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Sim Lian top bidder for Toa Payoh site
Its $38.23m bid for 99-year leasehold commercial site beats eight others
SIM Lian Development Pte Ltd yesterday put in the top bid of $38.23 million, or $847.54 per square foot per plot ratio (psf ppr), for a 99-year leasehold commercial site next to HDB Hub in Toa Payoh.
The company, which is not part of the listed Sim Lian Group, plans to develop a largely office project with groundfloor retail space, Sim Lian Development director Ken Kuik said when contacted by BT yesterday.
‘Our all-in investment could come in at about $55-57 million, with a breakeven cost of about $1,500 psf of net lettable area. We’re looking at a net yield of over 5 per cent when the project is completed in, say, two years’ time,’ Mr Kuik said.
‘That’s on the assumption that the average gross monthly office rent in the location could climb to about $8 psf by the time the project is completed. The retail space may fetch around $15 to $20 psf a month,’ he added.
The development, which could be around 10 to 15 storeys, will have about 37,000 square feet net lettable area.
Sim Lian Development plans to hold the development for long-term investment. The company is a private vehicle of the Kuik family that controls listed Sim Lian Group.
The tender for the 15,035-sq-ft site at Lorong 6 Toa Payoh attracted nine bids. Sim Lian pipped the second-highest offer of $37.34 million by Hersing Corporation by just 2.4 per cent. The other bidders were United Engineers Developments ($36.10 million), HSR International Realtors ($35.54 million), Evan Lim & Co unit EL Development ($23 million), Mr Sia Kong Wah ($20 million), Superbowl F&B Pte Ltd ($19.3 million), MV Land ($18.18 million) and Eng Wah Organisation unit Wah Pho with a bid of just $1.29 million, or $28.70 psf ppr.
Hersing Corporation, which narrowly missed out being the top bidder, had a scheme for an eight-storey complex for the site, not unlike Sim Lian’s, comprising ground-floor retail and offices above. ‘The offices might have been partly for our own use with the rest, along with the retail space, to be rented out,’ Hersing director Janice Chng said.
Hersing holds the master franchise for ERA for 18 countries in Asia-Pacific. The group’s other businesses include providing self-storage facilities in Singapore under the Storhub banner.
Source: Business Times 17 Oct 07
Hotel site at Sturdee Road put on reserve list
0.61 hectare plot can yield an estimated 430 hotel rooms
A HOTEL development site at Sturdee Road has been put on the reserve list of the Government Land Sales (GLS) programme.
The site is one of the four new hotel sites on the GLS programme for the second half of this year.
There are already five hotel sites on the reserve list, with two more expected by the end of the year.
The 0.61 ha site could go for between $430-$450 per square foot per plot ratio (psf ppr), it is reckoned by Donald Han, managing director at Cushman & Wakefield.
Mr Han noted that a white site at Race Course Road recently sold for $430 psf ppr in September. He said: ‘The Race Course Road hotel site may be located nearer to the MRT station than the Sturdee Road site, but hotel market sentiment is increasingly more optimistic now, judging from higher than expected bid prices for the Upper Pickering Street site.’
The site mentioned went to Hotel Plaza for $253.2 million or $805 psf ppr.
Other recent successful hotel site tenders include one on Tanjong Pagar Road/Gopeng Street awarded to Carlton Properties for $123 million, or $573 psf ppr in June. In July, a site at Tras Street went to businessman Chng Gim Huat of the CGH Group for $97.1 million, or $562 psf ppr.
The Sturdee Road site has maximum permissible gross floor area (GFA) of 18,334 sq m and can yield an estimated 430 hotel rooms.
A minimum of 60 per cent of the total GFA must be used for hotel rooms or hotel-related uses. The rest can be for commercial, and/or residential uses.
So far, the other hotel site put on the reserve list for H2′07 is at Jalan Bukit Merah/Alexandra Road.
The Urban Redevelopment Authority withdrew a hotel site at Balestier Road/Ah Hood Road from the reserve list this month.
About 9,100 new hotel rooms are expected to be completed from the second half of 2007 to 2010. This includes the supply of new hotel rooms from the two integrated resorts, Marina Bay Sands and Resorts World at Sentosa, which are expected to be completed in 2009 and 2010.
Source: Business Times 17 Oct 07
Wealthy group growing fastest in S’pore
IN SEOUL
SINGAPORE is home to the fastest-growing population of high net worth individuals (HNWIs) in the Asia-Pacific, according to a report by Merrill Lynch and Capgemini.
The 2007 Asia Pacific Wealth Report – released yesterday at the World Knowledge Forum, organised by the Maeil business newspaper, in Seoul – shows the number of HNWIs in Singapore rose 21.2 per cent last year to about 67,000.
India and Indonesia were the second and third-fastest growing markets for HNWIs, at 20.5 and 16 per cent respectively.
Overall, the number of HNWIs in the Asia-Pacific region grew 8.5 per cent this year to about 2.6 million.
Of the world’s 10 fastest-growing HNWI markets last year, five were in the Asia-Pacific – Singapore, India, Indonesia, South Korea and Hong Kong.
HNWIs are defined as people with more than US$1 million in financial holdings excluding their primary residence. The report estimates overall HNWI wealth was about US$8.42 trillion at the end of last year.
In terms of the distribution of this wealth by market, Japan was the clear leader, accounting for 44 per cent or US$3.7 trillion, followed by China with 21 per cent or US$1.7 trillion. Singapore was the sixth-largest market, with HNWI wealth totalling US$320 billion last year.
Looking ahead, the report projects that Asia-Pacific HNWI wealth will grow about 8 per cent a year for the next three years to a staggering US$12.7 trillion by 2011.
In terms of investment behaviour, Asia-Pacific HNWI investors show certain characteristics, according to the report. In particular, they tend to prefer tangible assets – real estate and cash – to other investment classes.
They also invest most of their assets in the region. For instance, Singapore HNWIs allocated 52 per cent to the Asia-Pacific. However, in the future, Merrill Lynch and Capgemini reckon Asian HNWI investors will seek greater diversification, both by geography and investment classes.
Specifically, they foresee HNWIs seeking to invest in markets outside Asia and North America, and allocating a greater proportion of their wealth to fixed income and alternative investments such as structured products, private equity and hedge funds, as well as ‘passion investments’ such as wine and art.
Source: Business Times 17 Oct 07
Investors’ short memory is worrying
Granted, the sub-prime crisis has passed. But the US economy has other major problems. So it’s advisable to be prudent
By WONG SUI JAU
WHAT a difference two months makes. In mid-August, the sub-prime loans scare had just rocked markets around the world, causing them to fall for two weeks. The air was heavy with gloom. But now, it seems as if the sub-prime problem never happened. Many markets are back to their pre-crash levels and, indeed, some – including the US market as represented by the S&P 500 index – have recently hit record highs. As the accompanying table shows, many Asian markets have done very well from the start of the year up to end-September. There is reason for much cheer among investors.
While I was one of those urging calm at the time the sub-prime issue blew up, I find the short memory of many investors worrying. Before the sub-prime issue flared in the US, there was hardly anything to worry about; Asian economies were growing strongly and the rest of the world was doing decently too.
But in the aftermath of the sub-prime crash, some things are now different. Investors need to pay close attention to these developments – not just focus on the happy reality of rising markets. The most significant thing is that the US economy has turned. As recently as the second quarter, US GDP was still accelerating in terms of growth, growing at an annualised rate of 3.8 per cent in Q2, compared with an annualised 0.6 per cent in Q1.
However, the sub-prime issue has exposed weaknesses in the US economy that are not going to go away, rising markets notwithstanding. First, the US property cycle is on a clear downward trend – and this is accelerating rather than slowing. The supply of homes has almost doubled since end-December 2005. A large number of unsold homes will put further downward pressure on prices. The sub-prime fright has also made investors much more cautious about entering an already falling market. After all, if home prices are dropping, there is no hurry to buy, because it is better to wait for prices to fall further. Thus, we may see an even steeper decline in US home prices going forward (see chart).
