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It pays $138m for the Balmoral site; GuocoLand successfully bids $62.5m for Toho Garden
HIAP Hoe and sister company SuperBowl Holdings have jointly bought a freehold site at Balmoral Road for $138 million, the two companies said yesterday.
The price paid for The Aspine in a collective sale works out to $1,870 per square foot per plot ratio (psf ppr).
The site has a land area of 46,100 sq ft and a 1.6 plot ratio, giving it a potential gross floor area of 73,800 sq ft.
Hiap Hoe and SuperBowl are looking to build 39 luxurious boutique apartments averaging 1,800 sq ft to 2,000 sqft per unit, they said. Up to 12 storeys can be built.
The developers bought the site through their joint venture vehicle Hiap Hoe SuperBowl JV. Hiap Hoe and SuperBowl hold 60 per cent and 40 per cent of the JV company respectively.
Hiap Hoe and SuperBowl count Hiap Hoe Holdings Pte Ltd as a major shareholder. Hiap Hoe Holdings Pte Ltd held 73.6 per cent of Hiap Hoe and 69.6 per cent of SuperBowl as at March 12, 2007.
SuperBowl’s share of the tender price comes to $55.2 million and will be financed through internal resources and or borrowings, the company said.
This tender is the second successful joint bid between Hiap Hoe and SuperBowl. The two companies partnered each other in the past and won the tender for Goodluck View for $73.3 million about four months ago.
‘The Balmoral area is attractive for its close proximity to highly popular schools and Orchard Road, and we believe that there is still good upside for re-developed properties in this vicinity,’ said Hiap Hoe managing director Teo Ho Beng.
With this latest acquisition, Hiap Hoe’s land bank will increase to more than 600,000 sq ft of gross floor area.
Separately, GuocoLand said on Sunday that it has successfully tendered for the en bloc purchase of Toho Garden near the Serangoon Gardens area for $62.5 million.
The price works out to some $594 psf ppr including a development charge of $9.8 million.
The freehold Toho Garden has a land area of 86,900 sq ft and a 1.4 plot ratio, giving it a potential gross floor area of 121,600 sq ft.
The purchase marks GuocoLand’s fifth land acquisition since 2006. Together, the five sites will boost the developer’s land bank in Singapore to just under two million sq ft of gross floor area, it said.
For Toho Garden, GuocoLand proposes to develop a five-storey condominium with about 100 apartments.
Both projects were marketed by Newman & Goh.
Source: Business Times 23 Oct 07
It will acquire the upcoming shopping mall from its parent firm in Q4 2008
FRASERS Centrepoint Trust (FCT) has entered into a put and call option agreement to acquire the upcoming shopping mall Northpoint 2 for between $139.5 million and $170.5 million, it said yesterday.
The mall, which is being developed by Frasers Centrepoint, will be completed by August 2008. FCT will then acquire it from its parent company in the fourth quarter of 2008.
‘We are doing this (entering the put and call option agreement) now so that we can get a certainty of ownership,’ said Christopher Tang, chief executive of FCT’s manager.
FCT has plans to integrate the upcoming mall with Northpoint, which is already part of its portfolio.
The $30 million asset enhancement programme is expected to be completed by end-June 2009. Together, the two malls will have a combined net lettable area (NLA) of some 232,000 sq ft, an increase of some 56 per cent over Northpoint’s current NLA.
FCT said that the mid-point of the agreed price range for Northpoint 2 – $155 million – is based on an open market valuation. The actual purchase price will be determined by taking the average of two valuations – one each by FCT and Frasers Centrepoint – nearer to the time of the transaction.
FCT also reported its financial results for the fourth quarter ended September 30, 2007 yesterday.
The trust said that distributable income for the three months came to $10.3 million, 13.5 per cent higher than the forecast of $9.1 million as new and renewed leases as well as higher occupancy rates in its malls contributed to increased revenues.
Distribution per unit (DPU) for the quarter came to 1.67 cents, up 13.6 per cent from forecast of 1.47 cents.
Net property income came to $12.8 million, some 2.6 per cent higher than the forecast of $12.5 million.
For its full financial year, FCT reported distributable income of $40.4 million, 11.1 per cent higher than its forecast. DPU came to 6.55 cents, 12.0 per cent higher than forecast. And full-year net property income came to $51.7 million, 3.2 per cent higher than its forecast.
There are no comparable figures for the previous corresponding periods as FCT was only listed on July 5 last year.
FCT has three more Singapore malls awaiting injection into the Reit – Yew Tee Point, Bedok Mall and The Centrepoint.
Yew Tee Point will be injected in early 2009 and Bedok Mall in 2010, Mr Tang said. He added that there is no timeline at present for Centrepoint’s injection. The four malls together will double the trust’s current portfolio.
The trust will also look at China and Australia for growth together with Malaysia, where it already has a presence through its stake in Hektar Reit, Mr Tang said.
