Westwood Apartments sold for $2,525 psf ppr

WESTWOOD Apartments at Orchard Boulevard has been sold for $435 million or a unit price of $2,525 per square foot per plot ratio (psf ppr), making it the most expensive site to be sold by collective sale to date.

In June, The Ardmore was sold for $262 million or $2,337 psf ppr.

The price achieved for Westwood Apartments is perhaps all the more remarkable as it comes after the US sub-prime crisis rocked markets around the world recently.

Sold to Malaysia’s YTL Corp, the deal was brokered by Savills Singapore. Savill’s director (Investment Sales) Steven Ming added: ‘It’s a good shot in the arm for the market as it has not been as hot as it was in the first half of the year.’

Mr Ming would only reveal that ‘a handful’ of bidders took part in the tender. But he added: ‘That the buyer is a foreign investor shows that foreigners are still optimistic on our market.’

Savills is also marketing another four to five collective sale sites, and Mr Ming says that ‘there is interest from both foreign and local buyers’.

Westwood Apartments did, however, sell for slightly under the indicative price of $2,800 psf ppr when it was put up for tender about two months ago.

Although investors were expected to bid cautiously, YTL group managing director Francis Yeoh said its bid reflects that YTL is ‘bullish on Singapore’.

‘I don’t think the bid was cautious,’ he added.

YTL, which is listed on the Malaysian stock exchange and has a market cap of about US$9 billion, ranks as one of Malaysia’s top 20 companies.

The conglomerate, whose businesses include construction, real estate and energy, has already acquired two Sentosa Cove sites.

The breakeven price for a new development at Westwood Apartments is estimated to be between $3,500 and $3,600 psf.

Mr Yeoh would not say what the expected launch price would be but cited the reported $5,000 psf for Ritz Carlton Residences at Cairnhill (RCR) as a possible benchmark.

YTL is the developer for RCR in Kuala Lumpur, and Mr Yeoh said that Westwood Apartments could also be a branded residence.

Mr Yeoh added that its Lakefront Collection development at Sentosa Cove would be branded as Armani Casa. He also did not rule out another Ritz Carlton Residences here. ‘There can be two in Singapore,’ he said.

The 30-year-old Westwood Apartments sits on a 62,179 sq ft site. It has a permissible plot ratio of 2.8 and has the potential to yield about 43 units of 4,000 sq ft apartments.

 

Source: Business Times 28 Nov 07

United Engineers makes top bid for AMK DBSS site

UNITED Engineers (UE) has emerged as the top bidder for HDB’s latest Design, Build and Sell Scheme (DBSS) site in Ang Mo Kio, the government agency said yesterday.

UE’s bid – which was the highest of five – came in at $134.2 million, or some $212 per square foot per plot ratio (psf ppr).

The amount was higher than analysts’ estimates, who said that the public housing site could fetch between $170 and $200 psf ppr when it was launched.

UE’s bid was 12.8 per cent higher than the second-highest bid of $118.9 million, or $188 psf ppr, which was put in by Chip Eng Seng.

UE’s bid was also 20.9 per cent higher than the lowest bid of $111 million, or $175 psf ppr, put in by Boon Keng Development.

The two other bidders were the Sim Lian Group and a partnership between Straits Construction subsidiary Hoi Hup Realty and Sunway Concrete Products, which is part of the consortium that won the DBSS site in Boon Keng Road earlier this year.

The Ang Mo Kio land parcel has a site area of 180,716 sq ft, with an allowable gross floor area of 632,506 sq ft. It is close to the Ang Mo Kio town centre with its MRT station, bus interchange and the AMK Hub.

The development will target HDB upgraders or en bloc sale downgraders, said analysts, who predict that the take-up for any project coming up on the site should be good because the stock of vacant HDB flats has fallen of late.

UE will be required to build a minimum of 30 per cent of the flats with a floor area of 95 sq m (1,023 sq ft) or less – equivalent to flats of four rooms or smaller.

CBRE Research estimated that the site can yield more than 500 units.

UE’s shares closed 10 cents down at $3.70 yesterday. The company’s stock has climbed 49.8 per cent since the start of the year.

 

Source: Business Times 28 Nov 07

EL Devt to build 200-unit condo in Woodlands

EL Development plans to build a 200-unit mass market condominium on the Woodlands site it won in a government tender, the company’s managing director Lim Yew Soon told BT yesterday.

The project, which will be launched in the third quarter of 2008, is expected to sell for about $600-$650 per square foot (psf), Mr Lim said.

EL Development, which is fully owned by Evan Lim & Co Pte Ltd, trumped seven other bidders for the 99-year leasehold residential site at Woodlands Avenue 2/Rosewood Drive after a government tender closed earlier this month.

The company’s bid was $56 million or $232 psf per plot ratio.

The Singapore Land Authority (SLA) yesterday announced that it is awarding the site to EL Development.

The 172,200 sq ft site has a 1.4 plot ratio, giving it a maximum gross floor area of 241,100 sq ft.

Mr Lim said that the project will consist of mostly 2-bedroom and 3-bedroom apartments. Prices, he said, will be kept ‘affordable’ to target the HDB-upgrader market.

‘We believe that the project will be for HDB upgraders and younger families,’ he said. The company will try to manage the construction costs as it is also a contractor, Mr Lim said.

EL Development also has two other residential sites in its landbank for launch soon – one along Devonshire Road and the other on Kampung Java Road. Both projects will be high-end developments and will be launched in the first quarter of next year, Mr Lim said. Prices for the two sites have not yet been fixed, he said.

 

Source: Business Times 28 Nov 07

Oversupply looms in S’pore office sector: Citigroup

It downgrades two stocks with key exposure to sector – KepLand, CityDev

SINGAPORE is in danger of seeing an oversupply of office space from 2010 onwards, Citigroup is warning.

The bank’s research unit has also downgraded two Singapore stocks with significant exposure to the office market here – Keppel Land and City Developments.

‘The market is underestimating the potential supply of new office space in 2010 and beyond, in our view,’ said Citigroup analyst Wendy Koh in research report dated Monday.

‘Based on our estimates, occupancy rates are likely to peak in 2008-09 and decline thereafter with the impending supply.’

Since May 2007, six new sites with a total gross floor area of 5 million sq ft have been awarded amidst fears of an office space crunch. These sites could add some 3 million sq ft of new office space in 2010-11, Citigroup estimates.

Altogether, on average, 3.2 million sq ft of new supply could hit the market from 2010-12, the bank said. This compares to a historical average demand of 1.5 million sq ft per year.

Supply estimates could rise even further with more government land sales in the first half of 2008, Citigroup said.

All this will mean that buildings in core Central Business District will be competing for tenants.

Key projects that are scheduled to be completed in 2010-12 include Marina Bay Financial Centre, the redeveloped Ocean Building One Financial Centre and the South Beach Road and Marina View land parcels.

In response, Citigroup downgraded its ratings on office landlords Keppel Land and City Developments.

Keppel Land was downgraded to a ’sell’ from a ‘hold’, while CityDev was rated a ‘hold’, from a ‘buy’ previously.

‘Going forward, we expect Keppel Land to face keen competition while marketing the remaining space at the Marina Bay Finance Centre and One Financial Centre,’ Ms Koh said. She cut KepLand’s revalued net asset value (RNAV) estimate to $7.83 (from $8.85) and target price to $6.26 (from $8.97).

For CityDev, Citigroup cut its RNAV estimate to $14.47 from $15.28 and target price to $15.90 from $18.00 to reflect lower capital values of office buildings.

Other analysts however said that all the new projects coming onstream will not cause an oversupply – rather, they will ensure that supply catches up with demand.

‘I think that there will be significant pent-up demand for office space that will only be satisfied when supply hits the market in 2010-11,’ said Moray Armstrong, CB Richard Ellis’ executive director for office services.

This pent-up demand means that demand in 2010-11 will be significantly higher than the historical average, Mr Armstrong said.

 

Source: Business Times 28 Nov 07

Yishun industrial site up for sale

A SITE at Yishun Avenue 6 has been put up for sale for industrial development.

The land parcel is one of the four new industrial sites that were scheduled for release on the reserve list under the Government Industrial Land Sale Programme for the second half of 2007.

The 1.43-hectare site has a plot ratio of 2.5 with a lease period of 60 years. It is zoned for a Business 1 development and can be developed for a range of clean and light industrial and warehouse use, the Urban Redevelopment Authority said.

Savills Singapore director of industrial business space Dominic Peters said that he believes the site could attract bids of about $30 per square foot per plot ratio (psf ppr). ‘Demand is still likely to be strong,’ he said.

In October, an industrial site at Sin Ming Lane was sold for $68.9 million, or about $50 psf ppr. The site was more centrally located and larger.

Mr Peters said that potential bidders could be interested in developing strata-titled units on the Yishun site for sale. Real estate investment trusts (Reits) or developers targeting Reits may be less keen.

According to a Savills report on the industrial sector, Reits were the major players in the industrial market in the third quarter.

Mapletree Logistics Trust acquired six properties for a total of $62.4 million, Cambridge Industrial Trust purchased three properties for $108.5 million and the recently listed MacArthurCook Industrial Reit added two properties worth $109.3 million to its portfolio.

In the first nine months of this year, more than 25 acquisitions were made by Reits, taking the total transaction value to $503 million, up 27.3 per cent year-on-year.

 

Source: Business Times 28 Nov 07

Funds tailor products for the nest egg

(NEW YORK) Wall Street has repeatedly sounded alarms to spur working Americans to save more for retirement, but it has been less interested in helping convert nest eggs to spendable, post-paycheque income.

Of course, mutual funds emphasising dividends have long been available, along with plans for withdrawing principal. More recently, the industry has offered life-cycle funds that become more conservative as investors age. And some companies have been offering advice, like the so-called Monte Carlo calculations, that show the odds of what a given rate of spending will provide for the rest of one’s life.

Yet many investors, even those without traditional pensions, still reach retirement with only the vaguest notion of how to switch from accumulating assets to tapping them to finance their usual standard of living.

Now, however, as the first baby boomers start to collect Social Security cheques, fund sponsors are coming up with a series of new products catering mainly to those who are knocking at the gates of retirement – or are already inside.

‘As you enter the phase where you’re going to be receiving income and drawing down assets, you need a different style of investment,’ said Keith Hartstein, president of the John Hancock Funds. ‘You need a targeted distribution fund as opposed to the accumulation type.’

At least a half-dozen sponsors, including Fidelity Investments and the Vanguard Group, have either begun marketing retiree-oriented funds or have announced plans to do so.

More are undoubtedly on the way, predicted Burton Greenwald, a mutual fund consultant in Philadelphia.

‘It’s a natural evolution,’ he said. ‘All the major fund sponsors will have such products in a short period of time.’

Investors can choose among significantly different approaches. Some retirees will expect a specific monthly payout while others will favour a variable amount, based on what the portfolio generates. Some will want a fund whose principal is depleted by a certain year – say, 2028 – while others will want one that leaves assets for their heirs.

But while some funds offer annuity-like features, and expect to make consistent payouts, none carry an annuity’s contractual guarantee of specific payouts.

One of the first firms off the mark this fall was Fidelity, whose Income Replacement Funds come with a choice of 11 targets, or time horizons, from 2016 to 2036. You specify how big a cheque you want each month to be paid from the portfolio’s earnings from other Fidelity stock and bond funds, supplemented with as much of your principal as is necessary.