Second, the woes in the US property market will affect many American consumers. Americans have been consuming ever more each year, and accordingly, their debt levels have risen. The ratio of household debt to disposable income was at a high of 2.29 in March 2007, compared with 0.82 in December 1990. This means that for every dollar of income earned, the average US household has $2.30 of debt.
Previously, the rising housing market enabled Americans to take out reverse mortgages and get money from the houses they stayed in. But with prices now falling, this will dry up. Some households may even run into problems paying off their home loans. Certainly, this will affect household spending going forward. Any weakness in consumer spending – which underpins so much of what drives the US economy – will put a question mark over growth next year.
Continued volatility
Third, the US continues to do things like reduce interest rates and deflate the dollar. This may work in the short term. But over the long term, it does not solve the fundamental problem that the US economy faces – which is that it spends far more than what it generates in income, resulting in its huge twin deficits. For now, since it is the sole superpower and with the US dollar still the most important and most used currency in the world, cutting interest rates and allowing the dollar to weaken may work in the short term. But eventually the US will have to face up to its problems – and when it does, its economy is likely to be affected. A recession is quite possible.
So while the recent recovery in markets has brought much cheer and relief to investors. I would urge people not to get too greedy and overexpose themselves to risk. While we believe that, ultimately, Asian economies with their many drivers will continue to grow even amid a US recession, their growth will ultimately be affected to some extent. And certainly, markets will continue to be volatile.
As data is released in the coming months, we expect that some of it relating to the US economy will not be rosy.
Companies at the epicentre of the sub-prime loans issue have had to close down entire divisions, and many banks are expected to report large provisions for loans made, which will certainly affect their earnings. For example, just recently, Bank of America, JP Morgan Chase & Co and Wachovia Corp posted profit declines as they wrote down more than US$3.4 billion. They will not be the last to report earnings hits.
In the midst of record-breaking markets, investors may have forgotten just how bleak the situation seemed just a couple of months ago. But they must be conscious of the risks they are taking in their portfolios. Try to stay diversified and not overly exposed to any particular sector or area, no matter how attractive it seems. With many investors already sitting on profits this year, it would be advisable to be prudent at this stage. Don’t let short memories and greed lead to overly aggressive risk-taking.
Source: Business Times 17 Oct 07
Making that next crash insignificant
Shield your money to ensure that you won’t be devastated by what markets do in any particular time period
WHAT were you doing and feeling during the 1987 stockmarket crash, which will be 20 years ago this week?
Having married just two weeks before the crash, I was about a year into a great new job. When I saw the biggest one-day percentage loss in the Dow Jones Industrial Average on Oct 19 and near-meltdown that followed, I froze. I didn’t call my mutual-fund companies or broker. I stayed in stocks, where almost all of my meagre wealth was invested.
It turns out my passivity was the best course. I didn’t need that money for a while and knew the economy was basically solid. Yet I’m not confusing mettle with foresight. I had no idea what was going to happen after the Dow took a 508-point free-fall and about US$1 trillion evaporated in a single day.
Various malefactors have been blamed from a ballooning trade deficit to program trading. To understand the lessons of 1987, you need to dispense with the mountains of studies that have been done over the past two decades.
What’s most important is how focusing on building personal prosperity will keep you in the eye of any market storm. To get an idea of how to survive a panic, you need to know what didn’t happen.
While the end of October 1987 was a stunning glimpse into the abyss of fear, the Standard & Poor’s 500 Index was up 2 per cent for the year.
Did a long-term bear market ensue? The following year, the S&P rose more than 16 per cent, if you include reinvested dividends. From the end of 1987 through 1993, the index more than doubled in value.
The blip of Black Monday did little to slow down the US economy. Banks didn’t close. No depression followed.
Businesses invested in new technologies that would increase productivity and create jobs. The cyber-tech age was in full bloom.
That was then
The difference between 1987 and today is that many institutional safeguards are in place that will curb market freefalls and ensure liquidity. Yet it’s never enough with little-monitored hedge funds playing a large part in trading.
There also still needs to be a single agency policing securities, futures and options markets.
No regulator will be able to prevent crashes or prolonged declines. Yet there’s much you can do to shield your money.
When noting the role of the individual investor in market sell-offs, William Brodsky, the chief executive officer of the Chicago Board Options Exchange, said individuals may think: ‘I’m in for five to 10 years and I’m not going to sell my index mutual funds or IRAs.’
Mr Brodsky described my mindset 20 years ago – and today. As president of the Chicago Mercantile Exchange at the time of the 1987 meltdown, he said the week following Black Monday was ‘analogous to a tornado. We saw it coming.’ Mr Brodsky was speaking at a symposium on Oct 9 in Chicago.
There will be more crashes and bear markets. That’s the nature of capitalism. The question is: How do you keep your cool? When do you stay in and when do you bail?
Whatever happens, the chances are good that you will time any exit or entrance poorly. What if you stayed out of the market in 1988 or the half-decade following the crash? Look at the returns you would have missed.
Personal time-horizon planning is critical. If you can afford to take a 20 per cent loss, how much time would you have to make up the shortfall?
Fear of loss is a powerful motivator in investing, although investors often focus too much on returns and don’t pay enough attention to managing risk.
Let’s say you learned well from the crash of 1987 and decided to invest across three different asset classes that typically don’t move in lockstep with each other.
When the dot-com bubble burst, for example, you would have fared better if you followed this strategy. From March 24, 2000, to Oct 9, 2002, your big-stock stake would have been down about 47 per cent in the Vanguard 500 Index Fund, which tracks the S&P index.
Had you diversified, your stock losses would have been offset by a 26 per cent return from US bonds, using the Vanguard Total Bond Market Index Fund as a proxy.
Adding icing to the cake would be a 32 per cent gain in real estate investment trusts (Reits), as represented by the Vanguard Reit Index Fund. I use these funds because they are low-cost, diversified ways of investing in these asset classes. I own the Reit and bond funds in my retirement accounts.
Even if you put all of your money on large companies – and stayed invested from the beginning of the Internet crash in March 2000 through Oct 5 this year – your holdings would have grown 12 per cent over that period in the Vanguard 500 fund.
You can torture yourself trying to explain why markets rise and fall every day. Don’t trouble yourself. It’s mostly noise.
Instead concentrate on your life plan. Are you saving for a home downpayment? Do you need money for college?
Will a parent need your financial support? Are you planning to leave the workforce part-time or permanently soon?
What if you are disabled and can’t work?
You need to weigh your own life needs to ensure that you won’t be devastated by what markets do in any particular time period. That means protecting against inflation, loss of future income and the ravages of bear markets.
Where are you now and how do you get to where you want to be? It may not matter where you were or what you did 20 years ago. The past is always prologue, yet you need to create your own portfolio insurance to make that next crash insignificant.
Source: Bloomberg (Business Times 17 Oct 07)
Expected volatility may hit investors: Principal Global CEO
They should diversify portfolios in this period of increased volatility, he says
JIM McCaughan, chief executive of US asset manager Principal Global, has turned cautious on the market, warning that expected volatility could cause worried investors to exit at a loss.
His broad market outlook, however, is for a number of interest rate cuts which could boost equity markets.
Still, poor economic data, pressure on US consumer spending and continued uncertainty over credit markets will dog investors.
‘The housing market in the US is in a bit of a mess,’ he says. ‘There is excess inventory quite apart from the fact that the mortgage market has seen a much tighter supply of mortgages . . . The situation is bad enough to put continued pressure on consumer spending for the next year or two.’
A weak US dollar, however, has begun to spur exports.
‘We’re in a period of increased volatility. There will be some pretty bad days that will frighten people, but I don’t expect a big setback in the US market,’ Mr McCaughan says.
