Star stockbrokers make top bid for Kovan site

Duke Development’s bid of $436.55 psf ppr beats 5 others for 99-yr leasehold

A COMPANY controlled by stockbrokers Han Seng Juan and David Loh Kim Kang of UOB Kay Hian yesterday emerged as the surprise top bidders for a 189,812 sq ft site next to Kovan MRT Station and the Kovan Melody condo.

Through Duke Development Pte Ltd, they bid $290.02 million or $436.55 psf per plot ratio (psf ppr) for the 99-year leasehold site, which can be developed into a condominium project with possibly about 600 units averaging 1,200 sq ft.

Duke Development outbid five other contenders at yesterday’s state tender conducted by Urban Redevelopment Authority. The others were:

• Far East Organization’s Bishan Properties, which bid $280.1 million or about $422 psf ppr;

• A tie-up between Hong Leong Holdings unit Kingston Development and ASPF II Delta GmbH ($273 million or $411 psf ppr);

• Frasers Centrepoint ($262.4 million or $395 psf ppr); Allgreen Properties ($256.8 million or $387 psf ppr); and

• GuocoLand unit GLL Ventures ($227 million or $342 psf ppr). Property market players were busy yesterday evening trying to find out just who Duke Development was. The company is a fully owned subsidiary of Duchess Development, whose shareholders are Mr Han, Mr Loh and Angela Loh Moo Cheng, a companies search showed.

Mr Han and Mr Loh, in addition to being prominent stockbrokers at UOB Kay Hian, are also known to be corporate investors, who control stakes in companies like Summit Holdings and Pine Agritech.

They are also well known for pre-IPO China investments, and are dubbed the ‘David and Han Team’ and ‘The Dream Team’, according to stockbroking circles.

Industry players believe that based on Duke Development’s top bid of $437 psf ppr at yesterday’s tender, its breakeven cost for a new condo development on the site could be in around $730 to $750 psf.

CB Richard Ellis executive director Li Hiaw Ho said: ‘It is likely the selling price would range from about $850 to $950 psf. The 778-unit Kovan Melody has sold out and there could be pent-up demand for new homes in this location. Units in Kovan Melody in the secondary market were transacted recently in the low-$800 psf range.’

Prices of suburban condo sites have been rising as the residential recovery spreads to the mass-market. Last month, a plum 99-year condo site next to Ang Mo Kio MRT Station fetched a top bid of $601 psf ppr, a new record for a suburban condo plot.

Mr Han and Mr Loh are well known for pre-IPO China investments and are dubbed the ‘David and Han Team’ and ‘The Dream Team’, according to stockbroking circles.

 

Source: Business Times 3 Oct 07

Call for more hotel rooms amid crunch

WITH hotels filling up and guests having to pay more for their accommodation, there is ‘a call for more hotel rooms’ in Singapore, says a consultant. There are already 15 more hotels planned or under construction, which should help, he says.

In an interview with BT, Patrick Ford, who is president of Lodging Econometrics, an international consultancy based in the United States, said that the HotelBenchmark Survey by accountancy firm Deloitte & Touche shows that Singapore had the third highest occupancy rates in the Pacific Rim at 81.5 per cent, last year. Hong Kong was first and Melbourne second.

The half-year results for the Deloitte report puts occupancy rates for the first half of 2007 at 82.9 per cent for Singapore, a 5.3 per cent increase over the corresponding period for last year. Deloitte reported average room rates for Singapore to be about US$160, a 22.4 per cent growth from the previous year.

Revenue per available room was strong and ‘driven up by average room rates’ Deloitte said, to US$132, a 28.9 per cent rise. The strength of these figures puts Singapore ahead of other Asia Pacific markets such as Hanoi, Mumbai, Manila, Shanghai, Bangkok and Bali.

According to data from Lodging Econometrics, Singapore currently has 15 hotel projects in the pipeline – which have been formally announced in the public domain or are being actively pursued – to provide the hotel industry with more than 6,400 rooms over the next few years.

Of the 15, five are currently under construction, two are expected to start in 12 months and eight are in various stages of early planning. The 15 hotels are expected to be completed between 2007 and 2010.

Two of the 15 hotels will open their doors this year – the St Regis, Singapore, being one of them.

Mr Ford said the upcoming integrated resorts, coupled with Singapore being a popular choice as a MICE destination, keeps the city as a top international market and tourist destination as well as being on the booking rotation for conferences and conventions.

‘It puts Singapore on the map as a hot destination for different reasons and different markets,’ Mr Ford said.

Propelled by the flourishing property market, future hotel developments may have to be luxury or highend ones, so as to reap the highest possible room rates and offset the costs of development and land, Mr Ford told BT. While there will still be a demand for mid-market hotel properties, they may be pushed outside of desirable locations.

