Domestic cost factors will add to CPI

Rising wages, rents, car prices, GST hike will have an impact

(SINGAPORE) Even with rising oil and food prices, imported inflation will remain muted in 2008, according to the Monetary Authority of Singapore (MAS). But various domestic factors will impact on the consumer price index (CPI), it says.

Wage pressures, for one, will persist in a tight labour market. Nominal wage growth in 2007 and 2008 is projected at 6-7 per cent and 5-6 per cent, respectively, higher than in the last few years.

And, following five years of decline, overall unit labour costs are estimated to rise by 4.5-5.5 per cent this year and 3.5-4.5 per cent next year.

The impact of rising property rentals on the CPI will also become more apparent, says MAS in its latest Macroeconomic Review.

While the upturn in the residential property market has yet to hit accommodation costs significantly in the CPI, the pass-through from rising commercial rentals could strengthen as businesses raise prices to offset mounting costs, the central bank says.

Car prices will also be one of the key contributors to CPI in 2008, it adds, noting that certificate of entitlement (COE) quotas are expected to drop next year. With smaller quotas, COE – and overall car – prices are likely to rise.

Not least, domestic energy-related items will see price rises with higher oil prices. Apart from direct increases in, say, electricity tariffs, there are indirect pass-through effects via higher public transport fares and cooked food prices.

The latest Goods and Services Tax (GST) hike will continue to impact the CPI through the first half of 2008, and add about 0.5-0.7-point to the index in 2007 and 2008, according to MAS.

It expects CPI inflation to come in at 1.5-2 per cent in 2007 and 2-3 per cent in 2008, with possibly a 3.5 per cent average in the first half of next year.

Excluding housing and private road transport, underlying inflation will likely average 1.5-2 per cent in 2008.

 

Source: Business Times 31 Oct 07

Economy may take breather in 2008 with 4-6% growth

Oil prices and financial volatility are concerns but other drivers of growth still intact, says MAS

(SINGAPORE) After four years of robust above-trend growth, Singapore faces a rather ‘more uncertain’ outlook next year, says the Monetary Authority of Singapore (MAS), citing high oil prices and the chances of further bouts of financial volatility.

And as investors turn cautious amid lingering uncertainties over the US sub-prime crisis, Singapore’s property, wealth advisory and capital markets – the activities that saw much euphoria and froth in growth this year – will likely slow down in 2008. But other domestic sectors should still see healthy growth, and the economy, overall, revert to its medium-term trend potential of 4-6 per cent, MAS says.

This year, with the economy having grown 8.2 per cent in the first nine months after a blistering first half, Singapore’s GDP growth is on track to reach the upper end of the official 7-8 per cent forecast.

While there has been some slowdown in the growth momentum – as reflected in the third-quarter 6.4 per cent sequential GDP growth pace – financial markets have rebounded recently and underlying economic conditions remain supportive, says the central bank in its latest half-yearly Macroeconomic Review.

Barring a major fallout from the sub-prime mortgage crisis, domestic asset market-related activities, especially financial services, ’should see some tentative improvement’ in Q4, it says. In all, these asset market-related activities – key financial services and property-related transactions that saw quite some exuberance this year – accounted for 28 per cent of GDP growth in the first half.

But equity trading activity in 2008 is ‘generally not expected to match the highs registered this year’, and the domestic debt market could also see businesses adopt a wait-and-see approach amid lingering concerns over the credit market, MAS reckons. Market uncertainties could also dampen demand for wealth management services in 2008.

But the economy’s other growth drivers, notably non-electronics manufacturing, will be largely intact and set for further expansion next year.

Even prospects for the construction sector are ‘decidedly more sanguine’, as many of the projects started this year move into the higher-value stages, where the biggest payment streams kick in.

And the IT-related cluster – the only growth laggard earlier this year – should also see modest growth in the near term, according to the MAS in- house electronics manufacturers’ index.

An MAS study also finds ‘little evidence’ of any structural US-Asia decoupling, where analysts argue that East Asia’s growth cycle is now less subject to the vagaries of US growth.

According to MAS, the US and Asia ‘remain firmly coupled in the long run’, but are seeing weaker links in the short run due to several factors. These include the modest nature of the US slowdown so far, and the fact that domestic demand in Asia has buffered the region’s growth.

‘In the event of a severe recession in the US, however, it is unlikely that Asian exports and growth will be unaffected,’ the MAS report says.

But a temporary slowdown in the US, if confined to the housing sector with little impact on the American consumer, should not derail Singapore’s growth prospects.

And if the US economy fares better than expected, the second half of 2008 could surprise on the upside – in which case, Singapore’s asset market-related activities could ‘bounce back swiftly and strongly’, MAS says.

 

Source: Business Times 31 Oct 07

Rising inflation a major risk in emerging markets: economist

Currencies, property, stocks may become more attractive than debt for investors

(SINGAPORE) Rising price inflation is fast becoming a major risk in emerging markets around the world due to surging food, oil and asset prices, according to a senior economist.

For investors, the inflationary pressures building up in these countries and the likely response of central banks means that emerging market currencies, equities, property and commodities are likely to become more attractive than debt – the traditionally favoured emerging market investment, Philip Poole, HSBC’s chief emerging markets economist, said recently.

Investment in new production capacity ‘has not kept pace’ with the recent rapid growth seen in most emerging economies, he said.

As a result, countries such as India – which now has very little spare productive capacity according to some estimates – are likely to experience increasingly severe price inflation as their economies continue to expand.

Elsewhere too, spare productive capacity has been falling, adding to inflationary pressures, except in China where investment in building more capacity has been consistently high, he said.

Food prices, traditionally accorded a high weight in consumer price inflation measures, have also surged due to unstable weather patterns, stronger demand from a growing middle class and a shift in land use away from agriculture to biofuels due to soaring oil prices, he said.

The combination of rising food and fuel prices is sending inflation higher in most emerging economies, he said.

He expects governments and central banks in these countries to step up their fight against inflation in the coming months, using a mix of policy tools, including allowing their domestic currencies to strengthen against the US dollar.

Part of the inflationary pressure build-up has been due to the actions of central banks themselves, he said.

When central banks intervene in financial markets to keep their domestic currencies low in order to maintain the competitiveness of their labour market and exports relative to their peers, they often do this by printing more local currency to buy foreign currencies such as the US dollar.

The new money then gets channelled into domestic assets such as property, contributing to price increases in these assets instead of the currency itself, he said.

The main anti-inflation policy tool employed by developed economies such as the United States and the European Union – raising interest rate targets to discourage borrowing – may not work for emerging economies, he said.

‘In an environment where you have open capital accounts and excess liquidity . . . it can be counter-productive to raise rates’, as this makes the local currency even more attractive relative to the US dollar, prompting a greater inflow of funds and raising inflationary pressure on the local economy, he said.

Instead, he expects to see central banks employ a broader range of tools to combat inflation, such as raising the regulatory reserve requirements of banks as China did recently – ‘effectively a tax on the private banking system’ – and allowing their domestic currencies to strengthen against the US dollar. A stronger local currency makes imports cheaper, which helps moderate price inflation.

As a result, Mr Poole believes investors in emerging market currencies, stocks, commodities and property stand to benefit from the inflationary pressures and the likely policy response in the near future.

