals by funds of funds represented almost 5 per cent of their estimated US$1.2 trillion in assets, according to the report, which was prepared by Santa Rosa, California-based TrimTabs Investment Research and Barclay Hedge Ltd of Fairfield, Iowa.

Hedge funds and funds of funds oversee a combined US$1.9 trillion, according to the survey.

‘We believe deleveraging and risk reduction by funds of hedge funds was a major cause of the turbulence in the credit markets and the equity markets in July and August,’ Charles Biderman, chief executive officer of TrimTabs, said on Monday in a statement.

Most hedge funds require clients to give at least 30 days’ notice before they can redeem money, meaning that fund managers started seeing requests for July withdrawals in May and June.

The report was the first by TrimTabs, which tracks fund flows, and Barclay Hedge, which compiles data on more than 5,400 hedge funds and managed futures funds.

Meanwhile, a study found that hedge funds in the US might leave the country if subjected to burdensome regulation.

‘With a heavy regulatory hand, there is a risk of hedge funds moving totally offshore,’ said a Federal Reserve Bank of New York study.

New York Fed vice-president John Kambhu, assistant vice-president Til Schuermann and vice-president Kevin Stiroh wrote the paper released on Tuesday.

‘Outright regulation of hedge funds such as through activity restrictions, required capital or leverage restrictions has not received much attention and could have substantial costs,’ the authors wrote in the report.

Hedge funds are largely unregulated pools of private capital that are linked to the broader economy as their gains and losses affect banks, the paper said. In the event of big declines, a bank’s ‘greater exposure to risk may reduce its ability or willingness to extend credit to worthy borrowers’, the paper said.

Hedge fund assets worldwide increased almost threefold in the past five years to US$1.75 trillion as at June, according to Chicago-based Hedge Fund Research Inc.

As they grow in size relative to the US economy, disclosures that do not impede the business interests of the hedge funds would ‘help’ investors and regulators better understand the risks, the authors wrote.

Otherwise, under ‘more forceful’ oversight, ‘regulators might go from seeing little to seeing nothing’, the paper said.

 

Source: Bloomberg (Business Times 6 Sept 07)

15% price fall seen in US commercial property

Rising borrowing costs forcing owners to accept less or postpone sales

(SAN FRANCISCO) US commercial real estate prices may fall as much as 15 per cent over the next year in the broadest decline since the 2001 recession as rising borrowing costs force property owners to accept less or postpone sales.

‘People aren’t willing to do deals right now,’ said Howard Michaels, the New York-based chairman of Carlton Advisory Services Inc, which has arranged financing for real estate purchases including the Lipstick Building in midtown Manhattan. ‘The expectation is that prices will come down.’

Investors in July bought the fewest commercial properties since August 2006 and apartment building acquisitions were down 50 per cent from June, data compiled by industry consultants at New York-based Real Capital Analytics Inc show. Archstone-Smith Trust in August postponed its US$13.5 billion sale to a group led by Tishman Speyer Properties LP until October. Mission West Properties Inc, the owner of commercial buildings in Silicon Valley, said on Aug 13 that the company’s US$1.8 billion sale may fail after a bank withdrew funding.

‘There are so many deals falling apart,’ said David Lichtenstein, chief executive officer of Lakewood, New Jersey based Lightstone Group, an owner of more than 20,000 apartments and 30 million square feet of office and retail space. ‘People who can get out are getting out.’

About 930 commercial real estate transactions valued at US$5 million or more closed in July, preliminary data from Real Capital show. That count could climb as much as 15 per cent when all of the month’s deals are tallied, which would still be the lowest this year, said Dan Fasulo, director of market analysis for Real Capital.

Average prices for commercial properties might drop 5-15 per cent in the next two years depending on the type of property and its quality and location, said Matthew Ostrower, an industry analyst at New York-based Morgan Stanley, the second largest US securities firm by market value.