If all goes well, your payment will rise each year to keep pace with inflation. The asset allocation of the fund shifts more toward bonds as the years pass. By the horizon date, the fund is liquidated.

Vanguard’s entry, called Managed Payout Funds, is expected to be available in December or January, and is not intended to deplete itself. But whether it can sustain payouts without returning at least some shareholder capital will depend on investment results.

Vanguard will set the payout annually, based on fund performance for the three preceding years: The Real Growth fund expects an initial 3 per cent distribution rate, the Moderate Growth fund a 5 per cent rate and the Capital Preservation fund a 7 per cent rate. Lower payouts imply a greater probability of long-term growth and capital appreciation; Vanguard, unlike Fidelity, will invest in a broad spectrum of asset classes to include commodities, real estate and a new market-neutral fund.

Diversity of assets, with little performance correlation to one another, can aid capital preservation as well as returns.

‘The availability of a distribution service in a fund without having to sign up and move assets and try to figure out where to take them is an attractive vehicle for people,’ said Ellen Rinaldi, a principal in Vanguard’s investment counselling and research unit.

Retirees want access to their money, she added, and unlike annuities, which tie up your principal, mutual funds provide it.

What distinguishes John Hancock’s proposed Retirement Income Portfolio and Retirement Rising Income Portfolio from the Vanguard funds is that the dividend is fixed in dollars and cents. In the Rising Income portfolio, it climbs by the inflation rate each year.

At Charles Schwab, the Premier Income fund, with three share classes and a minimum investment of US $100, was started at the end of October after raising US$116 million during a four-week subscription period. The fund is focused purely on income, not a combination of income and total return, the way some competitors’ offerings are, said Patrick Waters, Schwab’s director of retirement investment products.

Other new offerings tailored for retirees are three funds from the Russell Investment Group with specific payouts for 10 or 20 years. They are to be available early next year.

 

Source: NYT (Business Times 28 Nov 07)

Emerging markets losing lustre

Pictet Asset Management now banking on green investments

A PIONEER in emerging market investments and environmental funds is sounding caution on emerging markets, even as he hails the green theme as the wave of the future.

Renaud de Planta, chief executive of Pictet Asset Management, says emerging markets could underperform mature markets in the near term. In the last four years, emerging markets have delivered stellar returns amid massive inflows as institutions and individuals search for higher yields. ‘Globally, as much as we’re a pioneer and forceful defender of emerging markets investment, in the last few months, we’ve become bearish relative to developed markets.

‘We think the core developed markets of the US, Japan and parts of Europe will outperform the emerging markets over the next two years,’ says Mr de Planta, who is also a managing partner with Pictet & Cie.

The firm looks at a number of metrics in its research, including price earnings and price to book value and price to cash flow multiples, as well as price to capacity which is a proprietary indicator. ‘All the signals tell us that emerging markets are over-extended, but they’re less over-extended in Asia compared with Eastern Europe and Latin America.’

Pictet Asset Management manages a total of US$130 billion in assets. Of this, US$20 billion are in emerging equities. Another US$40 billion are in environment-related investments, including utility and thematic funds like clean energy.

The Singapore office looks after Asian fixed income, and the funds marketing office is based in Hong Kong.

Mr de Planta is convinced that socially responsible investing (SRI) will take root and flourish. So far, while private banks and some retail fund managers are pushing environmental themes like climate change and clean energy, Asian institutions have been cool to funds in the SRI space. One of the most common reservations is that SRI investments will suffer in returns compared with investments without any SRI screen.

Mr de Planta is unperturbed about Asia’s lukewarm response. As for returns, the proof is in Pictet’s pudding. The firm pioneered what it says is the world’s first water fund about seven years ago. On a cumulative basis, the PF (Lux) Water-P Cap fund has returned 61 per cent since inception in 2000 compared with the MSCI World’s minus 4.33 per cent. On an annualised basis, the fund has delivered 6.33 per cent against the MSCI’s minus 0.57 per cent.

The fund has some 4.33 billion euros (S$9.3 billion) in assets.

Earlier this year in May, the firm launched a Luxembourg-domiciled clean energy fund. In about five months up to end-October, the fund has returned 29 per cent against the MSCI World index’s 6.42 per cent. The fund has US $756 million in assets.

‘When we started about 10 years ago we were one of the first with SRI funds. We were convinced it would be a fundamental change which is long-lasting because the environment is being destroyed at an unprecedented pace and the growth of the emerging world makes this even more visible.

‘The solution to environmental destruction and emissions is not only government, but the real business world.

There will be massive investment needs in new air filtration and water filtration technology, fuel efficient cars, alternative energy and so on. Investors are now very sensitive to this.’

Over the past couple of years, the firm has polled 200 institutional investors. About 70 per cent indicated that they wish to allocate assets to SRI or environmental themes. Of these investors, half are likely to invest through thematic funds like water, clean air and energy funds.

Mr de Planta says the question of whether SRI funds suffer in performance is much debated. ‘In the energy sector, if you impose good corporate governance and environmental practice, you do avoid the big accidents. Big chemical companies that are not properly managed and do not invest in safety can have huge disasters that wipe out the company.’ In this respect, Union Carbide with its Bhopal gas leak disaster comes to mind. Poor corporate governance also sank Enron.

In its SRI stable, Pictet offers broad-based and focused funds. For its broad-based funds, it pursues a best-in-class approach where its managers pick the companies which rank the highest in environmental as well as social factors, including how employees are treated and whether the company uses child labour. For the focused funds, the firm screens for companies that are ’significantly active’, deriving 20 to 100 per cent of profits from activities like clean water and energy.

The focused funds, however, are not screened for social or governance factors. ‘If we impose too many constraints, the universe becomes too narrow. We could miss out on interesting companies with leading technologies. They may be young companies and may not yet have the best corporate governance or the most social human resource policies, but they’re on the way towards these goals.’

Meanwhile, in the emerging markets space, the firm is, interestingly, sceptical of the BRIC concept. BRIC spells Brazil, Russia, India and China. First articulated by Goldman Sachs in a 2003 report, the concept has since taken on a life of its own. BRIC, says Mr de Planta, appears to be a marketing concept to simplify the emerging markets for the US public. ‘In the short term it’s self-fulfilling if you promote the theme well. Let’s see in five years if anyone still talks about BRIC.’

One of the screens the firm uses in its emerging markets research is its own proprietary measure, price to capacity, where it examines the production capacity of companies based on interviews and industry reports. The metric can yield insights on the relative attractiveness of a country or currency against the rest of the region and against developed markets.

‘We think emerging market equities at this juncture are over-rated. We’ve seen in history that every time the emerging market metrics exceed the developed markets, it signals a turning point. On the debt side it’s slightly different. This is because the re-rating potential of some currencies in the region is substantial. The recent crisis of the dollar is a catalyst for changes in the currencies.’

 

Source: Business Times 28 Nov 07

China, India seen driving Asia’s wealth market

SG PRIVATE Bank is looking to China and India to drive Asia’s wealth markets, and the sub-prime crisis is a short-term hiccup, says chief executive Pierre Baer.

The firm advises on some US$20 billion in Asian clients’ assets, posting an annual growth of about 30 per cent. It set up its Singapore office in 1998.

‘Despite the recent increases in their stock markets, China and India will be the wealth drivers. This is a structural, fundamental shift in wealth generation that we’ve not seen previously,’ says Mr Baer.

SG Private Bank recently opened its new office at One Raffles Quay, on which it spent millions of dollars – in ‘double-digit millions’ – to renovate. The centre is adorned with a collection of contemporary Asian and Australian art.

The bank employs some 600 staff in the region, of whom half are based in Singapore. It has separate teams to service non-resident Indian clients, as well as non-Asian clients from Europe and the Middle East.

The bank continues to hire, but is ‘elitist’ in its approach, he says. ‘The growth and quality of the financial industry will depend on the quality of its people… We are somewhat elitist in our hiring. We’ve turned down candidates even if they have a book of business because we didn’t think they had all the skill sets required for the long term.’

The bank, he says, does not set product targets, which run against the grain of client advisory. Bankers should be at pains to identify clients’ needs.

SG will set up its own training centres in Hong Kong and Singapore for its career bankers. At the moment, some 110 bankers have been sent to Paris and London to complete a number of training modules.

He says clients are at the moment concerned about volatility, and are tapping structured products to temper that. ‘It is not about how much money you can make but how much you avoid losing. The fear of losing is key.’

SG’s key services include philanthropic and trust advisory. On the alternative front, the bank offers a wine investment fund which has so far attracted some US$40 million in assets.

 

Source: Business Times 28 Nov 07

Bull market in Asia in mature stage

Value investing advisable

THE bull market in Asia ex-Japan equities is in the mature stage, says Markus Rosgen of Citi Investment Research, and he advises investors to switch from momentum investing towards value.

In the value space, Mr Rosgen, Citi’s chief Asian strategist, favours large cap stocks which he says have only just begun to outperform. The sectors with more value support are semiconductor, banks and utilities. Those with the least value are software, healthcare, industrials and the consumer space.

Up till now, the playground for momentum plays has been the mid-cap space, he says in a Nov 19 report. ‘The alpha trade has been to go long mid/small caps and short the index against it as a hedge, effectively shorting large caps. This has stopped working and given them higher ROE, higher margins and the fact that large caps are free cash flow-to-sales positive … will serve them well in this time of increased economic uncertainty’.

In his report, Mr Rosgen debunks the notion that in the Asia ex-Japan equities space, it’s different this time. Asia, he says, is now trading at valuation premiums to the MSCI World index. The last time this occurred was in 1988.

In terms of price-to-book value, Asia last traded at a premium from 1993 to 1995 when Asian ROEs were superior to the developed markets. This time, valuations in Asia are superior but ROEs are inferior.

The decoupling theme, he says, has become a global consensus ‘among a large enough pool of investors to frighten me’. ‘The more recent the investor is to Asia, the stronger the view is held. The longer an investor has been involved with Asia, the higher the degree of scepticism.’

Trade linkages, he says, are stronger after 2000 than at any time over the last 20 years. ‘This makes decoupling hard… Far from rising, consumption share in GDP has fallen as export and investment shares have risen. Nor, regrettably, has the Asian consumer ever behaved counter cyclically. Finally, stock markets themselves are the most correlated they have been over the last 30 years.’

Reviewing the changes in the sectoral composition of Asia ex-Japan markets, he finds that while the weights have changed significantly, the difference in PEs between 1975 and today is just 0.9 multiple points. Over the period, the difference averages just 0.3 PE points.

While investors may believe that valuations have changed dramatically over time, the statistical tests on Asian multiples show that valuations are mean reverting. In addition, buying high PE stocks since 2000 has not led to outperformance. On a 12-month basis, buying stocks with PEs of over 30 times results in negative returns.

‘The bottom line is that we do not deny that things change over time as far as market composition and perception of actual or implied risk; they clearly do. What one finds is that investors have a tendency to over-emphasise or extrapolate changes and thus overpay for the perceived change.’ He adds: ‘… excessive growth expectations are now in the price of Asian equities with 44 per cent implied earnings growth for the region and in excess of 60 per cent for China and India’.