Just this month, the Monetary Authority of Singapore said it would allow the Singdollar to strengthen at a slightly faster pace than before to cap inflationary pressures, while maintaining its long-standing official policy of allowing a ‘modest and gradual appreciation’ of the currency.

 

Source: Business Times 31 Oct 07

URA property auction attracts $37m of bids

Bidders included smaller developers, contractors and engineering firms

THE mood continued to be buoyant at two property auctions yesterday held by the Urban Redevelopment Authority (URA) and DTZ Debenham Tie Leung.

The URA auctioned 12 sub-divided landed housing plots near Sembawang Beach which can be developed into a total of 57 landed homes.

The auction fetched a total sum of $37.09 million, working out to about $285 per square foot of land area on an average basis.

The bidders included mostly smaller developers, contractors and engineering firms but also some individuals, like local advertising guru Lim Sau Hoong.

The chief executive of Singapore-based advertising agency 10AM Communications clinched the sole bungalow plot of 4,477 sq ft for $940,000.

Market watchers expect Ms Lim to spend a further $1.5 million on construction costs and fees, bringing her likely all-in investment for her bungalow at about $2.5 million.

Mecbonn Engineering, whose office is at International Plaza and which is controlled by a Tew family, walked away with the biggest plot, a 43,687 sq ft site slated for development into 23 terrace houses, for $14.3 million or $327.33 psf of land area.

The plot attracted a total of 107 bids from about eight parties.

A property consultant estimates Mecbonn’s break- even cost works out to about $1.3 million per terrace house.

The company also bought two smaller plots for semi-detached homes.

Fragrance Group unit Fragrance Homes bought two plots. It paid $9.2 million or $294 psf for a plot designated for 14 terrace houses and $1.76 million or $270 psf for a smaller plot for three terrace homes.

Fragrance Group boss Koh Wee Meng and his wife Lim Wan Looi too bought a semi-detached plot for $289 psf.

The 99-year leasehold land plots auctioned by the URA yesterday form the first phase of Sembawang Greenvale.

URA’s director of land administration, Choy Chan Pong, was pleased with the auction result, noting that it drew ‘wide participation and competitive bidding’.

‘We can consider releasing the next phase of Greenvale in the H1 2008 Government Land Sales Programme,’ he added.

DTZ Debenham Tie Leung’s auction at Amara Hotel saw a strong turnout of about 100, including spectators, with three mortgagee sale properties changing hands, including a ground floor shop unit at the freehold Grandlink Square at Guillemard Road selling for $226,000 or $1,102 psf of strata area.

The other two properties sold were a two-storey linked semi-D factory at 67E Tuas South Avenue 1, which fetched $1.3 million or about $139 psf of strata area, and a two-storey, freehold corner terrace house at 34 Maria Avenue in Opera Estate that was sold for $1.4 million, or $392 psf of land area.

 

Source: Business Times 31 Oct 07

HORIZON TOWERS SAGA – Majority owner raises fresh objections before STB

(SINGAPORE) If there’s one thing that has characterised the Horizon Towers saga, it’s the number of twists and turns that have emerged – and yesterday’s hearing before the Strata Titles Board (STB) was no exception.

The session marked the start of the resumption of a previous hearing, which had stalled on Aug 3 when STB decided Horizon Towers’ application for a collective sale order was defective. The High Court subsequently overturned the board’s decision and sent the application back to STB.

Yesterday’s sitting, however, was anything but a straightforward continuation of that earlier session.

Instead, it saw one majority owner, Susanna Rusli – represented by Cheong Yuen Hee from JS Yeh – raising fresh objections and saying she did not wish to be represented alongside the other majority owners, whose legal counsel are Tan Rajah & Cheah.

Mr Cheong, on behalf of his client, questioned the validity of Horizon Towers’ collective sale application after it was thrown out by STB on Aug 3.

He also argued that the sale & purchase (S&P) agreement – signed between Horizon Towers’ majority owners and the buyers, Hotel Properties and its partners – had expired, as it was not extended before the deadline.

After STB threw out their collective sale application, the majority owners did not extend the Aug 11 deadline for the S&P agreement – despite repeated requests by the buyers to do so – until Sept 24. Mr Cheong is arguing that this invalidates the S&P agreement.

It’s also a point taken up by some of the minority owners who are objecting to the sale. Tan Kok Quan Partnership – which represents one group of minorities – is arguing that STB does not have the jurisdiction to hear the application as a consequence of the majority owners’ failure to extend the S&P agreement.

BT understands the other minority owners objecting to the sale also intend to take up this argument.

Such a move will, however, run counter to what transpired in the High Court earlier this month – when the majority sellers appealed against STB’s dismissal of their application. In that session, the buyers’ lawyers – Allen & Gledhill (A&G) – argued that the appeal could be heard only if the S&P agreement was still in existence and the deadline extension was not disputed.

A&G Senior Counsel K Shanmugam asked the various parties to state before the court if they were challenging the existence of the contract, adding that they could not then go back to STB after the appeal and say the contract had expired. No one challenged the existence of the contract then.

Yesterday’s session before STB also saw the minorities raising queries over the role played by the sales agent for the en bloc deal, Alvin Er. They argued that Mr Er’s decision to accept a sales commission from the buyers for the deal posed a conflict of interest – in that he could have been motivated by the commission rather than the need to secure the best offer for Horizon Towers.

STB has asked the various parties to submit these applications over the next few days. The hearing will resume next Tuesday.

 

Source: Business Times 31 Oct 07

CapitaMall to raise $500m in share sale

CAPITAMALL Trust, Singapore’s largest real estate investment trust (Reit), may raise as much as $500 million in a share sale to pay debt and fund acquisitions.

CapitaMall will sell as many as 137.7 million new shares to institutional investors at between $3.63 and $3.70 apiece, it said in a statement late on Monday, representing a discount of as much as 3.5 per cent from Monday’s closing price of $3.76.

The trust will reduce its debt to 33 per cent of assets from 41 per cent, allowing it to borrow more as it seeks out acquisitions in the city’s shopping mall industry.

Singapore’s central bank allows Reits with a credit rating to raise debt to 60 per cent of assets.

The funds ‘provide greater financial flexibility to pursue yield accretive acquisition opportunities in Singapore’, Pua Seck Guan, chief executive officer at the trust’s management company, said in the statement.

The trust said that it will repay its debt of $453.6 million, which it took to buy bonds for three Singapore malls and a 20 per cent share of CapitaRetail China Trust, a property trust that owns shopping centres in China.

CapitaMall plans to raise $350 million in the initial sale, and may issue a further $150 million of shares ‘in the event of a favourable response’, it said in the statement.

‘It’s getting quite challenging to buy good shopping malls in Singapore,’ said Nicholas Mak, Singapore-based research director at Knight Frank, a property consulting company. ‘Most of them have already been acquired. Others are owned by listed property funds or the owners are simply not that keen to sell.’

The stock has risen 29 per cent this year, the second-best performing Reit among 17 trusts traded on the Singapore exchange, which have an average return of 6.8 per cent this year.

CapitaMall is ‘refinancing its higher-cost debt due to still-strong demand for the shares’, said David Lum, an analyst at Daiwa Institute of Research Singapore. He does not expect the trust to pursue acquisitions ‘in the immediate future’.

