Sales of state land fetch $6.3b for year to March

Bulk of bumper takings comes from sales to private sector for $3.55b

THE government collected $6.3 billion selling state land during the year ended March 31, up from $5.5 billion in the preceding year – but still shy of the record $14 billion for the year ended March 31, 1998.

The bulk of the latest year’s bumper takings came from selling land to the private sector for a total of $3.55 billion, up from the previous year’s $3.3 billion, according to the Singapore Land Authority’s latest annual report.

The SLA also sold $2.75 billion of land to statutory boards such as Singapore Tourism Board, Sentosa Development Corporation and JTC Corp under public sector sales in the latest year, higher than the previous year’s $2.2 billion.

Rental collections for state land and properties (including Temporary Occupation Licence fees) amounted to $514.3 million for the year ended March 31, 2007, up from $387.3 million in the preceding year.

The SLA reported a 39 per cent increase in net surplus to $13.67 million, on the back of a 9.7 per cent improvement in total income to $88.6 million. Operating income from land sales agency fees as well as title registration and related fees went up 10 per cent.

To meet competing demands for space for office, business, educational and commercial uses during the past year, the SLA stepped up to meet increased demand for state properties. In January to September, 13 state properties were turned into dedicated office space to help ease the supply crunch in this market.

The occupancy rate of state properties managed by SLA rose to 86 per cent in the latest year, up from 82 per cent in the preceding year, while the utilisation rate of state land managed by the SLA rose to 77.8 per cent from 76 per cent previously.

As custodian of state land and properties, the SLA manages about 14,000 hectares of state land and about 5,000 state buildings that have been put to use as offices, education centres, restaurants, recreational, retail and hospitality space. Its stock of buildings includes about 700 colonial ‘black and white’ residential bungalows.

 

Source: Business Times 4 Oct 07

Stockbroker team eyeing more deals

David Loh, Han Seng Juan who won Kovan site may also rope in partners

THE ‘David and Han Team’ of top stockbrokers that has been awarded a condo site in Kovan for $290.02 million, is looking at more property ventures in Singapore and the region across various sectors, including residential, office and hotels.

The Kovan condo will be the duo’s maiden property development project, and they are expected to rope in some ’strategic partners’, including a construction firm for the project.

‘The condo is likely to have around 500 to 600 units, and could be launched sometime in the second half of next year. We’re looking at an average selling price above $850 per square foot, but of course if the market goes up, we’ll be very happy,’ says Tony Bin, CEO of Duchess Development, the holding company of Duke Development, the vehicle that Han Seng Juan and David Loh Kim Kang used to bid for the 190,000 square feet site next to Kovan MRT Station at a state tender that closed on Tuesday.

The $290.02 million bid for the Kovan site reflects a unit land price of $437 psf per plot ratio, and based on this, market watchers reckon the breakeven cost for the new condo works out to around $730-750 psf.

Mr Han and Mr Loh work at UOB-Kay Hian and are also well known as pre-IPO China investors. ‘They are diversifying into property,’ as Mr Bin puts it.

The two men will only be investors/shareholders and not be involved in the management of Duchess Development, which will be left to a professional team, added Mr Bin, who was formerly general manager of the property division of Guthrie GTS.

Market watchers reckon that given Mr Han’s and Mr Loh’s strong interest in China, it would not be surprising if they could also be looking at property ventures in that market.

 

Source: Business Times 4 Oct 07

Hertford Mansion, Holland Hill Lodge up for en bloc sale

HOME owners are going ahead with collective sales, with Colliers International marketing two new freehold sites.

One site, Hertford Mansion, is located at Hertford Road/Bristol Road, near Farrer Park, and the indicative price for the 11,527-square-foot plot is $12 million or $744 per sq foot per plot ratio (psf ppr).

The other site, Holland Hill Lodge, is expected to fetch $16 million. This works out to $1,108 psf ppr for the 9,033-sq-ft site.

Home owners’ price expectations may have been affected by the resent US sub-prime mortgage crisis as well as new requirements for collective sales. Colliers executive director (investment sale) Ho Eng Joo said: ‘Sellers have to be more realistic in the event that the en bloc sales slow down. It’s always a two-way traffic.

‘Every owner would, of course, like to sell their property at a price as high as possible. But, they also need to take into consideration whether developers are willing to pay the price.

‘Developers will be watching very closely the launches of new projects in order to price their costs of acquisition.’

With the process of organising an en bloc sale likely to be slower than before, Mr Ho expects the buying interest of developers could turn towards the city fringe and/or suburban areas where prices are lagging behind the high-end market.

The break-even cost for Hertford Mansion is about $1,100-$1,200 psf.

Mr Ho believes that given the flat contour and the regular shape of this site, the successful bidder could redevelop it into a boutique residential development with a five-storey block accommodating 20 units of 900 sq ft each.

The break-even price for Holland Hill Lodge is approximately $1,500-$1,600 psf. Mr Ho said: ‘Given that all the owners have already consented to proceed with the sale, there is no need for approval from the Strata Titles Board. As such, the legal process of transferring the ownership can be expected to complete within three months.’