He urges investors to diversify their portfolios. ‘Volatility is not necessarily a bad thing. It allows you to get in at good prices from time to time. The main strategy should be to diversify and take a long-term view.
‘Those are the ways to protect the investor against the short-term vagaries of the market. The investor who panics and sells low is the one whose return is hurt.’
Principal Global itself manages a diversified range of assets – equities, fixed income and real estate. It currently manages some US$220 billion in assets, compared to US$80 billion in 1999.
According to an article on its website, the group is gunning for US$500 billion in assets under management, and headcount is expected to rise by 25 per cent over the next few years. Singapore is its base for the Asia ex-Japan region.
The group has a partnership with China Construction Bank to market mutual funds in China. Over a period of about two years, assets have grown to between US$5 billion and US$6 billion. It also has a partnership in Malaysia.
Mr McCaughan says concern over inflation is overdone. ‘In the US, companies’ pricing power is limited; real inflation is limited. We’re not fearful of inflation . . . We think there are more rate cuts to come. That will create a fairly good backdrop for markets.
‘We think there may be 50 to 75 basis points in cuts over the next six to nine months. We think that’s probably about right. Fed funds rate at 4 per cent may well be the case in six to 12 months.’
The group sees opportunities in global real estate. It manages some US$40 billion in real estate assets, making it the fourth-largest institutional real estate manager in the United States as at 2006.
‘There are opportunities particularly in US Reits that have been held back by changes in the credit market . . . The fundamentals of commercial real estate are encouraging.’
Souce: Business Times 17 Oct 07
ICICI Venture to float US$2 billion real estate fund
Fund will have 10-year tenure, with money invested within three years
(NEW DELHI) ICICI Venture Funds Management Ltd is floating a US$2 billion real estate fund – the largest in the country – according to a report in Business Standard.
The fund, which will be launched next month, will have a tenure of ten years and the money will be invested in projects within three years.
The fund from the country’s largest private equity fund (it manages assets of over US$2.5 billion in a diversified portfolio) comes just 18 months after it launched a real estate fund of US$500 million. Of this, it has already invested 70 per cent in various projects.
ICICI Venture joins other majors such as Morgan Stanley, Citigroup, HDFC, JP Morgan, and Kishore Biyani that hope to cash in on the realty boom by floating real estate funds.
The private equity fund is planning to operate in the entire value chain of the real estate business and will now use part of the cash from the fund to build a land bank. It has also decided to buy and manage completed properties – commercial and residential – and sell them later.
Confirming the development, Renuka Ramnath, managing director and CEO of ICICI Venture Funds, said: ‘We will be able to raise large sums of money leveraging the ICICI brand name, coupled with over five years of experience in realty investment and, of course, a great international real estate developer as partner.’
ICICI Venture has a 50-50 joint venture with Tishman Speyer, TSI Ventures, to develop new projects with other partners. The fund has also tied up with developers to finance and build new properties in India.
For instance, TSI Ventures, in association with Nagarjuna Constructions Company Pte Ltd, has won a bid to develop an integrated township at Tellapur, Hyderabad on a 163-hectare plot.
In another development, Reuters reported a senior ICICI Bank official as saying the bank expects to sustain 70 per cent growth in its private wealth management business this year on the back of rising affluence.
‘In the last two years, our private banking portfolio grew by 65-70 per cent. There is no reason why this growth will not be sustained this fiscal year,’ Anup Bagchi, head of global private banking division, told reporters.
ICICI has about 150,000 customers with investible surplus of at least one million rupees (S$37,250), he said, but declined to give details on how much the business contributed to total revenue and profit.
‘Equity, real estate and private equity is driving private banking business in India,’ he said.
India had 100,000 millionaires by end-2006, up 21 per cent from a year earlier, according to the Merrill Lynch Capgemini 2006 Asia-Pacific Wealth Report.
Some of the biggest names in the wealth management business, such as Citigroup and Merrill Lynch, are stepping up their private banking operations in India, where the market is estimated at around US$600 billion.
Source: Business Times 17 Oct 07
Dubai property market faces glut in 2008/9
Flood of completed projects will slow growth of property prices, rents: Colliers
(DUBAI) Property costs in Dubai are likely to rise more slowly, or even fall, in the next two years as completed malls, offices, apartments and hotels flood the market, real estate consultancy Colliers International said.
Dubai, part of the oil-exporting United Arab Emirates federation, kicked off the Gulf Arab real estate boom in 2002 by allowing foreigners to invest in its property market.
Property prices and rents for homes, offices and shops have surged since then, triggering more investment in real estate developments. Colliers estimated Dubai had more office space under construction than any city except Moscow last year.
‘Many developers have overlooked one of the most salient aspects of real estate: maximising development returns is not purely a function of building as much as possible,’ Colliers said in a report on Monday.
The 7 per cent ceiling the government has imposed on residential rent increases would soon become unnecessary as more apartments and villas are completed, it said.
Landlords were likely to reduce the impact of the downturn by keeping buildings empty rather than renting them out at lower rates, Colliers said.
It estimated that 30 per cent of the completed apartments in the Dubai Marina development were vacant in the second quarter. The Marina’s developers include Emaar Properties.
The consultancy was more bearish about the market for office space, estimating the area available for commercial leases will more than triple to 5.6 million sq m from 1.6 million sq m now.
That would start hitting office property prices as early as the third quarter of next year as rents fall, Colliers said.
The retail rental market is also bracing for a flood of supply. Colliers said it expected the total retail space available in Dubai to more than double to over 4 million sq m.
‘Smaller and older malls are likely to experience sharp increases in vacancies coupled with downward pressure on rental rates,’ Colliers said.
The number of hotel rooms will grow at around 33 per cent a year through 2011, Colliers said, estimating occupancy rates would fall closer to 60 per cent compared with more than 80 per cent in 2005.
Source: Reuters (BUsiness Times 17 Oct 07)
Bubble fears growing with HK’s prolonged bull run
IN HONG KONG
AS Hong Kong’s market continues to enjoy a bull run that has seen its benchmark Hang Seng Index (HSI) surge by more than 40 per cent in just two months, fears of a bubble are beginning to seep in.
The HSI is trading at nearly 20 times earnings, with the H-share index at 31.2 times earnings – a reflection of a sturdy appetite for mainland focused firms.
Yesterday, the Hang Seng toyed with the 30,000 mark before falling in the afternoon. The blue-chip index closed at 28,954.55, down 586.23 points, having hit an intraday record earlier of 29,920.25.
Some, however, fear that valuations are overstretched, with an asset bubble forming. And as punters continue to wade into the boom story, they worry a serious correction could have a potent effect.
The bull run first started gathering pace on the heels of an Aug 20 announcement from Beijing that it would allow mainlanders to invest directly in Hong Kong stocks. This prompted an expectation of a fierce flow of cash from across the border.
‘The market has gone up further and faster than anyone could have believed, so people worry about a correction – because it’s gone up so sharply, it could be a big correction,’ says Howard Gorges, vicechairman of South China Brokerage. ‘But the fact is they are not so worried because the market keeps going up.’
Commentators have been sounding alarm bells especially because daily fluctuations seem to suggest greater participation by day traders, who stand to get their fingers burned.
‘That’s why you see the market fluctuate during the day – if there are a lot of day traders really trying to get the market right for a quick possible movement,’ explains Mr Gorges.
Hong Kong has had major bull runs in the past. However, Mr Gorges stressed that it has never been on this scale before. The addition of China- based investors is also differentiating this run from previous ones, he said.
‘Previously, it was just overseas and Hong Kong (investors),’ he said. ‘And overseas investors are also looking at emerging markets and the China story.’
He said the most likely blips on the horizon are possible measures by the mainland to cool its economy, which could dampen market enthusiasm. However, Mr Gorges hopes any correction will be a healthy one that slows the run down a bit. ‘But there are no rules,’ he stressed.