FCT’s shares closed unchanged at $1.50 yesterday.
Source: Business Times 23 Oct 07
THE Mandarin Oriental hotel here has enjoyed a significant increase in the number of international corporate and free and independent travellers (FITs) since it was upgraded and rebranded as a member of the worldwide Mandarin Oriental Hotel Group.
‘After the hotel was relaunched in 2005 we saw a two to three-fold increase in the number of business travellers in 2006, compared with 2004 and 2005,’ says Rajesh Jhingon, general manager of the Mandarin Oriental, Singapore.
‘Demand for rooms will continue to increase as the hotel is constantly upgrading its facilities and service.’ Guests have responded positively to the transformation of the hotel and the improved facilities, he said.
The hotel, previously The Oriental, Singapore, was renamed Mandarin Oriental, Singapore on Sept 25 to align it with the Mandarin Oriental Hotel Group, which is in the process of developing 17 new hotels worldwide.
The multi-million-dollar upgrade of the Singapore hotel – which included all rooms and suites, dining and meeting facilities, public areas and the fitness studio – is one of the most significant since the hotel opened in 1987.
The hotel was closed for refurbishment for three months from end-August 2004 until December 2004, when it reopened softly.
‘However, renovation works were still going on and we relaunched the hotel in May 2005,’ says Mr Jhingon. Upgrading of facilities continued after that, the latest being the renovation of the fitness studio, which was completed in June this year.
There will be further renovations in 2008 to the hotel’s rooms, including new furniture and the latest audio visual facilities in every room.
Source: Business Times 23 Oct 07
Beware uncertain global economy and riskier financial environment
EMERGING Asia’s economies have been among the most dynamic in the world in the last decade. Today, the region accounts for almost half of global economic growth. Much of this success stems from broad reforms by these countries in the last 10 years.
These reforms have led to healthier financial and corporate sectors and more robust macroeconomic policy across the region. But the recent financial turbulence, still playing out across the globe, highlights the question of just how vulnerable the region remains to developments in the United States and other industrialised countries.
What, therefore, are the key strengths and vulnerabilities for the region today? And what challenges are Asia’s policymakers likely to face in the period ahead?
The International Monetary Fund’s (IMF) Asia and Pacific Department addresses these issues in detail in its Fall 2007 Regional Economic Outlook (www.imf.org).
The year 2007 has been another good one for the region so far. Economic growth has exceeded expectations. China and India have led the way, with growth rates in the first half of the year of 11.5 and 9.25 per cent respectively.
The trend has been positive for others as well. Exports remain buoyant and growth is becoming somewhat better balanced in many countries, with private consumption and investment making an increasing contribution.
For the year as a whole, we project that emerging Asia will achieve economic growth of nearly 9.5 per cent.
Moreover, inflation continues to remain in check. While a recent modest pick-up in headline inflation in the region requires close monitoring, this rise mainly reflects higher food prices, especially in China, and is not expected to generate large second-round effects.
The region weathered well the recent global financial turbulence, when concerns over rising defaults in the US subprime market led to increased volatility in equity and credit markets worldwide.
Emerging Asia’s equity markets did initially decline along with other emerging markets, Asian currencies did experience downward pressure, and financial conditions did tighten. However, what is striking is the speed with which emerging Asia recovered from this initial shock.
Capital inflows to the region have returned, and its equity markets are now about 10 per cent higher than before the summer’s turbulence. Reflecting this resilience, the IMF foresees only a modest slowdown in 2008, to about 8.5 per cent, resulting from lower external demand for Asia’s exports, and an assumed effective policy tightening in China.
The sub-prime crisis has, however, increased uncertainty about the outlook for the global economy – and for emerging Asia. First, it remains uncertain whether we have seen the worst of the global financial turbulence or if there are additional shocks ahead. The region’s apparently small exposure to sub-prime mortgages and structured products more generally has helped moderate the impact of the sub-prime crisis on Asia. This in itself reflects the relatively unsophisticated nature of the financial sector in much of the region.
But another bout of global financial volatility could have significant spillovers for the region. It could reverse recent inflows and make financing more difficult for a number of sovereign and corporate borrowers.
But perhaps the main risk to the region is that of a sharp slowdown in the US and the euro area, resulting from the persistent US housing doldrums and associated global financial problems.
Despite the view being expressed that Asia has ‘delinked’ from the US and other industrialised countries, the truth is that the region remains significantly dependent on exports to the rest of the world. While an increasing share of exports are within the region, much of this still reflects the integrated production processes within Asia, with much of the final demand still in the industrialised world.
So, how big an impact would a US or global slowdown have on Asia? It would likely not be as big as during the dotcom bust of 2001-02. Then, the decline centred on information technology products, which are of particular importance for emerging Asia.
Nevertheless, IMF staff estimates that a one percentage point decline in US economic growth could reduce growth in emerging Asia, through lower exports, by up to 0.4 percentage point. While sizeable, this would, however, not have a dramatic impact on emerging Asia’s economies.