There is no development charge payable for either site.

 

Source: Business Times 4 Oct 07

HORIZON TOWERS SAGA – Owners: missing pages are a minor defect

Judge Choo to deliver judgment on appeal next week

(SINGAPORE) Yesterday’s penultimate Horizon Towers appeal session was a decidedly tamer affair.

Still, Senior Counsel K Shanmugam of Allen & Gledhill (A&G), acting for the Hotel Properties consortium, was not spared heckling by majority owners seated in the public gallery when he sought permission from the court to address submissions made by the minority owners the day before.

Senior Counsel Michael Hwang, representing one of the minorities, opposed the move vigorously, arguing that only the applicants for the appeal – that is the majority owners, represented by the sales committee and their lawyers, Tan Rajah & Cheah – be allowed to reply to earlier submissions.

Judge Choo Han Teck proposed a middle ground: he will accept a written reply from Mr Shanmugam, but not an oral rebuttal, after the session.

Overall, the session was relatively calm, with Senior Counsel Chelva Rajah of Tan Rajah & Cheah, representing the majority owners, replying to submissions made by the minorities.

Mr Rajah rebutted the minorities’ claims that three missing pages could render an entire collective sale application null and void. At the heart of this appeal is whether the Strata Titles Board (STB) was right, in August, to throw out Horizon Towers’ application because it was missing three signature pages.

‘There has to be some proportion to this,’ Mr Rajah exhorted. He said that if the missing pages were substantial, then he would agree that it could be considered invalid. But, in the case of Horizon Towers, the three signature pages of the collective sale agreement – appended to the application – were only accidentally left out.

‘And it’s not really three pages, because one of the pages was there – but it was a copy of the faxed version, rather than the original – so it’s actually just two missing pages in question,’ Mr Rajah added. ‘Nothing can be more minor than this.’

He also cited the case of Dragon Court’s en bloc sale in 2003. The case went to court on a similar issue of missing disclosure. In that case, it was not disclosed that some of the owners were linked to the buyer. But the High Court allowed that application to stand, because the non-disclosure was subsequently made to the STB during the hearing.

Leaning on that judgment, Mr Rajah pointed out that Horizon Towers’ majority sellers had done the same – they had brought the missing pages to the attention of the STB during the August hearing.

He also argued against the minorities’ claims that the board – which heard the Horizon Towers’ application – had no power to amend the defective application. The minorities said the board was not properly constituted because the application, which leads to the constitution of the board, was defective.

But Mr Rajah said that regulations – and the Parliament’s recent amendments to en bloc rules – clearly show that the board was properly constituted, upon receiving the application, and had the power to cure any defects.

He concluded by asking the court to consider the facts of this case and decide if an entire application could be rendered invalid because of two missing pages.

Justice Choo adjourned the hearing to next week, at a date to be set later, when he will deliver his judgment on the appeal.

 

Source: Business Times 4 Oct 07

CapitaLand CEO targets one new Raffles City a year

The company also aims to manage 10 Reits eventually

CAPITALAND group president and CEO Liew Mun Leong yesterday set the company the target of developing at least one new Raffles City every year.

Mr Liew, who was briefing the media on the group’s plans for the Raffles City brand, said CapitaLand aims to have five more Raffles City developments within the next five years, making a total of 10.

He also said that CapitaLand may inject the Raffles City developments into a Raffles City real estate investment trust (Reit), once all the developments are stable and deliver good yields.

He added that CapitaLand aims to manage 10 Reits eventually, possibly within ‘a relatively short time’.

The news comes after the announcement on Tuesday that CapitaLand hopes to double the number of current Raffles City malls to at least 10.

Even this number could increase. ‘At CapitaLand, we like to double our targets,’ Mr Liew said, only half in jest.

China, which already has three Raffles Cities in different stages of development, could have two or three more.

Other countries and gateway cities that have expressed interest in having CapitaLand develop a Raffles City development include India, Vietnam, Japan, and gateway cities in countries such as Russia and in the Gulf Cooperation Council (GCC) region.

Although the Raffles City model is anchored by a large mall, it is in essence a ‘branded integrated development’ with a combination of possible office, hotel and retail segments.

CapitaLand owns the Raffles City trademark, and Mr Liew said: ‘If you have a good product and don’t take advantage of it, someone else will copy it.’

In terms of strategic business unit performance, CapitaLand Commercial registered revenue of $43.2 million in the second quarter of this year, up almost 50 per cent year-on-year.

CapitaLand said this was due mainly to the consolidation of revenue from Raffles City Shanghai which became a subsidiary in September 2006 and higher property management fee income.

Separately, CapitaLand announced yesterday that it had established two indirect wholly owned subsidiaries incorporated in China: Xinyun Investment Management (Hangzhou) Co and Beijing CapitaLand Xin Ming Real Estate Development Co.