While some commentators have warned of a knock-on effect to other sectors of the economy should there be a major correction, the city is still showing strong fundamentals. Economic growth continues to be steady, while the property market is picking up pace and unemployment remains at historic lows.
This week, the property market received a boost from a land auction that saw two residential sites fetch prices well above market expectations. An Aberdeen site was sold to a consortium that included Sino Land and Nan Fung Properties for HK$5.71 billion (S$1.08 billion), more than double the opening bid of HK$2.5 billion. It was expected to fetch a maximum of HK$4.4 billion.
Another site on Lantau island sold for HK$482 million, more than 90 per cent higher than the reserve price. The market had expected it to fetch up to HK$300 million. Both sales reflect stellar demand for luxury sites as tight supply sends prices soaring.
Source: Business Times 17 Oct 07
Horizon Towers’ STB hearing starts on Oct 30
HEARING dates, which should still allow enough time for the collective sale to go through before the Dec 11 deadline, have been set for the Horizon Towers case.
The Strata Titles Board (STB) will adjudicate in the contentious sale application starting on Oct 30 and running on selected days until Nov 15, if needed, said sources.
If the $500 million sale of the Leonie Hill estate is not completed before Dec 11, the deal could be off. The sale remains in limbo after the STB dismissed the initial application on a technical error in August. That ruling was overturned by the High Court last Thursday, sending the application back to the STB.
At the hearing starting this month, STB will hear from minority owners objecting to the sale and rule on whether it can go ahead.
Lawyers from Allen & Gledhill, which are representing the intended buyers, have applied to the STB to be a party at the hearing. A decision on this is expected next Monday. While the hearing dates have been set, the process could still be derailed if minority owners appeal against the High Court’s decision. They are believed to be considering the option.
Consenting owners at Horizon Towers also have another legal matter to deal with – a lawsuit from the intended buyers, headed by Hotel Properties. They claim that the owners breached their sale contract and are claiming up to $1 billion in lost profits. The suit has been put on hold but remains a threat to the owners.
Source: The Straits Times 17 Oct 07
Keen interest in Toa Payoh commercial site
Plot in Lorong 6 draws nine offers; Sim Lian puts in highest bid of $38m
A SMALL commercial site in Toa Payoh has reaped an offer of $38.2 million after ‘aggressive’ bids by nine companies.
Sim Lian Development lodged the top bid for the 99-year leasehold plot in Lorong 6 but it was only a whisker ahead of its next closest rival.
Hersing offered $37.34 million for the 1,396.8 sq m plot, United Engineers Developments bid $36.1 million while HSR International Realtors came in with $35.5 million.
‘The bids are aggressive, which is reflective of current market conditions,’ said Mr Donald Han, managing director of Cushman & Wakefield.
Sim Lian’s bid works out to $847.5 per sq ft (psf) of potential gross floor area. It plans to build an office block to ride on the red-hot office market, which is seeing rising rents amid an acute shortage.
If it is awarded the site by the HDB, the firm – wholly owned by privately held Sim Lian Holdings – will proceed quickly.
Sim Lian Holdings director Ken Kuik said the company hopes to complete construction in two years, before more supply comes on stream elsewhere in Singapore. The first phase of the mega Marina Bay Financial Centre will be ready around 2010.
The block, which can be built up to a gross floor area of 4,190.4 sq m, could be 10 to 13 storeys with some retail shops on the ground floor, said Mr Kuik.
Office space will be aimed at smaller firms, particularly those forced out of the Central Business District (CBD), he said.
CBD buildings have been registering record rents and the sharpest increases recently.
‘It’s for long-term investment,’ said Mr Kuik. ‘We should be able to achieve rents of $7 to $7.50 psf on average.’ That is the level HDB Hub offices are commanding, he added.
Mr Han said: ‘If Sim Lian can rent out the space at about $7 psf, it would justify a net yield of about 4.5 per cent, which is the prevailing market yield for suburban offices.’ He added that further upside is likely.
Rental hikes in the office market have prompted more firms to consider cheaper locations further from town, in business parks or in other industrial space.
‘Suburban offices will continue to enjoy spillover demand,’ said Mr Han.
Source: The Straits Times 17 Oct 07
TAKING STOCK – Record oil prices beat down markets
Trading curbs on Uni-Asia spark fears of similar moves on other soaring stocks
THE bull run in China-related stocks was stopped in its tracks yesterday as bourses from Hong Kong to Sydney turned jittery over soaring crude oil prices.
Market sentiment in Singapore was also spooked as some brokerages imposed trading curbs after the recently listed Uni-Asia Finance had a spectacular run-up.
Traders fear that similar curbs might be placed on other counters that have risen sharply during the dramatic rebound from August’s sub-prime lows.
‘The mood change was so drastic. We were still brimming with enthusiasm as we came into the office. The screen started to flash red and everyone wanted to get out,’ said a dealer yesterday.
Most Asian markets had initially taken Wall Street’s overnight weakness in their stride. Singapore’s Straits Times Index (STI) was down just 20 points, while Hong Kong’s Hang Seng Index rose 380 points, or 1.2 per cent, early on. But sentiment deteriorated as the crude rose from US$86 a barrel to nearly US$88, spooked by concerns that Turkey will invade Iraq and disrupt supplies.
In the rush for the exits, China stocks were among the worst hit as they have been the biggest beneficiaries during the recent run-up.
While the STI ended 51.3 points, or 1.33 per cent, lower at 3,810.72, the PrimePartners China Index, which tracks 25 China counters, fell 2.5 per cent to 297.71. The Hang Seng closed down 586.23 points.
The big blue-chip losers included Singapore Airlines, down 50 cents at $19.60, and Singapore Exchange, 40 cents lower at $15.40. China favourites such as Yangzijiang Shipbuilding lost 11 cents to $2.53.
With nerves already fraying, traders then had to deal with the plunge in the shares of Uni-Asia, which listed only two months ago.
With soaring oil prices turning the big picture murky, traders fear smallish China stocks could be hit by the kind of sharp sell-off that belted penny stocks in July.
Uni-Asia, which arranges the financing of transport-related assets, was set up by former Japanese bankers and is run out of Hong Kong. In just two days, its shares have plunged by 96 cents, or 38.4 per cent, to $1.54, wiping $238 million off its market value.
Traders said the selldown started after Kim Eng Securities ‘imposed trading restrictions’ on the stock on Monday. This came after the shares had quadrupled over the past three weeks to close at a record $2.50 last Friday.
Kim Eng told its dealers to get upfront payments from clients before they bought Uni-Asia shares.
The news sent Uni-Asia shares down 55 cents on a hefty volume of 62.9 million shares on Monday.
Other brokerages, including UOB Kay Hian and CIMB-GK, followed suit yesterday, triggering another selldown.
The shares dived 41 cents to close at $1.54 with 53.5 million units changing hands.
‘The market is rife with rumours on the stock but nobody knew exactly what was going on. It is not surprising that brokerages are imposing cash upfront payments because its rise was simply incredible,’ said a remisier.
A Singapore Exchange query on Monday also produced a blank.
Uni-Asia said there has been no substantial changes in its list of major shareholders, despite the heavy trades in its stock.
GREENSPAN ON CNBC: Expect future growth to slow
NEW YORK – FORMER Federal Reserve chief Alan Greenspan said the tightening of credit markets around the world will slow future US economic growth even though credit conditions have improved.
‘Even though the credit crunch is easing, it is residual,’ he said on Monday in an interview on CNBC television.
The impact tighter credit has had on borrowing costs ‘is going to slow this economy down to a certain extent’, he said.
The effects of that slowing are likely to last into the first quarter of next year, Mr Greenspan said.
He suggested that monetary policymakers may need to give greater weight to the rising costs of energy and food products when looking at inflation.