CapitaMall’s shares were suspended from trading for the announcement. The share sale is being managed by DBS Group Holdings and UBS, CapitaMall said.

 

Source: Bloomberg (31 Oct 07)

Analysts see no property bubble

They’re mum on whether it’s a good time to buy, but agree S’pore fundamentals are pretty robust.

PROPERTY: boom or bust? This was the intriguing question to which a capacity turnout of about 170 investors recently sought answers, at a dinner hosted by financial advisory firm ipac. The good news is that the experts at the evening’s panel do not foresee a bubble in the offing, based on three presentations – albeit with some concern expressed by Jones Lang LaSalle’s head of research, Chua Yang Liang.

The not-so-good news is that the experts shied away from the multi-million-dollar question of whether this was a good time to buy. What is more, over the past weekend, the surprise news of a halt to  the popular deferred payment scheme for uncompleted properties appears to have cast a cloud over residential property’s upward trajectory.

In a deferred payment scheme, developers effectively extend free financing to buyers of uncompleted properties.

Buyers need only pay an initial deposit of 10 to 20 per cent, with the balance due when the property is completed in a couple of years.

Thanks to this form of free credit, a sizeable number of speculators have rushed in to new home launches, as a rising market gives them a window to sell their units at a substantial profit in a short period.

The base case of one panellist, HSBC senior Asian economist Robert Prior-Wandesforde, is that there are few obvious triggers for a sharp deceleration in prices.

‘If we’re in a bubble, we’re in the early stages. The fundamentals are pretty robust. The mass market is just starting to see a recovery and that’s probably the safest area for investment,’ he told the audience. The supportive factors include the expected growth in employment and personal incomes. 

The cost of servicing mortgage debt also remains relatively low at just about 14 per cent of household income, compared to 50 per cent in mature markets like London.

Contacted yesterday, he said: ‘I think the measure (to halt deferred pricing) will take a little bit of froth out of the market, but with employment booming, wages soaring and the real mortgage rate at its lowest level since 1990, the outlook still looks very promising.

‘We should also bear in mind that valuations are still way below the levels of the previous boom. When adjusted for the growth in incomes, the private residential property price index is little more than half of what it was in 1996.’

At the discussion, Dr Chua of JLL expressed concern over the price gap between new and resale homes in the prime districts. The gap has widened sharply this year, reaching a peak of 60 per cent, against a medium to longterm premium gap of 32 to 38 per cent. The resale market, he says, reflects true demand better, as deferred payment schemes in the new home market have inflated prices.

In terms of rental yields, rentals in the luxury prime segment have edged below the 10-year Singapore bond yield.

The clampdown on deferred payment schemes should remove the speculative froth, he says. ‘Generally prices will take a breather in the next two to three years with the sheer volume of (new) stocks coming on stream. We expect some kind of softening, not a correction, but a softening.’

Sing Tien Foo, deputy head of the National University of Singapore’s department of real estate, pointed to property’s ability to help diversify a portfolio, thanks to a low correlation with stocks and bonds.

Prof Sing’s research has shown that property provided a positive hedge against inflation between 1992 and 2007, a period in which stocks and bonds did not provide such a hedge.

While all types of property offered a more-than perfect hedge against inflation, the best hedge was that offered by detached housing, followed by semi-detached homes.

Meanwhile, advisers are sounding caution. Roy Varghese of ipac says: ‘If you’re looking to invest, be very careful.

You need to have an investment objective and that includes looking into the IRR (internal rate of return). You should be able to hold it for seven to 10 years. If you bought your property at a peak, your IRR will be low.’

Joseph Chong of New Independent expects the price gap between new uncompleted homes and resale homes to narrow. ‘The market should see a more moderate ascent in prices – instead of 20 per cent, perhaps 10 per cent in line with nominal GDP.

‘You should see more upside…But if your portfolio is not big enough, I don’t think you should bet on investment property in Singapore.’

Those with modest resources are better off investing in a global property fund or Reit, he adds.

Analysts, however, remained mostly sanguine over the medium-term outlook. Merrill Lynch’s property team wrote in a paper market that sentiment will be weak over one to two months. ‘However, we are of the view that genuine buyers do not buy houses on innovative purchase schemes by developers alone. We believe the more important considerations will be where Singapore is heading, will they be able to keep their jobs or businesses and will their salaries/profits increase.’

The firm’s economics team recently wrote that Asian property prices were not high relative to per-capita income, and advances have been modest compared to those in the UK, the US and Australia. The drivers include low real interest rates and positive demographics.

Citigroup analyst Wendy Koh said that while sentiment will weaken in the short term, residential prices are supported by strong fundamentals. In a note on Friday, she said: ‘We believe the current price increase is well supported by strong fundamentals such as the extremely tight physical supply and economic and wage growth.

‘We maintain our view that rental rates for residential units will continue to climb on the back of the relative net increase in housing stock due to low completion and relatively high demolition due to en blocs. The rise in rental rates will likely continue to support further price appreciation.’

 

Source: Business Times 31 Oct 07

An age of market resilience?

BIOLOGISTS believe that diversity increases stability and resilience in an ecosystem – a complex system where participants go about looking out for their own interest with the ultimate goal of surviving and thriving. What is true of a biological ecosystem may also hold good for the financial system, which, too, is complex. In which case, there are grounds to believe that the financial system of today is more stable and resilient than before.

The stock market crash of 1987, while its real cause is still being debated, can be said to have been exacerbated by the widespread use of portfolio insurance at that time. In theory, portfolio insurance sounded like a superb idea. Just by giving up a bit of the upside – premium for buying the insurance – a portfolio can be protected on the downside. The simplest form of insurance is to buy a put option which gives a portfolio manager the right to sell stocks or an index at a fixed price. So the floor that the portfolio value can fall to is that fixed price on its put option. Other forms of portfolio insurance involve the use of index futures or dynamic trading. A dynamic portfolio trading strategy, also called program trading, allows investors to replicate the payoff from derivatives. It basically triggers sell orders as stock prices fall, so that the portfolio value does not fall below the floor. By 1987, about US$60 billion – a significant sum at that time – in equity assets were covered by different varieties of portfolio insurance. What happened was, in the three days prior to Oct 19, Wall Street had corrected by some 10 per cent as investors became more risk averse. That fall triggered the sell programs in the numerous insured portfolios. Everybody rushed for the exit at the same time, and there was nary a buy order.

As the story goes, some professional traders who were not portfolio insurers had anticipated this pent-up selling demand and sold in advance. As the day unwound, other investors who had never heard of portfolio insurance may have misinterpreted the price changes as conveying something fundamental about the market and may have sold in a mistaken response. So, at a time when all participants were making similar kinds of bets, the market could not be trusted to provide diversification and liquidity.

How have things changed today? For one thing, there are a lot more players with more diverse views of the markets. And many have the liberty to act on those views. A hedge fund which thinks a market or a stock is overvalued has the option to short sell it, in a way keeping a check on the price. The securitisation of risks – a much vilified practice in the current sub-prime mortgage crisis – has the effect of spreading the risks to many players. This reduces the systemic risk to the global markets.

Meanwhile, the emergence of sovereign funds with typically very long investment horizons, in contrast to most commercial funds, adds another level of diversity.

