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October 27, 2007
Deferred payments scrapped in bid to cool property fever
Market players expect blip, not crash, to follow the exit of the buy-now-pay-later scheme
(SINGAPORE) In a surprise move yesterday, the government said that it was withdrawing the deferred payment scheme (DPS) for the sale of uncompleted private properties in a bid to discourage speculative buying and cool the property market.
Market players said that the move could unnerve some buyers in the short term – leading to a drop in demand. A crash, however, was unlikely as the recovery of the mid-tier and mass markets this year shows that there is strong underlying demand from non-speculators.
Developers will not be allowed to offer the DPS with immediate effect, but a developer that has already obtained approval to offer the scheme for a project may continue to do so.
The DPS allows buyers to buy a property by forking out only a 10 per cent or 20 per cent downpayment, with the rest due upon completion – sometimes as long as three years later.
The scheme was introduced at a time when the property market was lacklustre and the economy was in recession.
But with the property market now booming, critics have said that the scheme encourages speculation as some seek to resell their properties at a profit without immediately worrying about payments.
Announcing the scrapping of the DPS yesterday, the Urban Redevelopment Authority (URA) said that the scheme was no longer needed as the property market has recovered.
The Real Estate Developers’ Association of Singapore (Redas) agreed, saying that it understands the government’s decision to withdraw the DPS. ‘The need for this scheme has diminished with the strong market recovery over the last two years,’ Redas added.
A spokesman for City Developments (CDL) said that the move had been ‘expected’ for some time.
It is estimated that less than half of the buyers of CDL’s projects use the DPS. Said the spokesman: ‘We have been actively discouraging buyers from taking up DPS by way of a price differential.’
Lippo Group is one of the few developers that have not offered the DPS for any of its launches here. ‘I do not think it would affect the sales of our projects,’ Lippo executive director Thio Gim Hock said.
Lippo developments like The Trillium and Newton One have sold well. Mr Thio believes that Lippo’s buyers are not speculators. But he concedes that although the buyers may not flip properties immediately, some do sell after a few months.
The market could see an initial cooling in response to the government intervention, analysts said.
‘What will affect the market is the idea that the government is flexing its muscles,’ said Ku Swee Yong, Savills Singapore’s director of marketing and business development. ‘Frankly, how the signal is going to be interpreted or misinterpreted is going to decide the market’s reaction.’
Mr Ku also said that institutional funds that invest in property here could be unhappy as the government’s move adds volatility to the marketplace.
Looking at the other side of the issue, Lippo’s Mr Thio pointed out that with the DPS, banks, which lent money to developers for construction, had to bear greater risks. ‘In a rising market, banks are not worried to give loans,’ he said.
Citigroup economist Chua Hak Bin had raised the alarm in a report earlier this year when he pointed out that the estimated average debt-to-equity ratio at Singapore property developers with a market capitalisation of more than $1 billion rose to 61 per cent in the first quarter, from 50 per cent a year earlier.
However, Dr Chua believes the rationale for axing the DPS now has more to do with ‘taking away the froth at the high-end market’.
‘Banks have become more cautious anyway,’ he said.
United Overseas Bank (UOB) said that the move should help property prices stabilise. ‘That’s good news for the loans market as more property buyers would now be taking loans with banks,’ said Kevin Lam, the head of UOB’s loans division.
Property stocks are expected to fall on Monday when the market resumes trading. ‘It (the announcement) will affect market sentiment as it will have an impact on future demand,’ said David Lum, an analyst at the Daiwa Institute of Research. ‘The stock market always looks to future demand, and it is no secret that the scheme has been one of the major drivers of demand.’
Source: Business Times 27 Oct 07
Situation very different now: Mah
MINISTER for National Development Mah Bow Tan hopes that withdrawing the deferred payment scheme could cool the overheating market and discourage excessive speculation. Pointing out that the scheme was introduced in 1997 when property prices were depressed, he said that the situation was very different now.
The move could temper the market which ‘has shown signs of overheating’, he said. And while the government would prefer not to interfere, it is monitoring the market and would step in if necessary.
Its preference, he said, was to ensure that there was sufficient supply in the market and inject more, if necessary. ‘We want to make sure the market is a stable and healthy one,’ Mr Mah said.
The minister also said that he was not concerned about the rise in the HDB resale price index as it had been lagging behind the market for a while. ‘HDB flat owners can look forward to higher prices. They are holding a more valuable asset if they wanted to cash out or finance their retirement,’ he said.
Source: Business Times 27 Oct 07
Median COV for HDB resale flats up 140%
But number of resales falls 11% in Q3 to 7,700
(SINGAPORE) Housing and Development Board (HDB) flats are re-selling on the open market for a median of $17,000 above valuation. HDB said that 80 per cent of resale flats in Q3 required cash over valuation (COV).
HDB only started to release data on COV recently – and in the previous quarter the median COV was just $7,000.
HDB’s Resale Index Price Index also increased 6.6 per cent in Q3 – more than double the 3 per cent in the previous quarter.
But while the median COV increased 140 per cent in Q3, the number of resale transactions fell 11 per cent from 8,700 to 7,700.
In an analysis of HDB’s data, real estate agency PropNex said that price increases were more significant in popular neighbourhoods.
Increases in the median prices of three-room flats in Ang Mo Kio (central), Bedok (east) and Queenstown (central) were 11.8, 6.4 and 5.6 per cent respectively. And for larger five-room flats they were higher at 13.1, 16 and 20.6 per cent respectively.
In Clementi, Bukit Timah and Toa Payoh, the median COV for executive flats hit $155,000, $137,500 and $127,00, but HDB said that the number of units transacted in this category was below 20 in these areas.
PropNex CEO Mohamed Ismail said that it was too early to tell if there was a meaningful correlation between rising resale prices and falling resale volume.
The 11 per cent drop in transactions is not significant because HDB records show transaction volume ranges between 6500 and 8000 in most quarters, he said.
According to him ‘it may be too early to conclude from this dip that consumers are price-sensitive’.
But he warned: ‘If the resale market does slow down, the mass market could be affected because potential HDB upgraders will not be able to sell their flats to upgrade.’
ERA Singapore assistant vice-president Eugene Lim said that prevailing prices were ‘unrealistic’ and added: ‘HDB homebuyers are beginning to show some resistance and this could translate into lower resale volume.’
He also said that demand from private-sector downgraders for five-room and executive flats meant that sellers will continue to lift their asking prices for such flats. ‘A market survey indicates that asking prices for these larger flat types may vary some $50,000 to $200,000 above valuation,’ he said.
In the light of increased demand, HDB has ramped up its building programme. More than 26,700 flats are expected to be completed between 2007 and 2011.
In a Citigroup report, economist Chua Hak Bin noted that the ‘previous surge in HDB construction units was blamed for the severity of the post-1996 housing slump’. But he added that future supply seems manageable.
For comparison, he highlighted the fact that during the early-1990s property boom more than 120,000 HDB flats were constructed from 1993 to 1997, representing more than 15 per cent of HDB housing stock. But upcoming supply of 26,764 flats represents only about 3 per cent of current HDB stock and is probably less than half of the upcoming supply of private residential units.
On the increase in COV, he said: ‘The increase in cash over valuations probably reflects the spilling-over of steep price increases seen for private property to HDB.
‘The discount to equivalent-size HDB apartments over private apartments has widened considerably over the past few years. Buyers are starting to take advantage of that wide discount.’
HDB has also revealed that the number of flats approved for sub-letting rose to about 16,000 in Q3 from about 14,600 in the previous quarter. And overall rents have increased about 20 per cent, except that for two-room flats, which increased about 10 per cent.
HDB said that if needed it has potential supply of 4,000 to 5,000 units that can be introduced into the market to bolster rental supply over the next three years.
Source: Business Times 27 Oct 07
Specialists’ Centre project gets the green light
Go-ahead for several projects to ease space crunch
(SINGAPORE) OCBC Bank and its insurance subsidiary Great Eastern Holdings are poised to redevelop the Specialists’ Shopping Centre and Hotel Phoenix complex, together with shopping mall Orchard Emerald just across the road.
And when works are complete, the new project could have some 314,000 square feet of retail space, 66,000 sq ft of office space and 684 hotel rooms, judging by the two companies’ submissions to the Urban Redevelopment Authority (URA).
URA said that provisional permission for the development of the two properties was given in August this year.
OCBC owns the Specialists’ Shopping Centre and Hotel Phoenix complex, while Great Eastern owns Orchard Emerald.
When contacted, OCBC said that it has ‘made certain submissions to the relevant authorities and received provisional approvals with regard to the possibility of redevelopment of the property’.
‘We are currently exploring several possibilities with regard to working with other developers in redeveloping the property,’ said Koh Ching Ching, head of group corporate communications at OCBC.
Market watchers said that there could be some sort of an underground link between the Specialists’ Shopping Centre and Hotel Phoenix complex and Orchard Emerald – beneath Orchard Road – in a bid to maximise the plot ratio.
URA’s quarterly update on projects under development also showed that there are extension works planned for OUB Centre at Raffles Place.
Provisional permission has been given for the addition of 301,000 sq ft of office space and 32,000 sq ft of retail space. The extension is expected to be up in 2011.
Approval was also given for the redevelopment of the former Robinson Towers and former International Factors Building on Robinson Road. Owned by Tuan Sing, the project will offer some 258,000 sq ft of gross floor area (GFA) for office use once it is completed in 2010.
JTC Corporation has also received permission for an office development at Fusionopolis Phase 2A at science hub one-north, which will have 161,000 sq ft of office space when it is up in 2010.
The new developments are expected to ease the current shortage of office space.
Rentals for office space in Singapore increased by 14.8 per cent in the third quarter of 2007, compared to 11 per cent in the second quarter, URA’s data shows. Rents have climbed some 40.7 per cent since the start of the year.
As at the end of the third quarter of 2007, there was a total supply of 6.6 million sq ft of GFA of office space from projects in the pipeline – from both government and private land sources – which are expected to be completed between the fourth quarter of 2007 and 2010, URA said.
‘More supply will also come from the government land sales sites which were recently awarded or launched for sale,’ URA said.
There was also a total supply of some 4.1 million sq ft of business park space from projects in the pipeline as at end-September 2007, which will be completed by 2010, URA said.
URA’s data also showed that it has given provisional permission for a 352-room hotel development at Telok Blangah Road to Fiesta Development Pte Ltd. The site, which previously housed Citiport Centre, was sold in a collective sale.
Source: Business Times 27 Oct 07
CapitaLand Q3 net more than doubles to $563.9m
Boost from fair-value and portfolio gains and China devt projects
CAPITALAND said yesterday that its net profit for the third quarter ended Sept 30 more than doubled from $272.41 million a year ago to $563.93 million, driven by fair value gains from its investment properties, portfolio gains and higher sales of development projects in China.
Its revenue for the quarter jumped 24.6 per cent to $895.77 million, particularly bolstered by sales from its China development projects and the revenue from Raffles City Shanghai.
These gains helped to offset the lower fee-based income, lower rental income due to the divestment of Temasek Tower in April and the deconsolidation of revenue from Ascott Residence Trust (ART), following the reduction of the group’s beneficial interest in ART to 37.5 per cent with effect from March this year.
For the first nine months of this year, CapitaLand’s net profit more than tripled from a restated $559.15 million to $2.08 billion on the back of a 14.9 per cent year-on-year increase in revenue to $2.47 billion.
Its overseas revenue constitutes some 71.7 per cent of the group’s revenue, up from 66.2 per cent a year ago as contributions from its China operations increased.
CapitaLand achieved a record Q3 earnings before interest and tax (Ebit) of $758.6 million, up from a restated $565.2 million.
‘The group continues to see healthy and sustainable growth prospects in Asia and other new markets,’ CapitaLand group chairman Richard Hu said.
‘Given CapitaLand’s substantial financial capacity and capital efficient business model, the group is in a good position to benefit from Asia’s positive growth,’ he added.
Year-to-date, CapitaLand has committed investments of over $8 billion in new businesses and new geographies, CapitaLand group president and chief executive officer Liew Mun Leong said.
He noted that while the group’s core markets of Singapore, China and Australia continue to post stellar results, the group continues to expand its footprint in growth markets of Vietnam, the Gulf Cooperation Council region (GCC) and India.
But the profit received from its associates for the third quarter slumped 82.8 per cent to $35.27 million.
CapitaLand’s subsidiary, The Ascott Group, saw net profit for the third quarter slip 41 per cent from a year back to $34 million as it received lower portfolio gains and incurred higher expenses for assets under development.
But its revenue for the quarter grew 17 per cent year-on-year to $116.55 million, with gains mainly coming from its serviced residences in Europe, North Asia, Singapore and South-east Asia.
Source: Business Times 27 Oct 07
M’sian US$200m Reit may list in Q12008
IN KUALA LUMPUR
A US$200 million real estate investment trust (Reit) of regional malls by Malaysia’s Amanah Raya and Indonesia’s Gapura Prima Group is likely to list on the Singapore Exchange in the first quarter of 2008, rather than by year-end.
Amanah Raya director Ahmad Kamal Abdullah Al-Yafii says Macquarie has been hired to look into listing the Reit.
Initial properties to be injected include five in Indonesia and one or two Malaysian malls, with assets in Singapore, Thailand, Vietnam and the Philippines to be added later.
The Asean-wide Reit – jointly managed by Amanah Raya, which is a trustee company owned by the Malaysian government, and Gapura Prima – will be based in Singapore.
The two companies signed a memorandum of understanding on the Reit in mid-June at the Malaysia-Indonesia Investment and Finance Summit. A dual listing on the Indonesian exchange is a possibility down the track.
Amanah Raya already has Malaysian-listed Amanahraya Reit (AR-Reit) which focuses on commercial, education, industrial and hospitality property.
Following the recent injection of five properties valued at almost RM309 million (S$134.24 million), ARReit now has 13 properties worth RM641 million. The aim is to reach RM1 billion by year-end, says Mr Al-Yafii, who is also AR-Reit’s deputy chairman.
