Property sector braces for tougher times in 2008

Players feel squeeze from more credit woes and soaring construction costs

THE property market in Singapore is set to face a challenging year ahead as it continues to take hits from the sub-prime crisis in the United States and rising construction costs, industry body Real Estate Developers’ Association of Singapore (Redas) said.

‘Unfortunately, the sub-prime woe continues to hog the headlines,’ saidRedas president Simon Cheong, during Redas’ annual Chinese New Year celebration yesterday. ‘Six months’ ago, we were concerned with the market exuberance. This coming six months, we are wondering when the market will turn around.’

Construction cost is also spiralling upwards at an unprecedented rate, Mr Cheong said.

The property market’s expected slowdown comes on the back of an exceptionally good 2007. Last year, a record-breaking 14,800-plus residential units were sold, the office occupancy rate hit 93 per cent and the hotel sector saw a occupancy rate of 87 per cent.

But this year, with more write-downs for sub-prime exposure expected from major financial institutions – which could affect home prices and demand here – and high construction costs affecting margins, developers are bracing themselves for tougher times ahead.

‘We are concerned that construction costs have gone up so sharply and squeezed (developers’) profit margins so much that a small decline in the the final selling price will affect developers severely,’ said CB Richard Ellis’ chairman for Asia, Willy Shee. ‘A small increase in construction cost and a small decline in selling price will put developers in a very difficult situation.’

Minister of State for National Development Grace Fu, who was guest-of-honour at Redas’ event yesterday, similarly said that the property market’s prospects are dependent on how the sub-prime crisis is going to affect sentiment in the region.

Mr Cheong believes that the market will ‘get some traction back’ in the second half of this year. Interest rates in Singapore are at a record low, which will encourage home ownership, he said. And the influx of expatriates at all levels coming to Singapore – on the back of an anticipated office supply of 15 million sq ft over the next three to four years – will also provide a boost to the property market, Mr Cheong said.

‘Removal of estate duty also helps,’ said Chia Ngiang Hong, Redas’ first vice-president and group general manager of City Developments. ‘The super-rich will focus on Singapore again.’

Analysts, worried about developers’ prospects for this year, are already starting to recommend that investors put their money into the more diversified property companies and/or switch to real estate investment trusts (Reits).

‘In the current volatile market environment, we recommend stocks of listed property companies with strong balance sheets offering multiple-sector presence and geographical diversification,’ said UOB Kay Hian analyst Vikrant Pandey. Citigroup analyst Wendy Koh said: ‘In the light of the current uncertainties, we retain our preference for Reits over the developers.’

 

Source: Business Times 22 Feb 08

Parkway justifies record land bid with vision for a ‘hospital of the future’

Focus will be on cardiology, oncology and orthopaedics

(SINGAPORE) Parkway Holdings will be building on its newly-acquired Novena site what it calls a ‘hospital of the future’, that will incorporate a hub of top medical professionals, with the latest technology, organised along a high level of thoughtfulness for the patient.

Speaking to the press and analysts for the first time since winning the Novena hospital site at a record bid of $1,600 per square foot per plot ratio (psf ppr), Parkway’s management yesterday justified the price – more than double the second-highest bid of $694.50 psf ppr.

‘We are already operating with capacity constraints at our present facilities, and with the ageing population and changing demographics, we would not be able to contribute as much as a leading private healthcare provider,’ said group president and CEO Lim Cheok Peng.

‘Administratively, we have begun to move non-clinical functions off-site to free up more space for the hospitals. This would not be enough as the shortfall for private patient beds by 2012 could be as many as 2,000.’

Parkway – which houses 767 beds at the Mt Elizabeth, Gleneagles and East Shore hospitals – is already operating at about 70 per cent capacity.

For a long-term solution to better manage patient turnover and expand its catchment of international patients, ‘it had to secure the land’, said chairman Richard Seow.

Development cost for the new hospital is estimated to be $300-500 million. To be completed by July 2011, it will have a 15-storey tower, linked to a five-storey podium block that will house mainly medical suites, retail and lobby areas.

The development will have a maximium gross floor area of 72,350 sq m, of which 30 per cent will be set aside for medical suites and 5 per cent for retail space. A large part will be taken up by the 324 patient rooms planned, and the rest for diagnostics and ancillary services, and a 255-lot basement carpark.