Central bankers in the United States have tended to focus on measures of ‘core’ inflation that exclude food and energy costs in assessing inflation because those prices are widely considered volatile.
‘The notion of looking at a core price requires that energy and food have no long-term trend and that their fluctuations are essentially random. That is now becoming an increasingly questioned premise,’ Mr Greenspan said.
He added that the US dollar’s decline is fuelling extraordinary demand for US-made products abroad, helping to boost economic growth during a housing recession.
The greenback’s decline ‘obviously has had a significant impact on exports’, said Mr Greenspan. ‘Export demand has been nothing short of extraordinary in the US.’
Source: REUTERS, BLOOMBERG NEWS (The Straits Times 17 Oct 07)
BERNANKE AT THE NEW YORK ECONOMIC CLUB – US markets healthier but full recovery will take time
Fed will act to support stability, non-inflationary growth, says chief
NEW YORK – FEDERAL Reserve chairman Ben Bernanke said on Monday that United States financial markets are healthier after a turbulent summer, but a full recovery will take time and the central bank will act as needed to support market stability and non-inflationary growth.
‘Conditions in financial markets have shown improvement since the worst of the storm in mid-August, but a full recovery of market functioning is likely to take time, and we may well see some setbacks,’ Mr Bernanke told the New York Economic Club.
‘The ultimate implications of financial developments for the cost and availability of credit, and thus for the broader economy, remain uncertain,’ he said.
‘For now, the Fed will continue to watch the situation closely and will act as needed to support efficient market functioning and to foster sustainable economic growth and price stability.’
The US central bank lowered benchmark overnight interest rates by a surprisingly large half percentage point to 4.75 per cent on Sept 18.
Mr Bernanke said that ‘by doing more sooner’ the Fed hoped it could forestall any damage to the economy from financial disruptions triggered by mortgage delinquencies.
At the same time, policymakers were prepared to reverse course and raise borrowing costs if inflation pressures – which seemed to have moderated – rekindled, he said.
Asked by a member of the audience about the impact of a weaker US dollar, Mr Bernanke said: ‘One cannot deny that when the US dollar depreciates there is some inflationary impact.’ But he added that the impact has been smaller in recent decades.
The Fed chief also said that expectations for slower growth would underpin hopes that price gains would moderate and that the central bank remained focused on keeping inflation low.
Mr Bernanke said policymakers considered the possibility that the Fed’s move to cut rates to restore stability to financial markets might promote excessive risk-taking.
Source: REUTERS (The Straits Times 17 Oct 07)
FOCUS: PROPERTY – A sprinkling of new benchmark home prices
These include deals at Sentosa Cove, science hub one-north, Boon Lay
(SINGAPORE) Several new units sold by developers set record prices in various parts of Singapore last month, despite the overall lacklustre market, latest figures show.
Data released by the Urban Redevelopment Authority (URA) yesterday show that just 529 homes were sold in September, down from 1,731 in August and 1,381 in July.
However, despite the low volume, several of the units sold set new benchmarks in various parts of Singapore – including Sentosa Cove, science hub one-north and Boon Lay – analysts said.
They indicated that the high prices fetched, although only in some cases, show there is a strong, ‘genuine’ demand for new homes, despite September’s low take-up of new homes.
‘Even though the market is quiet, you still see these kinds of prices, which means that there are many serious buyers out there,’ said Savills Singapore’s director of marketing and business development, Ku Swee Yong.
A unit in Ho Bee’s Turquoise at Sentosa Cove was sold for $2,772 per square foot (psf), which analysts said is likely to be a new benchmark for Sentosa.
And over in the Newton area, a unit in Three Buckley went for $2,888 psf, a record for the area. In fact, all 11 units were sold at a median price of $2,853 psf, which is itself a new benchmark for the location, said Li Hiaw Ho, executive director of CBRE Research.
New benchmarks were also set in the suburbs.
In the west, a unit at United Engineers’ The Rochester went for $1,577 psf, a new record for the one-north vicinity.
And near Upper Bukit Timah, a unit in Far East Organization’s Gardenvista on Dunearn Road sold for $1,449 psf.
Mr Ku said that both prices were new highs in their respective areas.
Elsewhere, a unit in The Beacon Edge at Tembeling Road was sold at $1,327 psf while a unit of Vetro at Mar Thoma Road was sold for $1,044 psf. Both were new levels achieved at their respective locations, CBRE said.
But perhaps most unexpectedly, a unit in Far East Organization’s The Lakeshore in Boon Lay Way went for $1,080 psf – taking most property analysts by surprise, as the project in the far western part of Singapore has been on the market for more than two years.
Source: Business Times 16 Oct 07
The Estoril put up for collective sale at $208m
No DC payable; price works out to about $1,536 psf per plot ratio
THE Estoril on Holland Road has been put up for collective sale, and the indicative price is $208 million.
This works out to about $1,536 per square foot per plot ratio (psf ppr) for the 84,600 square feet site.
Marketed by CB Richard Ellis (CBRE), its executive director of investment, Jeremy Lake, said that no development charge (DC) is payable due to the high development baseline.
He also said that developers would not incur DC to build the additional 10 per cent gross floor area allowable for the provision of balconies.
Currently, there are 40 three-bedroom units and four penthouses on the site. Based on the indicative price, the three-bedroom units will receive $4.32 million each and the penthouses, $8.69 million or $8.78 million.
CBRE estimates that the developer can build about 75 units assuming an average size of 1,800 sq ft each. The estimated breakeven is around $2,000-$2,050 psf.
In July, Tulip Garden, also in the Holland Road area, was sold for $516 million or about $1,018 psf ppr.
A recent CBRE report did note that a ‘cautious mood’ is being felt in the private land sales market due to the global credit tightening, the higher price tags as well as the two rounds of revision to DC rates. Only 24 sites worth a total of $1.96 billion were sold in the third quarter of 2007 compared with 51 sites (worth $6.92 billion) in the previous quarter.
Separately, Colliers International noted that for the first time in at least the last two years, the residential sector did not take the top spot in investment sales in the third quarter.
In its report, Colliers noted that total sales of residential investment properties dived to $2.9 billion or 21.4 per cent of total sales.
‘This reflects a significant 68.3 per cent drop from last quarter’s record $9 billion which accounted for 82.7 per cent of total investment sales in Q2 ‘07,’ it reported. ‘The trend, where developers continued to land bank at record high prices in the previous quarters, was evidently not repeated in this quarter.’
Attention was shifted to bulk purchases of strata residential units, including those at Costa Del Sol, Reflections at Keppel Bay and M21.
Source: Business Times 16 Oct 07
Rising S$ will hurt many tech firms: Citibank
LOCAL tech stocks, which have long lagged the surging broader market, may be dealt another blow by the recent appreciation of the Singapore dollar, which is expected to squeeze margins further, Citibank says in a report.
Although many tech firms have a natural hedge between revenue and raw material purchases, most have revenue that is largely US dollar-denominated and operating costs that are based on Asian currencies – typically the ringgit, yuan or Sing dollars – and report earnings in Sing dollars.
‘Hi-P, Jurong Tech and Venture would be the most affected in our coverage universe given their large operating capacity in China and Malaysia,’ Citi analysts Low Horng Han and Tan Han Meng say in the report.
Chartered Semiconductor and Creative Technology would be less affected since most of their revenue is in US dollars and they report their earnings in US dollars, the analysts say. But their risks lie in operating costs, given their Asian base.
As for CSE Global, the analysts say the impact is minimised by its diversified geography.
If there is going to be one winner in the tech universe, it is likely to be Datacraft Asia, the Citi analysts reckon.
‘Datacraft would be the key beneficiary since it reports in US dollars and both sales and expenses are in US dollars and Asian currencies,’ they say.