 

Source: Business Times 4 Oct 07

Banyan Tree to double global assets by 2010

It plans to move into Latin America, the Caribbean, Middle East, Mediterranean

BANYAN Tree, a leading manager and developer of premium resorts, hotels, spas and galleries, is on an aggressive expansion push to more than double its global portfolio by 2010.

Banyan Tree executive chairman Ho Kwon Ping said it is moving into new markets in Latin America, the Caribbean, the Mediterranean and the Middle East, in addition to stepping up its presence in South-east Asia, the Indian Ocean and North-east Asia (China and Korea).

The group’s investments will involve new projects as well as organic growth as it continues to improve and add capacity to existing properties, he said in an interview on the sidelines of celebrations to mark its 20th year in Phuket.

On Phuket island, where the flagship Banyan Tree resort is located, plans are afoot for a new project adjacent to the existing 600-acre Laguna Phuket which houses six properties that are built on land which has been rehabilitated from a polluted abandoned tin mine.

Banyan Tree subsidiary, Laguna Resorts and Hotels, has just concluded a joint-venture agreement with a prominent local Phuket businessman Kanit Yongsakul to develop the 7 million sq ft plot for housing, retail and commercial uses (including office space), plus a hotel.

To be called Laguna Lake, the project is expected to reach the peak of development in three to four years.

The potential revenue contributions from this development could be S$400 million to be realised over a medium term period, the company said.

The residential portion of the development will offer upscale condominium units, bungalows and townhouses.

Mr Ho also revealed that within Laguna Phuket, the group plans to add a seventh hotel. This one will be under its Angsana brand. Room rates will be the second highest after the flagship Banyan Tree Phuket.

Construction of the 150-room property will start next year and is scheduled to be completed in 2009. It will cost 1.5-2 billion baht (S$70-93.4 million).

The group’s first hotel to open in Laguna Phuket in 1987 was the Dusit Laguna. This was followed by the other five properties, Laguna Beach Resort, Sheraton Grande Laguna Phuket and The Allamanda (all suites), Banyan Tree Phuket and the Laguna Holiday Club (time-share units).

Laguna Phuket has become the reference point for the group’s projects elsewhere, such as Laguna Vietnam whose construction will start early next year near Hue in central Vietnam. Mr Ho hopes this project will replicate the success of Laguna Phuket.

On Banyan Tree’s global expansion plans, Mr Ho said: ‘We want to have strong growth in the next one to three years. Given the strong pipeline of projects that we have – over 40 new hotels (compared with our current existing portfolio of 22) and at least 55 spa projects, we are confident of our growth plan.

‘The key drivers will come from three core segments – hotel investment income, fee-based income (such as hotel, spa and design management fees) and property sales. Based on existing signed and sealed contracts that we have, we would have about 60 hotels and resorts by 2010. This is bearing in mind that we will continue to work on increasing this figure.’

Banyan Tree adopts a practical approach in its quest to spread its roots. Its strategy is to further expand into lowcost locations close to its key customer markets.

Mr Ho elaborated: ‘In some of these so-called ‘low-cost’ regions, such as China and Mexico (Latin America), we have managed to leverage on the growth in the tourism sectors there to accelerate our growth there. These regions account for over 20 existing projects in development and continue to present more opportunities for growth.’

Mr Ho is a firm believer in nurturing a brand instead of relying on cost competitiveness. He said: ‘One prevalent business model in Asia is to use low cost labour – with many companies manufacturing for other people, as opposed to developing their own brand. My view is that this is not a sustainable business model because someday someone cheaper will come along.

‘The key to success is to invest in a brand and build it – like what we have done with Banyan Tree. We need to compete on brand, not cost competitiveness, which takes long-term commitment and mindset, and to be close to the market,’ he said.

‘Banyan Tree is all about creating unforgettable, deeply personal and cherished memories. It is about the romance of travel and connecting people with a ’sense of place’ through the design and architecture of our resorts, that promotes the uniqueness of indigenous cultures of the place. As we have our own full-time in-house design capabilities, we are therefore able to graft the ‘Banyan Tree’ experience onto our real estate offerings from the ground up.’

‘Banyan Tree’s business model is to be in exotic destinations, and places like China and Latin America offer a plethora of such destinations. One of the reasons for Banyan Tree’s success is that we have stayed in our niche. It’s like within this ’sandbox’, as long as we are the King of the hill, we could be No 1.’

He added: ‘In our space, going global is not about having a few hundred hotels and resorts, but a necklace of jewels that span the globe with a representation in every key market. It is not about being everywhere, but being where we need to be to remain among the best of the best.’

 

Source: Business Times 4 Oct 07

M’sia’s Equine may list associate

(KUALA LUMPUR) Small Malaysian property developer Equine Capital Bhd may list a property development associate that has secured building rights over a US$5.8 billion new-city project in northern Penang state.

‘Listing (Abad Naluri Sdn Bhd) is just one of the options we are mulling today,’ Equine executive chairman Patrick Lim said yesterday. ‘We create value when we can produce that product and show demand for that product.’