Despite a general drop in foreign interest in Malaysian Reits after withholding taxes were not eased in the last Budget – foreigners are taxed at a relatively high 20 per cent – foreign institutions such as ABN Amro, Deutsche Bank and Bank of Scotland have agreed to take up 70 per cent of a proposed private placement of up to 100 million new units in AR-Reit.
At a placement price of 90-95 sen per unit, that is small change for foreign funds. But Mr Al-Yafii says Malaysia’s higher net yields are an attraction and AR-reit’s net yield will rise to 7.4 -7.5 per cent with the new assets, from 6.9 per cent.
Source: Business Times 27 Oct 07
Deferred payment scheme for homebuyers scrapped
THE Government last night scrapped the deferred payment scheme that allowed homebuyers to postpone payments on new property.
It said the strong economy and property market allowed it to axe the scheme. This would also deter speculators and force people to be more prudent when committing to pricey real estate.
It was a response to signs of overheating in the market, National Development Minister Mah Bow Tan said last night. ‘There’s a danger that we may feel over-exuberance in the market. There’s also a danger it may actually encourage excessive speculation,’ he said.
Buyers will now have to make progressive payments in step with the construction process, instead of deferring payment till the property is completed a few years later.
Experts say prices and sales will be hit, though the impact may not be significant, given the robust demand.
‘Now the property market is ‘red-hot’, maybe after withdrawing deferred payment it will just be ‘hot’,’ said Mr Ku Swee Yong, director of marketing and business development at Savills Singapore. ‘There is strong, genuine demand driving sales. Taking away this scheme will only spook speculators. It will take away the froth that is false demand.’
The deferred payment scheme was introduced in 1997, when the market was lacklustre. It is no longer relevant today, said Mr Mah.
Projects that have been approved can continue with deferred payments, but others – uncompleted private homes and commercial properties, including industrial ones – will be hit by the withdrawal, which took effect last night.
Some experts say deferred payment encouraged speculators – pushing up prices. ‘Once speculators find it riskier to go into the market, there will be less competition for homes,’ said an industry observer. ‘Developers may have to lower their prices, and prices may level off. It’s good to cool the market, so that you are in tune with the rest of the world.’
Progressive payments call on buyers to pay an amount varying from 5 per cent to 25 per cent of the purchase price at various stages of construction. A 10 per cent payment is required once foundation work is completed, which can be in as soon as six months after purchase or up to 18 months.
Luxury homes have continued soaring in price, while new Government figures show that speculation is becoming a market factor.
Sub-sales – owners selling uncompleted properties – in the core central region comprised 21.6 per cent of total sales in the three months ended Sept 30.
Overall, sub-sales accounted for 12.7 per cent of total deals. They accounted for 28 per cent of total deals in 1996, when speculation was rife.
‘Speculation has not reached the mid-1990s level, but at the rate it’s going, it could increase, so why not nip it in the bud?’ said Ms Tay Huey Ying, director of research and consultancy at Colliers International .
The Real Estate Developers’ Association of Singapore said: ‘The need for this scheme has diminished with the strong market recovery.’
Some experts say yesterday’s move may trigger fears of further Government intervention, which may then indirectly hit prices and sales.
Mr Mah did not rule out the possibility of further moves: ‘We are monitoring the market very closely.
Obviously, the objective is to make sure that our prices do not overrun, do not go beyond the fundamentals.
‘We want to make sure the market is a stable and healthy one.’
Source: The Straits Times Times 27 Oct 07
HDB resale flat prices surge 6.6%
Private homes see 8.3% rise; strong demand filtering to suburban areas
THE Hungry Ghost Festival did little to cool the property sector last quarter with prices of HDB flats and private homes continuing to soar.
New data yesterday also reinforced a trend that emerged from early figures – intense demand is filtering out from prime areas, bringing price rises to most sectors including public housing.
HDB resale prices shot up 6.6 per cent – well up on the 3 per cent rise in the April-July period – taking their total rise this year to 11 per cent.
HDB flat owners will be cheered by the new data, which showed HDB prices finally starting to catch up with private home prices, said National Development Minister Mah Bow Tan.
‘If the private property market is moving, I don’t see why the HDB market should not move as well. HDB owners can look forward to higher prices if they sell.’
The price increase was even more striking among private homes. Overall prices – these include flats and landed homes – rose 8.3 per cent in the three months ended Sept 30, a similar result to the previous quarter.
That brings the price growth so far this year to 22.9 per cent – more than twice the 10.2 per cent growth in the whole of last year.
Non-landed homes continued their steady trajectory, rising 8.3 per cent, with prices in central Singapore and Sentosa Cove, where luxury properties are located, also rising by the same amount.
A key finding: prices of non-landed homes in suburban areas grew 7.9 per cent, positive proof that demand has filtered outwards from the central region.
Prices of suburban mass market homes could rise further. The demand will be driven on two fronts: downgraders from estates sold en bloc and HDB upgraders motivated by rosy prospects and wage growth, said Mr Ku Swee Yong of Savills Singapore.
Landed homes, which recently sprung into life, continued their ascent, climbing 7.5 per cent, up from 7.1 per cent in the previous quarter. Terrace houses were the star performer, with prices rising 8.1 per cent.
Not all the numbers went north, however. Fewer homes were sold in the third quarter, which consultants put down to a lack of launches and uncertainty over turmoil in global stock markets and sub-prime mortgage woes in the United States.
There were 3,367 new homes sold, well below the record 5,129 moved in the second quarter, and the lowest in the past three quarters. But it is still a healthy level, said property consultancy CB Richard Ellis.
The more tentative market also weeded out some speculative activity, bringing sub-sales – owners’ sales of uncompleted properties – down to 1,163, from 1,791 in the previous quarter.
In the central core region, sub-sales comprised 21.6 per cent of all sales, down from the revised 24.1 per cent in the second quarter.
Government figures yesterday also showed increases in the rental rates of residential, office and shop space.
HDB resales fell 11 per cent to 7,700 in the third quarter, after a 38 per cent rise in the previous quarter.
Third-quarter HDB data showed the amount of cash- over-valuation that buyers are paying has increased substantially across the board.
Source: The Straits Times 27 Oct 07
Buyers paying way above valuation for HDB flats
IF YOU are looking to buy an HDB resale flat, make sure you have plenty of cash on hand.
Due to soaring home demand, an average HDB resale flat now costs $17,000 above its valuation from $7,000 just three months ago.
This figure, called the cash-over-valuation amount, has to be paid in cash by a buyer under current rules.
Five-room flats in popular areas like Queenstown are going for about $110,000 above valuation, according to data released by the Housing Board yesterday.
In addition, more flats are being sold at higher prices.
Between April and June, only three out of every 10 resale flats went above valuation. Since July, however, this has applied to eight out of 10 flats, the HDB said.
The higher prices, however, may be starting to deter buyers.
The number of resale flats sold in the third quarter fell 11 per cent to 8,700, after rising 38 per cent in the previous three months.
HDB resale prices are soaring because rising private home prices are pushing buyers to the cheaper public housing segment.
Taking advantage of growing demand, flat sellers are now asking for prices that are significantly higher than valuations.
But this is creating unhappiness among buyers, said property agents.
‘With these kinds of asking prices, we are beginning to see some resistance in the market,’ said Mr Eugene Lim, assistant vice-president at property agency ERA Singapore.
‘The typical HDB homebuyer does not have or does not want to fork out too much cash. It just does not make sense.’
ERA’s data show that in the third quarter, there were fewer resales of all types of flats, from one-room units to executive flats.
But Mr Ku Swee Yong, director of marketing and business development at Savills Singapore, suggested that the lower sales could simply be due to the Hungry Ghost month in the third quarter.
Another property agency, PropNex, said the drop in flat sales is only slightly significant.
Over the last 10 years, the number of resale flats sold was 6,500 to 8,000 for most quarters.
Even with the fall in transactions in the third quarter, 7,700 resale flats were sold, said PropNex’s chief executive, Mr Mohamed Ismail.
‘It may be too early to conclude from this dip that consumers are price sensitive,’ he said, unless ‘the number of transactions continues to drop’.
Mr Ismail agreed, however, that the cash-over-valuation amount had increased significantly.
‘Today, without at least $50,000 in cash, homebuyers will not be able to purchase a resale flat in the Central location,’ he said.
According to HDB figures, buyers of executive flats are forking out the highest median cash-over-valuation amounts.
The median amount – the point at which half the homes sold for more cash and half for less – hit $155,000 in Clementi.
Overall, the median amount for this flat type was $25,000.
For four- and five-room flats, buyers paid a median of $18,000 above valuation. For two- and three-room flats, the amount was $15,000.
The highest amount paid above valuation for a five-room flat was $91,500. The figures were $57,500 for a four-room flat and $40,000 for a three-room flat.
In general, the areas requiring the least cash-over-valuation were Woodlands, Yishun and Bukit Panjang.
On the other end of the spectrum was the Central area, Queenstown and Marine Parade.
The HDB said, however, that in some of these cases, there were fewer than 10 sales of the specific flat type in that area. This means the figures may not be representative.
Source: The Straits Times 27 Oct 07
Office rents still up, rising 15% in 3rd quarter
OFFICE rentals, a major business cost, continued their relentless rise – up nearly 15 per cent in the third quarter – as the official vacancy rate for prime office space fell to just 2.8 per cent.
Recent uncertainty in global financial markets has had no discernible impact on office space demand, said property agency CB Richard Ellis (CBRE).
It cited figures from the Urban Redevelopment Authority (URA), which also showed that occupied office space rose by 645,840 sq ft in the third quarter, up nearly 54 per cent from 419,796 sq ft in the second quarter.
Overall, office rents rose by 14.8 per cent in the third quarter, compared with 11 per cent in the second quarter. And from the end of last year to Sept 30, office rentals have risen by 40.7 per cent.
These government figures confirmed industry statistics, which have showed a persistent climb in rents, particularly for quality space in the Central Business District, amid tight supply.
It has come to the point where some tenants are showing resistance to the rapid increases in rents, consultants said.
In URA’s prime office category, median rents of new leases reached $11.89 per sq ft (psf) per month in the third quarter, up from $10.33 psf per month in the earlier quarter.
In URA’s general category, accounting for 80 per cent of office space, median rent for contracts signed in the third quarter was $5.29 psf a month, up from $4.60 psf a month in the second quarter.
The growth in the prices of office space slowed a little to 8.1 per cent in the third quarter, from 8.9 per cent in the previous quarter.
In the past three quarters, prices of office space have risen by 22.7 per cent.
Vacancy for office space continues to fall as expected, with the rate for URA’s prime office space down to 2.8 per cent, from 5 per cent at the end of the second quarter.
The Government has said it will make more space available and has introduced transitional office sites for quick occupation.
Rentals could ease from 2010 onwards when more office buildings are ready, said Cushman & Wakefield’s managing director in Singapore, Mr Donald Han.
Source: The Straits Times 27 Oct 07
Rentals for private homes, HDB flats continue to soar
Private home rents jump 11% while HDB flat rents surge 21% on landlords’ increased expectations
TENANTS complaining about rising home rentals now have official figures to back them up.
Rents of private homes and HDB flats soared in the July to September period, according to the latest data released by the Government yesterday.
They climbed 11.4 per cent for private homes, on top of the 10.4 per cent increase in the previous three months.
This means that since January, private home rentals have already jumped by 32.2 per cent, compared with only 14.1 per cent for the whole of last year. They are now at their highest level in at least nine years.
As for HDB five-room flats, the overall median rental – the level at which half the rents are higher and half are lower – surged by 21.2 per cent in the third quarter.
One reason for the strong growth in rents could be the increased expectations of landlords, said Mr Leonard Tay, the director of research at consultancy CB Richard Ellis.
Rents are also being pushed up by an increasing demand for completed homes, and a shortfall in supply at the same time, he added.
A large number of collective sales in the last two years has led to the demolition of existing homes and has forced the sellers to become home seekers.
With no respite in sight – fewer homes are expected to be completed next year than average – rents will continue to surge, said Ms Tay Huey Ying, the director of research and consultancy at Colliers Internaitonal.
She said that according to yesterday’s data, only 5,541 homes are expected to be completed next year. This compares with a net average of 7,670 new homes between 2000 and 2004, before the collective sale fever set in.
‘If we take into consideration the withdrawal of units because of collective sales, there will probably be a net addition of only 3,500 to 4,000 homes next year,’ she said. Due to this acute shortage of completed homes ready for immediate occupation, Ms Tay expects rents to rise between 40 per cent and 43 per cent for the whole of this year.
But she also predicts that the rate of growth will moderate after that. Her forecast for next year: a rise of 30 per cent to 35 per cent.
‘We expect rents to continue to grow strongly, but we do expect growth to be slightly slower than it was this year,’ said Ms Tay.
‘This is partly because we are already coming from a high base. Also, we could be seeing resistance to higher rentals; people could be reconsidering Singapore as a place to live.’
Beyond that, she believes that home completions will shoot up in 2009, which may help to stabilise rents.
Yesterday’s figures showed that rents grew across the board for non-landed private properties.
They rose 12.2 per cent in the core central region, which covers Orchard, Holland, River Valley, Bukit Timah, Marina Bay and Sentosa.
In the rest of the central region – stretching to Marine Parade, Queenstown, Geylang and Bishan – rents increased 11.9 per cent. For the rest of the country, rents went up 11.8 per cent.
This even rate of growth is likely to be the trend ahead, said Colliers’ Ms Tay.
For HDB resale flats, median rents crossed the $2,000 mark for five-room flats in Bukit Merah and the Central area, as well as executive flats in Bishan, Kallang/ Whampoa, Clementi and Queenstown.
Overall, median rents were $1,200 for three-room units, $1,400 for four-room units, $1,600 for five-room flats and $1,700 for executive flats.