The fact that markets globally have repeatedly been able to find their feet, despite numerous bouts of ‘risk aversion’ attacks in the last two years, is perhaps testament to what may be a new age of resilience – or at least greater resilience than before – that we are now entering.

 

Source: Business Times 31 Oct 07

Using HDB equity to pay for annuities

The median CPF member holds three times more in HDB housing equity than CPF cash holdings

A NEW scheme making annuities compulsory for Central Provident Fund (CPF) members has been greeted quite negatively by the public.

The scheme involves setting aside a small portion of the Minimum Sum to buy the annuity. When the individual reaches a certain age, say 75 or 80, the annuity gives a monthly payout for the rest of his life. The annuity is a form of longevity insurance.

One option of making annuities more palatable is by allowing CPF members to finance the annuities with their HDB housing equity. The median CPF member holds about $145,000 in HDB housing equity, more than three times the $45,000 in CPF cash holdings.

Retirees are generally asset rich but cash poor. Using the cash portion to purchase annuities would leave even less cash for retirement. That may not be the most optimal financial solution for most CPF members who are already holding a large portion of illiquid assets, their HDB flats, at retirement.

By design, the government’s social support and CPF system encourages citizens to invest their savings in housing during their working lives. We recommend that the government should also help citizens monetise their savings locked into HDB housing at the end of their working lives.

One option is for HDB to accept the pledging of the retiree’s HDB flat as collateral for a loan to purchase the annuity. This would allow HDB owners to partly monetise their assets and leave them with more cash at retirement. Such flexibility on HDB refinancing would also allow CPF retirees to stay in their existing HDB homes without necessarily having to sell their homes for the purpose of realising their savings.

Moreover, moving or downgrading from their existing homes can be a stressful experience for the elderly.

HDB can clearly play a financial intermediary role for the elderly. Retirees are not able to secure housing finance from private banks because they no longer hold a job, have a stable monthly wage, or are simply too old.

Retirees do not, moreover, want to completely reverse mortgage their HDB homes as they may want to leave an endowment and pass on some residual housing equity for the next generation. The retiree can also live on in his existing home for the rest of his life, if some refinancing is allowed.

From the perspective of the government, lending to an individual for the purchase of an annuity is probably more acceptable.

The withdrawal of the HDB housing equity is not for cash that will be wastefully spent. Allowing the housing equity to be tapped for buying longevity insurance improves the welfare and financial security of the individual.

Such an option might improve the public reception to the compulsory purchase of annuities.

The writer is an economist with Citigroup and chairperson of the Policy Study Workgroup on Economic and Employment Opportunities

 

Source: Business Times 31 Oct 07

Acer Building in Jurong for sale

ACER Computer International is selling its building at International Business Park in Jurong East.

The property is said to be worth about $75-80 million, or $337 to $360 psf of existing net lettable area (NLA).

The property, a high- tech business park development, was completed about 10 years ago on a site leased from JTC Corp for 30 years with an option to renew for a further 30 years.

Acer is paying JTC an annual land rent of $715,469, with an escalation of 4 per cent a year (as at Q3 2007). Acer Building’s new owner will likely pay JTC a slightly higher land rent each year.

Acer Computer (Singapore) will lease back 51,548 sq ft in the building – about 23 per cent of the property’s 222,510 sq ft NLA – from the new owner.

BT understands that the net property yield to the new owner can work out to around 6 to 7 per cent, based on a $75-80 million price.

DTZ Debenham Tie Leung is marketing Acer Building through an expression of interest exercise.

 

Source: Business Times 31 Oct 07

LATEST US DATA – Consumer confidence falls in Oct to lowest in 2 years

Slide due to concerns of weakening business conditions and impact on jobs

(NEW YORK) A key barometer of US consumer sentiment dropped for the third month in a row, to its lowest level in two years, on growing concerns about weakening business conditions and the impact that could have on the job market as well as igniting concerns that the upcoming holiday shopping season would be lukewarm. The New York-based Conference Board said yesterday that its Consumer Confidence Index fell to 95.6 from a revised 99.5 in September. It was the lowest reading since 85.2 in October 2005 when gas and oil prices soared after hurricanes Katrina and Rita pummelled the Gulf Coast. Analysts had expected 99.5.

‘Further weakening in business conditions has, yet again, tempered consumers’ assessment of current-day conditions and may very well be a prelude to lacklustre job growth in the months ahead,’ said Lynn Franco, director of The Conference Board Consumer Research Center.

In addition, consumers are growing more pessimistic about the short-term future and their rather bleak outlook suggests a less-than-stellar ending to this year.

The Present Situation Index, which measures how shoppers feel now about the economy, declined to 118.8 in October from 121.2 in the prior month. The Expectations Index, which measures shoppers’ outlook over the next six months, declined to 80.1 from 85.0.

‘Sentiment is taking the next step down,’ said Carl Riccadonna, an economist at Deutsche Bank Securities here.

‘Housing is clearly the root of the problem. If consumer spending falls apart, the Fed will have much bigger problems to contend with.’

Economists closely monitor confidence since consumer spending accounts for two-thirds of US economic activity.

Yesterday’s report heightens worries for retailers, who are already bracing for a challenging holiday shopping season after a disappointing fall.

Shoppers are contending with a slew of problems: higher food and gas prices, a deepening housing slump and tighter credit, among them.

And while the Federal Reserve is expected to cut interest rates today to boost the economy and lure more investors into the troubled credit markets, economists say the move is probably too late to aid the holiday season. The index was at its lowest since October 2005, when it read 85.2, the Conference Board said in a press release.

‘The decline . . . amounts to confirmation that there is a quite profound confidence deterioration under way,’ said Pierre Ellis, senior economist at Decision Economics here. Consumer spending is responsible for driving about two-thirds of the US economy’s growth.

 

Source: AP, Reuters, Bloomberg (Business Times 31 Oct 07)

UBS hit by bigger than expected loss

First quarterly loss in 5 years, investment bank unlikely to break even in Q4

(ZURICH) UBS AG reported a higher-than-expected third-quarter loss after hefty writedowns on sub-primerelated investments, but said it expects to turn in a group profit in the last quarter.

The Swiss bank, which took charges of 4.2 billion Swiss francs (S$5.22 billion) on sub-prime-related losses in fixed income in the third quarter, said yesterday its investment bank was unlikely to break even in the final quarter.

‘While we are still disappointed with the result, we have a very strong set of numbers in particular in assetgathering and the commission-based businesses,’ chief executive officer Marcel Rohner told journalists on a conference call.

It was UBS’s first quarterly loss in five years and the first significant loss in a three-month period since 1998, when the bank was hit by the economic crisis in Russia.

UBS repeated warnings of further write-downs, but Mr Rohner declined to give any detailed forecasts. ‘The range of possible outcomes is widening,’ he said.

UBS made a 726 million franc pretax loss in the third quarter, after a 2.199 billion francs net profit a year ago.

The third-quarter net loss was 830 million francs, higher than a Reuters poll of 14 analysts giving an average forecast of a 668 million franc loss.

Analysts said they were now bracing for more writedowns in the final quarter of the year. ‘At the moment it looks like further writedowns are probable,’ said Andreas Venditti, an analyst at ZKB here.