Commercial mortgage rates have climbed as defaults rose in the sub-prime part of the residential real estate market. About six months ago, a 30-year commercial loan with 5-10 years of interest-only payments would have cost the borrower about 120 basis points more than the yield of the 10-year Treasury note. A similar loan would now cost about 160-200 basis points more than the 10-year Treasury’s yield of 4.6 per cent, data compiled by New York-based Cushman & Wakefield Sonnenblick Goldman show.

The increase has halted a rally that lifted prices for office buildings, apartments and hotels to records this year. The average price paid for high-quality office properties in city centres reached US$291 psf, up from US$188 in 2005 and almost double the average US$152 in 2001, Real Capital reported.

Real estate investors typically purchase properties with the expectation that the yield will outstrip conventional investments and make their financing affordable.

When prices for prime urban office buildings fell in 2002, capitalisation rates (or a property’s net operating income divided by the purchase price) rose to an average 9.25 per cent, according to Chicago-based data provider Real Estate Research Corp.

That was almost 500 basis points more than the average rate of 10-year Treasury bonds at the time. Such yields attracted investors and by this year’s first quarter, the average cap rate had fallen to 6.5 per cent.

New York-based Blackstone Group LP, manager of the world’s largest buyout fund, purchased Sam Zell’s Equity Office Properties Trust for US$23 billion in February to gain about 540 office buildings in the US. That worked out to a capitalisation rate of about 5.3 per cent – a record low for an acquisition of a real estate investment trust

(Reit), according to Green Street Advisors Inc. Including debt, the price was US$39 billion.

Regency Centers Corp lost an equity partner in May for the US$80 million purchase of four shopping centres in Florida because financing costs exceeded the projected cash flow, said CEO Martin ‘Hap’ Stein in an interview.

Jacksonville, Florida-based Regency is the third-largest company by market value in the Bloomberg Reit Shopping Center index.

‘You’ve got a lot of fear in the system from the capital markets,’ Mr Stein said. ‘As far as the pricing of credit, it was greed six months ago and it’s fear today.’ Tighter credit standards at banks have given an advantage to investors with ample cash, said Joaquin de Monet, CEO of General Electric Co’s Arden Realty Inc. All-cash buyers might include insurance companies, pension funds and Reits.

Los Angeles-based Arden bought 5.9 million sq ft of offices from Blackstone in July. The properties, part of CarrAmerica Realty Corp when Blackstone acquired it last year, were in San Diego, San Francisco and Orange County, California; Portland, Oregon; Salt Lake City, Utah; and Seattle.

‘The private equity firms used to be the winners, but now lower leveraged and all-cash buyers are more competitive,’ Mr De Monet said in an interview.

Even so, sellers are pulling properties from the market, said James Corl, chief investment officer for real estate securities at New York-based Cohen & Steers Inc, which manages almost US$35 billion for clients.

‘No one’s going to want to sell in this environment, because you’re not going to get your price,’ Mr Corl said.

 

Source: Bloomberg (Business Times 6 Sept 07)

No sub-prime miracle cure, says OECD chief economist

Increased scrutiny; borrower education; pugnacious rating analysis needed

(MADRID) The surge in short-term rates caused by rising defaults of US sub-prime mortgages exposed ’serious imperfections’ in the way global credit and housing markets function, OECD chief economist Jean-Philipe Cotis said.

‘Recent developments have revealed serious imperfections in the functioning of US housing markets and, more broadly, in credit markets worldwide,’ said Mr Cotis, chief economist at the Organisation for Economic Cooperation and Development.

Mr Cotis suggested that increased supervision of US sub-prime mortgages, more information and education for borrowers, and more ‘pugnacious’ analysis from credit rating companies, may help avoid future losses of confidence.

‘More transparency also seems to be called for in credit markets,’ Mr Cotis said. ‘I don’t think there’s a miracle cure readily available.’

Some so-called asset-backed securities lost more than 50 per cent before credit agencies downgraded them in July.

US Senate Banking Committee chairman Christopher Dodd said last month that the rating agencies’ failure to act sooner caused ‘great damage’.