Overall, then, the outlook for emerging Asia remains positive, but the economic environment will, as always, present a number of policy challenges.
First, policymakers need to be ready to respond to a slowdown in the global economy including – in countries where inflation expectations are low and well-anchored – through more accommodative monetary policy.
Second, the volatile global environment has raised uncertainty regarding capital flows to the region. Countries will need to continue to be pragmatic and allow for greater exchange rate flexibility to create two-way risk in foreign currency markets and promote a rebalancing of growth where necessary. This is especially pertinent in China, where the current account surplus has continued to grow and the currency remains considerably undervalued relative to medium-term fundamentals.
Finally, the sub-prime crisis, while so far largely skirting the region, will provide a number of lessons for Asia, as its financial systems become more sophisticated. This is likely to include the need for enhanced financial supervision.
At the same time, countries will also likely need to strengthen reporting and disclosure requirements, and pricing and provisioning rules to deal effectively with complex financial products, and the cascading system of risks they imply.
Source: Business Times 23 Oct 07
(KAMPALA) The demand for office space and quality residential accommodation will continue unabated in Kampala, the capital of Uganda, fuelled by a rising middle class and offshore interest and increased investments, a global property firm has predicted.
Britain-based Knight Frank’s Africa Report 2007, launched recently, said Kampala was short of office, retail, industrial and accommodation space as demand continues to outstrip supply. The report also provides a comprehensive look at the property environment in Africa.
‘Demand for office space has also increased from telecom companies and other related services,’ said the report, quoted by New Vision daily yesterday.
Kampala’s property market is attracting interest from abroad with offshore investors hoping to cash in on the rental yields that are higher in the region at 9 per cent for a 100 sq m apartment compared to Kenya’s 7 per cent and Tanzania’s 8 per cent.
Knight Frank said office prime rent fetches US$16 per sq m per month with a yield of 11 per cent, while a four-bedroom house in a prime location brings in US$5,000 in rent per month – a return on investment of 8 per cent.
Based on high rental yields on property in Kampala and across the region, Rutley Capital, a private equity arm of Knight Frank, has launched a fund to invest in east and southern African properties.
Source: Xinhua (Business Times 23 Oct 07)
The population in California will climb to 60 million from 36 million today
(TEMECULA, California) California wine country in autumn is picture-perfect as vines turn gold and orange and workers harvest plump grape bunches to crush for cabernets, chardonnays and pinot noirs.
But just as the juice ferments, so does resentment over the use of the precious land. From north to south of the leading US wine state, battle lines are being drawn through the vineyards.
In the south, vintners struggle to keep home development from encroaching, while northern California wine grape growers are expanding up the slopes and into the forests, much to the dismay of environmental groups.
Land conflicts surrounding the wine industry are likely to worsen as the people crush and the so-called ‘grape rush’ show no signs of abating in the most populous US state.
Vines grow today along Los Angeles freeways and amid the giant redwood forests of the misty north.
‘The cost of the land has skyrocketed, which forces (winegrowers) to sell or subdivide to put houses on it,’ said Jeff Wiens, general manager of Wiens Family Cellars, in Temecula, Riverside County, southeast of Los Angeles.
The state estimates Riverside County will double its population to 4.7 million by the year 2050, making it the second-largest county in California.
The overall population in California will climb to 60 million from 36 million today.
Wine production here began in the 1960s and housing development expanded later, as residents priced out of San Diego, Orange and Los Angeles counties looked for more affordable housing.
‘It’s very hard for vineyards and housing to co-exist,’ says Jim Carter, owner of South Coast Winery, one of Temecula’s largest vintners. ‘Farming can never produce the dollars that housing can produce.’
As the number of residents rises, so do the politics of land use.
‘We’re probably where Napa, California, was in the 1970s and 1980s,’ said Ray Falkner, president of the Temecula Valley Wine Growers Association.
A decade ago, he said, Napa winegrowers were free to operate their vineyards and wineries. Restrictions imposed by the area’s homeowners eventually changed the way wine- growers operated there.
As with Napa, the lure to live in the rolling hills of Temecula’s wine country is strong.
Top Temecula developer Dan Stephenson is in the planning stages for ‘Europa Village’, a 135-hectare project that will merge wine-making and country living. Fifty-eight homes will intermingle with three wineries.
So far, he says, there has been little resistance from vintners, who are welcoming the wineries and tolerating the housing.
‘We’re going to knock the socks off wine country,’ said Mr Stephenson.
But in practicality, grape farming is far less romantic than most imagine.
Pesticides are sprayed, tractors growl down bumpy roads and the stench of fertiliser permeates the air.
Mr Falkner and other vintners worry that outsiders may eventually upset operations.
‘The more residents, the more pressure,’ Mr Falkner said.
While ordinances are in place to constrain urban sprawl, Mr Falkner still worries.