HIGH DEMAND, LOW SUPPLY
Rents of homes are also being pushed up by an increasing demand for completed homes, and a shortfall in supply at the same time, says
Mr Leonard Tay, director of research at consultancy CB Richard Ellis.
Source: The Straits Times 27 Oct 07
CapitaLand rides Asia boom, posts $564m profit
Firm’s third-quarter income more than doubles, as core markets deliver sterling results
ASIA’S resilient boom has been brought home to CapitaLand – literally, in the form of rocketing sales of residential property across the region.
The property giant, which reported robust third-quarter results yesterday, has cashed in spectacularly on the demand for housing – with more to come.
Chief executive Liew Mun Leong said: ‘Our core markets of Singapore, China and Australia continue to deliver sterling results. We continue to expand our footprint in growth markets like Vietnam, the Gulf Co-operation Council region and India.’
Chairman Richard Hu agreed, saying the group is in a ‘good position to benefit from Asia’s positive growth’.
‘Our expansion in China, including second-tier cities, is bearing fruit as evidenced by the strong results.’
Mr Liew indicated that the firm is confident about the region’s continuing prosperity, pointing out that CapitaLand has invested more than $8 billion in new businesses this year.
‘As the region grows, our strong balance sheet and healthy earnings growth allow us to capitalise on investment opportunities that arise.’
The firm’s net profit for the three months ended Sept 30 more than doubled to $563.9 million, powered by robust growth in China and Singapore.
Revenue jumped 25 per cent to $895.8 million, up from $718.7 million a year ago.
Included in CapitaLand’s profit after tax and minority interests in the quarter were gains totalling $211.3 million from the sale of Savu Properties, Hotel Asia, Jiulong Mall and other investments.
Profit from jointly controlled entities leapt 778.6 per cent to $278.1 million, mainly due to ‘the share of fair value gain from the AIG Tower in Hong Kong and divestment gain from Somerset Baywater’.
The firm attributed the increased revenue largely to ‘higher sales from China’s development projects and revenue from Raffles City Shanghai’.
Its biggest revenue driver came from sales of homes in Singapore, China and other markets, which climbed 30 per cent to $664.5 million.
Revenue at its retail unit rose 56 per cent to $33.1 million in the third quarter, while sales from its commercial property business jumped 60 per cent to $49.1 million.
Earnings per share in the quarter rose to 20.1 cents from a restated 9.9 cents a year earlier, while net asset value per share rose from $2.65 to $3.32.
Profit after tax and minority interests for the first nine months was $2.1 billion, nearly four times higher than the same period last year.
If unrealised revaluation gains of $650.6 million are excluded, the group’s profit after tax and minority interests was $1.4 billion, nearly three times more than last year.
Source: The Straits Times 27 Oct 07
Court rejects plea against strata board decision on en bloc sale
THE High Court yesterday dismissed an appeal by a minority shareholder against a Strata Titles Board decision approving the en bloc sale of Holland Hills Mansion.
The dissenting owner, Dynamic Investments, had wanted the distribution of the $292 million sale proceeds to be based solely on floor area, or it would stand to lose about $2.4 million.
The 118-unit property on Holland Road had been sold en bloc to developer Calne Pte Ltd, a subsidiary of MCL Land, in November last year.
It is understood that the industry practice is to distribute the proceeds among the owners based on what was decided by them and the project consultants.
In this case, it had been proposed to share the proceeds by the 50:50 method, which is 50 per cent based on the share value and 50 per cent based on the floor area.
But Dynamic, which owned the largest unit on the block, had wanted the share of proceeds to be determined solely by floor area.
The 642 sq m penthouse it owned had a share value of six while the smallest unit, measuring about 57 sq m, had a share value of three.
The Strata Titles Board, in its decision in July, had acknowledged that the objector would have been paid more had the area method been used, but held that the method chosen was ‘not made in bad faith’.
Dynamic, through lawyers from Drew & Napier, had argued, among other things, that the Strata Titles Board had erred in law as the sale was not made in good faith given the distribution method adopted.
But Senior Counsel Deborah Barker argued this was a question of fact, not a point of law, and only issues concerning points of law could be brought up for appeal.
Together with lawyers Chia Ho Choon and Spring Tan from KhattarWong, she represented the majority owners.
Justice Andrew Ang agreed and accepted that the Strata Titles Board decision to approve the sale was made in good faith.
Dynamic’s lawyer Lawrence Tan said yesterday that he was reviewing the decision with his client and the instructing solicitor Clarence Tan from UniLegal before deciding whether a further appeal would be filed.
Source: The Straits Times 27 Oct 07
Rise in US new home sales ‘too good to be true’
WASHINGTON – LAST month’s surprising rise in new home sales in the United States is too good to be true and will likely be revised away, say analysts.
Troubles in the US housing market have made tracking new-home sales activity more difficult and more volatile in recent months, resulting in huge downward revisions to government data.
The government reported on Thursday that new home sales showed a nearly 5 per cent rise in sales last month.
But that figure was driven by a massive downward revision to the prior month’s figure, which brought August sales to an 11-year low.
So while September saw a ‘gain’ in sales, that came on the heels of revisions of the prior three months that sliced off 167,000 units, or nearly 3 per cent of total sales, in that period.
Economists say this uncertainty will likely continue, particularly as builders see a rise in cancellation rates.
‘The scale and persistence of the downward revisions to this data series is now in unchartered territory,’ said Mr Richard Iley at BNP Paribas, cautioning that the true take on last month’s performance is probably a couple of months away when the government makes its revisions.
‘September’s apparent ‘improvement’ will likely be revised away over the next two months,’ he said.
When government statisticians calculate their monthly home sales figures, they assume they will receive late reports from builders and, therefore, estimate that amount when producing their initial estimate.
In addition, the statisticians assume they will receive reports from builders of so-called prior sales, or contracts made years earlier for new homes.
Later, they will reconcile the late reports from builders in addition to these prior sales reports and revise their figures.
But in recent months, they have been receiving fewer late reports and prior sales reports – all signs of deterioration in the housing market.
Said Mr Bernard Baumohl, managing director of The Economic Outlook Group: ‘This may turn out to be the worst housing recession since the end of World War II. It’s a slow bleed and it continues to deteriorate.’
Source: REUTERS (The Straits Times 27 Oct 07)
Creative ’school’ of thought
Old School building and a bungalow near the city centre now house art galleries, studios and other such businesses
‘CREATIVE clusters’ was a term first used a few years ago to encourage synergies between artistic creativity, entrepreneurship and technological innovation. Today, it’s happening in the physical space as well.
Creative hubs are popping up along the fringes of the city centre: a photography studio opens next to a graphics design outfit, a fashion designer is a few doors down from an architectural firm, or an events management company is a stone’s throw from a cult fashion house.
One interesting cluster is taking shape at Mount Sophia, among the newest spaces that is being transformed by the creative arts. The venue is the former Methodist Girls’ School (MGS) building at 11 Mount Sophia – now simply known as Old School. Its tagline explains its new use: digs for new school thinkers. The most obvious physical change to the school is a spanking new coat of white paint, but the overall look of the 1920s building is still reminiscent of the time it operated as MGS.
The former school has been leased from the Singapore Land Authority by 11@Mount Sophia Pte Ltd, whose directors are entrepreneur (and comic lover) Ken Chong, architect Andrew Lau and another businessman who prefers to remain anonymous. Because of the three business partners’ passion for the arts, they’ve sub-leased the six blocks to over 30 companies comprising art galleries, creative studios, artists’ studios, a couple of eateries, and even an art film theatre.
Appealing space
On the fine arts side, there are studios for artists like Lim Poh Tek, Baet Yeok Kuan and cultural medallion winner Chua Ek Kay. Then, there’s the international Osage gallery group (Hong Kong, Beijing and Shanghai) which will have an 8,800-square-foot showroom there.
Among the commercial arts tenants are graphic arts, interior design and architectural firms, with advertising agency Saatchi Lab taking up the entire second floor of one block. There are also a few photography studios, and digital-imaging companies like Infinite Imaging. One of Singapore’s most famous fashion designers, Wykidd Song, has located his new made-to-measure business there.
Most of the tenants seem to have found out about Old School through the grapevine, as Tjin Lee of Mercury Marketing & Communications relates. ‘We’d heard about the space and inquired about it, but it was only when a photographer friend recommended us to the landlord that the doors magically opened to us,’ she quips.
A former MGS girl herself, she feels it’s a bit ‘weird’ to be going back to her alma mater, but at least the two classroom spaces she has taken won’t be filled with desks and chairs. ‘We know the photographers who have studios there, so it’ll be fun to be neighbours with them. We’re looking forward to working at a place with creative buzz,’ adds Ms Lee.
Old School’s setting – with its open, green spaces – is what appealed to Saatchi Lab. ‘This place is quite different, not so commercial – which is what an advertising agency looks for. Here, we get to look out of the window and see trees, and squirrels and birds,’ says Doris Tan, the agency’s general manager. The ‘charming’ space appealed to fashion photographer Wee Khim, who was previously based at Henderson Industrial Park. ‘I was looking at Dempsey at first, until this came up,’ he says. His studio occupies the school’s former hall. ‘It’s a bit of a dream studio for me,’ he says. This is the first time he’s had a space like this, working alongside creative neighbours in a green, open setting. ‘The environment is certainly more conducive.’
Wykidd Song thinks Old School is a great idea as creative companies like to be in a more relaxed, unconventional environment. He says he can ‘feel something happening here’. Then, there are the practical pluses. ‘It’s having the luxury of space, while being close to the city, at a less costly rent.’
He’s taken up two classrooms, or 1,400 square feet of space, for his showroom, lounge area and workshop – a far cry from the time he started Song + Kelly in a 500-sq-ft room in an HDB estate in Chinatown.
Over at Mount Emily – within walking distance – another creative cluster has sprung up, next to the Hangout Hotel.
Emily Hill, a stately conservation bungalow, represents a spontaneous gathering together of artists and businesses that want to work with the arts, explains Emily Hills’s spokeswoman.
The founding members who got together to lease the bungalow from the National Arts Council are glass artist Tan Sock Fong, Solideas, a new art glass studio of which Sock Fong is co-founder, renowned sculptor Sun Yu-li, art gallery Monsoonasia Gallery and Theatre Training and Research Programme.
‘The first concern was simply working space. None of us could take this whole place on our own, but we all loved it and wanted to work here. So that’s the first reason for this creative cluster. Also, members found ourselves already working together in various ways, and went forward with the idea of facilitating collaborations between arts and business,’ she says. ‘One important part of that is to build capacity in the arts sector, which Emily Hill has started doing through its Art WORK series of workshops, including topics like ‘The Art of Negotiation’, ‘Introduction to Intellectual Property’, etc’.
While the founding arts members occupy about 80 per cent of the space at Emily Hill, the other tenants are Showtime Productions, run by jazz musician Jeremy Monteiro; Colin K Okashimo & Associates, a landscape architecture firm which has retained its main office elsewhere, but rented a studio here ‘for contemplation and inspiration’; TeamAct EduServices, a company providing educational experiences for young people; and Oakdale, a visual communications company.
The only F&B outlet is Wild Oats bar and cafe, owned by former lawyer Willin Low, who first opened the Wild Rocket restaurant at the hotel next door. ‘The creative cluster makes sense to us simply because all the tenants are open to the idea of collaboration and are keen to work together,’ says the spokeswoman.
Will such creative clusters work in the long run? As long as the balance between businesses and the arts is maintained, reckons Ho Kee Lam, the CEO of Traffic Pte Ltd which manages Red Dot Traffic, a colonial building in Maxwell Road which used to be the Traffic Police’s headquarters until 1999. ‘The anchor tenant for this building is actually Red Dot Museum, the second in the world after the first one in Germany. ‘We decided to create a cluster of creative businesses around the museum and the design awards we have, as we hoped it would stimulate the product design sector,’ Mr Ho explains.
Red Dot Traffic opened in 2005, and put the spotlight on building clusters of creative companies. Its 30-plus tenants are advertising agencies, schools and design studios. ‘We also wanted to offer these creative companies a chance to have their office situated closer to the city centre,’ he says.
But Red Dot Traffic’s hope is that it will draw more product and industrial design tenants in the future. ‘It could be because we didn’t market this strongly enough. And secondly, a number of creatives still don’t see the value of being situated in the city,’ says Mr Ho. Red Dot Traffic is keeping the balance at 80-20, with a minimum 20 per cent of its tenants having to be from the creative industries.
With rents for office space sky-rocketing, it also helps that places like Old School are offering rental rates that are 20 to 30 per cent below market rate for the area. That’s certainly an attractive carrot for key creative businesses to relocate there.
It definitely looks like creative clustering in unconventional spaces is the new school of thought these days.
Source: Business Times 26 Oct 07
HDB launches BTO projects in Bukit Merah, Punggol
The Housing and Development Board (HDB) yesterday launched two new housing projects – Telok Blangah Towers in Bukit Merah town and Punggol Lodge in Punggol town – under the Build-To-Order (BTO) system.
All in, 916 new premium and standard flats are on offer comprising studio apartments (SAs), three-room and four-room flats. The application period for this sales exercise is from Oct 25 to Nov 14.
HDB said in a press statement yesterday that Telok Blangah Towers is an integrated development with a total of 400 flats, comprising 90 SAs, 100 units of three-room and 210 units of four-room premium flats.
The SAs are sold with elder-friendly features such as grab bars and non-slip flooring. Fittings include built-in wardrobes, kitchen cabinets and cooking facilities.
The project is located at the junction of Telok Blangah Street 31 and Telok Blangah Drive, and is next to a range of shops and eateries, a supermarket, wet market and hawker centre. It is also near the Bukit Merah Town Centre, and the upcoming MRT stations at Labrador Park and Telok Blangah.
Punggol Lodge, located in Punggol East along Punggol Road, has 516 flats comprising 52 units threeroom and 464 units four-room flats.
The project is across the road from upcoming commercial facilities such as an eating-house, supermarket and shops, and is within walking distance from the Damai LRT station. It is also near the Punggol MRT Station, bus interchange and future Punggol Town Centre.