China’s market cap to GDP ratio stands at 123 per cent today. The ratio for Japan in 1990 was 150 per cent, and that of the US in 2000 was 131 per cent. But GDP per capita in Japan in 1990 was 10 times larger than China currently; and in 2000, the US’ ratio was 14 times larger. ‘If China continues to grow nominal GDP at 12 per cent per annum, it would take 20 years to reach the Japanese GDP per capita set in 1990 when valuations were comparable. It would take 23 years to reach the same level of GDP per capita as the US in 2000 when market cap to GDP was similar.’

 

Source: Business Times 28 Nov 07

Bond insurers affected by credit crunch

(NEW YORK) INVESTORS already burned by turmoil from the credit crunch are now worried about unwanted surprises in the industry that insures bonds. In the face of mounting losses in US mortgages, rating agencies are reviewing eight leading bond insurers, which could lead to downgrades. Such a move could ripple across the financial sector, because if a bond insurer is downgraded, most of the securities it has blessed as virtually risk-free are likely to follow. That could spark a new round of sell-offs and writedowns.

‘It would have a domino effect on all of the entities that hold these vehicles,’ said Ed Rombach, a senior analyst at Thomson Financial. ‘They would have to have more write-offs. It’s a vicious cycle.’

Moody’s Investors Service and Fitch Ratings are examining the capital levels and structured debt these firms have insured because they are worried that the deterioration in the mortgage market may expose them to greater losses. Moody’s is expected to finish its review next week. Fitch said that it would complete its review within three weeks. If any company is put on what’s known as negative watch, it would be given a month to increase its capital and have its rating affirmed.

Bond insurers play a critical role in the capital markets because they issue insurance that boosts the credit ratings of more than US$2 trillion in debt securities held in portfolios around the world, including municipal bonds, mortgage-backed securities and complicated debt instruments. The stock prices of leading insurers have been plummeting as investors worry that they may not have enough capital to cover projected losses from securities tied to delinquent mortgage loans. This has put pressure on guarantors to shore up their capital reserves to protect their coveted triple-A ratings. Last Thursday, the parent company of one bond insurer, CIFG Holding, gave it a US$1.5 billion capital infusion. Soon after, Fitch affirmed CIFG’s triple-A rating.

‘The triple-A rating is really the product that they’re selling,’ Thomas Abruzzo, an analyst with Fitch, said in reference to bond insurers in general. ‘They’re selling high financial strength. It’s the highest rating out there and, really, without that rating it’s going to be significantly more difficult to potentially sell your services.’

Jittery times

Just how much of a downgrade would devalue securities these companies insure is unclear, analysts said.

For example, if a company was downgraded to a double-A rating from triple-A, the impact might be minimal, since the spreads, or perceived risk, of owning similar securities with those two ratings may not be that wide.

However, these are jittery times. ‘The people watching this are not going to say, ‘I’m so happy they’re going to be downgraded only to double-A’,’ said Sylvain Raynes, a founding principle of R&R Consulting, a structured-finance consultancy. ‘They’re going to say, ‘This is the beginning of the end.’ And they’re going to want to go before everyone else goes. This is a stampede.’

Any downgrade of a financial guarantor would likely be more than just one notch, said Stanislas Rouyer, senior vice-president of Moody’s financial guarantors team. A downgrade, he said, would need to incorporate not only the reason for the downgrade but also the consequences of the downgrade on the business.

For years, the insurers mostly guaranteed bonds issued by municipalities, public schools and water authorities. Defaults were few, and bond insurers prospered. Triple-A ratings were a given. In recent years, however, many bond insurers have ventured into the business of insuring complicated mortgage securities such as collateralised debt obligations. And with credit markets deteriorating, they have had to write down the value of their insurance contracts on complicated debt and have posted some of their poorest quarterly results in years.

Some veterans on Wall Street are now questioning the viability of their business model. ‘As the credit market continues to weaken, our confidence that the guarantors will survive the credit meltdown is waning,’ Ken Zerbe, an analyst at Morgan Stanley, wrote in a research note this month. ‘At the current stock price, we believe the market is pricing in the loss of their triple-A ratings. Previously, we would have dismissed this as nearly impossible – now we are not so sure.’

The two largest bond insurers, Ambac Financial Group and MBIA, were recently described by Fitch and Moody’s as having moderate to little risk of falling below adequate capital levels. Nonetheless, their shares have fallen by at least half since the beginning of October.

Ambac spokesman Peter Poillon said last Friday that based on where the stock is trading, investors appeared to be doubting the company’s ability to hold on to its triple-A rating. He disagreed with that assessment, saying that the company has sufficient capital to meet the rating agencies’ requirements. ‘We value our triple-A. We know it’s our franchise and we will do anything to maintain it,’ he said.

 

Source: The Washington Post (Business Times 28 Nov 07)

Citi sees likely office space glut by 2010

Other analysts argue that pent-up demand will soak up excess supply

OFFICE space may be in severe short supply now, but Citigroup predicts the tables will be turned by 2010 with even a glut possible.

‘The market is underestimating the potential supply of new office space in 2010 and beyond, in our view,’ said the banking group in a report on Monday.

While rents and prices of offices are skyrocketing due to the supply crunch, Citigroup said the situation is set to change in a few years, because of the slew of commercial sites sold by the Government in recent months.

It noted that since May, six new sites have been awarded that could yield three million sq ft of offices in 2010 and 2011. This is in addition to projects already under way.

It means that in those years, potential new supply could be 3.2 million to 3.5 million sq ft a year, according to Citigroup’s estimates.

Demand over the last few years has averaged only 1.5 million sq ft per year, the report added.

All eyes are now on the Government Land Sales programme for next year, which is due to be announced next month. If more office sites are released, even more supply can be expected.

Recent bids for office sites have already come in below market expectations, reflecting a more cautious longterm outlook among developers.

A Marina View site earlier this month attracted bids 35 per cent lower than those drawn by an adjacent plot just two months before. The site has yet to be awarded to a bidder even though the tender closed two weeks ago.

The Citigroup report also predicted that landlords of the new offices – most will be in the Central Business District – will face keen competition for tenants. Occupancy rates will peak next year or in 2009 and decline after that, it said.

This has led Citigroup to downgrade the shares of two major office owners: Keppel Land to ’sell’ and City Developments to ‘hold’.

But other analysts are sceptical of Citigroup’s forecasts of an oversupply. They say that for now and next year at least, demand for office space will still far outstrip supply.

When the new offices are opened from 2010 onwards, enough pent-up demand will have been built to soak up all the space, said Mr Wilson Liew, an investment analyst at Kim Eng Research.

‘Judging from the current demand, if this trend continues, there shouldn’t be much of an oversupply,’ he said.

‘These two, three years or so, the supply that is coming on stream is way below the average rate, so there will be a lot of pent-up demand.’

Mr Soong Tuck Yin of Macquarie Securities said the average supply of offices between next year and 2012 comes to only 1.7 million sq ft a year.

This drops to 1.4 million sq ft if space that has already been pre-committed – leased by companies even before being built – is excluded.

Another analyst added that in three to five years’ time, Singapore’s two casinos will have been built. And with the Government promoting Singapore as a financial hub, banks will still expand and be in need of prime space.

There may also be a delay in some of the new office space coming on stream, given the current shortage of contractors, he added.’It’s a bit soon to be making these sorts of predictions,’ the analyst said of the Citigroup report.

In the end, it boils down to whether the economy keeps growing, said Mr Winston Liew, senior investment analyst at OCBC Investment Research. ‘The office market is mainly driven by GDP growth. If our GDP continues to grow, demand should not be an issue.’

 

Source: The Straits Times 28 Nov 07

Condo-like housing plot nets $134m bid

A THIRD site earmarked for public housing to be designed, built and sold by private developers has attracted a top bid of $134.2 million.

Greatearth Development placed the bid, which was 13 per cent higher than the one submitted by its closest rival, AMK Development, and well ahead of those of the other three contenders.

Consultants say the higher-than-expected price – it works out at $212.4 per sq ft (psf) per plot ratio – reflects developers’ confidence in the demand for public housing and suburban condominiums. The 1.7ha plot in Ang Mo Kio Street 52 can house about 550 flats in blocks that can reach 36 storeys.

Savills Singapore’s director of marketing and business development, Mr Ku Swee Yong, estimated that the break-even price for the Ang Mo Kio plot would be about $500 psf.

This means the flats can be launched from $580 psf, putting the starting price of a four-room unit at about $560,000.

The first such project, developed by Sim Lian Land in Tampines and launched last year, met with an overwhelming response.

 

Source: The Straits Times 28 Nov 07

RECORD PROPERTY DEAL NO. 1: Paying a premium for ocean views

But analysts say price tag is not typical of HDB market, which is more moderate

IN AGEING five-room HDB flat in Marine Parade has been snapped up for a record price of $750,888 – and all because of its sweeping ocean views.

The buyers, who paid cash, bought the 32-year-old Marine Terrace flat as their retirement home.

They had the field to themselves as the high asking price of $800,000 deterred many prospective buyers.

Agent Francis Ng from HSR Property Group said the couple were the only ones to view the flat.

Mr Ng said the flat has had its walls knocked out to make an expansive living room that takes advantage of the sea view, so there is only one bedroom.

Owner Sally Sim, who lives in a landed property, renovated the flat about two years ago at the cost of just over $80,000.

She kept the property as an extra home that could one day be used as a retirement haven or for her children’s use.

‘But since the market is good, I might as well sell it,’ she said in Mandarin. ‘It’s quite tiring keeping it clean.’

ERA Singapore’s assistant vice-president, Mr Eugene Lim, said: ‘People who buy HDB flats at such record prices are not your typical HDB buyers.

‘They are cash-rich and most of them are looking for unique features, such as a full sea view.’

The Marine Parade flat is about 1,300 sq ft in size, which would put its price at $577 per sq ft (psf).

HDB flats are not usually measured on a psf basis, but pricing it this way does give an idea of how much the property is worth when compared with private housing. Mass market condominiums now cost $650 to $700 psf on average.

Executive flats, which are limited in number, have sold for a bit more but are far bigger in size. Take the seemingly stratospheric price achieved for an executive HDB flat in Mei Ling Street. It went for $755,000 but cost only $474 on a psf basis.

But such deals are certainly are not reflective of the market, which is operating at a more moderate level, said Mr Lim.

HSR executive director Eric Cheng said the market was crazier back in the mid-90s. It is rather calm currently, except for sporadic record deals, he said.

 

Source: The Straits Times 28 Nov 07

Record property deals: $750,888 for 5-rm Marine Parade flat

IN FRESH signs the property market is still pretty hot, an HDB flat has sold for a record $750,888 – and a developer has paid a record price for a collective sale site.

A retired couple yesterday bought the 32-year-old recently renovated flat in Marine Parade. The couple, who declined to be named, have lots of time to enjoy the full 23rd storey sea view.

The wife said: ‘The view is not blocked. There is morning sun and it’s very near the underpass to East Coast Park.’

They have lived abroad, enjoying sea views in previous homes in Germany and Australia.

The last HDB record of $730,000 was set earlier this month – also for a five-room Marine Parade flat with a sea view. Both are on high floors and near East Coast Park with what agents call the ‘X-factor’. An executive HDB flat in Queenstown recently sold for $755,000, but it is newer and nearly 300 sq ft bigger than the record five-room Marine Parade flat. Executive flats are limited.

$435m for Orchard Boulevard condo

A 30-YEAR-OLD condominium at Orchard Boulevard has smashed the record for Singapore’s most expensive collective sale.