‘To be truthful, the big test is yet to come,’ he said. ‘Let’s see what happens in another 10 years.’
Meanwhile, up north in Sonoma and Mendocino counties, vineyards battle with environmentalists for expansion into woodlands and even redwood forests – fertile ground for the popular yet delicate pinot noir grape.
Members of the Sierra Club are fighting to keep Premiere Pacific Vineyards from developing about 690 hectares of forest land.
They argue that the project, dubbed Preservation Ranch, poses a risk of water pollution and would upset wildlife and the ecosystem.
‘The loss of the 1,650 acres of trees is a substantial loss,’ said Jay Halcomb, chair of the Redwood Chapter of the Sierra Club.
But Preservation Ranch says the project will reserve 6,000 hectares out of 8,000 hectares to plant over one million trees – and that is only viable because a vineyard is in its midst.
‘We believe it’s an environmentally sound project. The value added from the vineyard makes the whole thing possible,’ said attorney Eric Koenigshofer.
Source: Reuters (Business Times 23 Oct 07)
There’s a 50 to 60% chance of a recession as consumers curb spending: analyst
(CHICAGO) Ivy Zelman’s view of the US housing market is gloomy, but it’s probably the most realistic.
A veteran Wall Street analyst, Zelman, chief executive of the research firm Zelman & Associates, says it’s unlikely the US housing market will recover before 2009, adding there’s a ‘50 to 60 per cent chance of a recession’, as the housing slump curbs consumer spending.
Ms Zelman paints a much darker picture than Federal Reserve chairman Ben Bernanke, who said last week that housing will be a ’significant drag’ on the economy into next year.
When you consider the huge home inventories and tight-as-a-drum mortgage restrictions, it’s easy to conclude that the housing slump could extend well past 2008. Unless financing loosens up and buyers return, her prophecy will become a reality.
‘I’ve never seen the market as bad as this,’ Ms Zelman said. ‘And it could get worse. The home-price decline could range from 16 per cent to 22 per cent.’
Monitoring inventory, builder incentives and demand, Ms Zelman is also watching adjustable-rate mortgage resets.
Homeowners with these loans will automatically face higher monthly payments that they may not be able to afford, another trigger for foreclosures or sales. Some US$500 billion of these loans will re-adjust through 2008, Ms Zelman says.
While foreclosures have declined somewhat from August to September, they still doubled from a year ago, according to RealtyTrac Inc, which monitors the housing market. Since more homes are coming on the market, Ms Zelman says that will only add to the misery.
‘These are the worst inventories we’ve seen as a nation,’ she says. Ms Zelman originally presented her report Oct 10 to the Home Improvement Research Institute, a Tampa, Florida-based trade group.
Ms Zelman’s words carry some weight because she was one of the few major Wall Street analysts to warn of a housing decline months before it began late last year.
She was alarmed that home prices far outpaced personal-income increases during the boom, which is how the economic disconnect began. A bubble created artificially high demand that had to deflate sometime. Now economists and analysts are trying to assess the collateral damage of the bust and sub-prime mortgage meltdown.
Meanwhile, builders are stuck with thousands of new homes they can’t sell and potential buyers are cancelling in droves or are unable to get a mortgage. Housing starts fell to a 14-year low in September.
Mass psychology
‘Builders are desperate now and blowing through inventory,’ says Ms Zelman of homebuilders who are doing anything they can to sell homes. ‘Their revenues are shrinking so fast, they can’t keep up.’ The mass psychology that amplifies and spreads the angst of home sellers will put a brake on overall consumer spending, Ms Zelman predicts.
‘Some 74 per cent of consumer expenditures are correlated to housing. I don’t think the consumer will hold up. They will cut back on things like buying cars and vacations.’
While Ms Zelman forecasts that sales will drop for the next two years, she isn’t as optimistic on home prices, which she says may continue falling until 2010 or 2011.
‘We’d be better off if prices corrected all at once. It will get worse before it gets better.’ Places where sales were strongest and speculators were most active before the bust will be bedevilled by high home inventories for more than a year.
Not every market will get pummelled, though. Manhattan seems to be holding up for certain kinds of housing.
Prices of co-op apartments with four bedrooms or more, for example, rose 19 per cent in the third quarter from a year earlier.
‘Boston is pretty moderate in terms of risk,’ says Mike Ela, president of the service. ‘Lenders have pulled back aggressively.’
Don’t expect to land properties at bargain-basement prices. One assumption is that the best values will be in areas glutted with properties. Yet many sellers will be holding out for prices that they saw at the peak of the boom.
Motivated property owners, though, may be willing to deal.
If you are buying a second home or investment properties, keep in mind that your credit record should be up-todate.
You may also find it easier dealing with institutions that sell ‘real-estate-owned’ homes, or properties that went into foreclosure.
Mr Ela, who has ‘low-ball offers’ pending on two bank-owned properties, prefers dealing with institutions ‘because you’re not dealing with the emotion of the seller. It won’t take too long to get a decision.’