An exhibition will be held at the Habitat Forum, HDB Hub, during the application period. Those interested can obtain the sales brochure, and view the 3D models and sample finishes on display.
Potential buyers can also visit HDB’s e-Sales website at www.hdb.gov.sg/esales, or look out for newspaper advertisements on the two projects.
Source: Business Times 26 Oct 07
Norwegian firms here expect rosy 2008
However, spiralling business and manpower costs are a concern for them
MOST Norwegian firms in Singapore expect to see their businesses expand in the next 12 months, as Norway became the sixth-largest foreign investor here in 2005.
However, many are increasingly concerned about spiralling business and manpower costs in the city state.
In a survey by the Norwegian Business Association in Singapore (NBAS), it was found that some 88 per cent of 60 respondents expect more businesses here in the coming year, while 12 per cent said business prospects would remain at the same level.
There are more than 150 Norwegian business entities in Singapore comprising firms which have opened offices or relocated to Singapore, making Norwegian-owned companies one of the fastest growing classes of overseas business investors in the republic, NBAS said in a statement.
Citing figures from the Department of Statistics, NBAS said that Norway pumped in foreign direct investments (FDI) of $7.9 billion here in 2005, the latest year for which figures are available. This makes it the sixth-largest foreign investor here in 2005.
In terms of European investors, Norway now ranks the fourth-largest investor in Singapore behind only the UK ($50.2 billion), the Netherlands ($31.7 billion) and Switzerland ($21.7 billion).
The survey revealed that Norway’s business presence in Singapore remains very focused on the shipping/logistics and the marine/offshore sectors.
Some 59 per cent of responding firms consider themselves from these sectors, underscoring the already large and growing influence of Norwegian companies on Singapore’s maritime sector.
The steep rise in the cost of office rental, manpower costs and the difficulty in attracting senior executives and talent were widely remarked upon by respondents.
Some 25 per cent of respondents said office rentals were the main concern for Norwegian companies based in Singapore, while 21 per cent are worried about rising wage bills.
A further 21 per cent cited recent steep rises in living cost as their biggest concern, but only 9 per cent said their main concern for their Singapore location was the ‘increasing attractiveness of other locations’ in the region.
Norwegian firms were asked about the main reasons for their firms locating in Singapore and many cited reasons such as the legal infrastructure, strategic location and expanding activities in Singapore in the light of the booming shipping markets.
Other reasons include Singapore’s status as a leading oil trading centre, good communications, the good quality of life for overseas managers and the ‘good business environment and secure systems’.
Still, there were companies that felt that Singapore workers need to be taught initiative and decision-making as they ‘are not used to the flat structure of a Norwegian working culture’, said one respondent.
Another advised Norwegian firms that are setting up operations here to ‘use service apartments and offices in the first few months in Singapore as it is difficult to take major decisions on location for the office and family before you are actually in Singapore and can see how things function’.
The respondent adds: ‘It is also often difficult to hire the right people and, therefore, much better to have temporary staff in the beginning to allow enough time to have proper interviews and discuss this with other Norwegian companies that have been in Singapore over a longer term.’
Source: Business Times 26 Oct 07
Singapore to light up F1 circuit with night race
In-principle approval a milestone in history of sport
(SINGAPORE) Singapore made history in the air yesterday, and got the green light to make it on the roads as well.
Even as the first-ever commercial flight of the Airbus 380 took off at 8am yesterday, the Federation Internationale de l’Automobile (FIA) finally gave the go-ahead for a night race to be held here.
Never before has Formula One seen a race hosted after dark, under floodlights. It will provide a unique perspective for F1 fans around the world. The fact that it starts late in the evening here also means that it will get maximum exposure on European television markets. The inaugural Singapore Grand Prix is slated for Sept 28, 2008.
‘Given that one of our objectives is to showcase Singapore to Formula One fans around the world, our late starttime will help us achieve this. The stunning city skyline backdrop will be an added bonus,’ said Colin Syn, deputy chairman of Singapore GP.
However, as the approval is only in-principle, additional tests to the lighting system and track circuit will still have to be conducted in the run-up to the race.
Minister of State for Trade & Industry S Iswaran said the approval was both a ‘milestone’ and very welcome affirmation from the FIA.
‘They have been satisfied with all the efforts in the preparations for this night race. They need to now make sure they test it out completely in the local context, make sure that it is fully functional and workable in the Singapore environment. Once that is completed, then we should have the clear signal to go ahead.’ The minister reckoned that everything should be wrapped up by sometime next year.
Nonetheless, Mr Syn appeared confident. ‘We are well on our way – with two positive lighting tests under our belt, we are on track to delivering the first night race in Formula One history,’ he said. The confirmation of a night race came as more than welcome news to avid F1 fan Anisha Merchant. Ms Merchant has previously travelled to both Shanghai and Monaco to catch the Grand Prix in action. ‘Watching the F1 is already such a thrill but racing at night will add a whole different dimension. It’ll be interesting to see how the drivers and teams handle it,’ she enthused.
The confirmation of the night race also means a clearer picture of hotel room rates during the race period in time to come, which has been subject of much speculation since the announcement by the government that trackside hotels would be slapped with a 30 per cent levy. Various hotels have cited uncertainty about the race time as one of the key factors holding them back from announcing official prices.
Source: Business Times 26 Oct 07
SLA puts up six residential sites for auction
THE Singapore Land Authority (SLA) will release six residential sites for sale by auction.
Two are in the Eng Neo Avenue good class bungalow (GCB) area in District 11 – the first GCB sites released by SLA for development. The other four are in Moonbeam Walk, Jalan Insaf, Bedok Close and Somme Road.
The plots are essentially in-fill sites – pockets of state land within established areas.
The assistant chief executive of SLA’s land operations group, Simon Ong, said the sale of the sites ‘will help meet current demand for high-quality residential property and allow individuals to build their dream homes’.
The auction will be conducted by Jones Lang LaSalle (JLL) on Nov 29, and the firm’s director and head of auctions and sales Mok Sze Sze reckons demand will be strong.
A total of 79 GCBs worth $959.4 million changed hands in the first half of the year, compared with 61 GCBs worth $627.9 million transacted in the same period a year earlier. ‘This translates to a 29.5 per cent increase in the number of units transacted and a 52.8 per cent increase in absolute value,’ Mr Mok said.
The GCB sites in Eng Neo Avenue are 29,201 sq ft and 16,689 sq ft. The other four sites are between 3,547 sq ft and 6,971 sq ft.
Douglas Wong, director of PropNex’s luxury home division, Grandeur Homes, thinks the GCB sites could fetch between $800 and $900 psf. This means bids for the smaller site could be around $13 million while the larger site could fetch around $23 million.
Mr Wong says that along with the rest of the market, prices of GCBs have been affected by the US subprime crisis. Nevertheless, new benchmarks for GCBs are still being set, with a house in the Nassim area going for over $1,500 psf.
A check of caveats on the SISV-Realink website also shows that a unit at The Residences at Barker has also been sold in the secondary market for almost $1,600 psf.
Still, as Mr Wong notes, prices are still way below those of luxury condos, which now go for $3,500-$4,000 psf. As he says, in a strange way other property is ’still affordable’.
Source: Business Times 26 Oct 07
MPI sets up Asia-Pac office here
THE opening yesterday of the Asia-Pacific office of Meeting Professionals International (MPI) – an international organisation in the meetings and events industry – signifies Asia’s growing prominence on the meetings and events landscape and the part Singapore can play in it.
MPI has 22,500 members in 65 countries though its membership in this part of the world is small at just over 100 members in South-east Asia.
It foresees good growth in the region, and Singapore’s strengths at the heart of the scene are among its reasons for basing its fourth office here.
‘An office in the Asia-Pacific will enable our members who are currently doing business in this thriving region to enjoy the same community connections that they already enjoy in other parts of the world,’ said president and chief executive Bruce MacMillan. ‘Singapore’s regional hub position, long-term expertise in the meetings and events industry and multi-cultural workforce, provides the perfect location for our new management structure.’
Mr MacMillan is particularly keen to explore the opportunities in education for the Mice (meetings, incentives, conferences and events) sector. He hopes to build a platform for more educational tie-ups for professionals in the industry through links with schools that have good hospitality programmes like Cornell and University of Nevada at Las Vegas, both of whom have operations here. This ties in with the objectives of the Singapore Tourism Board’s (STB) Singapore Exhibition and Convention Bureau, which seeks to strengthen resources in the Mice industry.
‘MPI, with its unwavering commitment to professional development will add impetus to our efforts to develop Singapore’s meetings and events industry players’ skills and expertise,’ said Aloysius Arlando, assistant CEO of STB’s BTMice group.
MPI yesterday also announced the appointment of Michael Tay as director of operations, Asia-Pacific at its new office.
Source: Business Times 26 Oct 07
LATEST US DATA – New home sales in surprise Sept upturn
But orders for durables fall 1.7% in the first back-to- back decline in a year
(WASHINGTON) Sales of new homes in the US posted an unexpected gain in September although the improvement came after sales had fallen to the slowest pace in more than a decade.
The Commerce Department reported yesterday that sales of new homes rose by 4.8 per cent last month to a seasonally adjusted annual rate of 770,000 units. That level of activity was still 23.3 per cent below a year ago, indicating that housing remains in a steep downturn.
Analysts had been expecting sales would fall by 2.5 per cent last month from an August sales pace that had originally been reported as 795,000 homes. However, that figure was revised sharply lower in the new report to show a sales rate of just 735,000 in August, the slowest sales pace in 11 years.
Meanwhile, a second report showed that orders for big-ticket long-lasting manufactured goods dropped an unexpected 1.7 per cent last month following an even bigger 5.3 per cent plunge in August while the Labor Department reported that the number of people filing new claims for unemployment benefits was higher than expected, painting a picture of a weakening economy.
The first back-to-back declines in factory orders in more than a year raised new worries about how much harm would be inflicted on the economy from a severe housing slump and credit crunch.
The Labor Department said that the number of newly laid off workers filing claims for unemployment benefits fell by 8,000 last week to 331,000.
The report on home sales showed that the median new home price in September rose to US$238,000, up 2.5 per cent from August, which had seen prices fall to their lowest level in nearly a year.
The reports released yesterday sent US Treasury bonds higher, while stock futures pared their gains and the dollar fell.
‘Durables are negative and a bit of a disappointment. The report does fall into the picture of a slowing US economy and therefore heightens expectations for a rate cut. That of course puts pressure on the dollar,’ said Brian Dolan, director of foreign exchange strategy at Forex.com.
Even when volatile data for transportation and defence orders were stripped away, the total was weaker than expected.
‘It’s perhaps not quite as weak as the headline suggests,’ said Adam York, an economist at Wachovia Corp.
‘Manufacturing will have slow-but-steady growth through the end of the year.’ Mr Wachovia projected the biggest decline among economists surveyed by Bloomberg News.
Initial claims for state unemployment insurance benefits totalled 331,000 in the week ended Oct 20 following the prior week’s upwardly revised 339,000, which originally had been reported as 337,000. Economists surveyed by Reuters had forecast a much lower total of 320,000 claims for last week.
Many analysts however believe that the economy will still be able to avoid an outright recession because the Federal Reserve, which cut a key interest rate for the first time in four years, will keep cutting rates to stimulate economic growth. The Fed meets again next week.
In a new report released yesterday, the congressional Joint Economic Committee estimated that two million subprime mortgages could go into foreclosure over the next 18 months as initially low introductory rates reset at much higher levels.
Source: AP, Reuters, Bloomberg (Business Times 26 Oct 07)
Falling property could cost US$4t
Financial firms could face aggregate losses of some US$400b says NYT
(NEW YORK) US real estate wealth is expected to fall anywhere from US$2 trillion to US$4 trillion when the total costs of the recent credit crunch are tallied, the New York Times reported yesterday, citing economists.
Household real estate wealth – the equity people own in their homes, rather than what they owe lenders – currently totals about US$21 trillion, according to the Federal Reserve.
And financial firms could face aggregate losses of some US$400 billion from expanding troubles related to the subprime mortgage market fallout, the paper said.
That is higher than the roughly US$240 billion in financial institution losses from the savings and loan crisis of the early 1990s, adjusted for inflation, the paper said.
The losses in real estate wealth, while large, are substantially less than what investors suffered in the stock market collapse earlier this decade, which erased more than US$7 trillion, or about 40 per cent of market value, the paper said.
However, the recent declines are likely to have a significant impact on consumer spending, since owners will not be able to cash out as much equity from their property, the paper said.
It said the economists’ loss estimates for both real estate and financial firms are preliminary and could get much higher.
The Joint Economic Committee of Congress, in a report issued yesterday, predicted about two million foreclosures by the end of next year in homes purchased with sub-prime loans, the paper said.
That’s much higher than the Bush Administration forecast in September of some 500,000 foreclosures, the paper said.
In recent years, the rise in real estate values has helped propel consumer spending, as homeowners refinanced mortgages and took out home equity loans.
‘There weren’t a lot of people living off their capital gains from stocks,’ said Jane Caron, chief economic strategist at Dwight Asset Management. ‘There were a lot of people using their home as a piggy bank.’
Of course, many people who bought their houses several years ago are still ahead financially, because the sharp run-up in home values is still far greater than the expected decline. Those who bought close to the peak stand to lose the most if they have to sell in the near future.
The Joint Economic Committee estimates that the loss of real estate wealth just from foreclosures on sub-prime loans will be about US$73 billion.
Another US$33 billion would be lost because foreclosed homes tend to drive down the prices of other houses in the neighbourhood.
Those figures include US$951 million in lost property tax revenue to state and local governments, which will also have to spend more on policing neighbourhoods with vacant homes.
The states most likely to be hard hit fall into two categories: those where prices had been rising fastest, like California and Florida, and Midwestern states with weak economies, like Michigan and Ohio, where people with low or moderate incomes made heavy use of sub-prime loans to become homeowners and consolidate debts.