Westwood Apartments was sold yesterday for $435 million to Malaysian conglomerate YTL Corp. That is an eye-popping $2,525 per sq ft per plot ratio (psf ppr), including a $4.6 million development charge.

This beats record-holder The Ardmore, a 24-unit freehold property off Orchard Road – sold in June for $262 million, or $2,338 psf ppr.

Owners of the 50-unit condo will each get about $8 million. Owners of two penthouses will get about $17 million each, said deal broker Savills Singapore.

The deal caught the industry by surprise, given the lukewarm response to government land sales and a slowdown of collective sales, recently.

Hot 5-rm sales

$750,888

Marine Parade

$730,000

Marine Parade

$720,000

Kim Tian Place

$710,000

Marine Parade

$700,000

Mei Ling Street

 

Hot en bloc deals

$2,525 psf

Westwood Apartments

$2,338 psf

The Ardmore, Ardmore Park

$1,820 psf

The Grangeford, Leonie Hill

$1,788 psf

Char Yong Gardens, Cairnhill

$1,735 psf

The Parisian, Wheelock Place

 

 

Source: The Straits Times 28 Nov 07

RECORD PROPERTY DEAL NO. 2: High collective sale price catches analysts off guard

THE record collective sale price achieved by Westwood Apartments yesterday has put to rest industry concerns that the red-hot property market has cooled off.

Malaysian conglomerate YTL Corporation paid $435 million for the 30-year-old condominium in Orchard Boulevard, with an additional $4.6 million development charge.

This prices it at a startling $2,525 per sq ft per plot ratio (psf ppr), a level that trumps the freehold The Ardmore, a 24-unit property off Orchard Road that was sold to SC Global Developments in June for $262 million, or $2,338 psf ppr.

Westwood’s owners will each reap about $8 million, with the two penthouse owners getting about $17 million each.

The sale comes after recent government land sales received lukewarm responses, prompting experts to voice concerns of a souring in sentiment.

A condo plot in Enggor Street in Tanjong Pagar, for example, fetched a top bid of $180.8 million, or $717 psf ppr when it closed recently. This was well below the $852 psf ppr achieved by an adjacent plot.

Analysts told The Straits Times they were caught off guard by YTL’s bullish price but added that the prime Westwood location justified the high price tag.

The 62,179 sq ft condo, which has a plot ratio of 2.8 and a 20-storey restriction, could accommodate 43 luxury apartments of 4,000 sq ft each, said Savills Singapore, which brokered the deal.

Knight Frank director for research and consultancy Nicholas Mak said the sale was refreshing as the volatility in global stock markets, coupled with recent government measures to cool the market, have slowed sales.

Other analysts believe the sale is a one-off with demand for collective sales likely to be confined to prime areas such as District 9, 10 and 11.

Chesterton International Property Consultants’ head of research and consultancy, Mr Colin Tan, said negative sentiment is unlikely to affect prime sites.

‘Even if a developer overpaid, it has secured the site. In the long run, it is likely to be in their advantage,’ he said.

Malaysian tycoon Francis Yeoh, who helms YTL, told The Straits Times yesterday that he was in it for the longhaul.

Buying Westwood cements YTL’s entry into Singapore’s top-tier luxury property market.

YTL already owns Sandy Island and the Lakefront Collection at Sentosa Cove.

Dr Yeoh shrugs off the apparent recent real estate cool-down in Singapore, saying wealthy buyers will always demand quality homes, regardless of market sentiment.

‘The question of whether the price paid for the land is reasonable depends on what you do with it,’ he said.

‘There are many people who are still bullish about Singapore’s market.’

Westwood resident Richard Eu, who is also chief executive of the traditional Chinese medicine company Eu Yan Sang, said owners were ‘happy that we managed to get a good price given the recent slowdown’.

The deal took just seven months to complete and is the largest collective sale since new rules kicked in on Oct 4.

Westwood’s owners will each reap about $8 million, with the two penthouse owners getting $17 million each.

 

Source: The Straits Times 28 Nov 07

IPO lifts Indian property baron’s fortune by $6.3b

Shares of Mundra Port & SEZ more than double on debut on back of infrastructure boom

MUMBAI – INDIAN property magnate Gautam Adani has just added US$4.4 billion (S$6.34 billion) to his personal fortune.

His company, Mundra Port & Special Economic Zone (SEZ), more than doubled on its first trading day in Mumbai, boosting the value of his family’s 81.3 per cent stake to about US$8 billion.

Real estate ‘has caught the fancy of investors’, said Mr Jayesh Shroff of SBI Funds Management. ‘We could see many more billion-dollar property tycoons as investors pay a premium to own real-estate stocks.’

India’s 10 richest property investors have more funds than Mr Donald Bren, Mr Donald Trump, Mr Samuel Zell and the next seven wealthiest United States real-estate investors, Forbes Magazine reported.

Mumbai has the world’s second-highest office rents after London’s West End, according to data compiled by real-estate broker CB Richard Ellis. Rents in Mumbai rose 55 per cent in the past year to US$189.51 per sq ft, almost double the costs in mid-town Manhattan, CB Richard Ellis reported.

Mr Adani, 45, is among eight Indian developers whose wealth exceeded US$1 billion each for the first time this year, Forbes reported. A government plan to spend US$500 billion on ports, roads and airports has drawn investors to developers focusing on infrastructure.

Mr Adani’s Mundra Port, India’s largest cargo terminal outside government control, rose as much as 710 rupees to 1,150 rupees on the Bombay Stock Exchange (BSE) and finally ended 521.7 rupees, or 118.6 per cent, higher at 961.7 rupees.

The initial public offering (IPO) raised 17.7 billion rupees (S$642.5 million) this month with shares sold at 440 rupees each. The IPO attracted US$52 billion of bids, 116 times the stock for sale.

‘There was lot of interest from investors since this is the first port and SEZ company to be listed,’ Mr Adani said at a listing ceremony at the BSE yesterday. ‘Infrastructure stocks are in favour right now.’

Mundra Port is about 70km from the airport at Bhuj in the western state of Gujarat. The port can cater to companies including Reliance Industries, which is constructing the world’s biggest refinery in the state.

The port will handle 30 million tonnes of cargo this year, up from about 20 million tonnes last year, Mr Adani said.

A state-backed plan for private companies to build SEZs, or business enclaves with their own power, roads and commercial buildings, is also lifting developers’ shares.

Mr Anand Jain, who is building an economic zone near Mumbai with his school buddy Mukesh Ambani, joined the Forbes list with a US$4 billion fortune after his Jai Corp soared seven- fold this year, giving it a market value of US$45 billion.

Mr Jain’s family members last month reaped US$568 million selling a stake to investors including units of Merrill Lynch, Goldman Sachs and Morgan Stanley. The family still holds about 75 per cent in Jai after the sale.

Source: BLOOMBERG NEWS (The Straits Times 28 Nov 07)

US home prices plunge by record 4.5%

WASHINGTON – HOME prices in the United States fell in the third quarter by the most in at least two decades, as the sub-prime lending crisis caused sales to slump.

Home values retreated 4.5 per cent in the three months ended Sept 30 from the same period last year, the most since records began in 1988, according to S&P/Case-Shiller. It followed a 3.3 per cent drop in the second quarter.

US consumer confidence was also weak, falling this month for the fourth straight month to its lowest in two years, on concerns about rising energy prices and financial market volatility.

The Conference Board said its index of consumer sentiment fell to 87.3 from a revised 95.2 last month, a sharper fall than expected.

The Dow Jones Industrial Average gained 144.69 points after one hour and 45 minutes of trade to 12,888.13.

Source: BLOOMBERG NEWS, REUTERS (The Straits Times 28 Nov 07)

Expat cost of living in S’pore gaining on HK’s

S’pore and Chinese cities move up the ranks due to strong currencies, inflation

(SINGAPORE) The Republic is catching up with Asia’s leading cities in one area it probably does not wish to make strides in – expatriate cost of living.

While some of the region’s most pricey cities became relatively less expensive in the past year, Singapore, along with Beijing and Shanghai, have climbed the rungs in the latest cost of living survey by ECA International.

Singapore is listed as the ninth most expensive city in Asia – behind Seoul, Tokyo, Yokohama and Kobe, as well as Hong Kong, Taipei, Beijing and Shanghai. Worldwide, Singapore ranks 122nd, but that is 10 spots higher than in the 2006 survey.

In comparison, the Japanese cities and Taipei have all dropped in the global rankings in the past year, primarily due to a weaker currency, while Hong Kong stayed put at its 79th spot. This means that the gap is closing between the two ‘traditionally competitive’ locations, Singapore and Hong Kong, says ECA.

Conducted every March and September, the cost of living survey by the Hong Kong-based HR consultancy tracks a basket of 128 consumer goods and services commonly consumed by expatriates in more than 300 locations worldwide.

Multinational firms use the findings as a guide in determining expatriate remuneration packages and allowances.

But the survey excludes significant items such as housing, utilities, car purchases and school fees because, ECA says, expatriate packages usually include separate compensation for these.

Apart from the two-percentage-point hike in the Goods and Services Tax in July and overall rising inflation, the appreciating Singapore dollar is also driving up costs in Singapore ‘in a significant manner’, says Lee Quane, general manager of ECA.

‘While this is good news when sending international assignees from Singapore, those companies who need to send employees into Singapore will now have to apply higher cost of living indices to salaries to guarantee their personnel’s spending power when in Singapore.’

Seoul, Asia’s most expensive city, has climbed one rung in the global rankings to seventh in the latest findings.

Tokyo, on the other hand, has dropped out of the top 10 for the first time, moving from 10th to 13th.

A strengthening yuan against the US dollar, along with soaring oil, food and grain prices, have added to living costs in the Chinese cities, including ’second-tier’ ones. According to ECA, living costs for foreigners in Chongqing, for instance, have risen by 12 per cent, or twice as much as in Beijing.

Luanda in Angola emerged as the world’s most expensive city for expatriates. Two other African cities – Kinshasa and Libreville – also feature in the top 10. European cities, led by Oslo and Moscow, make up most of the top spots.

 

Source: Business Times 27 Nov 07

Riverwalk, Cairnhill Mansion and site next door up for sale

(SINGAPORE) Three prime sites – one zoned for commercial use and two for residential use – went on the market yesterday.

The Riverwalk near Clarke Quay is offered through a collective sale, said property firm Jones Lang LaSalle (JLL) which is marketing the project.

Market watchers reckon that the project could fetch about $700 million or $1,735 per square foot (psf).

The 82,317 sq ft site has a 4.9 plot ratio. It can be redeveloped into a commercial building with a gross floor area of 403,351 sq ft, subject to approval and payment of development charge (DC) of about $3 million and premium for topping up the lease.

The Riverwalk is now zoned for residential and commercial use. It comprises 181 commercial units ranging from 54 sq ft to 20,161 sq ft, 118 apartments ranging from 818 sq ft to 3,821 sq ft and 290 parking lots.

‘The potential purchaser may redevelop the property into a part commercial/part residential development or a Soho development,’ said JLL regional director Lui Seng Fatt. ‘The options available for this site are extensive.’

Elsewhere, Cairnhill Mansion and a separate adjoining site are being offered for sale. Cairnhill Mansion is being offered through a collective sale and the adjoining site is being offered by an individual owner, said Knight Frank, which is marketing both sites.