Because lending standards have tightened, if there are any errors on your credit report that show missed payments or outstanding balances, you should get them corrected.
Don’t open any new lines you won’t use and pay your bills on time. These variables will affect your score and may disqualify you from obtaining financing.
Keep in mind that job growth and consumer spending bear close scrutiny. If Ms Zelman is right about a recession coming, then prices may fall more, plunging the housing market into an even sorrier state.
Source: Bloomberg (Business Times 23 Oct 07)
By PAUL KRUGMAN
IT pains me to say this, but this time former Federal Reserve chairman Alan Greenspan is right about US housing. Mr Greenspan was wrong in 2004, when he sang the praises of adjustable-rate mortgages. He was wrong in 2005, when he dismissed the idea that there was a national housing bubble, suggesting that at most there was some ‘froth’ in the market. He was wrong last autumn, when he suggested that the worst of the housing slump was behind us. (Housing starts have fallen 30 per cent since then.) But his latest pronouncement – that the market rescue plan being pushed by US Treasury Secretary Henry Paulson is likely to make things worse rather than better – looks all too accurate.
To understand why, we need to talk about the nature of the mess. First of all, there was indeed a huge national housing bubble. What even those of us who realised that there was a bubble didn’t appreciate, however, was how much of a threat the bursting of that bubble would pose to financial markets. Today, when a bank makes a home loan, it doesn’t hold on to it. Instead, it quickly sells the mortgage off to financial engineers, who chop up, repackage and resell home loans pretty much the way supermarkets chop up, repackage and resell meat. It’s a business model that depends on trust. You don’t know anything about the cows that contributed body parts to your package of ground beef, so you have to trust the supermarket when it assures you that the beef is USDA prime.
You don’t know anything about the sub-prime mortgage loans that were sliced, diced and pureed to produce that mortgage-backed security, so you have to trust the seller – and the rating agency – when they assure you that it’s an AAA investment. But in the case of housing-related investments, investors’ trust was betrayed. Supposedly safe investments suddenly turned into junk bonds when the housing bubble burst. High profits reported by hedge funds – profits that were reflected in huge payments to the fund managers – turn out to have been based on wishful thinking.
Thus, when two hedge funds run by Ralph Cioffi of Bear Stearns imploded last summer, it came as a huge shock to many investors, and helped trigger a market panic. But a recent BusinessWeek report shows that the funds were a disaster waiting to happen. The funds borrowed huge amounts, and invested the proceeds in questionable mortgage-backed securities. Even worse, ‘more than 60 per cent of their net worth was tied up in exotic securities whose reported value was estimated by Cioffi’s own team’. We’re profitable because we say we are – just trust us.
That hasn’t ever caused problems, has it? Stories like this have led to a crisis of confidence. The current yield on one-month US government bills is only 3.41 per cent, an amazingly low number, and a sign that people are parking their money in government debt because they don’t trust private borrowers. And the result is a shortage of liquidity that is greatly damaging the economy.
Which brings us to the rescue plan proposed by a group of large banks, with Mr Paulson’s backing. Right now, the bleeding edge of the crisis in confidence involves worries that there may be large losses hidden inside so-called ’structured investment vehicles’ – basically hedge funds that borrow from the public and invest the proceeds in mortgage-backed securities.
The new plan would create a ’super-fund’, the Master Liquidity Enhancement Conduit, which would seek to restore confidence by, um, borrowing from the public and investing the proceeds in mortgage-backed securities. The plan, in other words, looks like an attempt to solve the problem with smoke and mirrors.
That might work if there was no good reason for investors to be worried. But in this case, investors have very good reasons to worry: the bursting of the housing bubble means that someone, somewhere, has to accept several trillion dollars in losses. A significant part of these losses will fall on mortgage-backed securities. And given this reality, the ‘conduit’ looks like a really bad idea.
I’d put it like this: Investors aren’t putting their money to work because they don’t know where the bad debts are. And when investors need clarity, the last thing you want to be doing is pumping out more smoke. Mr Greenspan’s take, expressed in an interview with the magazine Emerging Markets, seems broadly similar. ‘If you believe some form of artificial non-market force is propping up the market,’ he said, ‘you don’t believe the market price has exhausted itself.’ Translated: This rescue scheme could be seen as an attempt to hide the bad debts everyone knows are out there, and as a result could delay any return of trust to the markets.
Alan Greenspan is making sense.
The writer is a professor of economics at Princeton University
Source: Business Times 23 Oct 07
Champions of super fund to rescue mortgage market seen losing case
(WASHINGTON/ZURICH) World credit markets ‘have lived through an earthquake’ and the question is now whether the global economy has reached a turning point after five years of strong growth, the head of the International Monetary Fund said yesterday.
Addressing the IMF’s 185 member countries, IMF managing director Rodrigo Rato warned of aftershocks in markets, saying the full effects of the credit crunch, which began in the US sub-prime mortgage market, were still not fully understood.