Global Insight, a research firm, predicts that the national average for housing prices will drop 5 per cent over the next year and 10 per cent before mid-2009, for a total of about US$2 trillion.
Economists at Goldman Sachs have predicted prices will drop by 15 per cent, meaning an overall decline of more than US$3 trillion; other forecasters have said the decline could be 20 per cent or more.
Economists continue to update their predictions on how the loss of housing wealth might affect the overall economy.
Nigel Gault, chief domestic economist at Global Insight, said he assumes that consumers reduce their spending by about six US cents for every dollar of lost wealth.
If prices drop 5 per cent next year, that would mean a decline of US$60 billion in spending, all else being equal.
That would be a noticeable slowdown, but not enough to cause a recession.
Source: Reuters, NYT (Business Times 26 Oct 07)
US sub-prime solution flies in face of ‘97 advice to Asia
ASIANS could be excused for looking askance at Henry Paulson’s plan to calm credit markets. The reason: It’s the sort of thing that had US Treasury secretaries browbeating Asians a decade ago. One thinks back to the whistle-stop Asian tours then-treasury secretary Robert Rubin did 10 years ago. Such trips became more numerous as Asia’s financial crisis spread from Bangkok to Jakarta to Seoul to Kuala Lumpur and beyond.
At every stop, Treasury bigwigs lectured leaders to scrap the financial socialism and crony capitalism feeding the excesses behind Asia’s turmoil. They counselled fiscal belt-tightening, higher interest rates, stronger currencies, avoiding asset bubbles and for limits on bailing out reckless investors.
Basically, the US told Asia to avoid doing much of what the US is doing today amid its own crisis. Take the Federal Reserve, which cut interest rates twice and hinted at doing more. Investor Marc Faber is absolutely right when he says the Fed acted ‘like a bartender’ and that its actions are contributing to asset bubbles. The US also has avoided reining in imbalances, including huge current-account and budget deficits.
The US is arguably devaluing its way to faster growth, something Treasury officials chastised Asians for in 1997. Mr Paulson puts on a good poker face, saying he favours a strong US dollar to placate Europe’s concerns. He hardly seems bothered by the euro’s 14 per cent surge against the dollar this year. As for crony capitalism, Asians can turn the mirror on the US with one word: Halliburton. The region also watched with a mixture of horror and satisfaction when free-market symbols such as WorldCom Inc and Enron Corp blew up a few years back.
Asians were berated for a lack of transparency. In the late 1990s, the US demanded that reserves figures be published and that clear lines be drawn between governments and private sectors. In the US, dubious mortgage products were sold, repackaged and resold with negligible transparency, while ratings companies approved of the process. The government and the Fed just stood by.
Now, the US is at the centre of what Nouriel Roubini, chairman of Roubini Global Economics LLC in New York, calls the ‘first crisis of financial globalisation and securitisation’. And what is the US doing?
Playing a role in hypocritically bailing out those who should have known better.
Mr Paulson’s team brokered negotiations between US banks, leading to the creation of what is essentially a bailout fund. His involvement is drawing criticism that the US is shielding gamblers from the consequences of poor bets. It doesn’t help that White House officials are simultaneously deflecting calls for regulation to keep the sub-prime crisis from happening again.
The advent of what investors are terming a ’superfund’ is hardly in the best interest of the world’s No 1 economy. Just as Asians did a decade ago, the US is bailing out financiers who made bad decisions. But it’s one thing for Bank of America Corp to throw Countrywide Financial Corp a US$2 billion lifeline. It’s another thing for the Treasury to involve itself in creating a company that will buy assets from structured investment vehicles (SIVs), which were set up to purchase securities such as bank bonds and sub-prime mortgage debt.
Mr Paulson and Robert Steel, the Treasury’s top domestic finance official, seem to think the end justifies the means. Their plan would help SIVs to avoid dumping their US$320 billion in holdings, further roiling the credit markets. The banks would instead create a fund to absorb the debt, using the proceeds of new commercial paper sales to finance the purchases. The new assets would be financed by selling mediumterm notes and commercial paper to investors.
Appearances matter. To many Asians, there’s a whiff of two former Goldman Sachs Group Inc guys – Mr Paulson and Mr Steel – helping their buddies out of a rough spot, including Mr Rubin, now head of the executive committee of Citigroup Inc, the bank that stands to gain most from such a bailout.
Critics such as former Fed chairman Alan Greenspan and former International Monetary Fund managing director Michel Camdessus are right to warn about the so-called moral hazard being created here. If banks and investors avoid the consequences of their mistakes, they will make even bigger ones next time. The notion that a safety net will be rolled out each time things go awry makes the global economy more dangerous.
It’s this and other lessons the US tried to teach Asia 10 years ago. Officials in Washington may want to begin listening to their own lectures.
Source: Bloomberg (Business Times 26 Oct 07)
US$ hits new lows after more bad news
THE US dollar was punished once again by more bad news for the US economy overnight, while in contrast the Chinese yuan clocked fresh highs after yet more strong numbers for the Chinese economy. By the Asian close, the greenback had tumbled to fresh post-depeg lows of 7.4820 Chinese yuan and 3.3560 Malaysian ringgit, and established a fresh 10-year low of S$1.4565 as well.
For Singapore dollar-based readers, it is important to make the additional point that the local unit has been able to hold its own versus both the strengthening yuan and ringgit over the past couple of months.
In terms of this year’s highs and lows, the two have traded in a 2007 range of S$0.1944 to S$0.2026 and 43.15 to 45.28 Singapore cents, respectively. Yesterday, the yuan and ringgit finished towards the lower end of those ranges – at S$0.1947 and 43.4 Singapore cents respectively.
On the US side, however, some traders suggested that it may well have taken the rumour of an emergency discount rate cut to help Wall Street recover from a sharp slide in early Wednesday trading – following more bad news from both the US housing sector as well as yet more fallout from the US sub-prime mortgage loan front.
In contrast, news yesterday morning from China suggested the opposite possibility of more rate hikes and higher reserve requirements for Chinese banks.
For the first nine months of 2007, the Chinese economy grew at a blistering double-digit pace of 11.5 per cent, while inflation averaged 4.14 per cent – quite a bit higher than the 3 per cent targeted by China’s central bank.
On the other hand, US financial markets started Wednesday trading with the bad news that existing US home sales for September had registered a slightly worse than expected month-on-month fall of 8 per cent, and a larger than expected US$7.9 billion write-down by US investment bank Merrill Lynch – the latter caused in large part by losses related to sub-prime mortgage lending activities or assets.
And externally, news of another jump in oil prices also weighed heavy on the greenback in Asian trading yesterday. Brent crude for December delivery vaulted above the US$86 per barrel mark at the start of London trading to mark out more unexplored territory – just one day after making fresh highs in excess of US$85 per barrel.
And, following the overnight rumours of further US interest rate cuts, it was the high-yielding Australian and New Zealand dollars that finished with some of the day’s best gains yesterday.
All told, however, it was gold that emerged as the day’s top performer, surging more than one per cent to finish the session at US$765 per ounce, just US$5 shy of this month’s 17-year peak of US$770.
Meanwhile, the Australian and New Zealand dollars chalked up gains of up to 0.7 per cent, to 90.32 and 75.58 US cents respectively. And elsewhere in Asian trading, the besieged greenback closed with further losses of 0.4 to 0.6 per cent – at S$1.4565, 44.05 Philippine pesos, 3.3560 ringgit, 1.1690 Swiss francs, and US$1.4280 per euro.
Source: Business Times 26 Oct 07
400 new flats offered for sale in Telok Blangah
687 applicants register for units in central area; 516 new flats also launched in Punggol
POTENTIAL buyers have rushed to put their name down for 400 new premium flats near the heart of town, launched for sale by the Housing Board yesterday.
By 5pm yesterday – nine hours after applications opened – 687 people had registered their interest for the flats, which will be built within an existing HDB estate at the foot of Mount Faber. Another batch of 516 flats were also launched for sale yesterday, further out in Punggol. They received 152 applications by 5pm.
Both projects are being offered under the build-to-order programme, so they will be built only when most flats have been booked.
Going by recent red-hot demand for new HDB flats, housing agents do not expect any problems on that front.
As the level of the response yesterday shows, the Mount Faber area project – called Telok Blangah Towers – is the more popular.
The premium project in Telok Blangah Street 31 comprises 90 elderly-friendly studio apartments, 100 threeroom flats and 210 four-room units. Its prime location near the Central Business District, VivoCity mall and Sentosa is one reason behind the high level of interest.
It will be built within the established town of Bukit Merah – one of the few occasions when a build-to-order development will be located in a mature town with established facilities.
Its flats will have timber strip flooring in the bedrooms and ceramic floor and wall tiles in the bathrooms.
Build-to-order projects are usually located in new towns like Punggol and Sengkang – both far from the city centre. This has meant home buyers wanting to live closer to central Singapore have had to settle for older resale flats or pay a higher price for private condominiums.
The attractive location in Telok Blangah comes at a price: Four-room flats will cost between $308,000 and $402,000, more than 50 per cent above similar units in the Punggol project. Three-room flats will cost between $187,000 and $238,000, while studio units will go for $70,000 to $91,000.
The Punggol development, called the Punggol Lodge, will offer standard flats without flooring, with more modest prices.
Four-room ones are between $190,000 and $234,000, with three-room flats priced between $122,000 and $150,000.
Property firm ERA Singapore said four-room flats in the Telok Blangah area built from 1999 onwards cost between $370,000 and $408,000 on the resale market.
From April to June this year, resale four-room flats in Bukit Merah town – where flats in the Telok Blangah area are located – went for a median price of $371,000.
Mr Chandran Pillay, a senior division director of Global Real Estate Services, felt the new Telok Blangah flats were far from cheap.
‘I think $400,000 is a bit high, but anybody who wants to live close to the city knows they have to pay a higher premium,’ he said.
The HDB said this month that it was stepping up sales to meet rising demand for new flats. Its stock of unsold flats has dwindled from more than 10,000 three years ago to 3,500 now, and is expected to drop to 2,200 by the end of the year.
It will also offer about 4,500 new flats in the next six months under the build-to-order system.
Source: The Straits Times 26 Oct 07
Office rentals main concern for Norway firms here
RISING office rentals is the biggest concern among Norwegian-owned businesses operating in Singapore.
While 88 per cent of these firms expect to expand in the next 12 months, many are increasingly concerned about spiralling business and manpower costs.
The findings came from a recent survey conducted by the Norwegian Business Association in Singapore over the past six weeks.
The respondents were from 60 Norwegian companies, with more than half having an annual turnover of over $50 million.
A total of 24.4 per cent of the respondents said office rentals were their main concern, while 22.6 per cent cited rising wage bills.
A further 20.2 per cent said they were worried about the recent steep rises in living costs.
The survey findings – which were presented at the Norway Asia Business Conference held in Singapore yesterday – echoed those of a poll released by the American Chamber of Commerce in June.
This showed that rising rents and housing costs are becoming more of a worry for senior executives at American firms in the Republic.
Economic Development Board (EDB) managing director Ko Kheng Hwa addressed the rents issue at the conference, saying the EDB and the Government are ‘very concerned’ about business competitiveness and are working to increase the supply of commercial and residential space.
Mr Ko, the conference’s keynote speaker, added: ‘When supply and demand are better matched in the next couple of years, the cost escalation should be moderated.’
Norway is the sixth-largest foreign investor in Singapore, with a total foreign direct investment of $7.9 billion in 2005 – the latest year for which figures are available.
It is the fourth-largest European investor in Singapore behind Britain, the Netherlands and Switzerland.
There are more than 150 Norwegian business entities in the Republic.
Source: The Straits Times 26 Oct 07
Prices of HDB resale flats keep accelerating
RIDING on the property boom, HDB resale prices are on the rise.
The price index of resale flats was 6.6 per cent higher in the third quarter compared to the previous quarter, the HDB said in a press release on Friday. Price increases were seen across most flat types and towns.
‘As at end-September, the HDB resale price index has increased by about 11 per cent since the start of the year,’ the HDB said.
For five-room flats, the median resale price in Queenstown is the highest at $603,000, followed by Marine Parade at $560,000 and Bukit Merah at $530,000.
Queenstown tops the list for median resale prices of four-room flats as well, fetching $410,000. This is followed by Bukit Merah which commands a price of $396,500 and Central at $382,500.
The median Cash-Over-valuation (COV), which is the difference between the Resale Price and Market Value of the flat, in the July to September period was $17,000.
Eighty per cent of all resale transactions required COV while 20 per cent of the transactions were conducted at or below valuation.
Five-room flats in Queenstown commanded the highest median COV of $110,000, followed by the Central region with $91,500 and Marine Parade at $85,000.
For four-room flats, apartments in Central fetched the highest median COV of $57,500. Queenstown at $57,000 and Bukit Merah at $40,500 were the next two highest on the list.
Highly popular in the last quarter were four-room flats, which made up the bulk of resale transactions. There were 2,833 in total.
Three-room flats were more popular than 5-room flats in the last quarter, with 2,179 transactions compared to 1,901.
New flats
With good take-up rates for public housing projects launched under the Build-To-Order system, HDB launched about 2,700 new flats under four BTO projects in the first three quarters of the year.
It launched another 916 units on Thursday and has plans to offer another 3,500 in the next six months.
‘There are also plans to release another three Design, Build and Sell Scheme (DBSS) sites with an estimated combined yield of 1,500 units over this period,’ the HDB said.
The new flats will be in addition to those offered under the Balloting Exercises for surplus Selective En bloc Redevelopment Scheme (Sers) flats and the bi-monthly or monthly sales exercises for unsold flats.
Rental market
Rents for subletting HDB flats were also up in the last quarter in line with higher rents for private residential properties.
Marine Parade commanded the highest median subletting rents for both three- and four-room flats at $1,250 and $1,700 respectively.