The Sing dollar has risen to a 10-year high of 1.4630 against the US dollar since the Monetary Authority of Singapore said last week that it is increasing slightly the slope of the S$ Nominal Effective Exchange Rate (S$NEER) policy band in the face of rising cost pressures, while maintaining the gradual and modest appreciation of the Sing dollar. S$NEER has been edging up at the higher end of the policy band following renewed weakness in the US dollar.
This slight increase could add 0.2-0.5 per cent to the current annual appreciation bias of about 1.9 per cent, Citi analysts say.
But they caution that this slightly steeper appreciation bias may not be sufficient to contain inflationary pressures, particularly given the currently lower Sing-dollar interest rates. This may result in a need for further tightening next year via more fine-timing of the appreciation bias or non-exchange rate measures.
‘We would not be surprised if the government follows through with tightening via other policy instruments via fiscal, labour or property measures to tackle inflation and overheating pressures,’ the analysts say.
Citi economists expect the Sing dollar to reach 1.39 – up from an earlier estimate of 1.41 – against the US dollar by end-2008 and average inflation to be 2 per cent for 2007 and 3 per cent for 2008, up from earlier projections of 1.5 per cent and 2.5 per cent respectively.
With its monetary statement last week, MAS raised its CPI inflation forecasts to 1.5-2 per cent for 2007, from 0.5-1.5 per cent in the preceding policy review, and 2-3 per cent for 2008.
Source: Business Times 16 Oct 07
Finance sector: future demand trends
The office space needs of financial institutions are changing globally. CHRIS ARCHIBOLD discusses how Singapore is rising to the challenge
THE financial services sector has seen unprecedented growth in Singapore over the last two or three years, both as a result of domestic growth and the influx of regional and global jobs into the market.
The accelerated growth, supply pressure and innovation in terms of workplace strategies are having a fundamental impact on the type, location and nature of property required by these financial institutions.
Jones Lang LaSalle’s Banking and Finance Industry Group has done much work studying the drivers behind the occupational strategies of this sector, some of which will be covered here. Additionally, we have looked at the pivotal role that the city’s office stock will play in maintaining the inflow of investment in this sector.
In the last 20 years, the defining trends in financial markets have been globalisation in the wake of deregulation and liberalisation; growth of markets resulting from demand due to greater securitisation, privatisation policies and developments in emerging markets; and the impact of technology. These trends, in turn, have led to innovation in products and services and to intense competition between financial centres – and firms within those centres – to capture cross-border trade.
Deregulation: The sector has experienced unprecedented levels of change in the last decade. Historically, it could be characterised as a series of highly regulated government monopolies. While this is changing, deregulation is happening faster in the West than the East. In addition to deregulation, which has resulted in increased competition (foreign and domestic), changing consumer demands and improvements in technology have been the key drivers of change.
Globalisation: The sector is going through a spate of mergers and acquisitions (M&A) as banks build global platforms critical to the success of organisations wanting to compete in the global marketplace.
Technology: The technology revolution has enabled the e-banking age, resulting in significant changes in retail banking. This impacts the need for physical branch space (auto lobbies, etc) and associated staff. Technology has also changed bank processing, enabling many tasks to be executed electronically and, often, remotely in a different part of the world where costs are lower.
Within office accommodation and portfolios, economies are being sought through:
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The consolidation of functions to decentralised locations
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Selection of cost-efficient locations
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Appropriate adjacencies
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Improved technical reliability/performance.
Corporate banking has high margins and is a client- driven business. It therefore prefers proximity to its client base and is likely to retain its core CBD presence. Exceptions to this may occur where high-specification buildings are available at a rental discount to the traditional city core.
Front office presence
As cost becomes a stronger driver, particularly in the current economic environment, banks are challenging how much corporate and investment banking needs a front office presence.
In recent years, there has been an increasing trend globally to decrease the percentage of ‘front office’ accommodation situated in expensive downtown locations. Many traditional non-client-facing functions have been relocated to the city fringe or decentralised locations for a number of reasons:
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Lower cost
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Control of dedicated facilities and consolidation into one ‘campus’-style location (hence promoting synergies between business units)
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Convenience and amenities for staff.
The relative split between front and back office accommodation varies significantly depending on the bank involved although current ‘best practice’ is considered to be 60 per cent back and 40 per cent front office. This split often varies more towards the front office in the case of a global or regional headquarters.
Our benchmarking analysis undertaken on some 40 banks and financial services companies globally indicated the following trends in respect of front and back office splits:
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North American and European-based companies traditionally have a higher decentralised component.
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The impetus to move was primarily due to availability of better-quality buildings with cost savings being ranked second.
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Staff amenities and facilities were a major issue.
Providing a higher percentage of decentralised facilities is becoming a major priority for Asian-based banks as infrastructure and technology improve.
Recent technology and globalisation trends have impacted the real estate requirements of large banks (and other corporations). In general terms, the requirements are grouped into a range of location, design, occupancy and tenure considerations. A number of core objectives of large banks include:
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Flexibility and ability to accommodate rapid growth
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Building design that promotes workplace flexibility, efficiency and interaction between employees
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Cost-effectiveness and cost certainty
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Security.
Flexibility has become a key issue for large financial institutions, particularly in the last five years, as market cycles, economic conditions and M&A activity demand industry participants to be quick in reacting to change.
Flexibility
One of the greatest challenges is the rate of change, the unpredictability of space requirements and the ongoing need to manage costs. As a result, the emphasis in planning administrative office portfolios has shifted to a need to plan for flexibility. This is manifested in a number of ways:
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Standardising modules of space, providing structured IT and services infrastructure that allow the relocation of ‘people, not desks’.
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Providing exit strategies for buildings, whether owned or leased as well as considering both local market leasing practices and financial considerations, and also depending on the nature and criticality of the functions housed therein.
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Providing strategy for rapid growth, especially in supporting unpredictable but rapid growth of new delivery channels.
The style and design of accommodation has over the last 5-10 years has become increasingly important, as occupants realise the impact it has on staff retention, a cooperative working environment and flexibility.
Workplace planning and strategy is a huge topic and issue in its own right. Recent trends and design consideration will likely be investigated during an exploration of occupier objectives.
Singapore has some of the most reliable infrastructure within Asia and is fully able to support centralised facilities.
This benefit of putting this infrastructure in place has been demonstrated by the massive influx of investment by financial institutions over the last two years.
The latest Grade A office development, One Raffles Quay, serves as a excellent barometer of this expansion activity. Analysis of the occupancy of this development shows that over 80 per cent of the space is leased to financial institutions and over 60 per cent of this take-up is expansion space.
To date, much of the activity has been centred in the core CBD area and while we expect to see more of this over the next 12-18 months we are also predicting that many of the major financial institutions will turn their attention to splitting their operations and growing their back office operations. The reasoning behind this prediction is as follows:
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We now have significant real estate cost differentials between the CBD and decentralised locations. In some locations, rents are only 25 per cent of Grade A CBD core rents.
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Rental fluctuations in many back office locations are very low (in dollar terms) compared to CBD locations and therefore afford the occupiers more cost certainty, which aids business planning.
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Many of the banks have reached critical mass (in terms of area occupied) making a front office/back office split a viable option.
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Some locations afford the occupier the opportunity to enter into a build-to-suit, giving total control over the type of environment created.
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Current island-wide supply is limited. Build-to-suit back office premises can be constructed within tight timelines, some as short as 18 months.
There are a number of companies currently looking at their back office portfolio and while they are considering a number of potential locations, many are focusing their attention on Changi Business Park and the HarbourFront/Alexandra area.
Banks appear to be moving to more ‘campus’-style buildings for their back offices with larger floor plates that encourage business unit interaction. The real drivers in location selection are expected to be the quality of specification, design of available floor plates/buildings, and the ability to attract and retain quality staff at competitive salaries.