Banks worldwide have taken charges totalling more than US$20 billion on holdings in mortgage-backed securities which have been hit by a meltdown in US sub-prime mortgages – loans extended to borrowers with patchy credit histories.

‘The first quarter will depend on where we end with the US housing market,’ Mr Rohner said in a conference call.

The fourth quarter had started profitably for all businesses, including the investment bank, he said.

‘However the FICC (fixed income, currencies and commodities) business remains exposed to further deterioration in the US housing and mortgage markets,’ a UBS statement said.

Ratings downgrades by credit ratings agencies for mortgage-related securities could trigger more writedowns on the bank’s securities portfolio, it said.

Net new money in wealth management was 40.2 billion francs in the third quarter, up from 26.8 billion francs in the third quarter of 2006. Net new money inflows were 35.2 billion francs in the second quarter of 2007.

‘Our third quarter result was unquestionably disappointing. However, we have introduced a number of measures to improve performance,’ Mr Rohner said in a statement. ‘We are also taking steps to strengthen our market risk management.’

UBS made a second-quarter net profit of 5.62 billion francs, including a windfall from the sale of a minority stake in Swiss private bank Julius Baer.

UBS on Monday confirmed guidance issued at the start of October that it faced a third-quarter pretax loss of 600 million to 800 million francs.

 

Source: Reuters (Business Times 31 Oct 07)

A ‘reluctant’ Fed may cut rates at ongoing meeting after all

If it disappoints traders, it risks upsetting markets and hurting economy

(WASHINGTON) US Federal Reserve chairman Ben Bernanke and his colleagues sound as if they would prefer to just say no to an interest-rate cut this week. The financial markets may not let them.

Policy-makers from Mr Bernanke on down have avoided signalling they want to reduce benchmark lending rates at their two-day meeting which began yesterday, ever since lowering them by a larger- than-anticipated half percentage point in September. Instead, Fed officials have stressed how uncertain the outlook is and, in words Mr Bernanke used twice in a single week, how ‘challenging’ it is to make policy.

Traders don’t agree. They consider the chances of a rate cut this week as a cinch, judging from federal funds futures prices at the end of last week. If the Fed disappoints them, it risks upsetting still-fragile markets and hurting the economy.

‘The Fed is reluctant to ease,’ says Louis Crandall, chief economist at Jersey City, New Jersey-based Wrightson ICAP LLC, a unit of ICAP plc, the world’s largest broker for banks and other financial institutions. ‘But it also doesn’t want to unsettle the financial markets unnecessarily.’

The likely rationale if the Fed cuts: a desire to prevent the worst case, in which renewed market tumult, rising oil prices and falling home values drive the US economy into recession.

The Fed, though, may combine such a move with an open-ended statement that does not promise further cuts. Its goal would be to dissuade investors from anticipating a series of reductions, an outlook that could further weaken the dollar and revive inflation concerns.

‘They’ll use the statement to try to temper expectations of further rate cuts,’ says Michael Feroli, a former Fed economist who is now with JPMorgan Chase & Co in New York.

Speculation about what the Fed will do this week has swung widely since the central bank cut its target for the federal funds rate – the rate banks charge each other for overnight loans – to 4.75 per cent from 5.25 per cent on Sept 18.

Traders in federal funds futures initially bet heavily on a rate cut today, pushing the odds of such a move to 75 per cent or more at the beginning of October. They then scaled their expectations back below 50 per cent after the government on Oct 5 revised August payroll numbers to show a gain instead of a decline.

Further weakness in housing, along with dismal earnings reports from Citigroup Inc and other big banks, helped trigger fresh market turmoil during the last two weeks, prompting traders to again raise the odds of a rate cut, with some even expecting a half-point reduction.

‘The markets are yo-yoing all over the place,’ says former Fed governor Lyle Gramley, now a senior economic adviser at Stanford Group Co in Washington. ‘The Fed ought to have a cooler head.’

Mr Gramley is among a minority of economists who expect the Fed to stand pat. He says policy-makers may not have enough evidence of a weaker economy to support another rate reduction now. Indeed, Fed officials don’t depict an economy in as dire straits as some in the markets do, suggesting they would prefer to wait and see how conditions develop before cutting rates again.

While housing keeps weakening, the rest of the economy is holding up. Retail sales rose 0.6 per cent in September, double the increase of the previous month. Business investment in computers and machinery also increased, prompting some economists to raise estimates for third-quarter growth.

Anecdotal information the Fed has gathered from business contacts, which has more weight in uncertain times, shows the economy expanding, albeit at a slower pace than when the central bank’s Federal Open Market Committee (FOMC) met last month.

In a regional survey known as the Beige Book, none of the 12 Fed banks reported signs of a sharp contraction in growth, based on information collected through Oct 5.

‘On balance, I would characterise the data we have received on the real economy since the last FOMC meeting as supporting our baseline forecast,’ Chicago Fed president Charles Evans said in on Oct 22.

That forecast calls for the economy to pick up over the next year to a growth rate closer to 2.5 per cent after slowing below that level in the final quarter of this year.

 

Source: Bloomberg (Business Times 31 Oct 07)

US sub-prime losses slow BOC Q3 net growth

(SHANGHAI) Bank of China Ltd (BOC), the nation’s third-largest bank, reported third-quarter profit growth that trailed rivals as losses related to US sub-prime mortgages dented earnings.

Net income climbed to 15.9 billion yuan (S$3.1 billion), or 0.06 yuan a share, from 13 billion yuan, or 0.05 yuan a year earlier, the Beijing-based bank said in a statement yesterday. Profit growth slowed to 22 per cent after a US$322 million writedown on US securities linked to borrowers with poor credit.

BOC’s US$7.9 billion of sub-prime-linked holdings countered gains from a domestic market where the fastest economic growth in a decade stoked loan demand. Industrial & Commercial Bank of China Ltd (ICBC), the nation’s largest, posted 76 per cent profit growth for the quarter and China Merchants Bank Co said earnings surged 144 per cent.

‘We are really downbeat on Bank of China,’ said Jim Antos, a Hong Kong-based analyst at Bear Stearns Asia Ltd who rates the stock ‘underperform’. ‘What we’ve seen so far is more like 90 per cent average growth for Chinese banks.’ BOC gets about 35 per cent of profit from outside the mainland, compared with less than 5 per cent for ICBC.

Most Chinese banks have little direct investment in securities linked to US home loans to people with poor credit, compared with their global peers. The fallout from rising sub-prime mortgages cost financial firms worldwide more than US$30 billion in the third quarter in writedowns and bad debt.

 

Source: Bloomberg (Business Times 31 Oct 07)

No certainty of Fed rate cut this week

(TOKYO) A Federal Reserve interest rate cut this week is no sure thing and officials are not seriously considering a half-point reduction in overnight rates, The Wall Street Journal reported yesterday without citing sources.

The article by Greg Ip, the Journal’s Fed watcher who is known for sometimes reflecting the views of senior central bankers, said that policymakers view this week’s decision as a choice between a quarterpoint cut to 4.5 per cent and not moving at all.

Investors have widely expected the Fed to cut rates at a two-day meeting ending today, following a halfpoint slash in September, to limit the economic damage from the housing market’s incessant slide. Futures on the fed funds rate have shown a small chance of a half-point cut.