 

Source: Business Times 3 Oct 07

HORIZON TOWERS CASE – Counsel: Buyers’ lawyer has ‘outstayed welcome’

Minority owners’ counsel point to several defects in application

(SINGAPORE) The Horizon Towers appeal continued in the High Court yesterday, with the minority owners – those who didn’t agree to the en bloc sale – presenting their objections as to why the Strata Titles Board’s (STB) decision should not be overturned.

And while it was a distinctly more muted session than the previous day’s, sly barbs were still exchanged between the various lawyers – with the atmosphere remaining charged.

The inclusion of the buyers – Hotel Properties (HPL) and its partners – represented by Allen & Gledhill (A&G) in this appeal has been the source of much consternation among the other parties and it obviously continued to rankle some of the lawyers yesterday.

Senior Counsel KS Rajah of Harry Elias Partnership, who represents a group of minority owners, said A&G’s lawsuit was akin to ‘holding a gun to the heads’ of the owners. ‘And yet they dare to come into this courtroom and preach to us what’s right and what’s wrong,’ Mr Rajah complained.

Senior Counsel Michael Hwang, who also represents one of the minorities, took issue with A&G’s tactics. He said A&G Senior Counsel K Shanmugam had ‘outstayed his welcome in these proceedings’ in asking the court to make certain orders for the ‘express purpose of influencing a possible outcome’ of the suit between the buyers and the majority owners.

The viewing public also didn’t spare Mr Shanmugam, who must have felt like the party’s most unpopular guest.

Members of the gallery booed him when he said: ‘We are not in the business of suing people except in the case of serious misconduct.’

This ongoing appeal is meant for the High Court to determine if it should set aside STB’s decision in August to dismiss Horizon Towers’ collective sale application, on the grounds that it was defective because it was missing three signatory pages. The buyers have, in the meantime, sued the majority owners over the botched application.

That suit has been stayed, pending – among other things – the outcome of this appeal.

Doreen Siow, a former member of the sales committee and one of the majority owners, turned up to witness the court proceedings yesterday – braving the torrent of criticism that has been levelled against her. It is A&G’s position that Ms Siow tried to sabotage the en bloc sale.

The emotional outbursts from the crowd prompted Mr Shanmugam to comment that ‘this should not be treated as a circus’ – which moved Justice Choo Han Teck to tell the court officer to keep the public gallery in order.

Mr Shanmugam went on to remind the court and its participants that his clients’ interests are in line with those of the majority owners of Horizon Towers – which is, to see the collective sale through.

The afternoon was taken up by the minority owners’ lawyers, who argued that STB’s decision should be upheld. Mr Hwang and Kannan Ramesh of Tan Kok Quan Partnership both agreed that neither STB nor the High Court had the jurisdiction to amend the defects in the collective sale application, and cited various statutes and case law to support their position.

Mr Ramesh also pointed out that STB has since 2000 required strict compliance with collective sale applications and that, even if the non-compliance were of a technical nature – as the majority sellers and buyers are arguing – it would still strip the board of its jurisdiction to rule a defective application as being valid.

Mr Ramesh and Mr Hwang also agreed that there were more defects in the application than just the three missing pages. Mr Hwang related how, in August, he was interrupted in his cross-examination of the first witness at the STB hearing – when the board decided suddenly to throw out the application. He said there were ‘lots of other cases of discrepancies’ which hadn’t yet been heard and would have to be brought up if the case was sent back to STB.

‘So it isn’t just a matter of these small technical issues,’ he said.

Mr Rajah took a more impassioned tack, saying the missing three pages ‘isn’t just a technicality, it’s a crime’. He also told the court that the law is meant to protect the minorities.

The hearing will continue today, with the majority owners making their replies to the minorities’ submissions.

Judge Choo has indicated he will take a week to rule on the matter.

 

Source: Business Times 3 Oct 07

US spending slowdown won’t hit Asia hard

But risk from China equity correction is a threat: economist

THE threat to Asian economic growth from a slowdown in US consumer spending may not be as great as widely feared, said a senior HSBC economist last week.

Economic growth in Asia is increasingly driven by domestic demand, while the historical relationship between US consumer spending and Asian export growth is quite weak, said Robert Prior-Wandesforde, senior Asian economist at HSBC.

‘We think generally growth in Asia will hold up very well,’ he said. He was speaking to members of the British Chamber of Commerce at the Raffles Hotel.

Overall US economic growth has already been slowing in recent months, but Asian economies have survived this ‘incredibly well’, he said.

And in the last two years, consensus forecasts of Asian economic growth a year ahead have shown an ‘unprecedented divergence’ from similar forecasts for US growth, as economists downgraded their outlook for the US while simultaneously becoming more optimistic about Asia.

He noted that in Malaysia, overall exports have not slowed as much as exports to the US alone, which suggested its exports were increasingly fuelled by demand from Europe, China, India, and other Asian countries.