Meanwhile, the Dutch central bank said that uncertainty has risen in the Netherlands’s financial system over the past six months and the full impact of the recent increase in borrowing costs ‘cannot be determined’.

The outlook for the financial system depends on ‘the extent to which the decreasing risk tolerance among investors continues and how much farther it spreads’, the central bank said in a report issued yesterday.

The European Central Bank and other monetary authorities around the world injected more than US$350 billion into money markets last month to prevent a wider crisis as investors shunned assets linked to US mortgages and corporate borrowing costs rose.

The US sub-prime meltdown has revealed that ‘unfavourable developments in one segment could lead to an overall deterioration of the market climate’, the Dutch central bank said. The ‘direct exposures’ of Dutch financial service companies to the sub-prime mortgage market are ‘relatively limited’, according to the report.

Meanwhile, tight money markets showed no sign of let-up in a liquidity squeeze caused by banks clamming up on lending over the past month as they scrambled to calculate exposure to mass defaults in the US sub-prime mortgage market.

Australia held interest rates steady yesterday, the first piece in a monetary jigsaw which investors expect to show euro zone policy on hold and a US rate cut in response to a global credit crisis.

Overnight interbank lending rates in the euro zone approached six-year highs, after Tuesday’s injection of liquidity by the ECB failed to sate demand for ready cash.

‘The fact that overnight is trading so high at the moment shows that the cash is not spreading out across the system, there are institutions which are struggling to get short-term needs filled,’ said a euro zone trader.

In Britain, sterling three-month money rates hit fresh 81/2-year peaks. The Bank of England – which has stood back until now – decided to act, but focused on overnight rates.

The BOE raised its aggregate reserves target for the next month by 6 per cent and said that it stood ready to add 25 per cent more if overnight interest rates stayed high.

It said that it aimed to ‘relieve some pressure on interest rates for overnight borrowing which have, at times during the maintenance period over the past month, been unusually high’.

The Reserve Bank of Australia does not explain its reasoning when leaving interest rates steady but has been striving daily to add liquidity to the banking system as market rates climbed.

The Bank of Canada was expected to follow Australia’s example late yesterday, and the European Central Bank and the BOE are seen keeping rates on hold today, while the calming of market turmoil depends overwhelmingly on the delivery of an expected Federal Reserve rate cut on Sept 18.

The Fed is expected to cut rates at its meeting after chairman Ben Bernanke said last week that he would take any steps needed to shelter the economy from the credit squeeze.

Richmond Fed president Jeffrey Lacker said on Tuesday that he would back a rate cut if the evidence showed slowing growth and lower inflation, but said that the case was not yet made.

‘If evidence arrives that we need a policy move, of course I will consider it and I will take that evidence seriously,’ he said.

‘That evidence would be of the nature of information that alters the outlook for real spending and inflation.’

Further diagnosis of the US economy will be provided later by the Fed’s Beige Book on regional economic conditions, while tomorrow’s August non-farm payrolls figures loom large.

 

Source: Bloomberg, Reuters (Business Times 6 Sept 07)

Biggest UK property firm mulls break-up

(LONDON) Paul Myners, chairman of Britain’s biggest listed property firm Land Securities, has ordered the group to examine a possible break-up, the Daily Telegraph said yesterday.

The move is one of the options being looked at as part of a wider strategic review in response to poor share price performance, the paper said, without citing sources.

A break-up is likely to involve the demerger of the firm’s property outsourcing business Trillium, it said.

Its chief executive Francis Salway said in June at the Reuters Real Estate Summit that he would not rule out spinning off some of its units, including Trillium, whose contribution to group earnings was likely to grow to 20-30 per cent from around 16 per cent now.

But he said then that the company would stick to a diversified business model, with its emphasis on both office and retail property, despite a view among some fund managers that Reit shareholders were better served by firms that specialised by property type.

Land Securities shares have fallen around 20 per cent so far this year.

 

Source: Reuters (Business Times 6 Sept 07)

Sub-prime beast won’t drown in sea of liquidity

IN TOKYO

WHAT one veteran banker dubbed the ’securitisation monster’ created by financial innovation has bitten back. And it is proving to be a painful lesson for those who reposed faith in securitisation to make financial risk a thing of the past by spreading it around so thinly that it could no longer be detected.