Source: Business Times 16 Oct 07
Six Prudential Tower floors sold for $141m
Owner Prudential to be paid in units of property fund
PRUDENTIAL Assurance Company Singapore is said to have sold six of the seven office floors it owned at Prudential Tower to a property fund for $141 million in exchange for units in the fund. The transacted price works out to just under $2,100 per square foot based on a net lettable area of about 67,000 square feet.
However, based on a total floor area of about 72,200 sq ft, the $141 million price works out to a lower $1,952 psf.
Prudential Assurance bought seven floors in the development in early 1996 for $183 million, or $2,200 psf, but according to media reports at the time, the psf price was based on a total floor space of 83,000 sq ft. The net lettable area was not reported.
Nevertheless, the price at which Prudential has sold the six floors (the 20th to 25th levels of Prudential Tower) appears to be lower than its 1996 acquisition price, which set a benchmark for office space which held until this June, when 1 Finlayson Green was sold for around $2,650 psf of net lettable area.
Prudential Assurance Co Singapore is said to have sold the six floors to the fund in exchange for units in the fund.
After the latest transaction of the six floors at Prudential Tower, Prudential Assurance is said to be left with the 30th floor of the building.
The buyer of the six floors in the transaction, concluded this August, was the open-ended Asia Property Fund, sponsored by LaSalle Investment Management and PruPIM. Prudential Assurance Co Singapore and PruPIM are part of the Prudential UK group.
‘In terms of a conflict of interest arising from a related-party transaction, LaSalle Investment Management conducted the acquisition process and PruPIM abstained from any voting on the acquisition,’ LaSalle regional director Marc Montanus said when contacted by BT. ‘The pricing was also supported by third-party valuation.’
Discussion on the acquisition is said to have begun 11/2-years ago.
LaSalle and PruPIM yesterday announced the completion of three acquisitions totalling a gross investment of over US$1.4 billion by the Asia Property Fund, including the six floors at Prudential Tower, although the quantum of the Singapore deal was not specified. ‘There is significant potential for the fund to realise immediate value by increasing the existing rents to much higher market levels,’ LaSalle and PruPIM said in their news release.
The other two assets bought were a 50 per cent interest in Westfield Doncaster mall being redeveloped in Melbourne by Westfield Group, and Tennoz First Tower, an A-Grade office block in Tokyo’s Shinagawa ward.
Source: Business Times 16 Oct 07
DBS weighing up mega lease deal at posh new address
Bank eyeing phase 2 of Marina Bay Financial Centre
(SINGAPORE) It could be Singapore’s biggest office leasing deal ever – if it gets sealed. DBS is said to be in advanced stages of negotiating to lease up to one million sq ft at Marina Bay Financial Centre’s (MBFC’s) phase 2.
If concluded, this could put into the shade the deal for 508,298 sq ft that Standard Chartered Bank signed in April for MBFC’s phase one, which will be ready in the first quarter of 2010.
The second phase of the project, slated for completion in late 2011, includes a high-rise tower that will have around 1.4 million sq ft of office space. DBS is expected to pay a gross monthly rental of around $10 per square foot, according to industry players.
Stanchart’s lease inked earlier this year reflects an effective rent of about $8 psf, they added.
BT understands that the exact quantum of space that DBS will take at MBFC’s second phase has not been finalised and it may well be less than one million sq ft if the bank decides that it makes more economic sense to find some cheaper space elsewhere. One million sq ft is roughly three quarters of the office space at One Raffles Quay, which was completed last year.
Sources say that in addition to MBFC’s phase 2, DBS is scouting for around 300,000 sq ft of space for backroom operations. Sources tipped Changi Business Park as being the most likely candidate, although Alexandra Distripark, which is being transformed into a business park, may also be a contender.
Currently, some of the bank’s backroom operations are housed at a building within the Alexandra Distripark complex, called The Comtech, where DBS occupies about 100,000 sq ft. The bank also leases more than 100,000 sq ft for backoffice functions at Technopark @ Chai Chee.
In the Central Business District, DBS’s operations are housed primarily in leased premises at DBS Building Towers One and Two on Shenton Way, and at PWC Building at Cross Street. The bank owns a stake in the latter property and is said to occupy about 100,000 sq ft there for its asset management and stockbroking businesses. It is believed to occupy about 600,000 to 700,000 sq ft at DBS Building Towers One and Two. The bank used to own the towers until it sold them to a Goldman Sachs real estate fund in late 2005 and leased back the space it occupied for an initial eight-year term with options for renewal.
The initial lease term will expire around late 2013 which suggests a period of overlap with the lease the bank is negotiating for MBFC phase 2. ‘It makes sense for DBS to move to MBFC in the more prestigious Marina Bay location as this will be Singapore’s new financial district and where many major foreign banks will have a presence,’ an industry observer noted.
MBFC’s Phase 2 will comprise the Marina Bay Suites residential project, slated for launch early next year, and the high-rise office tower where DBS is negotiating to be anchor tenant and which is expected to have about 1.4 million sq ft of offices.
The project’s first phase comprises the Marina Bay Residences and two office towers, 33 storeys and 50 storeys high with about 1.6 million sq ft of net lettable area.
Source: Business Times 16 Oct 07
URA to woo Mid-East investors at int’l event
It will sell S’pore as destination for real estate investments at Cityscape Dubai
THE Urban Redevelopment Authority (URA) will sell Singapore as a destination for real estate investments to Middle East investors at Cityscape Dubai, an international property event.
URA director of land administration Choy Chan Pong said that it was important for Singapore to participate in such events. As an example, Mr Choy highlighted the recent sale of a development site at Beach Road to a consortium which included Middle East-based Istithmar Group.
‘URA had met with Istithmar at last year’s Cityscape Dubai and presented them with the exciting investment opportunities we have in Singapore including the prominent Beach Road site,’ Mr Choy said.
The site in question was sold to Istithmar Group, El-Ad Group and City Developments Ltd for $1.7 billion last month.
Mr Choy said: ‘Singapore’s participation in Cityscape Dubai, hence, allows us to meet with potential investors and developers face-to-face, enabling them to better understand what Singapore has to offer.’
A Singapore Pavilion has been set up at the event for the first time.
The public and private sector organisations exhibiting in the Singapore Pavilion include the URA, Singapore Tourism Board (STB), Building and Construction Authority (BCA), Marina Bay Financial Centre, Lend Lease Retail, Ong & Ong Architects and the Singapore Institute of Architects (SIA).
The URA will showcase Marina Bay, an area which has already attracted around $15 billion worth of investments from international developers including the Marina Bay Sands Integrated Resort, prime commercial developments such as One Raffles Quay, Marina Bay Financial Centre as well as high-quality residential developments.
The STB will be showcasing some of the changes and transformation to the tourism landscape, highlighting tourism zones including Orchard Road and the Southern Waterfront.
BCA will exhibit its mission to develop a quality built environment in Singapore. BCA International, a consultancy company by BCA, will also be present to provide multi-disciplinary construction related consultancy to both public and private agencies in the Middle East.
Cityscape Dubai is being held from today to Thursday.
Source: Business Times 16 Oct 07
Plunge in Japanese housing starts set to cut Q3 growth
Slowdown will make it harder for Bank of Japan to justify raising interest rates
(TOKYO) A plunge in Japanese housing starts triggered by tighter building rules looks set to slash third-quarter economic growth, which would make it even harder for the Bank of Japan to justify raising interest rates.
The government and some economists say housing starts will rebound in the fourth quarter as operators become familiar with the new rules, introduced in late June, but industry officials warn the slowdown could last until the end of the year at least.
The problems – unrelated to the housing sector troubles in the US – stem from rules introduced by the government after a scandal in 2005 over falsified engineering data for apartment blocks.
They include heavier penalties for violations and a much stricter approval process for big buildings.
After a jump in June ahead of the new rules, housing starts fell by a quarter in July from a year earlier. The pain deepened in August, when 63,076 homes were started – little more than half the tally in the same month last year.