In Singapore, overall economic growth accelerated in the first six months of the year even as export growth has been slowing, he noted. ‘The domestic economy has managed to shake off the downturn in exports.’

‘There are good chances that it will continue.’ HSBC now predicts 8.5 per cent growth for Singapore this year, higher than the 7 to 8 per cent official growth forecast.

The other main fear – that a slowdown in US consumer spending triggered by falling house prices there would hobble Asian growth – may not be fully justified either, he said.

An analysis of nine major Asian economies including Singapore suggested that total export growth since 1995 was more closely linked to the amount of investment on equipment and software in the US than with American consumer spending.

‘The point is that US tech spending has already slowed pretty dramatically. I think the worst is either close at hand or we may even be past the worst in the US tech cycle, and that is the more important driver of what happens to Asian exports.’

But there remained other risks to his relatively rosy outlook for Asia, including the risk of a correction in the Chinese equity market, where share indices have soared to five times what they were two years ago, he said.

‘The danger is we focus too much on the US and forget about the bigger picture.’

‘There are vulnerabilities in a lot of housing markets around the world, not just in Europe or the US,’ he said.

 

Source: Business Times 3 Oct 07

Emerging-market stocks: views divided

Speculators turn bearish, but bulls are even more confident rally will persist

(NEW YORK) Speculators are increasing their bearish bets against two-thirds of the 50 largest emerging-markets companies. That’s making the bulls even more confident stocks will keep rising from Brazil to China.

Short sales on Brazilian oil company Petroleo Brasileiro SA’s US-traded shares climbed in September to the highest since July 2006, data compiled by Bloomberg show. Wagers against Woori Finance Holdings, South Korea’s third-biggest financial services company, jumped to a four-year high. Options to sell China Mobile Ltd, the world’s largest wireless phone company by users, exceeded those to buy by the most since 2000.

Bears say the five-year rally that lifted the Morgan Stanley Capital International Emerging Markets Index more than 300 per cent to a record last week is over. They’ve got it wrong, say DWS Scudder, Credit Suisse Group and Fisher Investments Inc, which oversee US$1.7 trillion and expect faster economic growth to help developing nations avoid the stock tumbles of 1998 and 2000. Rather than causing declines, the bears will fuel gains by covering their positions, says DWS.

‘To me, it’s a more bullish sign,’ said Robert Froehlich, Chicago-based chairman of the investor strategy committee at DWS Scudder, which helps oversee US$333 billion as the US mutual fund unit of Frankfurt-based Deutsche Bank AG. ‘You’ve got a group of people that says, ‘Just because it’s gone up more than the rest of the market, just because it’s a high flyer, it means it has to go down.’ I don’t think that’s the way to make money.’

Developing markets are Mr Froehlich’s favourite pick and he expects their shares to gain as much as 8 per cent this quarter. His firm added to its stock positions in China, Taiwan, South Korea and Poland when the MSCI Emerging Markets Index fell 18 per cent in the 18 days ended Aug 16. The measure has since climbed 26 per cent to a record.

During the market’s rebound, short sales – where traders sell borrowed shares on expectations prices will fall – climbed for 36 American depositary receipts in the Bank of New York Emerging Markets 50 ADR Index in the month ended Sept 14, Bloomberg data showed. They fell or were unchanged for 14 stocks.

Among the 10 biggest companies, short interest increased for seven, including Rio de Janeiro-based Petrobras, Brazil’s state- owned oil company. Short sellers upped their bets against the ADRs to 13.6 million shares in mid-September, the highest since July last year and a jump of 8.4 per cent from a month earlier.

Buying insurance

Wagers against Seoul-based Woori Finance’s ADRs increased to 120,295 shares in mid-September, the highest since they were listed in 2003 and almost three times more than in mid-July.

In the options market, the ‘put-call ratio’ on China Mobile jumped to 2.07 times in September, the highest since the same month in 2000. Higher ratios indicate investors are buying more insurance against price declines. Puts give the right to sell a security for a certain amount, called the strike price, by a given date. Calls convey the right to buy.

The MSCI Emerging Markets Index plunged 54 per cent from its peak on Feb 10, 2000, after a global sell-off in technology stocks caused investors to abandon riskier assets. The measure has since climbed almost fivefold from its low on Sept 21, 2001, as growth in the US and China spurred demand for everything from mobile phones to oil and iron ore.

The MSCI Emerging Markets Index climbed 14 per cent in the third quarter, beating a 2 per cent gain in developed markets.

Developing nations posted nine of the 10 biggest advances last quarter, led by a 48 per cent surge in China’s CSI 300 Index. Bulgaria’s Sofix index rose 31 per cent after economic growth got a boost from the nation’s integration in January with the European Union. Turkey’s ISE National 100 Index added 15 per cent, helped by the re-election of Prime Minister Recep Tayyip Erdogan that gave him a mandate to proceed with EU membership talks.