‘We already know that we should not try to regulate crises out of existence: that would be like trying to ban earthquakes,’ he said. ‘But the weaknesses in our infrastructure that have been exposed need to be addressed.’ Mr Rato added: ‘The question is now whether the global economy is at an inflection point.’
The outgoing IMF chief noted that in developed countries, corporate balance sheets were strong and labour markets generally healthy.
‘For these reasons, we expect a slowdown in growth but not a recession in the United States, and a smaller slowdown in other advanced countries,’ Mr Rato said, adding that emerging economies had become a source of stability in the global economy.
Mr Rato said risks to global growth were higher than just six months ago and the market turmoil was a warning that good times may not last forever.
Further disruption in financial markets and falls in housing prices could lead to a steeper global downturn, he warned.
So far, movements in exchange rates have been orderly and in line with fundamentals, Mr Rato said, further warning that if the dollar should abruptly fall, it could provoke a loss of confidence in dollar assets.
There was also a risk that the rise of other currencies, such as the euro, could hurt those regions’ growth prospects, he added.
Furthermore, there was a risk that emerging economies that have relied on external financing to fund large current account deficits could be tipped into crisis by a combination of reduced demand for their exports and tighter financial market conditions.
Meanwhile, whether a US$75 billion fund to rescue the battered mortgage-backed securities market takes off or not, its sponsor US Treasury Secretary Henry Paulson seems to be losing the argument over its merits, strategists and economists said.
The fund, announced recently by Citigroup, Bank of America and JP Morgan with Mr Paulson’s support, aims to prevent structured investment vehicles (SIVs) from making panic sales of bonds linked to US sub-prime mortgages.
Many of the SIVs – off-balance sheet vehicles holding some US$370 billion in assets that rely on short-term financing to make a return – are struggling to stay afloat as investors shy away from buying their commercial paper.
The plan has faced a rising tide of criticism, not least from former Federal Reserve chairman Alan Greenspan, who said last Friday the super fund may do more harm than good.
Financial strategists contacted by Reuters said time is running out for the plan’s champions to regain the initiative and the fund risks being still-born.
‘I think they are losing the intellectual argument,’ Ian Harnett, a director at financial consultancy Absolute Strategy in London said yesterday.
The fund was nevertheless more likely than not to go ahead because of the potential embarrassment for the three US banks and for Mr Paulson himself if the idea is scrapped, said Mr Harnett.
‘I would still put it at 70 to 30 that it does happen because of the reputational risk,’ he said.
A global credit crunch, originating from huge losses in US sub-prime mortgage lending, has put acute pressure on SIVs, as demand dried up among investors for the short-term paper SIVs issue to fund investments in high-yielding asset-backed securities with longer maturities.
A fire-sale of assets by the SIVs, set up mainly by banks, would force banks into a fresh round of writedowns of securities held on their balance sheets and result in them granting fewer of the loans that are the life-blood of the global economy.
Source: Reuters (Business Times 23 Oct 07)
Central bankers see need for multilateral talks to strengthen risk management
(WASHINGTON) The impact of recent turbulence in financial markets on developing countries has been limited, and global economic growth remains strong, the World Bank said on Sunday.
Finance ministers and central bankers agreed at weekend meetings that while the global economy was on the mend after recent turbulence, they will need to pay close attention to prevent future crises from erupting.
They also said the turmoil demonstrated how interconnected economies across the world are and the need for multilateral discussions to strengthen risk management.
‘The consensus was that markets are better than in August,’ US Treasury Secretary Henry Paulson told reporters. ‘It has been slowly improving, but it is going to take awhile.’
The World Bank called on donor governments to meet their commitments to boost aid for development and said countries with fast-growing economies and mounting currency reserves could bring new resources to the effort.
In a statement, the bank’s policy-setting Development Committee said its members agreed that more support for the inclusion and empowerment of the poorest countries, especially in sub-Saharan Africa, and more engagement in conflict-afflicted countries are key.
The bank also should help developing countries deal with the causes and impacts of climate change, it said.
The committee session followed a meeting of the bank’s sister institution, the International Monetary Fund. In a lecture sponsored by the IMF, former US Federal Reserve chairman Alan Greenspan warned that rising protectionism could undermine the ability of the US to deal with large deficits.
‘If the pernicious drift toward fiscal instability in the United States and elsewhere is not arrested and is compounded by a protectionist reversal of globalisation, the current account deficit adjustment process could be quite painful for the United States and our trading partners,’ he said.
Committee members welcomed the commitment by the bank’s new president, Robert Zoellick, to develop a new strategy for the bank. Mr Zoellick, who took over on July 1, has called on the developed countries to ‘translate their words from summit declarations into serious numbers’ and contribute to the bank branch that makes low-interest loans to poor countries. He hopes to raise US$33 billion by early 2008.
He said South Africa had already set a good standard by pledging a 30 per cent boost in its contribution to the loan facility.