The guide price for Cairnhill Mansion is $443.6 million. As there is no DC payable, the price works out to $2,800 psf per plot ratio (ppr). The guide price for the adjoining site is $139.4 million. Including a DC of about $16 million, this works out to $2,800 psf ppr. Together, the sites add up to 62,903 sq ft.

The successful developer of the combined sites could build 100 units averaging 2,000 sq ft each, Knight Frank said.

‘Strong demand for high-end, luxury condominium developments coupled with the rosy outlook for the property market, should increase the site’s attractiveness to developers.’

The Cairnhill area, being a stone’s throw from Orchard Road, is attracting super-luxury developments like The Hamilton and Ritz Carlton Residences.

Selling prices for these projects are expected to start from at least $4,000 to $4,500 psf, said Knight Frank.

Recent launches like Hilltops are already achieving prices in the mid to high $4,000s psf, it said.

The tenders for both sites closes at 4pm on Jan 15 next year. The tender for The Riverwalk closes at 3pm on Jan 22.

 

Source: Business Time 27 Nov 07

S’pore launches pushed back as developers gauge sentiment

Some projects being launched overseas first, others struggle to finish showflats

(SINGAPORE) Developers here are holding back residential launches due to poor market sentiment – and in some cases are choosing to launch their projects overseas first as they wait for market sentiment here to recover.

Launches are also being held back as showflats are being delayed amidst a construction squeeze, market watchers said.

Major launches that can be expected over the next few months include City Developments’s Wilkie Studio and The Quayside Collection, Far East Organization’s Floridian and Cairnhill View, GuocoLand’s Goodwood Residences,

the Lippo Group’s Marina Collection and Wing Tai’s Belle Vue and L’VIV.

While several upcoming projects have most of the necessary approvals to launch in place, some of them are being held back in anticipation of a market recovery, BT understands.

‘Currently, we don’t know if Singaporeans will be willing to fork out that kind of money,’ said one developer who has yet to start selling the company’s project in Singapore. However, the luxury condominium in question is already being marketed abroad, with about half of the units sold to foreigners at prices exceeding $2,500 per square foot (psf).

In a recent report, UBS Investment Research also noted that several projects have obtained permission to launch in the past three months, but the launches were delayed due to the weak market sentiment.

‘Some projects with permits to launch in August and September have been held back due to weak sentiments,’ said the investment bank’s research unit in a recent note. ‘We expect these to be launched in late November or early 2008.’

Others point out that while some of the delays can be attributed to the poor market sentiment, showflats for some of the projects are not yet ready.

‘Sentiment is one reason for the quiet market,’ said Ku Swee Yong, director of marketing and business development at Savills Singapore. ‘But even if the market sentiment is good, some developers still can’t launch their projects because the showflats aren’t ready.’

One example is Lippo’s Marina Collection, Mr Ku said. The showflat for the 124-unit project is yet to be completed, he said. The project was supposed to have been launched last month.

Some developers are choosing to launch their projects overseas first. United Engineers, which is developing the 40-unit Sui Generis in the Balmoral area through a joint venture with Japan-based Kajima Corporation, recently said that it has sold 17 apartments via overseas previews in Indonesia and Hong Kong over the past two months.

The Singapore launch, on the other hand, is only planned for next year although the showflat is ready, BT understands.

Similarly, other developers are also waiting for next year to market their projects.

The weaker market sentiment also means that fewer projects are applying for permits to launch.

In October, for example, just three new projects received permits to launch, UBS said – City Developments’s Shelford Suites, Hayden Properties’ Ritz-Carlton Residences and a condominium at Kim Yam Road by Frasers Centrepoint.

However, industry players are confident that the market will recover soon – bringing with it a whole slew of project launches in the new year.

Some projects that went ahead with their planned launches recently did well. At Ritz-Carlton Residences, which started selling over the weekend, take-up was good and prices hit $5,000 psf, sources said.

 

Source: Business Times 27 Nov 07

Two more transitional sites up for tender

Mountbatten and Aljunied sites follow those at Scotts Rd and Tampines

(SINGAPORE) The Urban Redevelopment Authority has launched two transitional office sites at Mountbatten Road and Aljunied Road/Geylang East Avenue 1 for sale by tender.

This follows the recent sale of two transitional office sites at Scotts Road and Tampines for $219 per square foot per plot ratio (psf ppr) and $80.65 psf ppr respectively.

The land parcel at Mountbatten Road has a site area of about 2.12 hectares and can yield a maximum gross floor area (GFA) of 20,000 square metres. It is also next to the future Mountbatten MRT station.

The Aljunied Road/Geylang East Avenue 1 land parcel has a site area of about 1.88 ha and a maximum permissible GFA of 18,885 sq m. The site is adjacent to the Aljunied MRT station. Both sites will be sold on short-term leases of 15 years and are expected to be low-rise developments of about three storeys.

On estimated land prices, Cushman & Wakefield managing director Donald Han said: ‘We are likely to see developers taking a defensive play in terms of pricing.’

He added that this strategy was adopted by developers resulting in lower than expected prices for Tampines Concourse transitional site and the Marina View parcel B tender plot.

Given the Mountbatten site’s attributes, including a regular shape and the prospect of the future Sports Hub nearby, Mr Han expects bids to fall in the range of $140-150 psf ppr.

The Aljunied site is next to the MRT but the site is elongated and Mr Han believes this could be a constraint in terms of building design.

Noting that the neighbourhood is also relatively mixed, he said that bids for the Aljunied site could come to $120-130 psf ppr.

On likely bidders, CBRE Research executive director Li Hiaw Ho said: ‘Given the short tenure and rapidly rising construction costs today, such parcels would appeal to owner occupiers or a tie-up between an investor and an enduser.’

He also pointed out that there could be keen interest in the Aljunied Road/Geylang East Ave 1 parcel due to the existing MRT station and offices in the Paya Lebar micro-market.

Knight Frank director (research and consultancy) Nicholas Mak also highlighted that although the Mountbatten site was closer to the city, the Mountbatten MRT station may only be open between 2010 and 2012.

Adding that there is lack of amenities such as F&B premises, he estimates that the site could attract bids of about $27-28 million while the Aljunied Road site, which is in a relatively more established residential and light industrial area, could attract bids of $30.5-32.5 million.

 

Source: Business Times 27 Nov 07

Lippo sees top Jakarta property value triple by 2014

Group plans to invest up to US$10b in domestic real estate projects by that time

(JAKARTA) Indonesia’s Lippo Group, which runs hospitals and property firms, said it would spend up to US$10 billion on domestic real estate projects by 2014, and expects prime Jakarta property to double or triple in value by then.

The group, which has listed units in Jakarta, Singapore and Hong Kong, expects to benefit from strong economic growth and rising incomes in Indonesia and other parts of Asia, chief executive James Riady told Reuters in an interview yesterday.

‘We are going through an unprecedented period of growth and prosperity, and now there is a supply issue, a great shortage of supply’ of commodities and assets which will drive prices even higher, Mr Riady said.

The Lippo Group has about 70 per cent of its assets in Indonesia, where its listed units include Lippo Karawaci and Lippo Cikarang, two satellite town developments near Jakarta with their own hospitals, universities, malls, housing, offices, even golf courses.

‘Indonesia is lagging behind the rest of Asia. Property in Indonesia is extremely cheap, it’s possibly the best value,’ Mr Riady said.

Kemang Village, which is Lippo Karawaci’s latest residential development in one of Jakarta’s most popular, upmarket districts, has already sold out all 460 units in the first development phase at US$1,400 per square metre, Mr Riady said.

A comparable property in Shanghai would cost US$17,000 per square metre, or US$25,000 per square metre in Singapore, he added.

‘Over the next five to seven years, residential, commercial and retail property in prime locations in Jakarta will double or triple,’ he said.

But, despite a drop in interest rates, property prices in some parts of Jakarta have shown little appreciation, reflecting the city’s poor infrastructure and traffic jams. For many low or middle income Indonesians, it is difficult to obtain a mortgage, whereas wealthy customers simply pay for cash.

Shares of Jakarta-listed Lippo Karawaci, which has a stock market value of US$1.1 billion, have risen 57 per cent this year, beating a 45 per cent rise in the Jakarta index .

They trade at a forward 2008 price-earnings ratio of 22.3 times, compared with 15.3 times for the overall index.

Mr Riady said that the group’s property expansion in Indonesia would be funded mainly from the cash from presales, with the remainder raised from bonds and real estate investment trusts , or Reits.

Lippo has two Singapore- listed Reits, and plans to issue more to free up capital from its portfolio of hospitals, shopping malls and housing.

First Reit, which is backed by Lippo’s Indonesian hospitals, raised US$64 million in its initial public offering (IPO) last year. The shares have fallen 0.7 per cent this year, in contrast to the Straits Times Index which is up 11 per cent.

Lippo-Mapletree Indonesia Retail Trust, a joint venture with a unit of Singapore state investor Temasek Holdings, raised US$356 million in its IPO this month and is backed by Indonesian shopping malls. The shares are trading at 15 per cent below the IPO price.

Lippo group also controls Indonesian retailer PT Matahari Putra Prima, Singapore retailer Robinson & Co, and Indonesian multimedia company PT First Media Tbk, which provides Internet services.

Both healthcare and Internet services offer extremely attractive gross margins, Mr Riady said, of 60 per cent and 65 per cent respectively.

Lippo, which currently has four hospitals, plans to build 15 more over the next five years to meet a shortfall in the country’s medical facilities.

‘Healthcare still has a long way to go,’ mainly because of an acute shortage of doctors and poor training facilities, he said.

 

Source: Reuters (Business Times 27 Nov 07)

Nakheel to buy UK property, set up Reit

Developer sees value in assets, may sell shares in US$700m trust in S’pore in ‘08

(DUBAI) Nakheel PJSC, the Dubai, United Arab Emirates-based developer of the world’s biggest manmade islands, will buy UK real estate investment funds and start a real estate investment trust, or Reit, as it expands into property asset management.

‘UK Reits are trading at a 30 per cent to 40 per cent discount now and that’s a huge opportunity,’ chief financial officer Quek Kar Tung said in an interview in Dubai on Sunday. ‘There’s no Reit market in Dubai yet, so we’ll be looking to build an international portfolio.’

Nakheel plans to start its first US$700 million Reit in the first or second quarter. The company will put homes from its Gardens and International City projects in Dubai into the trust, Mr Quek said. The trust will probably sell shares in Dubai and Singapore, he said.

State-owned Nakheel, which has US$30 billion of projects under way in Dubai, is seeking to diversify its sources of income away from domestic construction projects by expanding overseas and into fund management. A unit of Dubai World, the company has about US$7 billion of assets for its fund venture and will acquire more in January when it takes control of fellow Dubai World company Istithmar Real Estate, according to Mr Quek.

The UK benchmark FTSE All-Share Real Estate Index slumped by 38 per cent this year on falling commercial property values, higher borrowing costs and stricter controls on credit. Land Securities Group plc, the biggest British Reit, on Nov 14 said that it will split itself into three companies after its shares slumped. The stock trades at about 30 per cent below the company’s net asset value, according to Lehman Brothers Holdings Inc.

Dubai properties yield as much as 12 per cent to investors, more than double the yield in Singapore, Mr Quek said.

Listing Nakheel’s first Reit in Singapore would allow the company to take advantage of the Asian city state’s experience in trading land trusts and the ‘low cost of funding’ there, he said.