Emerging-market stocks have become victims of their own success and are now too expensive relative to earnings, according to Fifth Third Asset Management’s Keith Wirtz.

The MSCI Emerging Markets Index is valued at 17.20 times companies’ profit, compared with a ratio of 16.34 for the MSCI World Index. That’s the biggest discount that developed nations have traded at versus emerging markets since February 2000, according to weekly data compiled by Bloomberg.

‘There seems to be better relative valuations in the developed world,’ said Mr Wirtz, who oversees US$22 billion as Fifth Third’s chief investment officer in Cincinnati. He’s been selling shares in China, the Philippines, and Malaysia and adding technology, industrial and energy stocks in the US and Japan.

Adrian Mowat, chief Asian and emerging-market strategist for New York-based JPMorgan Chase & Co, wrote in a note last week that developing nations’ stocks may be dragged down by a global slowdown and that investors are in ’state of denial’ about the threats to economic and profit growth.

Favourite regions

Credit Suisse’s Robert Weissenstein is more sanguine. He said companies in developing countries will profit the most because their economies are growing the fastest.

Developing countries are forecast to expand 8 per cent this year, compared with 2.6 per cent for advanced economies, according to the Washington-based International Monetary Fund. China, India and Russia will account for half of the world’s growth.

‘Favourite regions? I’d go with the emerging markets,’ said Mr Weissenstein, New York-based chief investment officer for private banking in the Americas at Credit Suisse, which oversees US$1.33 trillion. ‘They offer a tremendous value in terms of earnings growth. For three times the growth, you bet I’d pay more.’

China Mobile’s Hong Kong-listed shares have tripled in the last two years, making it the world’s fourth-largest company by market value. The Beijing-based company, whose 343.6 million customers outnumber the US population, said profit surged 29 per cent last quarter after adding a record number of users.

For Kenneth Fisher of Fisher Investments, the largest shareholder of China Mobile’s ADRs, that means the bears will ultimately capitulate and help fuel further gains.

‘They’re spitting into the wind,’ said Mr Fisher, who oversees about US$42 billion at Fisher Investments in Woodside, California. ‘It tends to make me more bullish.’ 

 

Source: Bloomberg (Business Times 3 Oct 07)

MGPA sells 12 floors of offices for quick profit

$225m sale price is 70% up from price it paid in Jan for space in Springleaf Tower

TWELVE floors in Springleaf Tower that were bought in January for $134 million have been sold again for $225 million – an increase of almost 70 per cent.

The seller is Macquarie Global Property Advisors (MGPA) which made headlines recently by submitting the top bid of $2.02 billion for a development site at Marina View.

The buyer of the SpringLeaf Tower space is SEB Asset Management (SAM), part of German pension fund manager SEB, which bought SIA Building from CLSA Capital Partners in April for more than $525 million.

SAM said in a statement yesterday the Springleaf Tower investment is its second in Asia for its new SEB Asian Property Fund, after it acquired an office tower in Shanghai’s Puxi district in a 50-50 joint venture with Pacific Star at the beginning of September.

In Singapore, churn in the office sector appears to be increasing.

CLSA Capital Partners, for instance, acquired the SIA Building for $344 million in June 2006 before selling it less than a year later for 50 per cent more.

MGPA acquired Temasek Tower in March for $1.04 billion. And with capital values rising, it too could sell for a quick profit.

According to a report by CB Richard Ellis (CBRE), the average capital value of prime office space was an estimated $2,900 per square foot in Q3 2007, reflecting an increase of 16 per cent quarter on quarter and 114.8 per cent year on year.

CBRE said prime office yields were 4.32 per cent – up only slightly from 4.23 per cent in Q2 2007. But that has not stopped investors buying offices.

It said the office investment market remains active, with $3.459 billion of transactions in the third quarter. Notably, a fund linked to Goldman Sachs bought Chevron House for $366.4 million or $2,780 psf of net lettable area,

setting a new benchmark that exceeded the $2,650 psf that British-based property fund Develica paid for One Finlayson Green in June.

SAM expects an internal rate of return of 9 per cent per annum on its investments.

 

Source: Business Times 3 Oct 07

Growth of office rentals to slow

Tenants prepared to explore lower-cost locations and alternative premises: CBRE

ENOUGH is enough. Or so it seems for those having to pay high office rents.

CB Richard Ellis (CBRE) executive director (office services) Moray Armstrong foresees further rent rises but reckons that the pace of increases will slow.

‘We have observed tenants’ increasing resistance to rental hikes,’ he said. ‘Occupiers are more prepared to explore lower-cost locations and alternative premises such as business parks and high-tech space.’