At a news conference, Mr Zoellick and the head of the IMF, Rodrigo de Rato, said they were exploring ways the fund could work on reducing debt for Liberia. ‘This is a country that is helping itself and deserves to be helped by the international community,’ Mr de Rato said.
In February, the US forgave US$358 million that West African country emerging from civil war owed it and pushed for further action at the IMF-World Bank meetings.
Liberia’s inherited debt to international institutions totals US$1.6 billion, including US$740 million to the IMF. Its total international debt is US$3.7 billion.
Mr Zoellick’s strategy faces a stiff challenge because in recent years, wealthier countries have preferred to channel their aid to poor countries directly through their development agencies or through foundations that specialise on issues such as malaria.
South African Finance Minister Trevor Manuel welcomed Mr Zoellick’s emphasis on helping to overcome poverty and promote sustainable growth in poor countries, particularly those in sub-Saharan Africa.
The strategy would have the bank fight poverty, especially in Africa, help countries emerging from wars and promote regional cooperation to combat disease and climate change.
Based in Washington, the 185-nation World Bank lends US$24 billion a year for projects in the developing world such as building roads, schools and health clinics. But its role as a lender has been declining as middle-income countries have access to financing from other sources.
Source: AP (Business Times 23 Oct 07)
Extension is one of three malls Frasers Centrepoint will inject into its trust
YISHUN residents, who for years managed with only Northpoint to meet their shopping needs, will get a retail shot in the arm next year.
Frasers Centrepoint Trust (FCT), a real estate investment trust (Reit) that owns retail malls including Northpoint, plans to integrate the mall with upcoming Northpoint 2.
Northpoint 2 is set to be completed next year. Once it is fully integrated with Northpoint, it will create a single shopping mall with a total net lettable area of 232,000 sq ft.
FCT says the enlarged mall will be the ‘heartbeat of the north, infusing new life and vibrancy into the community that the mall has been serving over the past 14 years’.
The trust yesterday turned in a bumper maiden set of full-year financial results. Its distributable income for the year ended Sept 30 was $40.4 million, a hefty 11.1 per cent above forecast.
For the full year, distribution per unit came to 6.55 cents representing a yield of 4.4 per cent, based on yesterday’s closing price of $1.50.
For the quarter, distributable income was $10.3 million, while distribution per unit was 1.67 cents.
As the economy keeps thriving, new and renewed leases at malls such as Causeway Point, Northpoint and Anchorpoint have been sealed at 12 per cent above previous rates.
The trust’s growth strategy includes enlarging its portfolios. Three malls have been acquired by Frasers Centrepoint and are ready to be injected into the trust: Northpoint 2 in the fourth quarter of next year, Yew Tee Point and Bedok Mall.
These three new malls, together with Centrepoint shopping centre, will double the trust’s portfolio.
FCT will enhance its malls ‘to benefit tenants and pave the way for further rental growth’, said Mr Christopher Tang, chief executive of the trust’s manager.
One example is Northpoint. There is also Anchorpoint’s makeover into a village mall concept that is due to be completed next month.
Other than new food and beverage tenants such as a new Tung Lok concept Zhou’s Kitchen, Anchorpoint will feature a cluster of factory outlets from Charles & Keith and G2000 for example.
Yesterday, health-care Reit, First Reit, reported its third-quarter results.
Its distributable income was $4.61 million for the third quarter ended Sept 30. With distribution per unit of 1.72 cents , the annualised figure of 6.7 cents gives a distribution yield of about 8.65 per cent based on last Friday’s close of 77.5 cents.
The distribution per unit for the quarter exceeded its forecast by 7.5 per cent.
First Reit has four health-care facilities in Singapore.
Dr Ronnie Tan, chief executive of the trust’s manager, said: ‘Leveraging on the buoyant regional health-care markets, coupled with our strong acquisition pipeline, we are confident of raising our asset portfolio to $500 million before the end of 2009.’
Source: The Straits Times 23 Oct 07
JURONG Point, which is set to be Singapore’s largest suburban mall, says its new extension is already 70 per cent taken up more than a year ahead of the wing’s completion.
One of the main tenants, supermarket retailer NTUC FairPrice, will open a FairPrice Xtra, its hypermarket brand.
It will take up more than 70,000 sq ft on the third floor of the new wing, said the mall’s development and marketing manager, Starmall Property Management.
The first FairPrice Xtra – a 77,000 sq ft outlet – opened late last year in Ang Mo Kio Hub. The second one is in Hougang Point.
Another anchor tenant is Popular Book Company, an existing tenant which has agreed to double its retail space and relocate to a unit of about 18,000 sq ft. It will also open a Harris bookstore of more than 8,000 sqft in the new wing.
Department store Yue Hwa Chinese Products, which has three outlets in Hong Kong, will set up a 5,000 sq ft shop in the mall. It now has one store in Singapore, in Chinatown.