Since it was founded in 2003, Istithmar has bought New York properties including 280 Park Avenue, 450 Lexington Avenue, W Hotel Union Square and the Knickerbocker Hotel at 6 Times Square. In November 2006 it bought London’s Adelphi building for US$567 million as part of a plan to capitalise on surging demand for hotel rooms and office space in major Western cities.

 

Source: Bloomberg (Business Times 27 Nov 07)

Istithmar to transfer properties to Nakheel

Dubai’s move will create global real estate group with US$52b of projects

(DUBAI) Istithmar PJSC, a Dubai government-owned private equity investor managing US$10 billion, will merge its real estate investments with Nakheel PJSC, another property company owned by its parent.

‘The nature of the real estate assets that we have will be well served by being on Nakheel’s balance sheet,’ Linley Davidson, an Istithmar director, said on Sunday. The combination is expected to be completed by the end of the year.

Since its founding in 2003, Istithmar has bought New York properties including 280 Park Avenue, 450 Lexington Avenue and the Knickerbocker Hotel at 6 Times Square. In November 2007, it bought London’s Adelphi building for US$567 million as part of a plan to capitalise on surging demand for hotel rooms and office space in major Western cities.

Nakheel PJSC has US$30 billion of projects underway in Dubai, including three palm tree-shaped islands, a cluster of islands in the shape of a world map and the Dubai Waterfront development, that aims to extend the emirate’s coastline by 820 kilometres.

Istithmar and Nakheel are owned by Dubai World, a diversified group operating a range of businesses including DP World Ltd.

The merger of the Nakheel and Istithmar real estate units will create a global real estate company with US$52 billion of projects, the Middle East Economic Digest reported. The merger will give Nakheel assets in countries including the UK, the US, South Africa and Singapore, and help its overseas expansion, the London-based weekly magazine said, citing an unidentified Nakheel official.

 

Source: Bloomberg (Business Times 27 Nov 07)

China developer acquiring Spirit World

GUANGZHOU property developer China Yuanbang Property Holdings is acquiring Spirit World Holdings, one of the joint venture partners of its Aqua Lake Grand City project in Nanchang City, Hongjiaozhou for 200 million yuan (S$39 million).

On completion of the proposed acquisition, Spirit World will become an indirect wholly owned subsidiary of the group, which will in turn indirectly hold a 51 per cent stake in New Zhong Yan (Nanchang) Real Estate Development. The latter is another joint venture partner in the Aqua Lake development and holds the development site area of 193,380 square metres, valued at over 400 million yuan.

‘We have confidence in the property market of Nanchang which is growing rapidly. This acquisition will not only enable the group to enjoy more profitability from the sale of properties of the Nanchang project, but also allow the group to reap the gain on the appreciation of the underlying value of the development site,’ said China Yuanbang Property executive chairman Chen Jianfeng yesterday. ‘Furthermore, we will have more control over the cost and quality of the construction,’ he added.

The Aqua Lake Grand City is a mixed property development for the group. It is to be developed in three phases.

The group held its first pre-sales of residential units last month. This saw a strong take-up rate of about 85 per cent with an average selling price of 5,300 yuan per square metre, which is a third higher than the original target selling price of 4,000 yuan.

 

Source: Business Times 27 Nov 07

UK house prices fall in Nov for second month running

Values down 0.2% from October but housing shortage seen limiting declines

(LONDON) UK house prices fell for a second month in November as a jump in credit costs sapped confidence among buyers and sellers, a survey by Hometrack Ltd showed.

The average cost of a home in England and Wales fell 0.2 per cent from October to £175,700 (S$524,400) following a 0.1 per cent drop the previous month, the London-based research group said yesterday. From a year earlier, prices increased 3.6 per cent, the least since July 2006.

Analysts predict the weakest housing market in a decade next year, with borrowing costs at a six-year high and a slowdown in economic growth after contagion from the US sub-prime mortgage market. The central bank signalled this month that the economy may need at least one interest-rate cut in 2008.

‘The fallout from the credit squeeze, along with relatively high interest rates, is resulting in widespread caution among homeowners,’ said Richard Donnell, director of research at Hometrack. ‘It is hard to see the catalyst for any short-term turnaround in market confidence other than interest- rate-cuts early in the new year.’

Property prices fell the most in the East Midlands, where they dropped 0.3 per cent, followed by Greater London’s 0.2 per cent decline. In central London, home values fell 0.5 per cent, Hometrack said yesterday.

Rightmove plc, HBOS plc and the Royal Institution of Chartered Surveyors have also said that house prices fell this month. Sellers should not hesitate to lower the asking price because a more protracted slowdown is on the way, Rightmove, the UK’s most-used property website, said on Nov 19.

Prices may fall next year as a ‘toxic mix’ of higher interest rates, overvaluation and record debt deters property investors, Citigroup Inc predicted on Nov 9.

A housing shortage may limit a decline in values. Construction of new homes stagnated at 148,000 units a year on average between 1989 and 2005, down from a peak of 425,000 in 1968. The economy is also on course to grow at the fastest pace in three years in 2007, buoying demand for property.

‘Values are being supported by a continued tightening in supply,’ said Mr Donnell of Hometrack. ‘But the underlying market conditions remain weak with new buyer registrations down by 26 per cent over the last five months.’

As US sub-prime-mortgage losses spread to Europe, London banks and investment companies may cut jobs and bonuses, which had helped to fuel house prices over the past decade. Workers in the City, London’s financial district, will invest only £2 billion in homes next year, compared with £5.5 billion in 2007, real estate agents Savills plc said on Nov 5.

Britons are shouldering the highest interest rates since 2001 and have amassed record debt of £1.4 trillion. The US sub-prime mortgage slump has also prompted banks to lift mortgage rates, hurting affordability.

Home loans with a fixed rate for two years, the most popular type in the UK, cost an average 6.37 per cent in interest last month, compared with 5.41 per cent a year ago, central bank data showed on Nov 9.

Bank of England deputy governor Rachel Lomax said last week that there are signs that the slowdown in the housing market ‘is gathering pace’. Economists predict that the central bank will cut the benchmark rate in the first quarter, according to the median of 15 estimates in a Bloomberg News survey from Nov 22.

 

Source: Bloomberg (Business Times 27 Nov 07)

Sub-prime crisis takes its toll on European markets

But stability can be expected if the US avoids recession: DTZ

(SINGAPORE) Shockwaves from the US sub-prime mortgage crisis a few months ago are reverberating through the real estate markets of the UK and Europe, with deals shelved or abandoned.

In its European Quarterly 2007 report, DTZ says the volume of transactions could fall at least 15-20 per cent in the third and fourth quarters this year, from record volumes of 48 billion euros (S$102.7 billion) and 53 billion euros in the first and second quarters respectively.

However, if the US avoids recession, stability can be expected.

DTZ group chief executive Mark Struckett says that in the UK other than central London, a price correction in commercial estate market has been underway since the second half of 2006, so the sub-prime fallout is less of a shock.

The current situation is also being ‘accepted by vendors’, he says.

DTZ says the effect so far is not so much the delaying of deals but renegotiation of price with the re-pricing of risk as providers of debt capital become much more risk-averse.

Given upward pressure on yields in many locations, DTZ believes property returns will be heavily dependent on sound occupier fundamentals and effective asset management.

Making a comparison between current market conditions and the period following the Sept 11, 2001 terrorist attacks in the United States, Mr Struckett says that unlike five years ago, ‘occupational demand still looks good’.

In general, DTZ does not expect rental prospects to be substantially undermined by recent developments, though there may be increased downside risk for areas such as London’s West End, where hedge funds and private equity firms are important players.

There could be wider adverse repercussions in the City of London and in Canary Wharf if reduced profitability affects the expansion plans of some banking sector firms.

Even so, Mr Struckett says a slowdown in new developments could lead to a supply shortage in 2010-2011, possibly curtailing any prolonged crisis.

So while debt-driven investors will find it more difficult to make deals add up, DTZ believes a correction in yields in some markets could present attractive opportunities for equity buyers such as life insurance and pension funds which to some extent may have been priced out of the market by highly leverage investors.

Quality assets in prime locations could benefit in a generally more risk-averse market.

DTZ believes a flight to quality is likely to put deals involving secondary locations or older stock most at risk, with investors increasingly willing to pay a premium for covenant strength and reliable rental income.

 

Source: Business Times 27 Nov 07

Cairnhill Mansion up for collective sale

THE Cairnhill Mansion apartment block near the Goodwood Park Hotel, plus an adjoining site, have been put up for collective sale – a transaction that could total nearly $600 million.

The owners of Cairnhill Mansion, which is about 40 years old, want at least $443.6 million for their estate, comprising 60 apartments of 2,024 sq ft each and an 8,525 sq ft penthouse. The freehold block is on a site of 43,103 sq ft.

The adjoining site of 1,800 sq m has a guide price of about $139.4 million.

These price the land at about $2,800 per sq ft (psf) per plot ratio, inclusive of development charge, a level market observers feel may be too high for the area.

It suggests a break-even price of $3,500 psf to $3,600 psf. Last month, units at the luxury development Hilltops at Cairnhill Circle went for a median price of $3,711 psf.

Marketing agent Knight Frank said yesterday that Cairnhill Mansion, which has a plot ratio of 2.8, was earlier granted permission from the Government to raise the ratio to 3.675.

The adjoining site also has a plot ratio of 2.8.

Both sites will be sold by separate tenders, which will close on the same day – Jan 15.

Knight Frank said a developer buying both plots could expect to build about 100 apartments, each of about 2,000 sq ft. Future development there can go up to 36 storeys.

 

Source: The Straits Times 27 Nov 07

Short-term office sites put up for sale to ease crunch

Plots in Aljunied and Mountbatten roads come with 15-year leases

GOOD news for office tenants struggling to find affordable office space in the Central Business District (CBD).

The Government yesterday launched for sale two short-term office sites along Aljunied and Mountbatten roads to ease the office space crunch.

Both plots come with 15-year leases and can house developments of up to three storeys.

The first plot – a 2.12ha site along Mountbatten Road next to the Singapore Association for the Deaf – can take up to 215,278 sq ft of office space.

The other – a 1.89ha site along Aljunied Road just behind the Aljunied MRT station – can house up to 203,276 sq ft of office space.

Consultants expect both sites to draw a good response.

Savills Singapore’s director of marketing and business development, Mr Ku Swee Yong, said the sites would appeal to firms keen to move back-room operations to cheaper spots outside the CBD.

Prime office rents have grown faster in Singapore than anywhere else in the world over the past year, according to a recent report by CB Richard Ellis.

Monthly prime office rental and associated costs shot up 82.6 per cent to $12.60 per sq ft in the 12 months ended Sept 30, it said.

Reacting to the crunch, the Government earlier released two short-term sites along Scotts Road and in Tampines. The first tender was hotly contested, but the other drew just one bid.

Mr Ku blamed the cool response to the Tampines plot on its distance from the CBD.

The two latest sites should get at least five bids each, he predicted.

The tender for the Mountbatten site will close on Jan 9; the Aljunied site, on Jan 16.

Mr Ku estimated the Mountbatten plot could fetch $28 million to $33 million, while the Aljunied site could net $25 million to $28 million.

Mr Nicholas Mak, the head of research and consultancy at Knight Frank, put his estimates at $27 million to $28 million for the Mountbatten plot and $30.5 million to $32.5 million for the Aljunied site.