CBRE’s analysis of Q3 2007 data shows prime office rents averaged $12.60 psf per month, an increase of 16.7 per cent quarter on quarter (QoQ) and 82.6 per cent year on year (YoY).

Grade A office rents now average $14.90 psf per month, an increase of 13.7 per cent QoQ and 96.1 per cent YoY.

CBRE said that at end-August, full potential supply – the sum of known private sector project supply, awarded Government Land Sales sites and potential supply from expected future land sales – was 10.8 million sq ft for 2007- 2012.

This reflects an increase of 147 per cent from full potential supply of 4.4 million sq ft identified two quarters ago at end-March 2007 and works out to average potential annual supply of 1.8 million sq ft for the next six years, higher than the past 10-year average supply of 1.5 million sq ft per annum.

Based on projected average annual take-up of 1.6 million sq ft for 2007-2012, CBRE forecasts relative equilibrium between supply and take-up over this period, remaining in the range of 91 to 95 per cent even if full potential supply materialises.

‘On the supply side, the government’s reaction has been measured so far, but care is required in monitoring any future change in demand for office space,’ says CBRE.

‘As such, it may be timely for all in the sector – landlords, tenants, policy-makers – to take stock of the market dynamics in setting out policy and making decisions.’

The temptation to keep pushing rents is why Colliers International expects a modest office building at 23 Middle Road to be attractive.

The indicative price for the six-storey building – which has a total gross floor area of 23,499 sq ft and a net lettable area of 17,314 sq ft – is $28 million or $1,600 psf of net lettable area.

Colliers’ executive director for investment sales Ho Eng Joo says: ‘If tenants in the CBD have to pay more than $10 psf per month they may as well consider buying their own property rather than face landlords who keep raising rents.’

Mr Ho expects accountancy and law firms may be among the bidders for the Middle Road building.

With space tight, office property also has good investment potential.

Based on average rent of $6-$8 psf per month in the Middle Road area, Mr Ho expects an investment yield of 4-5 per cent.

And with capital appreciation, gains could be much higher.

 

Source: Business Times 3 Oct 07

Vibrant new logo for Raffles City brand

CEO: Another step towards realising investment potential

CAPITALAND yesterday launched a new logo for its Raffles City brand at the 21st anniversary of Raffles City Singapore.

Capita-Land chief executive Liew Mun Leong said that the re-branding was another step towards realising Raffles City’s investment potential.

‘We have said that we would grow the number of Raffles City developments globally to 10 or even more. We are working on this, with prospects in several gateway cities.’

CapitaLand said that its new clean-cut, vibrant and modern logo encapsulates Raffles City’s sophistication and timelessness as an international icon.

Minister Mentor Lee Kuan Yew, who spoke at the event, said that the Raffles City site was where Raffles Institution stood, where he studied for four years from 1936 to 1939.

However, Raffles City Singapore transformed the landscape in the very heart of the city, MM Lee said.

‘It was a bold engineering move of its time, the biggest development project in Singapore which linked the central business district in Shenton Way to the shopping belt in Orchard Road.’

‘It was to be a city within the city,’ Mr Lee said.

And as Raffles City goes global, it is also bringing other ‘Made in Singapore’ retailers such as BreadTalk and Bee Cheng Hiang along.

‘With more Raffles City developments, together with their Singapore retailer tenants established in key cities around the world, they can over time become another marketing icon for Singapore,’ Mr Lee said.

CapitaLand is building several new Raffles Cities in Beijing, Chengdu and Bahrain.

 

Source: Business Times 3 Oct 07

ARA Asset Mgt files prospectus for listing in S’pore

IPO pricing slated for Oct 25 after roadshows; listing on Nov 5: sources

REAL estate fund firm ARA Asset Management yesterday filed its prospectus in Singapore for an initial public offering which sources close to the deal said may raise US$200 million for its shareholders and the firm.

Singapore-based ARA, which managed US$4.7 billion of assets at the end of June, said the company would offer new shares while two of its shareholders, JL Investment Group and Cheung Kong Investment, would also sell shares in the firm.

JL Investment Group, owned by ARA chief executive John Lim, owns 70 per cent of the firm while Cheung Kong Investment, a unit of Asia’s richest man Li Ka-shing’s flagship group, owns the rest.

The prospectus did not say how big a stake the key shareholders planned to offload in the IPO.

But sources close to the deal said the firm would sell 243 million shares or 42 per cent of the enlarged share capital.

The real estate fund management firm has appointed Credit Suisse and Singapore’s DBS Bank as lead managers, the prospectus said.

The firm manages private funds and real estate investment trusts, or Reits, including two which are listed in Singapore – Fortune Reit and Suntec Reit .

ARA also manages Prosperity Reit in Hong Kong and Amfirst Reit in Malaysia, according to its website.