Equine, valued at about US$146 million, owns 25 per cent of Abad Naluri, an unlisted firm that has secured a deal to develop the project in Penang, which will include luxury homes, shopping centres, parks, and convention and performing arts centres.

 

Source: Reuters (Business Times 4 Oct 07)

UAE mortgage loans soar 97% in Q2

Value of outstanding borrowings at 45.7b dirhams as of end June

(DUBAI) Mortgage lending in the United Arab Emirates increased an annual 97 per cent in the second quarter as foreigners bought property in the Gulf state.

Outstanding loans to buy homes rose to 45.7 billion dirhams (S$18.4 billion) at the end of June, the central bank said in a quarterly statistical bulletin published on its website on Oct 1. Mortgage lending growth was 86 per cent in the first quarter.

Demand for home loans has leapt since 2002, when foreigners were allowed for the first time to buy property in Dubai, the UAE’s second-largest sheikhdom. The number of housing units in Dubai will increase 60 per cent to 420,000 between 2006 and 2009, according to EFG-Hermes Holding, Egypt’s largest investment bank.

‘It is a phenomenally high growth rate but it’s coming from a very small base,’ Raj Madha, banking analyst with EFG- Hermes Holding, said yesterday.

‘There may be some concern that lending criteria are being eased to maintain the growth rate, but we don’t think that is a critical issue.’

Growth in non-mortgage loans, advances and overdrafts accelerated to an annual 25 per cent in the second quarter from 9.3 per cent in the previous three months, the central bank said yesterday.

‘This level of growth is larpgely in line with what we have been expecting, but anecdotally there has been some concern that banks are not keeping a close enough eye on smaller loans, which individuals are able to take out with a number of different banks without their knowledge,’ Mr Madha said.

Foreign assets held by the central bank of the UAE grew 23 per cent to 159 billion dirhams in the three months through June. Annual M2 money supply growth, an indicator of future inflation, was 34 per cent at the end of June.

No comparative figure was given.

 

Source: Bloomberg (Business Times 4 Oct 07)

Credit crisis hits US high-end property

Until recently, this segment had defied the two-year broader market slide

(GREENWICH, Connecticut) There’s an indoor lap pool, eight-car garage and four-storey elevator. But the 26,000 sq ft Tuscan-style home features something even more unusual in this ritzy suburb of gated estates and mansions – a US$3 million discount on its price.

As the credit crisis started to shake global financial markets in August, the owners of the nine-hectare estate at 309 Taconic Road in Greenwich, Connecticut, cut their price to US$19 million, showing turbulence in the US housing market penetrating the wealthiest strata of American society.

‘People are looking instead of buying, maybe since the second week of August,’ said Julianne Ward, director of fine homes at broker Prudential in Greenwich, a coastal town of 61,000 about 48 km from New York City.

Until recently, the nation’s most extravagant homes had defied the two-year slide in prices and surge in foreclosures roiling the broader property market, where existing home sales are down more than 20 per cent from a 2005 peak, according to industry data.

Ultimate Homes, a publication that ranks the nation’s 1,000 priciest homes, began its survey in 2005 with the cheapest on the list at US$7.9 million. That jumped to US$10 million this year with a record six homes now selling for US$100 million or more.

‘In the last couple of years, the most expensive home on the market has gone from US$75 million to US$165 million,’ said Rick Goodwin, the magazine’s publisher. ‘This market is still very strong. The rich are doing very well.’ The nation’s wealthiest communities were largely unscathed by turmoil in the broader housing market through the second quarter of this year, according DataQuick, which analyses data on real-estate markets nationally.

In California, for example, the number of homes that sold for US$10 million or more rose nearly 40 per cent between the first quarter and second quarter, while the number in New York grew 15 per cent and Connecticut’s more than doubled, according to public records examined by DataQuick.

DataQuick mines records where a price or loan amount is available, which means there can be some gaps, but the numbers are a reliable indicator of trends, said DataQuick analyst Andrew LePage who compiled the data for Reuters.

‘Certainly through mid-summer it appears to be holding up just fine, and faring better than most other segments of the market,’ he said of homes selling at US$10 million or more.

Like the Bel Air section of Los Angeles and many other exclusive coastal communities, Greenwich has a long association with wealth. Its typical family earns more than US$120,000 – more than double the national average – while its investment bankers are among the country’s highest paid, taking home on average US$23,846 a week – 28 times the national average, according a recent government survey.

But the global credit crunch is stirring caution among its newest crop of wealthy elite. Greenwich is the unofficial capital of the US hedge fund boom. More than 100 of the private investment pools for the wealthy have set up in the town. That worries economist Edward Deak at Fairfield University in Connecticut.

‘The hedge funds, private equity firms are taking a hit,’ he said. ‘I’m concerned about what the mortgage meltdown is going to mean for bonus incomes coming into Connecticut in January ‘08 and also January of ‘09.’

Some developers are changing course, or delaying the start of sales or construction.

‘Buyers are doing a lot more due diligence and not pulling the trigger as quickly,’ said Ms Ward, who has sold real estate in the town for more than two decades.