The question now is, how much more damage will the beast do before it is tamed or put back in its cage?

One man who is not underestimating the dangers is Japan’s recently appointed minister in charge of financial services and administrative reform, Yoshimi Watanabe, who declared yesterday that the fallout from the sub-prime debacle could yet become a ‘tremendous problem’ for Japan.

The securitisation monster (as Shinsei Bank chief investment officer Mark Cutis has dubbed it) took a big bite out of the US sub-prime mortgage lending market. But not content with that, it went on to maul socalled structured investment vehicles and hedge funds, before snapping viciously at the very heart of the US and European banking systems.

Now, it turns out that Asian financial institutions have also been savaged more seriously than at first feared. Reuters published a list this week of Asia-Pacific firms that have revealed actual or potential damage through exposure to structured products such as collateralised debt obligations and asset-backed securities as a result of the fallout from the sub-prime market debacle.

As the Institute of International Finance in Washington has remarked, this could be just the tip of the iceberg. The roll call so far includes Australian hedge fund manager Basis Capital, Macquarie Bank and Rams Home Loan; Taiwan’s Cathay Financial Group; Singapore’s DBS Group and United Overseas Bank; the Bank of China, Industrial and Commercial Bank of China and China Construction Bank; Japan’s Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group, Shinsei Bank as well as Nomura Holdings.

There may be more to come in Japan, as minister Watanabe admitted. His agency will watch very closely the half-term results due soon from Japanese banks and other financial institutions to see how many more problems they reveal. But not all accounting regimes are as (relatively) transparent as Japan’s; and even in Japan (as in other advanced economies), the scope for ‘window dressing’ of accounts is  onsiderable.

Thus, the relative calm that has descended on Asian and other emerging markets may be deceptive, as the Institute of International Finance in Washington said recently. For one thing, asset holders domiciled in emerging market countries may simply not have recognised fully as yet the losses they have suffered on financial instruments linked directly or indirectly to defaulted mortgage-backed obligations in the US and elsewhere. For another, the tangled web of instruments spawned by securitisation is so hard to untangle.

Rating agency Standard & Poor’s also acknowledged this week that ‘global debt markets’ are in the midst of a jarring repricing of risk. ‘Uncertainty abounds, but we believe the financial sector as a whole has sufficient strength to absorb significant bank loan and securities markdowns, reduced earnings in investment banking and trading, and increased credit losses that are sure to come in the second half of 2007.’

The fact is that no one wants to take the blame for the meltdown that occurred in global financial markets last month – and which is still rumbling like an angry volcano beneath a surface that has been temporarily cooled by jets of emergency liquidity from central banks.

It has all been a kind of act of God from which we must learn lessons, was the message of leading central bankers meeting in Jackson Hole, Wyoming, last weekend.

There were suggestions from some of the lesser bankers that the current crisis is the price to be paid for financial innovation – a suggestion also advanced by a prominent analyst at a seminar that I moderated in Tokyo last week, where he argued that the crisis is simply the teething troubles of a ‘new financial architecture’ that was spawned recently.

Such arguments allow regulators to get off the hook too easily. They knew that financial innovation was running ahead of their ability to police sophisticated new markets effectively. The dictum caveat emptor (let the buyer beware) should never be applied in financial markets. That is one area where many buyers (and many market practitioners too) do not really understand what they are getting into.

The crisis is almost certainly not over yet and it demands much more considered and comprehensive response than just drowning it in liquidity or empty official assurances that all will be well.

 

Source: Business Times 6 Sept 07

‘Goldman fund buying Chevron House’

Acquisition would be second major Singapore office deal for group

(SINGAPORE) A Goldman Sachs-linked fund is believed to be the buyer of Chevron House (formerly Caltex House) whose sale by CapitaLand and its partners was announced last week. The deal values the leasehold Raffles Place office block at $730 million or a record $2,780 per square foot (psf) of net lettable area. CapitaLand last week declined to identify the buyer.