Its private funds include Al Islami Far Eastern Real Estate Fund and China Capital Partners.

The prospectus said that the IPO would raise S$39.8 million as seed capital for ARA Asia Dragon Fund and S$21.4 million for other real estate projects and the remaining for working capital.

It said the ARA Asia Dragon Fund plans to raise US$1.3 billion for real estate projects in Asia.

The firm plans to organise investor roadshows from Oct 9 to 23, while the IPO is expected to be priced on Oct 25, the source said. The company will be tentatively listed on Nov 5, the source added.

 

Source: Reuters (Business Times 3 Oct 07)

MONEY MATTERS – Yes, sub-primes still offer an investment opportunity

And this is despite the matter having morphed into a more general credit crunch problem

By JOSEPH CHONG

I RECEIVED a few queries from readers of my last article in BT (‘Deciphering the message of the markets’, Aug 1), which discussed, among other things, the origins of the recent sharp market retrenchment. There were two main issues:

1. The graphics were unfortunately left out of the published column. Here they are. The five-day chart demonstrates the tight correlation between the fall in European markets and the strength of the yen as hedge funds and Mrs Watanabe (Japanese housewives) got unwound by margin calls.

2. Was I opining that the fall in markets was an investment opportunity? My apologies about being insufficiently explicit. Yes, the answer is that it was a buying opportunity.

Indeed, I believe this is still an investment opportunity although the sub-prime problem has morphed into a more general credit crunch problem arising from the loss of confidence within the global financial system.

Due to the lack of transparency, it is difficult for each bank to determine what sub-prime debt exposure their banking counterparts have. Although much of the sub-prime mortgages have been replicated as bonds and sold off to investors worldwide, banks have off-balance-sheet liabilities in the form of ‘conduits’, etc, where borrowers (who hold these bonds backed by sub-prime mortgages) could draw on lines of credit with these bonds as collateral.

Central banks around the world have generally managed this fiasco fairly well. There is no loss of confidence amongst depositors except in the UK, where Northern Rock unnecessarily suffered the ignominy of a bank run.

The confidence of depositors is not misplaced. Most of the world operates a system of fiat money with central banks (who control the monetary printing press) being lenders of last resort. Any problem which can be solved by ‘printing’ money is in principle a straightforward one for central banks to deal with.

The individual exposures may be hard to ascertain but things look different from a system perspective. Here’s my quick analysis:

• Combined profit of all listed banks and insurers at US$1.1 trillion.

• Total sub-prime debt at US$0.6 trillion.

• Assuming a write-down of 30 per cent of collateral value, loss at US$0.18 trillion. This would be a one-off loss equal to only about two months of profits of all listed banks and insurers.

• Yet, the loss of market capitalisation at the market nadir was US$1.5 trillion for global financials and US$4 trillion (more than 20 times the projected loss on sub-prime debt) for the global equity markets.

  Does the market reaction make rational sense? Nonetheless, the dislocation in the capital markets has had an impact on business confidence surveys globally. The imponderable is, as always, the contagion effects. How does this affect the wider economy? Exact quantification is difficult. It is not only uncertainties with the economic modelling; policy response also plays a significant role in the outcome.

Fight or flight?

To get a measure of our ‘fear factor’, I did another quick analysis. This time I used the most recent economic cataclysm: the Telecom-Media-Technology (TMT) bust of 2000 to 2003. Capex spending was running far in excess of GDP growth. It is estimated that the overinvestment in capex leading to 2000 globally was (cumulatively) circa 10 per cent of global GDP, or US$2.5 trillion.

This eventually led to write-offs and bankruptcies on a massive scale. The subsequent impact on global GDP is estimated to be (cumulatively) about minus-6 per cent. See demonstrative charts (above), which were sourced from Moody’s Economy.com – the horizontal dash line marks the level of trend GDP growth in the US and the euro zone.

The impact of this sub-prime fiasco appears tolerable as the drag on global GDP is expected be in the region of 0.5 per cent. Ironically, this could be the enforced rest that the global economy requires in order to keep inflation at bay.

Indeed, the rise in money supply from rate cuts combined with reduced demand from the real economy could expand equity PERs over the next few months as excess money supply rises. Fundamentally, the S&P Global 100 Index trades at about 13.1 times, trailing earnings (about 12.1 times one-year forward earnings), which is compelling relative to long-term fixed income yields. For example, 10-year USTs are trading at a yield of 4.6 per cent.

The writer is CEO of financial adviser New Independent. He welcomes feedback at josephchong@ni.com.sg.

This article is for information only. Readers should seek independent advice before making any investment decisions.

 

Source: Business Times 3 Oct 07

RESEARCH HOUSE REPORT – S’pore leads Asia-Pac in homes price boom

SINGAPORE’S property market is setting the pace as real estate prices soar across the Asia-Pacific region.