A vivid illustration of the divergent housing trends of the last two years is on display about an hour-and-a-half drive from Greenwich on Avon Mountain in West Hartford, Connecticut, where local businessman Arnold Chase is building a new home.

His 53,000 sq ft estate, complete with 100-seat cinema, would be New England’s largest private home, eclipsing even the mansions of Newport, Rhode Island, that typified the gilded age of America’s industrial revolution. ‘At the highest end, there’s been no slowdown at all,’ said Joseph Beninati, partner and co-founder of Antares Investment Partners, a private-equity and development firm that caters to Greenwich’s hedge funds.

According to town records in Greenwich cited by Antares, the number of closed transactions on homes sold at prices greater than US$8 million grew 50 per cent in 2006, a record. Mr Beninati said he expects that figure to rise again this year.

‘The luxury market tends to be a little isolated from the market swings. This time around it’s a little different because the bottom half of the upper tier is softening a bit,’ said Laurie Moore-Moore, founder of the Institute for Luxury Home Marketing, a trade body for high-end property brokers.

The bottom tier comprises homes that sell for US$2 million or less, she said. ‘As the market softens I think we are seeing that segment of the market falling out,’ she said.

 

Source: Reuters (Business Times 4 Oct 07)

Emerging-market gains replace US housing, mortgage woes

Investors flock to Asia and developing countries in wake of Fed’s recent rate cut

(LONDON) The bursting of US housing and mortgage market bubbles has suddenly been replaced by emerging markets inflating, and world equities have got pumped up into the bargain.

With the herd mentality of global investors ever sharper, the US Federal Reserve’s decision two weeks ago to combat a US credit market seizure with lower interest rate has stampeded investors to Asia, Latin America and elsewhere in the developing world.

Investment flows to emerging equity funds hit an 85-week high of US$5.53 billion last week, with redemptions from developed market funds providing most of this cash, according to EPFR Global, which tracks funds with US $10 trillion in assets globally.

Non-Japan Asia received 53 per cent of the total.

And the price action echoes that. MSCI’s index of emerging market equities has accelerated more than 13 per cent to record highs since the Fed cut on Sept 18 and has clocked up a whopping 36 per cent gain so far in 2007.

China’s main bourse has more than doubled this year.

Brazil is up some 60 per cent.

‘I worry about emerging markets looking into next year. They are the next bubble in this environment – especially if the Fed decides to take back its insurance rate cut,’ said Phil Suttle, director of Global Macroeconomic Analysis at the Washington-based Institute for International Finance.

Mr Suttle said the Fed ease replayed a now almost routine response to Western banking stress and looked set to perpetuate a cycle of market bubbles that moved from Asia in the mid-1990s to technology at the end of the decade and housing post-2001.

But emerging markets are particularly prone to bubble behaviour because they are small compared with the deep and mostly liquid equity and bond markets of the world’s major economies.

Analysts at Merrill Lynch estimate that equity markets in Brazil, Russia, India and China represent only 4 per cent of world market capitalisation compared with 44 per cent for the US equity market alone.

‘The short and intermediate risks to emerging market equity prices remain skewed to the upside and we continue to think that an asset bubble seems likely, led by BRIC markets,’ Merrill told clients this week.

The fear is that when money starts to leak from developed to developing markets it supercharges already-elevated assets and stokes inflationary and systemic problems down the road.

‘Global emerging markets are still small so asset managers’ switch to emerging markets has a disproportionate impact,’ said Richard Batty, investment director at Standard Life Investments.

‘And there is still a lot of liquidity out there,’ said Mr Batty, adding up to 65-70 per cent of leveraged corporate bond investor holdings are in cash right now and need to reinvest.

But the unleashing of a new wave of global liquidity comes just at a time when many policy-makers and central bankers are urging caution about inflation and commodity-price pressures.

Managing those pressures will now be trickier as money sloshes around the system and surfaces in unintended places.

Fundamental factors driving funds into emerging markets are well documented.

Economies there continue to boom. The International Monetary Fund (IMF) expects developing country growth, at 7.5 per cent this year, to be three times that of the developed world.

This boom, in turn, is fuelling world commodity prices and dropping massive windfalls in commodity-rich emerging nations.

But, perhaps most powerfully, the US dollar is falling sharply on the back of a US economy being weakened further by housing and credit problems. The Fed cut heaped on the pressure.

This dollar weakness has tempted more US funds offshore and flooded the coffers of emerging market central banks intent on preventing a greenback slide undermining their exports.

‘Mutual funds are switching away from the US to emerging markets,’ said Mr Batty, adding some of the US$700 billion of US equity which was dumped last year leaked straight to emerging markets.

But why in the face of recession fears and a falling currency has Wall Street too powered to a record high on Monday? Two big reasons are related to emerging markets too.

The first is that rising hard currency reserves in emerging markets – US$4.3 trillion at the IMF’s last count – are partly being channelled into so-called sovereign wealth funds and are expected to be reinvested over time in world markets such as US and European equities among others.