Market watchers noted that Chevron House will be Goldman Sachs’ second major acquisition of an office property in Singapore. A Goldman Sachs real estate fund bought DBS Towers 1 and 2 on Shenton Way in November 2005 for $690 million, or around $800 psf of net lettable area.

‘They could reap a nice profit if they decide to sell DBS Towers 1 and 2 today, given that they bought the asset during the early days of the office market upcycle,’ an industry observer noted.

Industry watchers said that capital values of offices in Singapore today are around two-and-a-half times what they were in the final quarter of 2005 so based on that, DBS Towers 1 and 2 should be able to command around $2,000 psf or possibly even more, given the shortage of offices.

This is despite the leasehold tenure of the property. The older 49-storey Tower 1 was completed in 1974, while the 34-storey Tower 2 was completed 13 years ago. The property has parking for about 400 cars.

Goldman Sachs bought the property from DBS, which leased back the office space it then occupied in the two towers for an initial eight-year term, with an option to renew the lease for two three-year periods, according to an earlier news report.

As for Chevron House, the change of ownership is taking place through shares in Savu Properties Ltd. Basically, CapitaLand, IP Property Fund Asia and NTUC Income Insurance Co-operative are selling their respective stakes – of 50 per cent, 25 per cent and 25 per cent – in Savu, which owns Chevron House, which stands on a site with a remaining lease of about 81 years.

CapitaLand said in its release last week that the completion date for the deal is Sept 24, and that upon completion, it will recognise in its group consolidated accounts a gain of about $150.8 million.

CapitaLand also owns a 50 per cent stake in neighbouring Hitachi Tower, where an exclusivity period has been granted to a potential buyer to conduct due diligence after discussions with the previous top bidder hit some snags, BT understands.

If the latest negotiations for the 999-year leasehold Hitachi Tower succeed, a new benchmark price is expected to be achieved for a Singapore office block.

 

Source: Business Times 6 Sept 07

Ascendas IT Park project in Dalian to cost US$200m

Flagship outfit will be built over 5-8 years in phases

(SINGAPORE) The six million sq ft Dalian Ascendas IT Park in China will cost an estimated US$200 million and will be built over five to eight years in phases.

Speaking at an event in Dalian yesterday to mark the completion of the first phase of the flagship project, Ascendas president and chief executive officer Chong Siak Ching said: ‘It will offer a fully integrated work-live-play environment and give full play to an international business lifestyle concept that we have test-bedded successfully in Singapore and India.’

The 11-storey, US$62 million first phase comprises one million sq ft of space. Ascendas said that 25 per cent of this has been taken up by tenants including Konica Minolta, Network Appliance and Dalian Hi-Think Computer Technology.

The second phase of development is expected to start early next year and to be completed by mid-2009, adding another 11-storey building with a gross floor area of about 840,000 sq ft.

The 35-ha Dalian Ascendas IT Park project could eventually have a total of six million sq ft, depending on demand, and is expected to target Dalian’s business process outsourcing (BPO), information technology outsourcing (ITO) and software R&D sectors.

Ascendas will run the park, including project management, marketing, lease management, property management, advertising and corporate services.

The chairman of Yida Group and Dalian Ascendas IT Park, Sun Yinhuan, said that the park is the first development in Dalian’s Lu Shun Nan Road software industry area. ‘This will surely facilitate the fast development of Lu Shun South Road software belt and further boost the software and IT service industry in Dalian,’ he said.

BPO is the fastest-growing sector in China’s IT services market. According to a recent report by IDC, China’s offshore BPO is expected to grow five times to almost US$7 billion by 2011 – a compounded annual growth rate of 37.9 per cent.

 

Source: Business Times 6 Sept 07

Dubai to build hotels and apartments in Vietnam

(DUBAI) Dubai will develop a US$220 million property in Vietnam, building hotels and luxury apartments near the beaches and limestone mountains of Halong Bay, government-owned developer Limitless said here yesterday.