Meanwhile, mixed development The Riverwalk in the CBD area has been put up for collective sale by tender.

The 0.76ha site, which houses 181 commercial units and 118 apartments, can be redeveloped into a commercial building with a gross floor area of about 403,351 sq ft, said its marketing agent, Jones Lang LaSalle.

This is subject to the authorities’ approval and payment of a development charge – estimated at $3 million – as well as a premium to top up its lease from the existing 72 years to 99 years. This may cost $60 million to $75 million.

 

Source: The Straits Times 27 Nov 07

S’pore ranked 9th most costly Asian city for expatriates

SINGAPORE has risen 10 places in a new global survey of the most expensive places for expatriates to live.

The Republic is closing the gap on higher-priced Hong Kong, which stayed at No. 79 in the survey, conducted by human resources firm ECA International.

Despite the jump, Singapore, at No. 122, is still significantly cheaper for expats than Hong Kong and other key global centres, such as London at No. 10 and New York at No. 48.

Singapore’s rise up the table from No. 132 was the result of rising expat costs such as higher rents, coupled with a stronger Singapore dollar.

In contrast, the Hong Kong dollar, which is pegged to the US dollar, is weakening – offsetting a rise in expat costs.

Singapore is the ninth most expensive Asian city, the survey found. Seoul is the most expensive, at No. 7 in the world. Tokyo dropped from 10th to 13th place, partly due to a decline in the yen.

Top spot went to the African city of Luanda in Angola. Places like this, which are off the beaten track, are more expensive because some expat consumer items are hard to get, and those who want them have to pay top dollar.

The survey compares a basket of 128 consumer goods and services such as groceries, drinks and tobacco, clothing and electrical goods that are commonly purchased by expatriates in more than 300 locations worldwide.

Multinational firms use the survey’s results to help determine how much to pay their staff working overseas.

Living costs for expats are affected by factors such as inflation, availability of goods and exchange rates.

Singapore has seen higher inflation, partly due to a 2 percentage point hike in the goods and services tax to 7 per cent.

Mr Sebastien Barnard, 32, at the British Chamber of Commerce, said living expenses, especially food, have risen. ‘A year ago, lunch for two adults and two children cost about $70, including drinks. But now it’s over $95.’

But the surge in property rents is still the biggest bugbear of expats here.

Mr Mark Brider, 43, head of international personal banking for the Royal Bank of Scotland in Singapore, said: ‘There is a growing number of international people living in Singapore, so the demand drives up rental. My landlord just told me my rent will be raised 80 per cent in March next year.’

Nonetheless, he added, Singapore’s cost of living is still ‘competitive’ and ‘has still not reached the level of Hong Kong’.

The rising Singapore dollar has also pushed up expat living costs, said Mr Lee Quane, general manager of ECA International Hong Kong.

He said Singapore’s rising cost of living is ‘bad news’ for global companies, which have to adjust their expat employees’ pay and allowances to help them maintain their spending power here.

 

Source: The Straits Times 27 Nov 07

It wasn’t me, Greenspan says of housing mess

Sales and price slump not a reflection of Fed policies when he headed central bank

LONDON – FORMER Federal Reserve chairman Alan Greenspan said he has ‘no particular regrets’, and that the deepening slump in the United States housing market is not a result of his policies.

‘Markets are becoming aware of the fact that the decline in house prices is not stopping,’ he said on Sunday. ‘I have no particular regrets. The housing bubble is not a reflection of what we did, as it is a global phenomenon.’

Home prices fell in a third of US cities last quarter, as stricter lending standards caused a 14 per cent drop in sales nationwide, the National Association of Realtors said last week.

Declines in sales and prices signal that the housing slump, which began last year, may extend into its third year, matching the slowdown 18 years ago that ended in the 1991 recession.

The collapse of the US sub- prime market ‘was a shocker because no one expected it’, Mr Greenspan said. ‘It was the weakest link in the international financial sector. The decline in subprime-financed housing starts is over. It went to zero and can’t get any lower.’

Professor Joseph Stiglitz, a Nobel Prize-winning economist, said on Nov 16 that there was a 50 per cent chance the US would slide into a recession after the ‘mess’ left by Mr Greenspan. The retired Fed chairman defended his record in a statement released the same day, saying the criticisms were ‘inaccurate or incomplete’.

After the 2001 recession, the Fed cut its benchmark rate to a four-decade low of 1 per cent. That move, along with a hands-off approach to regulation, has put Mr Greenspan under fire as the bursting of the housing bubble and the sub-prime mortgage crisis threaten to sink the economy.

‘The fact that the Fed funds rate went down to 1 per cent in 2002 was an important part of the latter stages of the housing boom,’ said Mr Bruce Kasman, chief economist at JPMorgan Securities. ‘It wasn’t the only thing, and it wasn’t necessarily a bad thing. In the end, we’re going to look back at what happens next to recognise what the trade-offs were.’

The US dollar’s slump to a record low against the euro may have to be addressed by central bank policymakers, according to Mr Greenspan. ‘Stable prices are necessary for maximum sustainable economic growth,’ he said.

Mr Greenspan, 81, is on a world tour to promote his memoirs.

 

Source: BLOOMBERG NEWS (The Straits Times 27 Nov 07)

Property may be big gainer as real interest rates plunge

Mounting inflation makes it tempting to borrow, but things may change in the long run

(SINGAPORE) Rising inflation may be starting to worry policymakers and the man on the street, but it has had an interesting side effect. It has pushed down the real interest rate dramatically and is expected to drive the property market as buyers and borrowers take on more mortgages, which are costing them very little in real terms.

In fact, real interest rates – which a borrower pays after inflation has been factored in – have fallen sharply as prices climb and could turn negative early next year when inflation is projected to hit a high of 5 per cent, economists said.

Some of the biggest companies – which borrow at wholesale rates – are already enjoying negative interest rates, as inflation since September has risen above the key three-month interbank rate.

Inflation in September was 2.7 per cent but the three-month Sibor or Singapore interbank offer rate was around 2.5 per cent, so real interest rates are in negative territory, according to United Overseas Bank economist Suan Teck Kin.

‘It’s bad for the depositor,’ said Mr Suan.

As OCBC’s Selena Ling put it: ‘There is no free lunch – our savings are also likely fetching a very low if not negative real return currently (calculated by subtracting the inflation rate from the nominal interest rates). The savings rate is about 0.25 per cent, while the 12-month fixed deposit rate is about 0.83 per cent.

But for borrowers, the effect is positive.

‘High inflation is beneficial to the borrower,’ said Standard Chartered Bank economist Alvin Liew. If you borrow $1 now, it will be worth less when you return it in two years.

Inflation jumped to 3.6 per cent in October, the highest since 1991, the Department of Statistics said last week. It is likely that the Monetary Authority of Singapore (MAS) will let the currency appreciate faster to dampen consumer price gains. This, in turn, will lead to more funds flowing to Singapore from investors betting on currency gains, which will keep the pressure on our already low interest rates.

While the three-month interbank rate is expected to remain around 2.5 per cent until the end of this year, some economists expected it to fall to as low as 2.1 per cent early next year before recovering to 2.5 per cent later. Home loan rates typically range from 3 to 4 per cent.

Generally, low interest rates fuel stock market activity. But with people feeling jittery about equities, economists said that many could turn to property to earn higher returns, because putting it on deposit is a ‘losing’ proposition.

Mr Liew pointed out that Singaporeans will have quite a lot of excess cash next year. Recent reports have said that en bloc sales will result in $6 billion swishing around in sellers’ accounts then.

‘One of the key things about high inflation and low interest rates – from an economist’s point of view – is that it will keep the property market robust for the next 12 months,’ he said.

With low interest rates, mortgage credit is cheap and will support the property market, said Citi economist Chua Hak Bin.

Real mortgage rates are probably only slightly positive now, about 0.5-1.0 per cent, compared with about 2-3 per cent three years ago, Dr Chua said. ‘Low real mortgage rates encourage leverage and may drive property prices higher.’

And if the US cuts interest rates aggressively, it may fuel asset inflation, he added.

Citi’s US economics team expects another 100 basis points cut, taking the US federal funds rate down to about 3.5 per cent by the end of Q3 2008, he said.

But all three economists cautioned against over-leveraging given the clouded economic outlook, and they expected inflation to moderate in 2009.

‘Debt servicing/repayment ability as well as degree of leverage of the borrower should be considered together when determining how much one should borrow,’ said Mr Suan. ‘Real interest rate may not be the sole criterion.’

The government is also watching the property market closely, he noted.

DBS Bank spokeswoman Karen Ngui said: ‘Consumers should be mindful that home loans are a long-term commitment and should not just consider the immediate interest rate outlook.’

 

Source: Business Times 26 Nov 07

Firm to sell Malacca Centre retail space

A RETAIL podium at Malacca Centre in Raffles Place has been put up for sale.

The 999-year leasehold property comprises of ground and basement floors and has direct frontages to the main road. The sellers are an investment holding company, said property firm Cushman & Wakefield, which is marketing the property.

The property has a strata titled area of about 5,000 sq ft, said Cushman & Wakefield managing director Donald Han. Market watchers estimate that it could fetch about $24 million, which works out to some $4,800 per square foot (psf).

‘There are a dearth of good retail space and a lack of retail premises for sale in Raffles Place and none offers as prime a retail road frontage or location as this,’ said Mr Han.

Malacca Centre retail podium presents the investor with an attractive cash-on-cash yield potentially in excess of 5 per cent per annum, he said.

The property is sold subject to existing tenancies.

A recent study done by Cushman & Wakefield showed that prime ground and basement retail retail rents and capital values are on the rise in Raffles Place due to the lack of supply.

For strata titled retail units, capital values have risen by 23 per cent since 12 months ago, Mr Han said.

At the nearby The Arcade – which is also strata titled – retail space recently transacted for between $4,900-$5,300 psf, Mr Han said.

Ground floor rents in Raffles Place have risen by 20 per cent in the past 12 months. Average gross rents for Raffles Place ground floor retail is now between $20 to $30 psf, while basement space is fetching between $15-25 psf.

 

Source: Business Times 26 Nov 07

Asia should be on inflation alert: JPMorgan

Countries that let currency strengthen will be better off

(SINGAPORE) Inflation poses a bigger and more immediate threat to countries in Asia than a US economic recession, said a senior equity strategist.

Emerging-market countries that allow their currencies to strengthen in the next 12 months are more likely to see sustained economic growth and escape runaway price inflation later, said Adrian Mowat, chief Asian and emerging-market equity strategist for JPMorgan, in an interview with BT last week.

The JPMorgan view is that there is a roughly one-in-three chance of a brief recession in the United States, with the economy shrinking in the first six months of 2008, then recovering in the second half.

But the economies in Asia have been growing strongly despite weaker demand from the US, where economic growth has been slowing for some time now, he pointed out.

‘I think the real issue for our economies is that they’re growing very rapidly. And if there’s a concern it should be about price stability and inflation.’

So far, central banks in Asia have tended to keep their currencies relatively weak, intervening in order to prevent rapid appreciation, he said.

‘But as we go into 2008, you’ve got the Fed (the US Federal Reserve) cutting interest rates . . . yet we need to push up interest rates to deal with our rapid growth.’