Investment banks estimate the total size of these sovereign funds could climb as high as US$12 trillion by 2015.

And another reason for US and European equities being drawn into the slipstream is transnational firms there are increasingly dependant on earnings growth from overseas.

 

Source: Reuters (Business Times 4 Oct 07)

Is the sub-prime crisis really behind us?

TOKYO CORRESPONDENT

THE fact that the world – its richer countries at least – has been living through a bubble economy period financed by junk (sub-prime) mortgages and funny money (carry trade) borrowing should be obvious enough to anyone observing events over the past few weeks.

But anyone who doubts it need only consider the startling fact that the number of millionaire families in the world grew by no less than 14 per cent to 9.6 million in the space of last year alone. These super-rich individuals now control one third of the estimated US$100 trillion in global financial wealth, according to the Boston Consulting Group in a new study on the subject this week. This is obviously a massive indictment of the failure to distribute wealth more evenly. But the way in which the stunning jump in the number of millionaire families came about is also something that should set alarm bells ringing.

Most of the new wealth came about through increases in the value of stocks, bonds and other financial instruments as global stock markets rose in value on average by 20 per cent, with the strongest wealth gains accruing in America where the equity cult is most entrenched. Not only the super-rich but also the merely ‘better off’ had a ball in 2006, as total assets held by households with US$100,000 or more leapt from US$51 trillion to near US$85 trillion.

If all this isn’t evidence of a bubble, then it is hard to know just what is. But what goes up must come down, and bubbles burst as surely as they form. Or have we discovered some new form of gravity-defying wealth creation mechanism now – an infinitely inflatable bubble?

Looking at the behaviour of markets this week, it appears that the more credulous among investors are being lulled into believing that we have. In this promised land of milk and honey there is no such thing as a financial burst or bust. Descending bubbles simply float down to earth, bounce lightly off the ground and soar skywards again like hot-air balloons being given a fresh charge from the gas jet. Only in this case, the hot air is replaced by financial liquidity supplied in abundant quantity by kindly central bankers who never want to see a hard landing.

Markets are climbing again, as though the sub- prime mortgage market crisis and all its attendant horrors – in the shape of seized- up money markets, runs on banks or other financial institutions, massive markdowns of un-tradeable financial assets and balance sheet damage all round – had suddenly become a thing of the past. Central banks have taken care of things by covering the ugly debris in a sea of fresh liquidity.

Time to party again.

Amidst this new euphoria, an odd and rather worrying thing happened the other day when no fewer that three Japanese government ministers all warned at the same time that fallout from the sub-prime mortgage market debacle might not be over yet. It was not so much what they said as the fact that they said it. Such people usually see it as their job to utter bland, confidence-boosting statements, so when they do say what others of a sane turn of mind already suspect, something clearly is afoot.

It seems likely that the trio – Finance Minister Fukushiro Nukaga, Financial Services Minister Yoshimi Watanabe and Economics Minister Hiroko Ota – were flagging concerns that there may be more nasties yet to come for Japanese banks and other financial institutions, in the shape of write-downs from the subprime fiasco.

If there is one thing more risky, or plain daft, for investors to do than to pile back into equities as if there were no yesterday and no tomorrow, it is to build fresh speculative positions by shorting the yen against other currencies (the carry trades). The yen has nowhere to go but up in the medium term, while the US dollar is already on the skids and the Australian and New Zealand dollars favoured by carry trade enthusiasts will slide again against the yen.

Meanwhile, back in the never-never land of sub-prime mortgages, things are not looking good. Sales of second-hand homes dropped by a surprisingly large (to some) 6.5 per cent in August. Morgan Stanley has announced that it will cut 600 jobs in its residential mortgage division, a quarter of the workforce. Anyone who thinks that is a detail should note that two million of the seven million new US jobs created in recent years were connected with real estate.

As the housing sector turns down, along with consumption-financing equity withdrawal by US home owners, the danger of a US recession will grow and with it a slowdown in the world economy and in global capital flows. Irrational exuberance will evaporate in stock markets around the world and liquidity will drain away like so much milk and honey. The only consolation is that a lot of those new paper millionaires will find themselves joining the world or ordinary mortals once more at the new dawn of reality.

 

Source: Business Times 4 Oct 07

Wise not to ignore market risks

SINCE the US Federal Reserve’s somewhat surprising 50-basis points interest rate cut on Sept 18, investors all over the world have piled back into stocks with much gusto. Wall Street on Monday rose to a new all-time high while most Asian markets continue to set records of their own.

The mood is once again bullish, restored by a seemingly unshakeable confidence that the Fed can be relied upon to cut rates further to keep the ball rolling. While the momentum is clearly positive however, over-eager investors have to be mindful of making the same mistake as before – ignoring risks while focusing solely on returns.