Limitless is part of the conglomerate that is building three palm-tree-shaped islands and an archipelago the resembles a map of the world off the coast of Dubai through its Nakheel unit.

The Halong Star development will include a 250-room hotel, the first five-star property in an area designated a World Heritage site by the United Nations, Limitless said in a statement.

The development is the company’s first in Southeast Asia, and Limitless is planning several projects in the region, it said, without giving details.

Gulf Arab property developers are turning increasingly to Asia to tap the region’s fast-growing tourism and housing markets.

 

Source: Reuters (Business Times 6 Sept 07)

Ample perks for M’sian property sector

Tax adviser says any more incentives in Budget likely to benefit buyers

(KUALA LUMPUR) Malaysia’s property sector does not need another shot in the arm in the 2008 Budget as it has received more than enough incentives, Veerinderjeet Singh, managing director of Taxand Malaysia Sdn Bhd said yesterday.

Instead, any incentive introduced tomorrow might well slant towards benefiting property buyers more, he said.

‘I think the property sector has been given too much. The main reason for the exemption of the real property gains tax (RPGT) last April is because various property entities said it would help them sell their completed buildings and houses,’ said Dr Veerinderjeet.

He said this when asked if the property sector needs a further boost from the government to increase sales, at the Bernama Roundtable on the 2008 Budget here yesterday.

‘If anything more, it should be for buyers because it is the buyers who pay the stamp duty, not the sellers,’ he said.

Dr Veerinderjeet also downplayed recent suggestions for the government to remove stamp duties, a transaction tax imposed on buyers, as it contributes more to the country’s revenue compared with RPGT.

‘That’s why (the abolishment of) RPGT is the easy thing to do in terms of providing exemptions because the loss is not tremendous.

‘The government has to balance all these things and actually give away small little things, which will increase the level of economic activity and still recover tax in other ways,’ he said.

Citing the Iskandar Development Region, he said the government would receive a huge bulk of revenue from investors, both local and foreign, just from stamp duties alone.

‘By just removing or giving an exemption in paying stamp duties, it will create a bigger gap in the total revenue,’ he added.

‘Maybe a slight reduction in stamp duties was possible, thus giving an extra push in terms of the multiplier effect,’ he said.

‘At the end of the day, if the buyers are willing to buy, then there is no need for incentives. Sometimes you need to let market forces work their way and you don’t really need incentives,’ he said.

‘I personally think the property sector has been given enough,’ he added.

The government also relaxed rules for foreign buyers.

 

Source: Bernama (Business Times 6 Sept 07)

US pending home sales plunge, layoffs surge

New data raises expectations the Fed will cut key interest rate

WASHINGTON – PENDING sales of existing homes in the United States fell in July to their lowest level in nearly six years, as the mortgage market’s troubles made it tough for many borrowers to finalise home purchases.

Planned layoffs by US companies surged 85 per cent last month, independent reports showed yesterday.

Also, employers added jobs at the slowest pace in four years last month, according to yet another separate private report.

Together, the data raised expectations of a weak employment from the government and added to the view that the US Federal Reserve could lower its overnight benchmark interest rate at its Sept 18 monetary policy meeting.

The National Association of Realtors (NAR) said its index of pending home sales for July fell 16.1 per cent from a year ago and 12.2 per cent from the prior month.

July’s reading of 89.9 was the second lowest ever for the index and its lowest since September 2001, when the US economy was jolted by terrorist attacks.

A reading of 100 is equal to the average level of pending sales activity in 2001, when the index began.

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.

‘It’s difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren’t closing because mortgage commitments have been falling through at the last moment,’ the NAR’s senior economist, Dr Lawrence Yun, said.

But he added that while some concerns remain, the market appears to have been stabilising since the middle of last month.

Mortgage market troubles played a big role in layoffs announced last month, which rocketed to 79,459 from 42,897 in July, according to Challenger, Gray & Christmas, an employment consulting firm.

Last month’s job cuts were the highest since February, when they totalled 84,014.