Property consultancy Knight Frank’s deputy managing director, Mr Danny Yeo, said the good take-up is expected as there is a dearth of good-quality suburban malls. ‘There is very strong interest in suburban malls, particularly large ones near MRT stations, where there is a lot of transient traffic.’
Analysts say rents at Jurong Point could be $11.50 to $12 per sq ft on average.
Opened in 1995, Jurong Point in Jurong West has 220 tenants occupying 410,000 sq ft of lettable area. The new wing – slated to be opened before Christmas next year – has 290,000 sq ft, of which 70 per cent has been leased out.
The combined 700,000 sq ft enlarged mall will be the largest suburban shopping centre in Singapore. It is part of a $720 million integrated project, which includes an air-conditioned bus interchange and a 610-unit condominium above the new wing.
The 99-year leasehold The Centris was released in late September last year and was fully sold by May.
Jurong Point will also have about 43,000 sq ft of non-profit space for charities and other similar bodies, which will pay a service charge, instead of market rents.
Under a government scheme, Jurong Point is granted extra lettable space – which it will use for a 24-hour eatery and a medical centre – in return for the donation of non-profit space.
Source: The Straits Times 23 Oct 07
NEW YORK – CREDIT problems in the United States, once confined to high-risk mortgage borrowers, may be spreading to other types of consumer loans, posing new risks to the American economy.
US banks have raised reserves for loan losses by at least US$6 billion (S$8.8 billion) over the second quarter and by even larger amounts from last year, signalling that they believe consumers will be increasingly unable to make payments on a variety of loans.
Banks are adding to reserves not just for defaults on mortgages, but also on home equity loans, car loans and credit cards.
‘What started out merely as a sub-prime problem has expanded more broadly in the mortgage area and problems are getting worse at a faster pace than many had expected,’ said Deutsche Bank analyst Michael Mayo.
Punk Ziegel analyst Dick Bove said bank earnings indicated ‘there are problems with consumer debt that extend beyond the well-known issues in the real estate markets. Auto loans are clearly a new area of concern’.
At Wachovia, the fourth-largest US bank by assets, credit loss provisions more than doubled from the second quarter to US$408 million. Troubled loans that could turn into losses also more than doubled.
Wachovia chief executive Ken Thompson said the housing market could remain weak up till next year. The bank’s poor earnings fuelled a stock market rout last Friday.
Problems can be seen at other banks across the US.
At KeyCorp in Cleveland, non-performing assets rose US$241 million from last year and loan-loss provisions doubled. In Dallas, Comerica’s loan-loss provisions tripled from last year to US$45 million.
At Wells Fargo in San Francisco, net credit losses jumped from US$663 million last year to US$892 million due to home equity and car loan losses. Loans more than 90 days past due and still accruing increased to US$5.53 billion from US$3.66 billion last year.
Source: FINANCIAL TIMES (The Straits Times 23 Oct 07)
TOKYO – THE US dollar suffered fresh losses against the yen and hit a record low against the euro in Asian trade yesterday, as concerns about the United States economy sparked another rout on global stock markets, dealers said.
The euro shot higher after top world finance chiefs refrained from voicing increased concern about currencies at their meeting last Friday, which dealers took as a green light to drive the greenback down to fresh lows.
The dollar fell to 114.06 yen in Tokyo evening trade from 114.53 yen in New York late last Friday, as speculators unwound risky ‘carry trade’ bets that involve selling the Japanese currency to buy higher-return assets. The euro rose to as high as US$1.4347 before easing back to US$1.4323 by evening trade in Tokyo.
The euro fell to 163.34 yen from 163.76 yen.
‘The dollar-selling pressure is largely based on general concerns about the US economy,’ said Mr Yosuke Hosokawa, head of forex at Chuo Mitsui Trust Bank.
‘Friday’s decline in US stocks reignited concerns and sparked another wave of dollar selling,’ he said.
The dollar dropped to as low as 113.27 yen as the renewed falls on global stock markets undermined investor risk appetite and prompted an unwinding of carry trades, dealers said.
‘Yen-buying sentiment may continue for the time being as players are trying to avoid potential risk,’ Mr Hosokawa said.
The Group of Seven (G-7) finance chiefs said the functioning of financial markets was improving after recent turmoil, and refrained from voicing increased concern about currencies.
The G-7 statement ‘gave the green light to further dollar depreciation’, noted analysts at Barclays Capital. Mr Saburo Matsumoto, chief forex strategist at Sumitomo Trust Bank, said: ‘The G-7 turned out to be very cautious about the present economic and market situation, but they failed to send a strong message.’
‘Players are now worried that the current situation may be heading towards a repeat of the global market turmoil in August,’ he said. Fears over the economic fallout of problems in the US sub-prime home loan market unleashed a rout on global bourses in August and pushed up the yen as investors sought safe havens.
Source: AGENCE FRANCE-PRESSE (The Straits Times 23 Oct 07)