Currency traders in Tokyo said that the article helped nudge the US dollar up slightly from near record lows against the euro and multi- decade lows against other major currencies.

Mr Ip said that perhaps the biggest risk for the Fed is that the market’s certainty on a pending rate cut puts a burden on the central bank to deliver. ‘But the current market environment is more fragile than usual, and thus the consequences of disappointing the market are potentially more damaging. Against that, the Fed will have to weigh the risk that a cut will stoke inflationary psychology,’ Mr Ip writes in the article on the Journal’s website.

The Fed can mitigate such risks with its post-meeting statement by either leaving the door open to a future cut if it does not move this week or by dampening expectations for future monetary easing if it does lower rates, Mr Ip said.

He added that the case for keeping policy on hold comes down to the economic outlook. While the housing market has deteriorated further, there has been little evidence of spillover into the broader economy, he said.

 

Source: Reuters (Business Times 31 Oct 07)

Horizon Towers sale: Battle resumes today at strata board hearing

Two-week session to give final word on en bloc sale application

(SINGAPORE) The Horizon Towers saga goes back on the boil today when the majority owners’ application for a collective sale is again heard by the Strata Titles Board (STB).

The hearing, scheduled for two weeks, will be the final word on whether the en bloc sale goes through – and on a battle of wills between the project’s majority and minority owners.

The minority owners will take this final opportunity to scuttle what they say is a deal done ‘in bad faith’.

Their lawyers have repeatedly said that they have plenty of objections to the sale that they have not yet aired. It is believed that these range from alleged non-compliance with the law governing en bloc sales to the sale being prejudicial to the minority owners.

‘We have quite a few arrows we still haven’t shot,’ lawyer SK Phang, who represents a minority owners, has said.

The minority owners’ objections have stalled the en bloc sale. On Aug 3, the STB dismissed the majority owners’ application on the grounds that it was incomplete and the accompanying statutory declaration false, because it was missing three signature pages. This was before the STB had heard the merits of the case.

The STB’s decision was then overruled by the High Court, which said this month that the missing pages did not constitute a substantial omission that prejudiced the minority owners. The court sent the application back to the STB.

Today’s STB hearing picks up where the previous hearing left off in August. Over the next fortnight, the parties will call witnesses and present evidence to support their opposing claims on whether the collective sale application complies in form and substance with the law and whether the sale was conducted in good faith.

But this time majority owners are unlikely to collaborate with minority owners. At the previous STB hearing, majority and minority owners were seen hugging one another and celebrating the board’s decision to dismiss the application.

Several majority owners – after signing the deal to sell Horizon Towers for $500 million in February – regretted their decision when neighbouring developments began fetching much higher prices. They circulated anonymous flyers to other majority owners, asking them to rescind the deal.

The move transformed what would have been a run-of-the-mill en bloc sale into the drawn-out battle it has become.

But this time around, it will be in the majority owners’ interests to push the collective sale through. The buyers – Hotel Properties and its partners – have slapped a $1 billion lawsuit on them.

Angered by some majority owners’ attempts to sink the sale, HPL and its partners filed a suit in the High Court claiming damages of up to $1 billion, saying that the sellers had failed to honour their part of the bargain.

The suit has been stayed until the STB hearing is concluded. But HPL and its partners have indicated that they could revive the proceedings if the collective sale falls through.

HPL and its partners have been excluded from the STB hearing, after their application to intervene was dismissed recently.

 

Source: Business Times 30 Oct 07

PM Lee pledges further action on property if necessary

He says Friday’s measure will inject some market reality

(SINGAPORE) Prime Minister Lee Hsien Loong yesterday said the government will continue to monitor property market trends closely and take further action if necessary.

His remarks come shortly after Friday evening’s announcement on the scrapping of the deferred payment scheme for property purchases, which Mr Lee described yesterday as a step that will ‘help to dampen excessive speculation and help to inject some reality into the market’.

Touching on various facets of property in Singapore, Mr Lee said that the government will also inject more office space into the market over the next two to three years to boost supply for the sector, which is facing an acute shortage of prime office space because of strong growth.

The government is also releasing more land for executive condos (ECs), a hybrid of public and private housing, Mr Lee said in his speech at the NTUC National Delegates’ Conference yesterday morning.

‘But more fundamentally than the ups and downs of the property cycle, the government is committed to keeping housing affordable for Singaporeans, for all Singaporeans,’ he stressed.

‘We will continue to monitor the property market carefully and watch the trends and if necessary, we will continue to take more action. And therefore we will be able to make sure that the property market stays in balance over the long term.’

To keep public housing affordable, the Housing and Development Board is building more flats. And to cater to the aspirations of Singaporeans who aspire to own a private condo unit, the government will step up the supply of land for ECs. This housing form was first introduced in 1996, at a time when private home prices were running away.

ECs cater to the ’sandwich’ class of home buyers who cannot afford private housing but whose monthly household income is high enough to disqualify them from buying new flats in the public housing segment.

However, as the property market slumped and private home prices fell, the need for ECs diminished and the government stopped selling land for EC development. But the Ministry of National Development has reintroduced ECs into the Government Land Sales Programme, with a plot in Punggol that will be made available through the reserve list next month.

 

Source: Business Times 30 Oct 07

Five properties put up for en bloc sale

TENDERS for collective sales continue to be launched. The latest offerings include Dunearn Gardens near the Newton/ Scotts roads area, The Village in Pasir Panjang, and Riviera Point along River Valley Road.

CB Richard Ellis, which is marketing Dunearn Gardens, says the guide price for the 95,443 sq ft freehold site, is $578.5 million, which translates to about $2,288 per square foot per plot ratio, inclusive of an estimated $32.9 million development charge (DC). A new condo on the site would break even at about $2,900 to $3,000 psf, market watchers say.

The site is zoned for residential use with a 2.8 plot ratio (ratio of maximum potential gross floor area to land area). The maximum height allowed for the site is about 33 storeys. The plot can be redeveloped into a new condo with about 134 units averaging 2,000 sq ft each.

Credo Real Estate, the marketing agent for The Village, expects the freehold 102,642 sq ft site to fetch $75 million to $80 million. This reflects a unit land price of $646 to $680 psf per plot ratio, including an estimated DC of $17.75 million. Credo pointed to the possibility of the developer buying up to 20,000 sq ft of adjoining state land parcels, thus potentially enhancing the land size to 122,642 sq ft. In such a scenario, the developer’s unit land price would be lowered to $578 to $607 psf ppr – based on the $75 million-$80 million price tag set by The Village’s owners.

The site is zoned for residential use with a 1.4 plot ratio and five-storey maximum height.

Newman & Goh is marketing a few small sites. One of them is Riviera Point, a 14,580 sq ft plot at River Valley Road with a 2.8 plot ratio and 36-storey maximum height. Its owners are asking for $73.5 million, which works out to $1,800 psf ppr. No DC is payable.

Off Thomson Road, the property agent is marketing View Point and the nextdoor Shiba Apartments with asking prices of $20.5 million and $16.9 million respectively. These work out to around $792 psf ppr including DC.

 

Source: Business Times 30 Oct 07

Restoring a genuine property market

PROPERTY stocks were sent reeling yesterday following the government’s announcement to discourage speculative buying in the real estate market. In contrast, bank stocks rose. The divergence in stock performance between the two market sectors comes down to this: what is bad news for speculators may prove to be good news for banks.