HDB approved the subletting of 3,500 flats in the third quarter, bringing the total number to about 16,000 units, up from about 14,600 units in the second quarter.
HDB said it will be leasing out flats vacated under Sers to the general public under a special pilot project. It recently concluded a tender for the leasing of vacated Sers flats at Tiong Bahru Road, and will assess the response to this pilot project before deciding whether to expand the scheme in future.
This scheme puts ‘the vacated Sers flats to better use in the interim period, pending their redevelopment’, it said.
HDB said it ‘has a potential supply of about 4,000 to 5,000 units that can be introduced to bolster rental supply in the HDB market over the next 3 years’.
Source: The Straits Times 26 Oct 07
Prices of HDB resale flats keep accelerating
RIDING on the property boom, HDB resale prices are on the rise.
The price index of resale flats was 6.6 per cent higher in the third quarter compared to the previous quarter, the HDB said in a press release on Friday. Price increases were seen across most flat types and towns.
‘As at end-September, the HDB resale price index has increased by about 11 per cent since the start of the year,’ the HDB said.
For five-room flats, the median resale price in Queenstown is the highest at $603,000, followed by Marine Parade at $560,000 and Bukit Merah at $530,000.
Queenstown tops the list for median resale prices of four-room flats as well, fetching $410,000. This is followed by Bukit Merah which commands a price of $396,500 and Central at $382,500.
The median Cash-Over-valuation (COV), which is the difference between the Resale Price and Market Value of the flat, in the July to September period was $17,000.
Eighty per cent of all resale transactions required COV while 20 per cent of the transactions were conducted at or below valuation.
Five-room flats in Queenstown commanded the highest median COV of $110,000, followed by the Central region with $91,500 and Marine Parade at $85,000.
For four-room flats, apartments in Central fetched the highest median COV of $57,500. Queenstown at $57,000 and Bukit Merah at $40,500 were the next two highest on the list.
Highly popular in the last quarter were four-room flats, which made up the bulk of resale transactions. There were 2,833 in total.
Three-room flats were more popular than 5-room flats in the last quarter, with 2,179 transactions compared to 1,901.
New flats
With good take-up rates for public housing projects launched under the Build-To-Order system, HDB launched about 2,700 new flats under four BTO projects in the first three quarters of the year.
It launched another 916 units on Thursday and has plans to offer another 3,500 in the next six months.
‘There are also plans to release another three Design, Build and Sell Scheme (DBSS) sites with an estimated combined yield of 1,500 units over this period,’ the HDB said.
The new flats will be in addition to those offered under the Balloting Exercises for surplus Selective En bloc Redevelopment Scheme (Sers) flats and the bi-monthly or monthly sales exercises for unsold flats.
Rental market
Rents for subletting HDB flats were also up in the last quarter in line with higher rents for private residential properties.
Marine Parade commanded the highest median subletting rents for both three- and four-room flats at $1,250 and $1,700 respectively.
HDB approved the subletting of 3,500 flats in the third quarter, bringing the total number to about 16,000 units, up from about 14,600 units in the second quarter.
HDB said it will be leasing out flats vacated under Sers to the general public under a special pilot project. It recently concluded a tender for the leasing of vacated Sers flats at Tiong Bahru Road, and will assess the response to this pilot project before deciding whether to expand the scheme in future.
This scheme puts ‘the vacated Sers flats to better use in the interim period, pending their redevelopment’, it said.
HDB said it ‘has a potential supply of about 4,000 to 5,000 units that can be introduced to bolster rental supply in the HDB market over the next 3 years’.
Source: The Straits Times 26 Oct 07
Paragon bags 2 industry awards
PARAGON Shopping Centre has clinched two awards in Shopping Centre Scorecard, an annual national industry rating scheme which recognises well-run malls in Singapore.
Paragon, which is fully owned by Singapore Press Holdings Ltd (SPH), emerged tops in two of the three categories – best efforts in advertising & promotions and tenant relationships.
The results were based on votes by retailers. The contest is organised by the Singapore Retailers Association.
This is the second year the mall has won the Shopping Centre Scorecard. Last year, it won for best efforts in maintaining its premises, the third category.
Paragon, which now enjoys full occupancy, is positioned as an upscale fashion and accessories mall. The mall is home to many international fashion designer names such as Prada, Gucci, Burberry and Versace.
‘Good mall management is a synergy of getting the right tenant mix and increasing shopper traffic, apart from handling ongoing building maintenance,’ said Linda Kwan, the mall’s general manager . ‘Cultivating a good working relationship with our tenants is a big factor in our success. Coupled with strong brand building and proactive A&P programmes, our efforts in mall management would further boost shopper traffic and sales for the mutual benefit of all.’
Source: Business Times 25 Oct 07
Pasir Ris leasehold condo site launched for tender
A 99-YEAR leasehold site for private condo development at Elias Road in Pasir Ris has been launched for tender by the state.
CB Richard Ellis expects the 152,054 square foot site to fetch bids of between $260 and $300 per square foot of potential gross floor area, translating into a breakeven cost of about $620 to $660 psf for a new condo on the site. CBRE reckons that the future project would be able to sell for above $700 psf, assuming it is launched in the third quarter next year.
It noted that recent transactions for units in the freehold Ris Grandeur have been at $650-700 psf and those at Savannah CondoPark and Modena (both on 99-year leasehold sites) at above $650 psf.
Referring to the Elias Road site, CBRE executive director Li Hiaw Ho reckons that there may be a pool of HDB dwellers in the neighbourhood ready to upgrade to a new private condo. ‘Units in the new condo project will also have rental potential given the proximity to the beach and other recreational facilities, as well as Changi International Airport,’ he added.
Analysts estimate that the site offered by the Housing & Development Board can be developed into a condominium with about 380 units averaging 1,200 sq ft. The tender closes on Dec 18.
The plot is on the confirmed list of the Government Land Sales Programme for second-half 2007. Earlier this month, the state offered two other condo sites, also under the confirmed list. They are a 2.2-hectare plot next to Lakeside MRT Station in Jurong that can be developed into about 680 units, and a site at Woodlands Ave 2/ Rosewood Drive that can yield about 200 units.
Source: Business Times 25 Oct 07
S’pore hotel tax hike won’t apply to service flats
(SINGAPORE) Singapore’s hike in property tax on hotels next year will not apply to service residences, the Inland Revenue Authority of Singapore (IRAS) said yesterday.
Service residences, many of which provide food and cleaning services, have emerged as an alternative to hotels in recent years for business travellers on longer stays.
Singapore-listed Ascott Group, the largest service residence operator in Europe and Asia, has about 600 units for rent in Singapore.
The annual value of a hotel next year will be calculated based on 20 per cent of gross room receipts in the preceding year, and at 25 per cent in 2009, up from the current 15 per cent, according to the IRAS. Hotel owners have to pay 10 per cent of the annual value to IRAS as property tax.
Source: Reuters (Business Times 25 Oct 07)
MV Land’s $68.9m bid the highest for Sin Ming site
Unit price of industrial parcel works out to about $50 psf ppr
THE public tender for an industrial site at Sin Ming Lane has closed with the top bid of $68.9 million put in by MV Land Pte Ltd.
Based on land area of about 5.13 ha and a plot ratio of 2.5, the unit price of the parcel works out to about $50 per square foot per plot ratio (psf ppr).
The parcel was the first of the two industrial sites tendered under the confirmed list for the second-half 2007 Government Industrial Land Sales programme. The other site on the confirmed list is at Jalan Tepong.
The tender for the Sin Ming Lane site closed yesterday with five bids received by the Urban Redevelopment Authority.
The second highest bid of $65.4 million – about 5 per cent lower than MV Land’s bid – came from Soon Lee Land Pte Ltd.
This should come as some relief for MV Land, which through associate company Eastpoint Development, recently outbid EL Development for an industrial site at Kaki Bukit Road 3 by 58 per cent to pay $72 psf ppr – the highestever unit land price for a 30-year leasehold industrial plot.
Eastpoint Development is controlled by Lim Kim Hong and Lim Huixing.
The top bid of $50 psf ppr for the Sing Ming Lane site is ‘reasonable’, said Savills Singapore’s director of industrial business space Dominic Peters. ‘The market for such properties has gone up about 15 per cent in the last six months.’
The site is zoned Business 1 and can be used for clean and light industrial use. Mr Peters expects that the developer will want to build a ramp-up facility. A possible use could be a service centre, he said.
The breakeven price for a project could be around $220 psf, which would mean it could be sold for $250-$280 psf, he reckons. ‘Similar developments are already selling for between $260-$280 psf.’
A decision on the award of the tender will be made after the bids have been evaluated by URA.
MV Land and Eastpoint Development have been hot on the acquisition trail this year, bidding for – though not clinching – a commercial site next to HDB Hub in Toa Payoh, a residential site near Potong Pasir MRT Station and the maiden transitional office site next to Newton MRT Station.
Source: Business Times 25 Oct 07
Malaysia forecaster trims 2008 growth outlook
(KUALA LUMPUR) Malaysia’s leading forecaster cut its 2008 growth estimate to 5.4 per cent from 5.8 per cent yesterday, citing a shaky outlook for the United States and the global economy.
The independent Malaysian Institute of Economic Research (MIER) maintained its forecast of 5.7 per cent expansion in 2007, but predicted a downturn the following year.
‘This forecast is made on the assumption that there would be no recession in the US. However … there is the 30 to 35 per cent chance that a recession will happen in the US,’ said MIER chief Mohamed Ariff Abdul Kareem.
‘Figures indicate that Malaysia’s growth in the second half is not going to get any better,’ Mr Mohamed Ariff said.
Source: AFP (Business Times 25 Oct 07)
Vietnam drafts law to control property prices
People having more than one home will be subject to annual real estate taxes
(HANOI) Vietnam is drafting a real estate ownership tax law to curb skyrocketing property prices and speculation amid scenes of people queuing overnight to join lotteries for apartments, property dealers said.
They said overall property prices have gone up about 50 per cent since the beginning of the year, mainly because investors diverted money from the stock market into property.
Speculation in land and equities in the emerging-market economy is becoming a concern for policy-makers and economists who want to avoid market bubbles and sustain Vietnam’s high growth rates for years to come.
‘In some areas in Hanoi and Ho Chi Minh City, especially in the luxury condominium sector, prices have tripled in the past year alone,’ Nguyen Xuan Dao, chief executive of property developer Vietnam Property Inc, said.
Dealers said most condominium projects in Hanoi and Ho Chi Minh City are sold out before they are even built.
Mr Dao said a 150- square-metre condominium in Hanoi’s Ciputra City, a development by Indonesian developer PT Ciputra Development Tbk, now sells for about US$240,000, compared with about US$80,000 last summer.
This in a country where the GDP annual per capita income is about US$835 this year, although economists believe it is five or six times higher in Hanoi and Ho Chi Minh City.
Property dealers said that according to the draft law, owners who have more than one home would be subject to annual real estate taxes. The law would come into effect in 2010.
Only transfer taxes are now levied on property sales and most transactions are paid in cash, making it difficult for the authorities to track them and collect taxes on capital gains.
Property dealers said that a government plan announced in July to allow Vietnamese living overseas and expatriates to own real estate on a freehold basis had also triggered speculators to buy more property for future resale.
‘Most people buy to re-sell and the people who really need a place to live cannot afford the price,’ said Tran Du Lich, director of Ho Chi Minh City Economic Institute.
In Ho Chi Minh City, where most overseas Vietnamese from the United States and Europe choose to resettle, prices have soared between 60 and 100 per cent.
A square metre at luxury project The Lancaster in the heart of business district 1 jumped from about US$3,000 last year to US$4,200 this month. Rents for luxury apartments are up by 20 per cent to about US$35-US$38 per sq m, property management firm CBRE Richard Ellis said.
Last week, hundreds of buyers camped overnight outside the sales office of Singapore’s CapitaLand, to pay deposits for The Vista project on the Saigon River with prices starting at about US$200,000 each.
Other developers, including Taiwanese developer Phu My Hung, asked prospective buyers to pay US$12,000 to participate in a lottery in which only 35 per cent would win the right to buy its apartments.
Source: Reuters (Business Times 25 Oct 07)
Gloomy prognosis for US housing market
Analyst who predicted slump before it happened reckons on a 50-60% chance of recession
(CHICAGO) Ivy Zelman’s view of the US housing market is gloomy, but it is probably the most realistic.
A veteran Wall Street analyst, Ms Zelman, chief executive of the research firm Zelman & Associates, says it is unlikely that the US housing market will recover before 2009, adding that there is 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 is 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-adjusted 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. More homes are still coming on the market, and 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 on Oct 10 to the Home Improvement Research Institute, a trade group based in Florida.
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 cannot 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.
‘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 is not 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 bedeviled by high home inventories for more than a year. Cities that scored lowest with an ‘F minus’ grade, described as ‘very competitive with a negative bias’ in her firm’s September homebuilding survey, included San Diego, Phoenix, Inland Empire (California), and Fort Myers, Florida. Those rated ‘moderate and stable’ – a ‘C’ in their rankings – were Philadelphia; Raleigh, North Carolina; and San Antonio.
Areas connected to car-related job cuts in Michigan and Ohio will continue to feel pain. 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 ago.
Major markets with the lowest level of housing distress include Bethesda, Maryland; Boston-Cambridge, Massachusetts; and Manchester and Rockingham, New Hampshire. That is according to HomeSmartReports, a service that tracks six variables of home-market risk. ‘Boston is pretty moderate in terms of risk,’ says Mike Ela, president of the service. ‘Lenders have pulled back aggressively.’
But do not 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. Do not open any new lines you will not 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 25 Oct 07)
Global property investment expected to fall
Mortgage defaults in US may prompt lenders to tighten credit, says JLL
(TOKYO) Global direct real estate investment may fall this year as concerns about defaults on US mortgages prompted lenders to tighten credit, said Jones Lang LaSalle Inc, the world’s second-largest commercial real estate broker.