Separately, a report from ADP and Macroeconomic Advisers showed that US private employers added 38,000 jobs last month, well below the 83,000 that analysts had expected and the slowest rate of growth in four years.

The bigger-than-expected decline in home sales in July led some analysts to believe that the Fed would be more likely to cut interest rates at its next meeting later this month.

Source: ASSOCIATED PRESS, REUTERS (The Straits Times 6 Sept 07)

TAKING STOCK – Market enjoys best outing in more than a month

THE Singapore bourse had its best day of gains in more than a month yesterday, as market watchers began to express hopes that the nasty recent correction is now over.

It took its cue from Wall Street, which returned to business after a Labour Day holiday with the Dow Jones Industrial Average gaining a healthy 91.12 points to 13,448.86. The Nasdaq Composite Index, meanwhile, rose 33.88 points to 2,630.24 .

The Straits Times Index (STI) climbed 69.02 points, or 2 per cent, to 3,445.08, a level it has not seen since July 31.

The STI has now recovered all its losses since Aug 17, when chaos over the sub- prime mortgage troubles in the United States resulted in the benchmark index losing as many as 190 points at one point.

AmFraser Securities research head Najeeb Jarhom said: ‘There is no new spate of nasty surprises.’

He said most news emerging now is incremental in nature, with the market discounting much of it.

Dealers said yesterday’s rise was probably due to stocks having been oversold previously.

‘We are playing catch-up with the rest of the regional markets,’ Mr Jarhom said.

Year-to-date, the STI is up by just 15 per cent. Only the Nikkei 225 Average has fared worse among the main regional indexes. It is down 6.2 per cent so far this year.

Among the best performers are Hong Kong’s Hang Seng Index, which has gained 21 per cent, and South Korea’s Kospi, up 30 per cent.

Key movers of the STI were the stocks of local banks, probably over subsiding fears that the sub-prime mortgage woes will have a significant impact on the lenders.

DBS Group Holdings’ share price rose 50 cents to $20.40 on a volume of 14.7 million shares. It contributed 7.7 points to the STI.

OCBC Bank’s stock rose 20 cents to $8.65 and added 6.8 points to the STI’s rise.

United Overseas Bank’s shares were 30 cents higher at $20.80. They brought in 5.3 points.

Other blue chips that were in positive territory included Keppel Corp, closing 30 cents higher at $13, and Neptune Orient Lines, up 75 cents at $5.75.

During the morning session, dealers and traders were distracted by an apparent technical glitch at the Singapore Exchange, which meant the STI was not being updated promptly. This was resolved by the afternoon session.

The market seems to be buzzing with more activity yesterday than of late.

Volume crossed the two billion-share mark at 2.1 billion shares, while the value also was healthier at $2.1 billion.

The actives included Liang Huat Aluminium, which rose half a cent to seven cents, with 151.4 million shares traded.

Sapphire Corp was unchanged at two cents on 103.8 million shares traded.

Genting International remained active, ending half a cent higher at 62.5 cents, but volume was lighter at 58 million shares.

 

Source: The Straits Times 6 Sept 07

ECB hints it may cut rate today if volatility persists

FRANKFURT – THE European Central Bank (ECB) said yesterday it is prepared to ‘act accordingly’ in the light of renewed market volatility, a sign that instead of keeping its benchmark interest rate unchanged at 4 per cent, it could actually lower it.

It did not explain why it issued the statement, a surprise that caught markets off-guard and produced mounting speculation about what path it could take.

Instead, the ECB, which sets monetary policy for the 13 countries that use the euro, said it may take action at a meeting of its Governing Council today to ‘contribute to orderly conditions’.

‘Volatility in the euro money market has increased and the ECB is closely monitoring the situation,’ the bank said in an unexpected announcement.

‘Should this persist tomorrow, the ECB stands ready to contribute to orderly conditions in the euro money market.’

The message had some market observers conjecturing that the ECB may be poised to mirror a move by the United States Federal Reserve and lower its own lending rate for overnight funds, its marginal lending facility.