The scrapping of the scheme which allows homebuyers to delay payments on new property may turn out to be a positive for the financial institutions giving out housing loans, as the measure weeds out punters from genuine buyers. The deferred payment scheme introduced 10 years ago allowed buyers to make as little as a 10 per cent downpayment, and pay the rest upon completion – sometimes after a time lag of three years. This encouraged many to enter the property market. Speculators did not even take the trouble to get a loan – merely coming up with the downpayment, and selling before completion of the property.

In the last few quarters, when the market turned red hot, some observers were surprised by what appeared to be muted home loans growth. The reason was that the deferred payment scheme, which discourages the early draw-down on loans (or even taking up a loan in the first place), had diluted the impact of the booming market on housing loans. Indeed, it was common to hear, at the results briefings of the local banks, the deferred payment scheme put forward as one of the main factors for the slower-than-expected pace of home loans growth.

With deferred payment now no longer an option, more buyers will be driven to take up home loans. And loans will be drawn down progressively, with borrowers paying a certain percentage of the purchase price at various stages of completion of the property. This should be positive for the loan books of the banks.

Take DBS Bank, for one. Singapore’s biggest bank had felt the ‘lag’ impact of the deferred payment scheme – it said a few months ago that it was expecting a sharper spike in home loans only in future quarters, due to investors taking out loans to pay for homes purchased using deferred payment schemes.

With the scheme gone now, the bank told BT that the impact of the latest measure would be positive on its books – since, without the option of the deferred payment scheme, buyers have to seek financing and draw down the loans, if they don’t want to use a lot of their own cash.

The removal of the deferred payment scheme is not just positive on the loan books. For some time now, there has been growing concern that the scheme shifted the banks’ risk exposure from households to corporates. With buyers paying nothing in the early stages of a project with deferred payment, developers had to borrow more from the banks – or raise funds in the debt market – to finance their projects. This increased the banks’ exposure to property developers, and there is past evidence to suggest that corporates are more likely to default, should the market turn bad, than households.

According to MAS data, as at end-June, housing and bridging loans as well as loans to the building and construction sector made up nearly half of the more than $200 billion loan portfolio of commercial banks here. This has been a steady increase from the 33 per cent from about a decade ago, around the height of the last property boom. In absolute terms, housing and bridging loans were worth some $64 billion in

June, compared with about $63 billion six months ago. As the Monetary Authority of Singapore had also previously said, the use of the deferred payment scheme by property developers introduces additional risks to the developers (and to the banks which finance these developers) because property purchasers under this scheme are not subject to credit checks by developers.

‘This is unlike property purchasers who apply for housing loans and are subject to credit assessment by banks. MAS expects banks to exercise prudence in their financing to the property developers and be fully cognisant of the additional risks from the use of deferred payment schemes,’ MAS had said then. The removal of the scheme will restore some balance, and the banks should have their exposure to households raised while lessening their exposure to developers.

The government’s removal of the deferred payment scheme – and expectations of further cooling measures – could keep the property market cautious in the near term. Buyers may adopt a wait-and-see approach, and new projects could see a slower take-up rate. That could crimp home loans growth in the short term.

But in the longer term, doing away with deferred payment will put home financing on a far healthier plane. ‘Flippers’ who buy property to resell quickly to make a fast buck will be deterred, the speculative froth will be taken out of the market, and pricing will come to levels more in line with economic fundamentals. For banks, this means genuine homebuyers and investors as customers – and that cannot be a bad thing.

 

Source: Business Times 30 Oct 07

Property shares take a beating

Developers with inventory in prime districts may face pricing pressure

PROPERTY analysts were still busy yesterday predicting how the market will be affected by the end of the deferred payment scheme (DPS) as property shares received their expected drubbing when trading opened.

A report by OCBC Investment Research forecast tough times for the residential sector – but not everyone was gloomy.

The OCBC researchers said: ‘The significance of the current government move is that it is targeting at the demand side of the equation while previous measures (since end-2006) were mainly supply side . . . Demand-side measures historically tend to have severe repercussions on demand and hence pricing.

‘We thus see the latest action (and subsequent action if speculation continues) to be negative on the residential sector.’

A seasoned property consultant said: ‘The withdrawal of DPS will affect speculators, who have been focusing mainly on high-end homes but who have also filtered into mid-market projects as seen in One North Residences and The Rochester. However, even genuine home buyers and investors whose budgets are stretched by the rapid price appreciation will be affected. Sales volumes will come off.’

CIMB-GK Research said: ‘We believe developers with inventory in the prime districts could face pricing pressure as punters retreat. Developers are also likely to bear the brunt of greater financial prudence exercised by genuine home buyers as they no longer have the luxury of time to build up funds for repayment.’

The government’s announcement on Friday of the immediate withdrawal of the DPS means an end to the system in which private property buyers could buy units in uncompleted developments with just a 10 or 20 per cent downpayment, with the payment for the rest of the purchase price in some cases postponed until the completion of the project.

CIMB said in its research note yesterday: ‘We believe this move is aimed at discouraging speculative activity and is also a preventive measure to keep mass-market price escalations in check.’

There will be no new DPS developments available, although developers which have already obtained approval to offer the scheme for a project may continue to do so.

One development that seemed to be benefiting over the weekend from its approval for DPS was United Industrial Corporation’s (UIC) Park Natura, a five-storey freehold condo in the Toh Tuck area near the Bukit Batok Nature Reserve. The condo has an average price of about $1,000 per square foot. UIC is said to have sold more than 60 units over the weekend in the project, which has 192 units in total.

The developer is offering a partial deferred payment scheme where buyers pay an initial 10 per cent, with progress payments needed only after one year.

On the stock market yesterday morning, the Singapore Properties Equity Index fell as much as 2.1 per cent from Friday’s close to 1,545.16 points. It later recovered to end at 1,557.52 points – just 1.3 per cent lower than Friday’s finish.

City Developments lost 50 cents to close at $15.80, followed by SC Global Developments which eased 35 cents to finish at $5.50. Singapore Land lost 25 cents, closing at $9.85.

‘Purer developers with sizeable residential inventories are likely to be the most affected,’ CIMB said.

‘Stocks under our coverage with revalued net asset values that are particularly sensitive to asset price changes include Allgreen, Bukit Sembawang, City Developments, Ho Bee and UOL. We estimate that every 10 per cent change in residential prices will result in 5-10 per cent changes in stock valuations for these companies.

‘The sector is currently under review . . . we expect to lower our residential selling price assumptions by 10-15 per cent in the upcoming results season in view of mounting uncertainties in the property market,’ CIMB said.

Citigroup said that the DPS withdrawal has ‘probably removed the champagne from the party’ since property prices have been fuelled to some extent by the availability of deferred payments, which account for more than 70 per cent for some projects.

‘Sentiment will likely weaken in the short term, particularly in the luxury segment. Longer term, fundamentals, including strong economic growth, immigration and low interest rates will likely be supportive of property prices,’ the report said.

But other analysts, like JP Morgan’s Chris Gee, said that he was recommending investors to be underweight on the sector even before Friday’s announcement.

‘Pricing power is shifting very firmly away from developers because they now have more products to sell,’ he said.