Asia may be the only market to experience an increase in investment in the second half of this year, Jane Murray, Asia-Pacific head of research at Jones Lang LaSalle, said in Tokyo yesterday. Global direct property investment rose 41 per cent in 2006 to US$699 billion, advancing for a third-straight year.
‘The highly leveraged players who were very active earlier in the year are certainly sitting on the sidelines at the moment,’ Ms Murray said.
The four-year boom in real estate is threatened after the US housing slump raised concerns about the value of mortgages and bonds linked to those loans. Investors are finding it harder to borrow money when they want to fund property acquisitions.
Japan, Singapore, China and India are among the markets offering the best opportunities for investors, according to Jones Lang LaSalle research.
Grade A office rents in Japan have gained 80 per cent in the past three years and have more than doubled in Singapore, Ms Murray said. Grade A buildings are no more than 25 years old, with total leasable floor area of more than 10,000 square metres and more than 800 square metres a floor, according to Jones Lang LaSalle.
Japan features strong economic growth in a large market and is the only country where returns on office buildings exceed local interest rates, also known as a positive yield spread, Ms Murray said.
Morgan Stanley raised a record US$8 billion for a real estate investment fund in June. In April the firm agreed to buy 13 Japanese hotels from All Nippon Airways in the country’s biggest real estate deal.
Japan offers a positive yield spread of 1.56 per cent, compared with negative spreads in other major cities including London, Paris, Frankfurt and New York, said Takeshi Akagi, local director in Japan for Jones Lang LaSalle.
Investment in China rose 23 per cent in the first half of the year even after the government sought to curb property investment to cool gains in housing prices. India, where more than half the population is under the age of 25, doesn’t have enough offices, shops and houses to meet demand, Ms Murray said.
‘It will require major additions to the stock base across every sector over the coming years to accommodate its rapidly growing services sector and the increasing wealth of its population,’ Ms Murray said.
‘When the Indian government begins to deregulate investment for foreign players, we will see a flood of money pouring into that market.’
Source: Bloomberg (Business Times 25 Oct 07)
Second busiest port: Shanghai may replace HK
Its box volume likely to top 25.5m TEUs in 2007, next only to S’pore’s 27.6m
(SHANGHAI) Chinese city Shanghai is expected to overtake Hong Kong as the world’s second-busiest container port this year, helped by rising throughput at the multibillion-dollar Yangshan deep-water port, a senior port official said yesterday.
The city port’s container volume is expected to top 25.5 million TEUs (twenty- foot equivalent units) this year, lagging only Singapore, whose volume is estimated to be 27.6 million TEUs this year, Xu Peixing, director-general of Shanghai Port Administration, told Reuters on the sidelines of an industry event.
He did not give a full-year estimation for Hong Kong, which moved 17.7 million TEUs of goods in the first nine months, according to statistics provided by the Hong Kong Port Development Council.
Shanghai International Port (Group) Co, China’s biggest port operator, controls the city port’s major assets.
‘Yangshan port has played a big role in boosting Shanghai’s container volume,’ Mr Xu said. ‘Its full-year container volume is estimated at 5.8 million TEUs.’
Yangshan’s capacity was at 4.3 million TEUs as of the end of 2006 when the first two phases were completed.
Construction of Phase 3 of the deep-water port is going smoothly, with four additional berths to be in place by the end of this year and three more by the end of 2008, increasing its total number of berths to 16, Mr Xu said.
He added that Phase 3, which would push up the port’s handling capacity to 15 million TEUs by 2012, remained open to outside capital but the name list of foreign investors has yet to be finalised.
He declined to name the potential investors. But local media has named Singapore’s PSA International and French shipping company CMA CGMere as potential candidates, along with local players China Ocean Shipping Group and China Shipping (Group).
Source: Reuters (Business Times 25 Oct 07)
NZ home prices slow, inflation fears ease
Central bank likely to keep key rate at record 8.25%, highest in developed world
(WELLINGTON) It has taken four consecutive interest rate increases to record high levels but New Zealand’s central bank looks to have finally taken the heat out of its biggest inflation worry – the housing market.
Still, the Reserve Bank of New Zealand is unlikely to let its guard down any time soon because other pockets of the economy, including a tight labour market and a booming dairy sector, are putting upward pressure on consumer prices.
That is likely to keep the central bank’s cash rate of 8.25 per cent, the highest in the industrialised world and a major draw for investors seeking high yields, at current levels well into 2008, economists say.
‘The Reserve Bank is having success in the housing arena, but the problem is that the slowdown in the housing sector is just not diffusing through to the rest of the economy,’ said Cameron Bagrie, chief economist at ANZNational Bank.
‘Realistically, we’re going to have to see house prices fall.’ A house has long been the main investment asset for New Zealanders and so a key factor for the central bank in deciding monetary policy.
Government agency Quotable Value says residential house prices have climbed steadily for nearly 20 years, barring a slight dip in 1998.
The absence of a capital gains tax, an immigration-driven population expansion and consumer-friendly lending practices have all contributed to property prices nearly doubling between 2001 and 2007.
The property market cooled briefly last year but regained strength earlier this year, prompting the central bank to resume tightening monetary policy by lifting interest rates by a total of one percentage point.
‘The slowing housing market is core to RBNZ view of the economy slowing,’ said Shamubeel Eaqub, director of investment research at Goldman Sachs JBWere. ‘This has been a major source of inflation and activity and a major amplifier of the economic cycle. They need this housing market to slow and slow for a prolonged period of time.’
Housing data, showing median house prices levelling off and sales coming down sharply, suggest a slowdown has already begun.
The Real Estate Institute of New Zealand said annual price gains eased to 12.3 per cent in September from 12.9 per cent in August. Its figures show monthly sales have fallen for four straight months.
With lenders more risk averse following the global credit squeeze, growth in net migration easing and longer-term mortgage rates remaining elevated, many analysts think the current slowdown is here to stay.
Finance Minister Michael Cullen told Reuters in an interview last week he was also seeing appropriate signs of a slowdown in the housing market though inflation remained a concern.
The central bank forecast in September that annual house price inflation, currently around 13 per cent, would slow to around 10 per cent by the end of the year and would then continue easing through 2008. It expects prices to start falling in 2009.
The RBNZ will review its policy today, although all 17 economists in a Reuters poll predicted interest rates would remain at 8.25 per cent.
Most of the 17 economists expect the central bank to stay put at least until mid-2008 because record low unemployment, rising wages and the prospects of higher farmers’ income from the global dairy boom will provide fuel for inflation.
Soure: Reuters (Business Times 25 Oct 07)
Japan’s trade surplus surges 63% to record
US business lobbies stepping up push to accelerate yen’s appreciation
IN TOKYO
JAPAN’S trade surplus surged by a much sharper than expected 63 per cent to a record 1.64 trillion yen (S$21 billion) in September, and although this came despite an export decline to the United States, it is certain to add to a growing clamour among business lobbies there for yen appreciation, analysts said yesterday.
With a slowing US economy, ‘currency wars’ could be rekindled, some fear. News of the record Japanese surplus came just one day after three leading US motor giants – Chrysler, Ford and General Motors – called on the Bush administration and on the IMF to press Japan to raise the value of the yen by 20 to 25 per cent to address an ‘unfair trade advantage’. The yen is hovering close to a 20-year low in trade- weighted terms.
G-7 finance ministers meeting in Washington last Friday called upon China to ‘allow an accelerated appreciation’ of the yuan exchange rate but made no mention of the yen. Japan kept a low profile during the IMF and World Bank meetings where the G-7 met but the issue of an ‘undervalued’ yen is increasingly being raised by US and also European lobbies.
‘We think now is the time for the US to encourage the IMF to act (on the yen),’ Van Jolissaint, chief economist for Chrysler, said at a news conference with counterparts from General Motors and Ford. ‘To me, there’s absolutely no doubt that Japan has been managing its currency,’ added Mustafa Mohatarem, chief economist at General Motors.
Japan’s exports to the US fell by 9.2 per cent in value during September compared with a year earlier, but this was compensated for by a 19 per cent jump in exports to China. Wu Xiao- ling, deputy governor of the People’s Bank of China, complained in Washington last week that China is having to take the heat for ‘other Asian countries’ that are effectively exporting to the US via China.
Even though Japan’s direct exports to the US are expected to continue declining in coming months, as the impact of the sub-prime mortgage market crisis there works its way through the economy, indirect Japanese exports via China are likely to hold up well because of the ‘cheap yuan’, some economists say. Japan’s overall exports rose by 6.5 per cent in September from a year earlier while imports fell 3.2 per cent.
Another impact of a slowdown in the US economy is likely to be growing calls for protectionism there, not only against imports from China but increasingly against goods from Japan, some economists and officials said in Washington last week. But the Bush administration is likely to keep pressure on Beijing rather than Tokyo to bring about currency appreciation, they said.
‘Although the yen is undervalued relative to its medium-term fundamentals, it is appropriate for monetary policy (in Japan) to continue to focus on overcoming deflation and sustaining growth rather than on the level of the (yen) exchange rate,’ the IMF said in its latest World Economic Outlook published last week.
Some officials also argued that a rise in the yuan would help to pull other Asian currencies, including the yen, up with it.
Even so, if Japan is to avoid becoming a target of increasing protectionist sentiment in the US and elsewhere, Japanese authorities may be forced to intervene in foreign exchange markets in order to bring about at least some rise in the value of the yen against the dollar and the euro, some officials said. Intervention is likely to be more effective if it is made in concert with the US and Europe, they added.
Source: Business Times 25 Oct 07
US$1b renovation to boost Holiday Inn sales
(LONDON) InterContinental Hotels Group plc said Holiday Inn owners and franchisees will boost sales by investing US$1 billion on renovations and new bedding, along with the first change to the chain’s green logo in 50 years.
InterContinental will spend £30 millionpounds; (S$89.7 million) to speed the rebranding, which will be reported as a one-time charge, the Windsor, UK-based company said yesterday. The first revamped hotel will open in the United States next year, with the improvements finished across the chain by 2010.
Holiday Inn, founded in 1952, will have ’significantly higher’ revenue per available room after the renovations, InterContinental said. The chain’s US sales growth has trailed the British company’s more upscale brands, such as Crowne Plaza.
The International Association of Holiday Inn, which represents about 3,000 Holiday Inn owners and operators, said in the statement that it ’strongly supports this development and looks forward to the business improvement it will deliver’.
InterContinental shares slipped 8 pence, or 0.7 per cent, to 1,028 pence at 8.28am in London. Before yesterday, the stock had fallen 20 per cent in 2007, after adding about 75 per cent over the previous two years.
The company owns, manages or franchises more than 3,800 hotels in nearly 100 countries. It has sold hotels to property investors and turned to management or franchise contracts to make its revenue stream more stable.
Holiday Inn’s third-quarter revenue per available room (revpar) in the US rose 4.5 per cent in the third quarter, compared with 5.4 per cent growth for all InterContinental US hotels. Crowne Plaza’s so-called revpar grew 7.7 per cent, while the InterContinental brand increased 8.9 per cent.
Bass plc, InterContinental’s now-defunct former parent company, bought Holiday Inn in 1998.
Source: Bloomberg (Business Times 25 Oct 07)
Merrill stuns market with US$7.9b writedown
US stocks fall on worries of more sub-prime pain for finance sector
(NEW YORK) Merrill Lynch & Co, the world’s biggest brokerage, yesterday said that the summer’s credit crisis has triggered a bigger-than-expected US$7.9 billion writedown for the third quarter.
US stocks swung lower in opening trade yesterday as the massive writedown from Merrill fuelled worries that the finance sector will feel more pain from troubles in real estate.
In the first trades, the Dow Jones Industrial Average slipped 42.52 points (0.31 per cent) to 13,633.71, after two days of gains. The Nasdaq composite lost 26.53 points (0.95 per cent) to 2,772.73 and the Standard & Poor’s 500 broad-market index shed 7.06 points (0.46 per cent) to 1,512.53.
Bad bets on mortgage securities and leveraged loans used for corporate takeovers caused Merrill to post its first loss in six years.
The blow makes Merrill the hardest-hit investment bank on Wall Street amid the recent market turmoil.
Merrill reported a loss after paying preferred dividends of US$2.31 billion or US$2.82 per share, compared to a profit of US$3 billion, or US$3.50 per share, a year earlier.
Revenue, after factoring in some of its losses, fell 94 per cent to US$577 million from US$9.83 billion a year earlier.
The results missed Wall Street expectations for a loss of 45 US cents per share on US$3.25 billion of revenue, according to analysts polled by Thomson Financial.
Merrill’s failure to meet its own projection showed how chief executive officer Stanley O’Neal misjudged the severity of the decline in the credit markets since July, after late mortgage payments from borrowers with poor credit histories surged.
The charge is the biggest in the firm’s 93-year history and the first major setback in Mr O’Neal’s five-year tenure.
‘It sends a very poor message to the marketplace that Merrill doesn’t have a good handle on their risk,’ said William Fitzpatrick, a financial services analyst at Johnson Asset Management in Racine, Wisconsin, which oversees US $1.7 billion and does not own Merrill shares.
Merrill, like many of its rivals, was battered as concerns about mortgage securities triggered a global aversion to risk. The brokerage also said that it wrote down US$463 million related to leveraged loans, which dried up significantly during the quarter.
The losses were a big miss from what Merrill said it expected on Oct 5. The company warned Wall Street at that time that it would take an almost US$5 billion writedown for the quarter, because of its exposure to risky mortgagerelated securities.
The bulk of the losses came from marking down the value of complex financial instruments known as collateralised debt obligations, or CDOs, and from declines in sub-prime mortgages – loans to customers with shaky credit.
Mr O’Neal said that the company continues to face uncertainty on the impact of its mortgage-related investments.
‘In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions,’ he said in a statement. ‘The result is a larger writedown of these assets than initially anticipated.’
The biggest trouble spot for Merrill was its fixed-income business, which is typically one of the company’s top earnings drivers. Revenue from the unit was actually negative, some US$5.6 billion in total, because of its CDO and sub-prime mortgage exposure.