There are few hard forecasts as yet, but some economists say these sharp falls could leave gross domestic product growth in the July- September quarter as much as 0.3 percentage point below what it might otherwise have been.
A sharp slowdown in the construction sector, which employs one in every 10 Japanese workers, could ripple out into many other industries.
If GDP data to be released in mid-November shows the economy shrank during the the quarter, Japan will technically be in a recession after the 0.3 per cent contraction in April-June, although most economists are not forecasting that. ‘Should that happen, a rate hike will be out of the question for the time being,’ said Seiya Nakajima, chief economist at Itochu Corp.
To be sure, exports proved surprisingly solid in the quarter despite the US sub-prime woes and credit market troubles, which might offset weak housing investment to some extent.
But low economic growth will be almost as bad for the Bank of Japan as a recession. The BOJ has said that interest rates have to rise gradually because the current benchmark rate, 0.5 per cent, is too low in an economy expected to grow at about a 2 per cent annual pace.
‘There’s a possibility that Japan’s growth will fall well short of 2 per cent,’ said Hideo Kumano, an economist at Daiichi Life Research. ‘The whole rationale for raising rates could be lost.’
The BOJ could argue that Japan’s long-term economic prospects remain solid, and that the housing downturn is the result of temporary confusion over regulation changes, not a sudden weakening in demand.
The Land Ministry has said things will return to normal soon as architects and contractors become accustomed to the new procedures. The ministry said last month that construction approvals had already rebounded in August after a sharp fall in July.
Industry sources say that is misleading. Approvals are rebounding only for the small, wooden houses that are still common in Japan, they say; permits for big buildings, which have a much greater impact on the wider economy, have been virtually frozen.
The government patched together the new approval process in response to public outrage over the building scandals, in which the construction of dozens of buildings was found to have been based on falsified earthquakeresistance data to save costs.
Critics say the new process is too stringent and inflexible and does not allow applicants to make even minor changes in building plans. To make matters worse, the Land Ministry released detailed guidelines on the new rules only in August, meaning the process was paralysed for two months after the new law was enacted on June 20.
The new regulations have increased the workload both of those who seek permits and those who check them.
An official at the Japan Association of Architectural Firms said members now needed to prepare three or four times more documents than in the past.
‘I heard that for some big buildings there are so many documents to submit that people needed to rent a mini-truck to carry them.’
Source: Reuters (Business Times 16 Oct 07)
M-E property boom still going strong
FAZLUR RAHMAN KAMSANI and COLIN TAN say markets in GCC nations are gradually primed for another growth phase
CONTRARY to perceptions in some quarters, the real estate boom in the Middle Eastern markets of the GCC (Gulf Cooperation Council) countries has yet to run its full course. While it is true that these markets are presently in a consolidation phase compared to the frothy days of explosive growth between 2004 and 2006, there are indications that the markets are gradually primed for another – more sophisticated but less volatile – growth phase in the not-too-distant future.
The much anticipated sharp correction – widely expected to occur this year – has not materialised. In general, prices and rentals have been very sticky downwards. The impact, if any, has been reflected in the market more in terms of slower sales and fewer transactions rather than on actual prices.
Instead, the strong upward pressure on housing rents in some of the GCC countries such as the UAE (United Arab Emirates) and Qatar has led them to resort to legislation to put a cap on the increases. However, given the strong demand, many in the real estate industry are not optimistic that these new rules will produce the desired result.
A major reason for the absence of any major correction in the real estate markets has been the booming economies of the GCC countries. While spiralling oil prices may have led to astronomical growth in nominal terms, what is often overlooked is the fact that there has also been real economic expansion. It has not been all hype and no growth.
After a robust performance by the GCC economies in 2005 and 2006, real GDP growth for the region is expected to grow by a more moderate 5 per cent this year. The GCC economies grew by 6.8 per cent in 2005 and by about 6 per cent last year. In nominal terms, the GCC economies have more than doubled to an estimated US$723 billion between 2001 and 2006. More importantly, for the next growth phase of the real estate sector, the GCC countries have recognised the need to diversify their economies and reduce their dependence on the energy sector. This has led to more development activity in other sectors of the economy and more demand for other types of real estate other than housing.
Given the small local population base, especially in the UAE and Qatar, the strong job growth accompanying the economic expansion has led to a strong continuous inflow of more and more people, inevitable if economic growth is to be sustained. Therefore it comes as no surprise that these two GCC countries have been leading the way in terms of real estate demand.
Overall population growth in the GCC countries has averaged 3.4 per cent per annum in the last four years, among the highest rates in the world. While this growth was led by the inflow of migrant workers to meet strong demand for labour, it was also supported by high fertility rates.
Rapid population growth combined with a rise in the participation rate, especially among women, has doubled the economically active population over the past decade. The population aged 15 to 60 years hit 23 million at the end of 2006 (constituting 64 per cent of the total). Of these, 12.6 million were employed.
Given the strong migrant inflow in Qatar and the UAE, they are also the ones to have experienced the highest inflation rates in the Gulf, particularly in the housing sector. According to industry estimates, the average housing rentals rose by over 80 per cent in Doha over the past two years and by about 60 per cent in Dubai, compared to just over 20 per cent in Riyadh.
Moreover, rent as a proportion of household income has reached 33 per cent in Qatar and 30 per cent in the UAE, compared to 19 per cent for Saudi Arabia. Inflation in the region now ranges between 2 and 12 per cent.
New dynamism
Inflation in the GCC countries is also driven by higher government expenditure – and in the current boom by the private sector as well – besides the usual demand/supply imbalances. Unlike the previous oil boom in the 1970s, private businesses have boosted their investment across a number of industries, providing the GCC economies with a new dynamism unseen in the past.
Higher oil prices combined with increased production levels have resulted in a massive fiscal windfall for the GCC economies. Oil revenues tripled between 2002 and 2005, rising from 25 per cent of GDP to 38 per cent. In contrast, growth had averaged 18 per cent in the 1990s. Growth in oil revenues in 2006 remained firm despite some slowdown as a result of a drawback in oil prices later in the year and output reductions due to cuts in Opec quotas.
Post 9/11, GCC countries are putting the current windfall from higher oil revenues to good use by investing a large part of it in the domestic economy. Domestic spending by governments has accelerated, averaging 14 per cent over the past four years.
While increased capital spending benefited mainly the energy sector, governments have also increased their spending on infrastructure and projects. In particular, spending on infrastructure has greatly improved accessibility all around. As a result, real estate values have been boosted throughout the region. Such planned government expenditure on infrastructure is expected to continue to be a strong driver of the real estate sector in the years to come.
Aided by the private sector this time around, project activity in the GCC region has also boomed, with governments sponsoring more than half of the projects launched since 2003. Around 600 government-sponsored projects worth in excess of US$200 billion have been launched since 2003 throughout the GCC.
While much of such spending has come from government bodies and government-owned entities such as national oil companies, there has also been a surge of projects resulting from private-public joint ventures. Although a large part of the investment focused on strategic sectors linked to oil and gas, there has also been increasing investment in infrastructure and real estate projects.
It is estimated that less than 20 per cent of the initiated projects have actually been completed as a result of slow project implementation caused in part by the shortage of construction materials. The bulk of planned investment remains in the pipeline and is expected to be a strong driver for growth in the coming years. Indeed, project activity
accelerated in 2006, with work starting on some 252 mega-projects. More projects have started or are scheduled for implementation in 2007 with 250 projects worth US$250 billion currently in advanced execution stages. Another 261 projects worth US$281 billion are at the early planning or feasibility stage.
Amid continued huge investments by both the governments and private sector, the GCC countries have also recognised the importance of proper planning and for more orderly investments. For example, Dubai is now counting the costs of the haphazard development of the early years. The city is now experiencing a growing traffic congestion problem. This recognition for proper planning will provide the basis for the next and more sophisticated phase of the real estate growth cycle.
Source: Business Times 16 Oct 07