‘But they’re not just competing among themselves for buyers but also with specu-vestors who’ve bought properties since 2005 and who can offer buyers properties that will be physically completed sooner than those that will be launched by developers in the near future.’

 

Source: Business Times 30 Oct 07

Q4 distributable income for Suntec Reit up 22%

SUNTEC Reit has reported fourth-quarter income available for distribution of $30.4 million, an increase of 22.2 per cent from $24.8 million a year ago.

For the same July 1-Sept 30 period, Suntec Reit recorded gross revenue of $51.1 million, an increase of 13.7 per cent year-on-year. Net property income was up 12 per cent up at $36.6 million while distribution per unit (DPU) was 2.122 cents, up 11.3 per cent.

The Reit’s stake in Suntec City Mall and Office Towers contributes 87.4 per cent of its net property income (NPI) and it reported that Suntec office leases were secured at higher rental rates of between $11 and $13 per square foot (psf) per month, and the committed office occupancy at Suntec City is at 99.8 per cent.

Suntec Reit also reported that the committed retail passing rent at Suntec City Mall hit a new high of $10.46 psf per month.

The Reit, which also owns Park Mall and Chijmes, reported that the passing rents there rose to $6.60 psf per month and $10.68 psf per month respectively.

Suntec Reit also recognised a revaluation surplus of $677.5 million for the quarter after independent valuations of its porfolio was valued at $4.57 billion (as at Sept 30).

On a full-year basis (Oct 1, 2006 to Sept 30, 2007), income available for distribution was $115.4 million, up 21.6 per cent from $94.9 million in the corresponding period a year ago. Net property income was up 11.8 per cent at $140.6 million and DPU was up 11.8 per cent at 8.15 cents.

Based on the closing price of $1.84 on Oct 26, Suntec Reit’s distribution yield was 4.4 per cent, up 11.8 per cent compared to the previous year.

Yeo See Kiat, CEO of Reit manager ARA Trust Management said: ‘On the acquisition front, we have entered into an agreement to acquire one-third interest in One Raffles Quay which will be completed shortly.’

Suntec Reit’s other income revenue from A&P, pushcarts and kiosks for FY07 grew 10.2 per cent year-onyear, surpassing the $6 million mark.

For its current office portfolio, 26.8 per cent of leases are expected to expire next year, with 42.6 per cent expiring the following year.

For its retail portfolio, 30.4 per cent of the leases are expected to expire next year, with 23.4 per cent expiring the following year.

Suntec Reit ended the trading day yesterday at $1.84 per share, unchanged.

 

Source: Business Times 30 Oct 07

Indonesian firm to list retail Reit on SGX

Venture with M’sian firm to have 7 malls worth US$250m

INDONESIA’S eighth largest real estate developer, PT Perdana Gapuraprima, part of the Gapuraprima Group, is looking to list a retail real estate investment trust (Reit) on the Singapore Exchange in early 2008.

Speaking at a press conference here yesterday, president director Rudy Margono said that the Reit will be a joint venture with Amanah Raya Berhad, a company owned by the Malaysian government.

Mr Margono said that Gapuraprima is expected to inject five malls into the Reit, and Amanah Raya two. He also revealed that the assets have an estimated value of US$250 million. He expects the retail Reit to offer a yield of between 9-10 per cent. PT Perdana Gapuraprima’s real estate assets are worth about US$500 million, he added.

Mr Margono also revealed that the three-to- five-year-old malls outside Jakarta are in cities like Solo and Bandung.

In August, Amanah Raya, together with Kuwait Finance House, acquired two villa apartment blocks in Reflections at Keppel Bay for about S$286 million. For Gapuraprima, Mr Margono said the retail Reit is largely a way for the group to divest its properties and use the capital for further expansion in the real estate business in the region.

Mr Margono said: ‘Our vision is to be one of Asia’s largest property developers, with property development projects in various countries around the region.’

PT Perdana Gapuraprima was listed on the Jakarta Stock Exchange last week and shares last traded at around 345 rupiah, up 11.3 per cent on its IPO offer price of 310 rupiah a share. The new share issue forms about 30 per cent of PT Perdana Gapuraprima’s paid-in capital after the IPO.

Mr Margono said that in FY07, the group achieved a net profit of 46.9 billion rupiah (S$7.5 million) and 514 billion rupiah in revenue. He expects the yield of its Indonesian properties to be 8-9 per cent.

He added: ‘We have also seen a capital gain of 15-20 per cent for our properties in Jakarta annually in the past 10 years, which we hope will instil more confidence in our investors investing in the group.’

 

Source: Business Times 30 Oct 07

HK wage rise expected to top 4% next year

Recent civil service pay hike puts pressure on bosses

IN HONG KONG

HONG Kong salaries are tipped to rise by 4 per cent next year as the city benefits from robust economic growth and rising consumer confidence.

According to a joint survey by the Hong Kong People Management Association and Hong Kong Baptist University, workers are in line for pay rises of between 4.3 per cent and 4.7 per cent.

Their findings are based on a poll of 95 small and medium-sized firms employing more than 66,000 people. The survey was conducted between June 2006 and June this year.

Bank of East Asia chief economist Paul Tang Sai-on dubbed the figure as fair and realistic, given Hong Kong’s stellar economic growth which has been around 7 per cent over the last few years.

‘Wage performance has lagged behind economic growth in the past few years,’ he explained. ‘Consumer confidence has built up to a level where it puts pressure on the domestic sector,’ he said, citing robust trade in the retail and restaurant sectors as an example.

‘Everyone benefits from an economic upturn,’ he noted. ‘And inflation is still pretty moderate.’ He expects inflation to hover in the 3 per cent to 4 per cent range next year.

There has also been pressure on bosses to increase wages in the wake of a civil service pay rise, which saw salaries rise by as much as 4.96 per cent in the public sector.

In June, the Executive Council approved the increment for the city’s 150,000 civil servants, costing the government HK$5.29 billion (S$990 million) this year.

The government defended the rise as a reflection of the city’s improved economy, the city’s general fiscal health, and as a boost to civil service morale.

The increments were the first for the civil service in five years.

Some employers have, however, been reluctant to follow suit. Earlier this month, a prominent employers’ group urged bosses to cap pay rises at 2.5 per cent next year, a suggestion that was met with a swift rebuke by labour unions in the city.

The Employers’ Federation of Hong Kong – which has 550 members – defended the 2.5 per cent figure as a reference index and urged employers to be more generous with other incentives such as bonuses, to avoid higher recurrent costs.

In contrast, the Federation of Trade Unions is pressing for increases of up to 6 per cent.

Hong Kong was the epicentre of a summer of discontent among workers as a wide spectrum of professions lobbied for higher wages: from teachers and nurses to construction workers and social workers.

In one of the most high profile protests, hundreds of metal workers staged a 36-day strike to secure a pay rise, delaying a slew of government projects.

The workers eventually accepted a 14 per cent pay rise in mid-September along with slightly reduced working hours. It was one of Hong Kong’s longest-running industrial strikes on record.

Separately, around 4,000 social workers and employees from non-governmental organisations also took industrial action for half a day recently to secure increased subsidies and grants.

Doctors and nurses were also protesting outside the Hospital Authority headquarters to demand better salaries and working conditions.

 

Source: Business Times 30 Oct 07