Although the Federal funds futures market is pricing in a further 25 basis points cut at the end of this month, this is by no means a certainty. September’s rate lowering has seriously undermined an already weak US dollar – which has now declined even against currencies such as the Turkish lira, Saudi rial and Canadian dollar – and over time, this cannot be good for an-already slowing economy labouring under the burden of a crashing housing market. Moreover, various Fed governors warned this week that more rate cuts can only be justified if the economy shows signs of very drastic weakness, which means that perversely, investors are buying stocks today in the hope that growth worsens significantly tomorrow – Monday’s Wall St record for example, was set after release of a weak manufacturing report that showed new orders dropping for the third consecutive month. This is an anomalous state of affairs. While it might last for a while, eventually reality will prevail.

Speaking of reality, the full extent of the sub-prime mess may not have been revealed yet. US and European banks have only just started to show alarming profit weakness stemming from sub-prime losses and there is doubt over whether rate cuts are sufficient to reverse losses.

That said, markets could continue to rally in the short term. One likely explanation for the strong bounces seen over the past fortnight is that they have come from widespread programme trading – with markets as interconnected as they are today, the big money has to employ sophisticated computer-driven trading strategies in order to react quickly enough and capitalise on shifts in economic and sentiment indicators.

As such, once certain parameters are met, powerful momentum forces take over and markets move almost as one. Invariably, the targets are always the largest stocks – that is why in Singapore at least, while the Straits Times Index has very rapidly regained new ground, the broad market has lagged.

The real danger however, is that the same momentum shifts work equally effectively on the downside.

Given that volatility has not subsided over the past few months – it has in fact increased – and given that the chances of a US recession are quite real, it would be wise for investors to be as cognisant of risks as they are of returns.

 

Source: Business Times 4 Oct 07

Land authority’s sales soar to nine-year high

It chalks up sales revenue of $6.3b on the back of red-hot property market; rental income rises a third

THE booming property market sent sales revenue at the Singapore Land Authority (SLA) to a nine-year high of $6.3 billion.

Its bumper result was still well shy of the record return achieved in the 1997 financial year, when the red-hot market pushed sales revenue to $14 billion.

The SLA manages state properties and also sells them to private companies and other government agencies at market value.

Its annual report out yesterday showed that it sold $3.55 billion worth of land to the private sector in the 12 months ended March 31 – about 8 per cent higher than in the previous year.

Some of this land included plots in Lim Chu Kang, which the SLA specially designated for agricultural and entertainment use.

A further $2.75 billion came from land sold to other government agencies, such as the 21ha plot for the Marina Bay integrated resort. This was bought by the Singapore Tourism Board for $1.2 billion and later taken over by developer Las Vegas Sands.

Rental revenue grew 33 per cent to $514 million, bolstered by takings from the booming Tanglin Village food and beverage cluster and the lease of the former Pearl’s Hill Primary School, which is being turned into a boutique hotel.

Tanglin Village, in the Dempsey Hill area, is a thriving development of upmarket restaurants, bars and other businesses that have sprouted on the refurbished former military buildings managed by the SLA.

The authority helped to make the cluster more appealing by adding entrance and building markers, as well as creating an outdoor space for events.

Another state property adapted for new purposes is the former Changi Hospital, which the SLA tendered for use as a spa and resort development. The 7,900 sq m property is undergoing a $20 million makeover.

The authority’s recent business-friendly moves have been noticed by property consultants such as Mr Ku Swee Yong.

The director of marketing and business development at Savills Singapore suggested that the SLA could try extending the leases of its rental properties so that businesses would be more inclined to sink money into refurbishing state real estate.

Many of the SLA’s properties are rented on three-year leases, which can be renewed up to nine years, but this may not be enough for a business to make a profit from its investment, said Mr Ku.

The SLA’s operating surplus grew by 35 per cent to $17.1 million.

Meanwhile, another state agency, the Urban Redevelopment Authority (URA), collected $2.7 billion from land sales in the financial year ended March 31.

Although the URA sold 16 sites in that period, compared with nine the year before, sales revenue dropped by 5 per cent because last year’s takings were bolstered by high-value sites such as the business and financial centre in Marina Bay and the commercial plot at Orchard Turn.

The URA’s operating surplus more than tripled to $14.8 million, helped by higher agency fees from selling sites and income from processing more applications for development.

 

Source: The Straits Times 4 Oct 07

CAPITALAND’S MOVES – China beckons for Raffles City brand

WITH three malls springing up in major Chinese cities, and up to three more likely in the next five years, China is a key market for CapitaLand’s plans to export its Raffles City shopping complex.

CapitaLand president and chief executive officer Liew Mun Leong said yesterday that China offered the most opportunities for the property development giant.

The group already has mall projects in Shanghai, Beijing and Chengdu, along with another venture in Bahrain and its Singapore flagship.

Mr Liew said CapitaLand is planning to add a further five overseas projects to bring the total to 10 Raffles Cities within the next five years. ‘The timing and opportunities at the moment seem quite good and China is good for us,’ he added.

Other cities, including some in India, Vietnam, Japan and Russia, had courted CapitaLand to set up Raffles Cities.