The country posted a ‘remarkable house price growth’, year on year, of 21.05 per cent for the 12 months ended June, up from 6.08 per cent the previous year, an online research house, Global Property Guide, said yesterday.

That placed it fourth in the overall ranking of 42 countries and top in the region.

Singapore’s property market recovery from an ‘eight-year house price slump’ was ‘thanks to its booming economy’, the report added.

Top spot went to the Baltic state of Latvia while its neighbour, Lithuania, came in third. Bulgaria was second.

All three recorded price rises of 25 per cent or more for the year ended June compared with the same period a year ago.

Some other Asia-Pacific economies that made the rankings included the Philippines, which had price growth of 14.29 per cent, placing it seventh, and Hong Kong – in 14th position with 8.78 per cent growth.

Unlike most Asian countries, Thailand’s prices dropped by 3.47 per cent for the period after a rise of 3.92 per cent for 2006.

While prices in the Asia-Pacific are heating up, Europe’s price growth continues its moderate trend, said the report.

 

Source: The Straits Times 3 Oct 07

Big developers lose bidding for prime Kovan plot

BIG gun property developers who lined up for a prime residential site in the Kovan area were pipped in the bidding by a firm hardly anyone has heard of.

Duke Development placed the top bid of $290 million for the 190,000 sq ft site in Simon Road, trumping highprofile rivals Far East Organization, Hong Leong Holdings, Frasers Centrepoint and Allgreen Properties.

Duke is believed to be a group of private investors with a pair of top dealers as shareholders.

A company search turned up Mr Han Seng Juan and Mr David Loh as Duke shareholders. They are former executive directors at UOB Kay Hian, the brokerage arm of United Overseas Bank.

Both Mr Han and Mr Loh, who are believed to be related, also hold shares in Cybertech Communications and Healthstats International, among other companies.

Their winning bid works out to about $437 per sq ft (psf) per plot ratio, and is a ‘reasonable bid’, said CB Richard Ellis Research executive director Li Hiaw Ho.

Mr Li believes this offer can break even at about $800 psf for the finished condominium units, which are likely to sell at between $850 psf and $950 psf.

Nearby Kovan Melody has sold out all 778 units, a testament to the strong demand for homes in the area. The units are now being resold in the secondary market for more than $800 psf, said Mr Li.

He added that part of the area’s attraction are the good schools in the vicinity, such as Rosyth School and Maris Stella High School.

A condominium with about 555 units can be built on the Simon Road site, which has a maximum gross floor area of 664,337 sq ft.

Apart from homes, the plot can also host service apartments, said the Urban Redevelopment Authority.

 

Source: The Straits Times 3 Oct 07

Is the worst over?

Investors and analysts clash over whether the global sub-prime mortgage crisis has turned the corner

Yes, say investors

POSITIVE OUTLOOK

• Banking giants disclose sub-prime related losses on Monday but investors take the disclosures as a sign that the worst may be over.

DOW’S RECORD CLOSE

• Investors push US stocks to its highest-ever close on optimism that the sub-prime crisis is nearing its end.

• Key index ends Monday up 1.4 per cent at 14,087.55.

• Stocks recover all of the nearly US$2 trillion (S$2.98 trillion) lost in July-August rout.

CITIGROUP AND UBS DISCLOSURES BRING RELIEF

• Bad news from two banking giants but investors choose to focus on the positives.

• Citigroup to write off US$5.9 billion (S$8.8 billion) in third quarter. Profit to drop 60 per cent. Citi chief executive Charles Prince says profits will return to normal in fourth quarter. Investors choose to focus on this healthy forecast.

• UBS to write off US$3.4 billion and suffer a loss in the same quarter. But it indicated that the current period might see a return to normal earnings levels.

GREENSPAN UPBEAT

• ‘Is this August-September credit crisis about to be over? Possibly,’ says former US Federal Reserve chairman Alan Greenspan. He cites signs that lenders are seeking to buy longer-term assets of lower quality.

ANOTHER RATE CUT

• Investors still expect another rate cut from the Fed to boost the US economy.

Maybe not, say analysts

NOT ENOUGH ASSURANCE

• Conditions in the credit market are still fragile. Many problems remain for the United States economy, especially in the housing sector.

• ‘The question really is, ‘Is this the end of it or not?” Mr Axel Merk, portfolio manager of the Merk Hard Currency Fund told the Washington Post. ‘For whatever reason, the market wants to see the glass as half full. I just think we need to see more,’ he said.

MORE PAIN FOR BANKS

• Banks cleaning up their balance sheets only solves half the problem. Going ahead, they are likely to generate less income as the buyout boom slows.

• Banks must find ways to replace the income from sub-prime mortgages, a market that could take years to recover.

HOUSING RECESSION NOT OVER

• The US consumer spending is being hit by falling home prices, higher mortgage rates and foreclosures. Thus lower spending will adversely affect the economy in the long run.