The combination of lower interest rates in the US and higher interest rates and rising price inflation in emerging markets will put greater pressure on central banks in Asia to allow their currencies to strengthen further, he said.

His advice to investors is to favour stocks in markets with strengthening currencies – for now, mainly the Asean countries, mainland China and Hong Kong – as these are more likely to maintain rapid economic growth for longer.

In Singapore, JPMorgan estimates that the Straits Times Index of blue-chip stocks could reach 4,800 points by the end of next year, about 40 per cent above its current level.

Countries which continue to keep their currencies weak would likely see domestic asset prices rising faster in the near term – generating high returns to investors in those assets – but those countries ‘ultimately will end up with an inflation problem that will require higher interest rates and a reduction in growth’, he said.

Others, including senior economists, have also warned that rising price inflation is fast becoming a major risk in emerging markets due to surging food, oil and asset prices.

Philip Poole, HSBC’s chief emerging markets economist, told BT last month that he expects governments and central banks in these countries to step up their fight against inflation, and that 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.

Here, too, the latest indicators suggest that inflation is on the rise. According to official data released on Friday, the consumer price index in October rose 3.6 per cent from a year ago, the fastest year-on-year increase in the monthly indicator of consumer price changes since August 1991.

The Monetary Authority of Singapore said last month in its twice-yearly monetary policy statement that it would allow the Sing dollar to strengthen at a slightly faster pace than before to curb inflationary pressures, while maintaining its long-standing official policy of allowing a ‘modest and gradual appreciation’ of the currency.

 

Source: Business Times 26 Nov 07

Malaysian tycoon enters S’pore luxury homes market

YTL Group plans to build top-end marina, residential projects in region

MALAYSIAN tycoon Francis Yeoh, who helms YTL Group, one of Malaysia’s largest listed companies, is intent on an aggressive expansion in Asia – starting in Singapore.

The Republic is the target of the first part of his grand plan to build a series of world-class marinas and residential clusters in coastal areas around Asia.

He wants Asia to be known as the ‘Mediterranean and Caribbean of the East’.

‘Real estate has not seen its full glory yet in Asia,’ Tan Sri Dr Yeoh said in an interview with The Straits Times recently.

‘Wealthy Asians are still paying a lot for not very good homes in the West, when they should be able to find beautiful homes in the East.’

To address this, YTL is now focused on gaining entry into the top tier of Asia’s property markets, starting with Singapore, he said.

YTL, with a combined market worth of about RM28.5 billion (S$12.2 billion), is a conglomerate that spans the construction, property, hotel and utilities industries. It recently teamed up with Malaysian developer LP Worlds to form a joint venture, Genesis-Alliance, which owns two projects at Sentosa Cove.

Genesis-Alliance, in which YTL holds a majority stake, was awarded the 145,442 sq ft, man-made Sandy Island in March for $89.7 million, after it bagged the Lakefront in the northern part of Sentosa Cove for the bargain price of $50.2 million in September last year.

Sentosa will be an important ‘mid-point’ for yachts cruising in Asia in the future, said Dr Yeoh. Hence, the need for a presence in the Republic.

‘Singapore is the centre of the region, like London is the centre of Europe. Its strong infrastructure, private banking sector and cosmopolitan culture makes it an attractive destination.’

YTL’s strategy is to rope in renowned architects and iconic brands to design quality homes, which will then be sold by invitation only to high net-worth individuals around the world.

It already has high-end properties, shopping malls, hotels and resorts in Malaysia, Dubai, Indonesia, Thailand and Europe, including a six-star hotel in St Tropez, France.

Sandy Island’s super-luxurious villas, slated for launch next March, are designed by renowned Armani store designer Claudio Silverstrin.

Each villa, ranging from 6,000 sq ft to 12,000 sq ft and costing more than $12 million apiece, will boast a lush tropical setting, quality interior finishes, a private berth and pool among other exclusive features.

All this is meant to redefine indulgent living in Singapore and Asia. More homes in this style are on the way, he said.

The company is also eyeing Singapore’s prime residential districts to build more of its high-end homes and to gain entry into the top-end of the island’s property market.

‘It’s not too late yet,’ said Dr Yeoh, adding that a slice of the pie is big enough.

‘But as a new kid on the block, to survive, we must differentiate ourselves. And this is where YTL comes in – at the very top of the pyramid.’

The homes YTL builds will be eco-friendly and minimise the impact on the environment, Dr Yeoh added. ‘Asia is a beautiful location. In terms of real estate, I’m looking forward to a very exciting decade ahead.’

 

Source: The Straits Times 26 Nov 07

ME & MY MONEY – Rentals will pay for his retirement

Swiss-born entrepreneur has six properties that can provide 70% of his income after he retires

MR ROBERT Gremli, 63, who hails from Switzerland, will never forget his first impression of Singapore.

‘It was incredibly hot, as if someone had thrown a hot blanket over me in a steam room,” he said. He wondered at the time how anybody could live in such a hot and humid country.

Still, he decided to stay and now, 35 years later, he is a Singapore permanent resident. An entrepreneur, he runs surface coating firm CRC Engineering.

Both Mr Gremli’s father and brother were in the banking industry, so it was hardly surprising that he made his first million, not from his business, but from investing in stock markets worldwide.

‘I was in my 30s. My brother worked for a Swiss bank and got investment tips. For a number of years, we bought warrants on the Japanese stock exchange. I invested a few hundred thousand Swiss francs, and they grew rapidly, topping a million in the space of four years. We sold them before the crash in 1989-1990.’

When it comes to blue chips, he believes in buying and holding for the long haul, which he did till 2003. The blue-chip firms he invested in included Nestle, Sandoz, Credit Suisse, Microsoft and Sun Micro Systems.

Not content with paper wealth, he wanted to liquidate all his shares in 2000, but his bank made the wrong call and talked him out of it. He finally sold all his shares in 2003, after losing half his paper gains.

Still, he was grateful for his profits. ‘Don’t worry about the money you lose, but be happy about the money you make,’ he said.

Looking back, he estimated that his stock portfolio generated average annual returns of about 8 per cent over a 25-year period.

He believes properties are good investments. Currently, he owns six properties: two apartments in London, three houses outside London and an apartment in Singapore, at Pine Grove, where a collective sale is being attempted.

With the exception of one outstanding home mortgage that will be paid off by early next year, all his homes are fully paid for. His retirement plan is to live off the rental income from these homes.

‘I have learnt that over the long term, properties are very good investments. You can’t go in and out daily. Let them appreciate over time,’ he said.

Married for 35 years, he lives in a rented house near the Bukit Timah Nature Reserve with his British wife, four dogs and two cats.

Q Why did you decide to become an entrepreneur?

A I worked for five different companies in Singapore and found that they were, in general, not efficiently run. They offered no long-term career opportunities and when I finally landed a job with a reputable British company, the management decided to sell the Singapore plant to a local company. After five years of hard work, I was made redundant.

That’s when I decided to go out on my own. In 1981, I became a consultant in machine tools and trading. In 2003, I started CRC.

Q What tough times have you faced as an entrepreneur?

A I was fortunate. In my first month of self-employment, I had sufficient work to make a profit. Then I was hired as a consultant temporarily, and I continued my other business activities while on this assignment.

Tough times came when I teamed up with a friend to buy and sell used machine tools. After making heavy losses on purchases that we could not sell, we started to make money. Then, my partner’s attitude changed, and we had to settle our differences in court. I lost $500,000 or more. Don’t do business with friends if you can avoid it!

Q What are your money habits?

A While I was employed, I always put aside at least 20 per cent of my income.

But since I went out on my own in 1981, I have also borrowed money from the bank to enhance the returns on my investments. The machine tool business needed large sums for stock purchases, which we refurbished and then sold on through dealers in the United Kingdom and Australia.

I took most of my money out of the share market and invested it in properties. This has turned out to be very profitable, and I’m holding on to these properties so I can live off the rental income when I retire.

Q What financial planning have you done for yourself?

A My plan is to live off the income from my assets, so that the principal does not have to be touched.

Properties will provide 70 per cent of my income. I purchased a ‘with-profit fund’ or unit trust in 2001 that invests in shares in the European market. It has done poorly so far, but I hope to get a 5 per cent return in the future.

This represents 10 per cent of my assets. The remainder is in fixed deposits in euros and Australian dollars. I also have a yen carry trade, which has added income to my fixed deposits due to the interest differential.

Q What about insurance planning?

A Except for Medisave and Medishield, I have no insurance. My Swiss insurance agent, who lived to be 93, advised me to take out health insurance only if my assets were below a certain size. After that, he said, there was no need to insure, as I could pay for medical bills from my savings. I think he was right.

Q What property investments do you have?A I invested in properties in England in the late 1980s and early 1990s. My first London property, near Sloane Square, was bought for £240,000 (S$717,288) in 1989; now, it’s worth £900,000.

The other property is near Wimbledon, and my houses outside London are in the Cotswolds and Birmingham.

The house in the Cotswolds, bought in 1993 for £180,000, is generating an annual rental yield of 10.7 per cent.

So far, I have sold one apartment in London, for £385,000 in 2003. That was bought in 1991 for £116,000.

My 1,750 sq ft apartment at Pine Grove was purchased in 1999 for $600,000.

Q Moneywise, what were your growing-up years like?

A There were six of us in the family, including two brothers and a sister. My father was a banker who taught us to save and to work for our money. Even as children, we had savings books and we put our pocket money into the accounts. I followed the same practice when I started working.

Some of my friends had cars whereas I rode around on a bicycle. By the middle of the month, they had half a tank of petrol and no cash.

This made it hard for them to please their girlfriends. I had money in my pocket and could offer my girlfriend a ride in a much bigger vehicle, the municipal bus. My upbringing was strict when it came to money, but I have not regretted it.

Q What has been a bad investment?

A I invested about $25,000 in commodities in the 1980s. When I wanted to withdraw my investment, the broker refused to pay me back. I reported him for corrupt practices. After investigators talked to the company, I got $18,000 back.

I did not learn my lesson, so I invested in commodities again. The broker wanted $20,000, which I was not willing to risk. She then proposed that we share the risk: She would put in half and I would put in the other half.

We went ahead. When I decided to withdraw my share, she was unable to pay me. I lost it all, so I reported the case to the police, and they went after her. I put it down to experience and accepted the loss. Since then, I have not invested in commodities.

A much bigger sum was lost through bad advice. I had US$200,000 (S$289,620) worth of WorldCom shares, which my investment adviser had bought without my approval.

When I asked him why, he said it was such a good investment, every client had to have it. He bought my shares at the peak.

When I wanted to sell all my investments, the investment bank’s chief investment strategist talked me out of it.

Then, all the markets started to decline. They never got back to me to advise me to sell. Today, I still have those shares, which are worth nothing.

Q Your best investment to date?

A My best investment in shares was in Sun Microsystems. I invested US$10,000 at US$9 apiece and held them for four years. At the end of 1999, I sold them for about US$87 each and made US$240,000. I then bought myself a secondhand Mercedes for $82,000 and still had a lot of profit left for my next investment.

Q What’s your retirement plan?

A I plan to work as long as I still enjoy it. After that, the plan is to find a successor to run my business while I continue with a reduced workload. Such an arrangement would ensure that no jobs were lost.

My monthly expenses come to about $12,000.

Q And your car is…?

A My car is a silver Mercedes 300 SEL.

 

Source: The Sunday Times 25 Nov 07