Though there were questions among Wall Street analysts about Merrill’s risk management, the company said that its liquidity position remains strong while it navigates through choppy market conditions.
It currently has about US$15.2 billion of CDO exposure and some US$5.7 billion of sub-prime exposure, both down substantially from levels at the end of June. Shares in Merrill fell 2.2 per cent to US$65.63 in pre-market trading from a close of US$67.12 on Tuesday.
Source: AP, AFP, Bloomberg (Business Times 25 Oct 07)
Buffet wary of bubble in China stock market
(DALIAN) Billionaire Warren Buffett said that investors should be ‘cautious’ about China’s stocks after its benchmark index more than doubled this year.
‘We never buy stocks when we see prices soaring,’ Mr Buffett said yesterday in Dalian, north-eastern China, where he is visiting a subsidiary of his Berkshire Hathaway Inc. ‘We buy stocks because we’re confident of the company’s growth. People should be cautious when they see prices rising.’
Mr Buffett has sold shares of PetroChina Co, which has risen 76 per cent this year to become the world’s second-biggest company by market value. The CSI 300 stock index has climbed 48 per cent since May 17, when Li Ka-shing, Asia’s richest man, said that there ‘must be a bubble.’
‘Buffett is right about China stocks, whose valuations are too high,’ said Wang Zheng, who manages the equivalent of US$500 million at the asset management unit of Everbright Securities Co in Shanghai. ‘It doesn’t make sense any more to still play in such a market. It’s about time to pull out of it.’
Mr Buffett said that he was ‘appreciative’ of PetroChina’s performance and that he is doubtful that he can find another stock like it. Berkshire owned more than 10 per cent of PetroChina’s publicly held shares as of the end of last year. It owned 3.1 percent of the publicly held shares as of Sept 30, according to disclosures. The company has sold all of its holding, Mr Buffett said in an interview on Oct 18.
Source: Bloomberg (Business Times 25 Oct 07)
US, China face risk of protectionism: officials
(WASHINGTON) China and the US face growing threats of a backlash to their close economic ties, threatening both the Chinese economy and the interests of American companies, US officials warned here on Tuesday.
China is pursuing measures including favouritism in government contracting and tailor-made technical standards aimed at propping up domestic producers and keeping out foreign competition, top Bush administration officials said on Tuesday. In the US, the threat comes from consumers who blame China for all their economic anxiety, and lawmakers considering measures aimed at reversing the record trade gap, they said.
‘We are at a pivotal – and in some ways awkward – moment in our economic relationship,’ US Trade Representative Susan Schwab told a business conference. ‘There are forces both in China and the US that would move us away from engagement.’
Ms Schwab, Treasury Secretary Henry Paulson and other members of the administration used a series of speeches to the George HW Bush US-China Relations Conference to take aim at what they called the protectionist tendencies in both countries.
The US aims to use an economic summit in December to persuade China to reduce barriers to foreign investment in industries such as telecommunications and insurance and subsidies to Chinese exporters, Commerce Secretary Carlos Gutierrez said. ‘There is a risk that some in China are stepping away from longstanding policies of closer global economic integration.’
Mr Gutierrez said the US will also complain that China’s government hasn’t followed through on its previous pledges to eradicate the widespread piracy of copyrighted movies, music, books and software.
Mr Schwab made similar complaints about Chinese actions, and also issued a warning to Congress, which she predicted would consider legislation this year aimed at forcing China to raise the value of its currency.
Many Democrats, who took control of Congress in last year’s elections, complain that China’s yuan is undervalued, giving Chinese exporters an unfair advantage and acting as a de facto subsidy to producers there.
‘Members of Congress now in positions of responsibility would be wise to be deliberate and proceed with caution,’ Ms Schwab said. ‘What they say and do matters – much more than it did prior to the 2006 elections – and the markets are watching.’
The US and China will hold their regular economic summit, called the Joint Commission on Commerce and Trade, in Beijing in December.
Source: Bloomberg (Business Times 25 Oct 07)
LATEST US DATA – Existing homes sales at record low in Sept
Turmoil in mortgage markets adds more problems to housing industry slump
(WASHINGTON) Sales of existing homes in the US plunged by a record amount of 8 per cent in September to a record low 5.04 million unit pace as turmoil in mortgage markets added more problems to a housing industry in its worst slump in 16 years, the National Association of Realtors said yesterday.
It was the lowest sales pace since the group began tracking both single-family and condo sales jointly in 1999.
Total existing home sales, which include condominiums, fell in September from a downwardly revised pace of 5.48 million in August.
The weakness in sales translated into further pressure on prices. The median price – the point at which half the homes sold for more and half for less – fell to US$211,700 in September, down by 4.2 per cent from the sales price a year ago. It marked the 13th time out of the past 14 months that the year-over-year sales price has decreased.
Analysts blamed the bigger-than-expected slump on the turmoil that hit credit markets and mortgage markets in August as worries increased over rising mortgage foreclosures.
Those worries resulted in a drying up of the availability of so-called jumbo mortgages – loans over US$417,000, which are particularly important in high-cost areas such as California.
The slowdown in sales meant that the inventory of unsold homes rose to 4.4 million units in September.
Economists are worried that the huge levels of unsold existing and new homes will put further downward pressure on prices. But many private economists believe that the Federal Reserve will continue cutting rates in a campaign to make sure that the weakening economy does not tumble into a full-blown recession.
Meanwhile, Countrywide Financial Corp, the largest US mortgage lender, offered on Tuesday to refinance or modify up to US$16 billion in adjustable- rate mortgages till the end of 2008 to help about 82,000 borrowers who face higher payments stay in their homes.
Countrywide plans to offer new mortgages to 52,000 sub-prime borrowers with US$10 billion in home loans. It also plans to modify US$4 billion in loans for 20,000 prime and sub-prime borrowers who cannot refinance, and US$2.2 billion in mortgages for 10,000 sub-prime borrowers who are already delinquent.
Source: AP, Reuters (Business Times 25 Oct 07)
Bloomberg
It’s confirmed; S’pore to host first F1 night race
PARIS – SINGAPORE will host its first Formula One race next season – and it will be the sport’s first at night.
The World Motor Sport Council released the 2008 F1 schedule on Wednesday, and Singapore was listed as the 15th event on the 18-race calendar. It will be held on a street circuit in the Republic on Sept 28.
The 2008 season calendar has a few minor changes, many of which were already known. The European GP will be on a street circuit in Valencia, Spain, and the Turkish GP has been pushed forward to May 11.
The 2008 season will begin in Melbourne, Australia, on March 13.
The calendar also includes 10 races in Europe, along with others in Malaysia, Bahrain, Canada, Japan, China and Brazil.
Mclaren to pay fine in Dec
Mclaren will pay more than half of its record US$100 million (S$147 million) fine to auto racing’s world governing body in December.
FIA, which fined the Formula One team in September for possessing confidential documents belonging to rival Ferrari, said Wednesday the ’sum in excess of US$50 million’ would be used to promote safety in the sport around the world.
‘Especially in countries where the motor sport infrastructure is in need of support,’ FIA said in a statement on its Web site.
The US$100 million fine included McLaren’s expected loss of income. The team was also disqualified from this season’s F1 constructors’ championship, which was eventually won by Ferrari.
Freeze on engine development
FIA also said there would be a 10-year freeze on engine development, starting in 2008.
‘A change can be made after five years but only with the unanimous agreement of all stakeholders and following a further two-year notice period,’ FIA said. ‘Total freeze means that there will be no exceptions for development of certain parts of the engine, as is the case under the current regulations.’
Ferrari’s request to supply two teams with engines in the 2008-09 seasons was also approved, and Spyker’s request to change its name to Force India was accepted.
The calendar for the World Rally Championship was also released, with the season opening on Jan 27 in Monte Carlo and finishing on Nov. 30 with the Wales GP.
Source: AP (The Straits Times 25 Oct 07)
Japan’s export growth slows to two-year low
TOKYO – JAPAN’S exports grew at the slowest pace in two years last month as shipments to the United States fell, a signal that the nation’s economic expansion may cool because of waning demand in its largest market.
Exports rose by 6.5 per cent from a year earlier, according to government data released yesterday, less than the 8.1 per cent median forecast of 10 economists surveyed by Bloomberg News and 14.5 per cent in August.
Imports declined for the first time in more than three years, helping the trade surplus to widen to a record.
Shipments to the US fell by 9.2 per cent, the biggest drop in four years, the Japan’s Finance Ministry said, as a housing recession led to a fall in demand for construction equipment.
In the US last week, Caterpillar, the world’s largest maker of earth-moving equipment, lowered its full-year profit forecast because the housing recession reduced sales in North America.
That could also affect earnings at Tokyo-based Komatsu, the second-biggest such company, which gets about a quarter of its sales in the Americas.
Shipments to China, Europe and Asia, which propped up export growth in the past six months, expanded at a slower pace.
‘The outlook for exports to Asia warrants caution’ because the US slowdown may reduce demand for Japanese goods shipped within the region that are destined for the US, said Mr Yoshimasa Maruyama, senior economist at BNP Paribas Securities Japan.
‘Recent gains in the yen are also bad news for Japanese exporters,’he added.
Japan’s currency has gained more than 2 per cent against the US dollar in the past two weeks on renewed concern that the American housing slump will slow global growth.
Japan needs export growth to ensure that the economy rebounds from a second-quarter contraction as falling wages keep the lid on spending by consumers at home.
Source: BLOOMBERG NEWS (The Straits Times 25 Oct 07)
Merrill incurs $3.4b loss on massive write-downs
Charges surge to $11.6b due to credit crunch, leading to deficit in 3rd quarter
NEW YORK – MERRILL Lynch, the world’s biggest brokerage, said yesterday that the summer’s credit crisis triggered a bigger-than-expected US$7.9 billion (S$11.6 billion) write-down during the third quarter.
Bad bets on mortgage securities and leveraged loans used for corporate takeovers caused it to suffer its first loss in six years.
The blow makes Merrill the hardest-hit investment bank on Wall Street amid the recent market turmoil.
Merrill reported a loss of US$2.31 billion (S$3.4 billion), or US$2.82 a share, after paying preferred dividends.
This compared to a profit of US$3 billion, or US$3.50 per share, a year earlier.
Revenue, after factoring in some of its losses, fell 94 per cent to US$577 million from US$9.83 billion a year earlier.
Results missed Wall Street expectations for a loss of 45 US cents per share on US$3.25 billion of revenue, according to analysts polled by Thomson Financial.
Merrill, like many of its rivals, was battered as concerns about mortgage securities triggered a global aversion to risk. The brokerage also said it wrote down US$463 million related to leveraged loans, which dried up significantly during the quarter.
The losses were a big miss from what Merrill said it expected on Oct 5.
The company warned Wall Street at that time that it would take an almost US$5 billion writedown for the quarter, because of its exposure to risky mortgagerelated securities.
The bulk of the losses came from marking down the value of complex financial instruments known as collateralised debt obligations, or CDOs, and from declines in sub-prime mortgages – loans to customers with shaky credit.
Chairman and chief executive Stan O’Neal said the company continues to face uncertainty on the impact of its mortgage-related investments.
‘In the light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions,’ he said in a statement.
‘The result is a larger write-down of these assets than initially anticipated.’
The biggest trouble spot for Merrill was its fixed-income business, which is typically one of the company’s top earnings drivers. Revenue in the unit was negative to the tune of US$5.6 billion in total, because of its CDO and sub-prime mortgage exposure.
Though there are questions among Wall Street analysts about Merrill’s risk management, the company said its liquidity position remains strong while it navigates through choppy market conditions.
It currently has about US$15.2 billion of CDO exposure and around US$5.7 billion of sub-prime exposure, both down substantially from levels at the end of June.
Merrill shares fell 2.2 per cent to US$65.63 in pre-market trading from a close of US$67.12 on Tuesday.
Source: ASSOCIATED PRESS (The Straits Times 25 Oct 07)
PROBLEM SECTOR
The biggest trouble spot for Merrill was its fixed-income business, which is typically one of the top earnings drivers. Revenue in the unit was negative, because of its CDO and sub-prime mortgage exposure.
Dow hit by poor US existing home sales
WASHINGTON – SALES of previously owned homes in the United States fell 8 per cent last month to a record low 5.04 million-unit pace, thus sending US stocks crashing down yesterday.
After two hours of trading, the Dow Jones Industrial Average was down 198.43 points, or 1.45 per cent, at 13,477.8. The Nasdaq Composite Index slid 78.82 points, or 2.82 per cent, to 2,720.44.
It was the lowest sales pace since the National Association of Realtors (NAR) began tracking both single-family and condominium sales jointly in 1999, said the group yesterday.
‘Home sales fell in September, but it was certainly due to the August credit crunch,’ said NAR economist Lawrence Yun.
Total existing home sales, which include condos, fell last month from a downwardly revised pace of 5.48 million in August. Economists polled by Reuters were expecting home sales to fall to a 5.25 million-unit sales pace.
‘The housing data…tells us that we are not out of the woods yet. It increases the uncertainty regarding the US economic outlook and reinforces the view the Fed may have to cut rates at its meeting next week,’ said Mr Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The slower pace of sales helped drive up the inventory of homes available for sale by 0.4 per cent at the end of last month to 4.4 million units, which represent a 10 1/2-month supply at the current sales pace.
‘Housing has weakened more over the past few months, and chances are this is not the bottom,’ said senior economist James O’Sullivan at UBS Securities. ‘This certainly helps make the case for the Federal Reserve to keep lowering interest rates.’
Single-family home sales fell 8.6 per cent last month to a seasonally adjusted 4.38 million-unit pace from 4.79 million units, which was the slowest pace in nearly 10 years.
The national median existing home price for both single-family and condos dropped 4.2 per cent from a year ago to US$211,700 (S$310,268).
Source: REUTERS (The Straits Times 25 Oct 07)