• Most US adjustable-rate home loans will reset over the next several years at higher rates. This could lead to more foreclosures and a fall in home prices.

FALSE RALLY?

• Analysts caution: Do not read too much into the Dow’s rally.

• This is because the rally was achieved on low trading volumes.

• Shares of large companies recovered because of investments in strong economies overseas and a weak US dollar.

• Many mortgage companies, banks and home builders are still trading far below their highs.

 

Source: The Straits Times 3 Oct 07

Minority owners make their case for Horizon Towers

HORIZON Towers minority owners said yesterday that the Strata Titles Board (STB) was right to throw out the estate’s collective sale application over a paperwork glitch.

Mr Ramesh Kannan, who is representing some minority owners, told the High Court that rules should be followed particularly strictly, because they involved compulsory acquisitions of assets.

‘The approach must be strict compliance…when it comes to the forced acquisition of people’s homes,’ said Mr Kannan, adding that the STB had consistently advocated strict compliance in previous cases. The sellers argued on Monday that the glitch – three missing pages – was a technicality that STB could overlook.

They want the court to reverse the STB’s August decision to abort the deal. This would allow the $500 million sale to a group headed by Hotel Properties to go ahead.

But Mr Kannan and Senior Counsel K.S. Rajah, who is representing another group of minority owners, argued that the STB had no powers to disregard the missing pages.

Mr Kannan also noted that upcoming changes in legislation will give the STB the power to ignore technical irregularities, as long as no owner’s interest is prejudiced.

The introduction of this rule proves that Parliament recognises that the STB now has no such powers, he said.

Mr Kannan, Mr Rajah and Senior Counsel Michael Hwang are acting for different groups of minority owners but all argue that the STB’s decision be upheld.

But while the floor was largely given over to the minority owners’ lawyers yesterday, Senior Counsel K.

Shanmugam – acting for Horizon Towers buyers – made a brief appearance.

He told Justice Choo Han Teck that his clients’ only interest was to see the sale through. If this happens, the buyers will withdraw their suit against the sellers for breach of contract, without claiming costs, he said. The buyers are claiming up to $1 billion in lost profits.

‘We are not in the business of suing,’ he added, to sneers from the public gallery, where about 40 residents of Horizon Towers were sitting.

The hearing ends today, with the sellers’ lawyer responding to yesterday’s arguments. A decision is expected from Justice Choo in about a week’s time.

 

Source: The Straits Times 3 Oct 07

Raffles Cities abroad help to extend S’pore brand: MM Lee

CapitaLand blazes a trail for local firms by exporting mall concept overseas

RAFFLES City has become a landmark since it opened two decades ago, and CapitaLand’s efforts to take the concept overseas has extended Singapore’s global footprint, said Minister Mentor Lee Kuan Yew last night.

He told a ceremony marking the building’s 21st anniversary that the site had special memories. ‘This was where Raffles Institution stood for more than a century before Raffles City. I was a student here for four years from 1936 to 1939. We demolished several old, brick two-storey buildings of considerable historical value.’

The complex – comprising a mall, two five-star hotels and a premium office tower – that was built transformed the landscape in the very heart of the city and was the largest development project in Singapore at the time.

‘Raffles City has added to the unique Singapore brand and gained international recognition for itself and Singapore,’ said Mr Lee, adding that it attracted many tourists and business travellers daily.

But with developer CapitaLand exporting the Raffles City concept to cities such as Shanghai, Beijing, Chengdu and Manama in Bahrain, it was also blazing a trail for other Singapore firms, he said. ‘Reflecting the excellence associated with the Singapore brand, Raffles City Shanghai recently won the accolade of being one of the best buildings in China.’

Other ‘made in Singapore’ retailers have also joined Raffles City overseas, with familiar names such as BreadTalk and Bee Cheng Hiang featuring in the malls.

‘With more Raffles City developments, together with their Singapore retailer tenants established in key cities around the world, they can, over time, become another marketing icon for Singapore,’ said Mr Lee.

CapitaLand plans to increase the number of Raffles City projects to 10 and a number of major cities have already expressed interest. It also unveiled a new logo for the Raffles City brand, which is similar to the developer’s own logo.

CapitaLand president and chief executive officer Liew Mun Leong said yesterday the logo would help expansion.

‘Now that we have achieved the critical mass of five Raffles Cities, it’s high time we consolidate the image,’ he said.

Mr Liew added he expected gains in private home prices to slow in the fourth quarter.

Third-quarter prices rose by 8 per cent to a 10-year high but the increase slowed for the first time since prices began to rise two years ago. ‘The momentum will be there but may not be as fast. It will not be fast growth but there will still be growth,’ said Mr Liew.

 

Source: The Straits Times 3 Oct 07