That facility has stood at 100 basis points more than the main refinancing minimum bid rate for years.

Within minutes of the ECB announcement, the overnight interbank lending rates dropped to between 3.99 per cent and 4.11 per cent, from between 4.64 per cent and 4.76 per cent.

In London, the Bank of England offered to provide extra cash to reduce ‘unusually high’ overnight lending rates in its monthly market operations, reflecting concern about dwindling credit levels spurred by the collapse of the US sub-prime mortgage market.

In its first statement since the fear of shrinking credit gripped global markets, Britain’s central bank said it had raised its aggregate reserves target for next month by 6 per cent to relieve pressure on overnight rates, and it was ready to add 25 per cent more if overnight rates remain high.

However, it added that it should not be expected to take additional action to reduce banks’ three-month borrowing costs, which have jumped to their highest rate in almost nine years, as banks become increasingly reluctant to lend to rivals until the extent of the crisis is known.

The key three-month interbank lending rate, or Libor, is now 6.8 per cent, more than a full percentage point above the 5.75 per cent base rate and just above the Bank of England’s emergency lending rate of 6.75 per cent.

The central bank is expected to keep its benchmark interest rate unchanged at 5.75 per cent today.

Separately, a senior US Treasury Department official warned yesterday that turmoil in credit and mortgage markets was ‘far from over’ and policymakers must remain vigilant to the need to protect the broader economy.

‘I do want to caution policymakers that this process is far from over,’ Treasury Undersecretary Robert Steel said in prepared testimony for delivery to the US House of Representatives Financial Services Committee.

As expected, the Bank of Canada and Reserve Bank of Australia left their rates unchanged yesterday.

ASSOCIATED PRESS, REUTERS

 

Source: The Straits Times 6 Sept 07

Economists’ median growth forecast rises to 7.5%

Rosier estimate by 18 analysts is at mid-point of govt’s range of 7% to 8%

FORGET recent stock market woes and weak export numbers.

Projections by private-sector economists for Singapore’s full- year economic growth have turned even rosier over the past three months.

A quarterly survey of economists by the Monetary Authority of Singapore (MAS) threw up a median forecast of 7.5 per cent full-year growth, up from the 6 per cent in June’s survey.

This puts the latest consensus view right in the middle of the Government’s official 7 to 8 per cent forecast range.

This month’s findings were drawn from forecasts by 18 economists and analysts.

According to the survey results out yesterday, half of those polled predict that economic expansion this year will come in between 7 per cent and 7.9 per cent.

Over a quarter of them are even more bullish, gunning for at least 8 per cent growth.

For the current quarter, the median forecast is for growth of 7.8 per cent year-on-year.

The upbeat predictions come after second-quarter economic growth strongly beat market forecasts.

Despite disappointing export numbers, economic growth in the April-to-June period came in at 8.6 per cent, when the consensus forecast was 6.1 per cent.

The overall performance was lifted by two star sectors – construction and financial services.

Compared to the previous poll, economists now expect the two sectors to chart significantly stronger growth for the year.

The financial services sector is tipped to expand by a median 13.5 per cent this year, up from 10.2 per cent in the last survey.

Meanwhile, according to market consensus, construction would probably grow by 15 per cent this year, instead of the 10 per cent projected previously.

Predictions for manufacturing, wholesale and retail trade, as well as private consumption, also turned more bullish, compared to three months ago.

However, consensus forecasts for non-oil domestic exports and the hotels and restaurants business deteriorated.

Economists’ median expectations for consumer price index (CPI) inflation were raised.

They also forecast a lower jobless rate.

‘The CPI inflation forecast for 2007 rose to a median of 1.5 per cent, from the 1.2 per cent reported in the previous survey, while the outlook for the year-end unemployment rate edged down from 2.6 per cent to 2.5 per cent,’ said the MAS survey report.

Looking beyond this year, economists’ median prediction for 2008 economic growth came in at 6.5 per cent, an improvement over 5.8 per cent in the previous poll.

 

Source: The Straits Times 6 Sept 07