Mr Liew said CapitaLand’s strength lay in its ability to build, develop and manage integrated complexes that included hotels, retail malls, offices and residential space.

‘We may inject the Raffles City developments into a Raffles City real estate investment trust, once they are all stable and deliver good yields,’ he said.

 

Source: The Straits Times 4 Oct 07

Hostile end to Horizon Towers hearing

TENSIONS ran high at the already prickly Horizon Towers hearing yesterday, as lawyers fought over who would have the last word.

The heated exchanges lasted less than an hour but they were more hostile than any of the previous day-long sessions since last Friday.

They brought to a close the appeal over the estate’s bungled collective sale – an appeal peppered by barbed comments between highly paid lawyers and regular jeers and boos from the public gallery.

The only lawyer scheduled to speak yesterday was Senior Counsel Chelva Rajah of Tan, Rajah and Cheah. He represents the condominium’s majority owners, who have asked the High Court to overturn the Strata Titles Board’s (STB’s) dismissal of their collective sale application in August.

Mr Rajah was to reply to arguments made by the minority owners’ lawyers on Tuesday. The minority owners want the STB decision upheld.

But even before he could speak, Senior Counsel K.Shanmugam – representing the Horizon Towers buyers – attempted to have the final say. He asked Justice Choo Han Teck for ‘10 to 15 minutes’ after Mr Rajah’s speech to address some of the ‘new’ points raised on Tuesday.

Barely had Mr Shanmugam finished his request when Senior Counsel Michael Hwang and Senior Counsel K.S.

Rajah, who each represent a different group of minority owners, were on their feet to object.

Although Justice Choo stayed the conflict by asking Mr Chelva Rajah to proceed with his remarks, Mr Shanmugam rose again once Mr Rajah was finished.

His plea to be allowed a response was interrupted by Mr Hwang, who said it would be ‘unfair’ to allow Mr Shanmugam ‘a second bite of the cherry when he should have said all this in the first place’.

Justice Choo proposed two peace options: either Mr Shanmugam got five minutes to speak, or all the lawyers were to read his new points and respond in writing within the day.

Mr Hwang opted for the second option almost at the same time that Mr Shanmugam chose the first. It all looked quite comic to the tittering public gallery but the tension in the courtroom remained high, prompting Justice Choo to close the session without allowing Mr Shanmugam’s speech.

In the end, only Mr Rajah had a say yesterday. He noted that Parliament will soon formally give the STB powers to ignore technical flaws – such as the three missing pages in Horizon Towers’ collective sale application – showing that the STB was always intended to have these powers.

 

Source: The Straits Times 4 Oct 07

New en bloc rules kick in today

Changes meant to make sale process more regulated and transparent

NEW collective sale regulations will kick in today – a few weeks earlier than many in the industry had expected.

The rules, which were passed in Parliament two weeks ago, were expected to take effect this month, but a date had not been specified.

The much-anticipated announcement, which came yesterday, took some en bloc players by surprise.

‘We thought it was going to be later, and expected the Government to give more lead notice as well,’ said Mr Jeremy Lake, executive director of investment properties at property firm CB Richard Ellis (CBRE).

He added that ‘initial indications were that they were likely to kick in only at the end of the month’.

The changes are aimed at making the sale process more regulated and transparent.

They require more conditions to be fulfilled, such as adhering to stricter requirements on setting up a sales committee and providing a five-day cooling-off period for owners to change their minds after signing the collective sale agreement.

The changes will apply to all developments that, as of today, have not obtained consent from enough owners to go en bloc – 80 per cent of owners by share value, or 90 per cent for estates less than 10 years old.

It will be back to the drawing board for the owners of these developments, who will have to start the collective sale process all over again and do so by the new rules.

Most property firms said they each had ‘two or three’ en-bloc estates that will be affected by today’s changes.

But CBRE’s Mr Lake expressed relief that there was clarity on when the rules would finally kick in.

Indeed, for the last few weeks, a few projects had been suspended because no one knew when the changes would take effect, said Mr Tan Hong Boon, executive director of Credo Real Estate.

‘Most lawyers were also not prepared to quote their fees for new en-bloc projects because they didn’t know how much more work they would have to do under the new rules,’ added Mr Tan.

Some consultants scrambled last night to get the last one or two signatures.

Mr Steven Ming, director of investment sales at Savills Singapore, said he had expected to have ‘one or two more weeks to get the last few signatures’.

‘I guess I will have to work overnight,’ he joked.

Other consultants, such as Jones Lang LaSalle’s head of investments, Mr Lui Seng Fatt, said they have been advising would-be en-bloc sellers to follow the new rules since last month.

‘Fortunately, none will have to start all over again,’ he said.

fiochan@sph.com.sg

CAUGHT BY SURPRISE

‘We thought it was going to be later and expected the Government to give more lead notice as well.’

MR JEREMY LAKE, executive director of investment properties at property firm CB Richard Ellis, on the announcement that new collective sale regulations will take effect from today

 

Source: The Straits Times 4 Oct 07