The new private hospital will focus on cardiology, orthopaedics and oncology specialties. It will also feature 100 per cent single rooms, patient floor balconies, gardens and rooftop landscape to enhance the inclusion of light and nature in a healing environment. The architect for the project is Hellmuth, Obata + Kassabaum (HOK).

Parkway was unable to discuss financial details ahead of the announcement of its full-year results, scheduled for release next Wednesday. But it had earlier indicated that the acquisition of the land, amounting to more than $1.2 billion, and the development cost will be financed through a mix of internal resources and bank borrowings.

Parkway shares have taken a beating this week since the award of the tender for the Novena site on Monday.

On the same day, its shares fell 8.3 per cent to $3.30 on concerns that the group may have overpaid for the land.

But COO Daniel Snyder yesterday expressed confidence in the project, saying that his strategy and business development team has been receiving calls from parties with investment offers.

The group has also received ‘unanimous support from our accredited doctors and partners’.

Parkway shares ended 4 cents lower to close at $3 yesterday.

Source: Business Times 22 Feb 08

Office rents in Singapore on upward climb: property firms

THE occupancy cost for office space in Singapore is now higher than in Hong Kong, according to a new report.

Data from property firm CB Richard Ellis (CBRE) show that total occupancy cost here hit US$10.42 per square foot per month (psf pm) at the end of 2007.

By comparison, total occupancy cost for Hong Kong was US$9.74 psf pm at the end of last year.

Total occupancy cost reflects base rents as well as other property-related expenses such as management fees and property tax, according to CBRE.

Prime office rents in Singapore rose 19.1 per cent in just the fourth quarter of 2007, CBRE’s report said. For the entire year, office rents rose a staggering 92.3 per cent.

‘Competition for pockets of vacant space in the central business district (CBD) remained intense, and several expansion transactions towards the end of the (fourth) quarter suggested that demand may be sustained,’ CBRE said.

In response to the report, the Urban Redevelopment Authority (URA) pointed out that CBRE represents just one viewpoint.

A recent Cushman & Wakefield (C&W) report, for example, said that office occupancy cost for prime office space in Singapore was US$10.80 psf pm in end-2007, much lower than the US$19.90 psf pm in Hong Kong.

The discrepancy between the two sets of data was due to the fact that CBRE considers office space in Hong Kong’s CBD as well as other areas outside the city centre when compiling office occupancy cost data for Hong Kong – while C&W only considers Hong Kong’s CBD.

Both firms look only at Singapore’s CBD when calculating occupancy cost here.

Separately, property firm Savills – which said that office rents in Singapore are close to Hong Kong’s at present – predicted that rents here could increase by another 15-20 per cent this year.

Office rents in Hong Kong, on the other hand, are expected to rise by a slower 5 per cent in 2008, said Simon Smith, Savills’ head of research and consultancy. He expected rents in Singapore to overtake rents in Hong Kong sometime this year.

Mr Smith also said that luxury home prices in Singapore will climb 8-12 per cent this year, after jumping about 50 per cent in 2007.

 

Source: Business Times 22 Feb 08

Tanjong Pagar hotel site may fetch $750 psf ppr

CONTINUING its rollout of hotel sites amid the current shortage of hotel rooms, the Urban Redevelopment Authority yesterday made available for application a reserve-list site in the Tanjong Pagar area.

The 99-year leasehold site, at the corner of Gopeng Street and Peck Seah Street, can be developed into a 30-storey hotel with about 330 hotel rooms.

The site will only be launched for tender upon successful application by a developer with an undertaking to bid at a minimum price which is acceptable to the state.

CB Richard Ellis executive director Li Hiaw Ho estimates that the plot could be worth about $700-750 per square foot of potential gross floor area.

Around the middle of last year, URA sold nearby hotel sites at Tanjong Pagar Road for $573 psf per plot ratio and $562 psf ppr.

The planning authority also awarded a hotel plot at Upper Pickering Street at $805 psf ppr and another plot at New Market Street/Merchant Road for $762 psf ppr in October 2007.

The latest plot, with a 2,311.3 square metre land area, has an 8.4 plot ratio (ratio of maximum potential gross floor area to land area) and a 30-storey height limit.

‘The plot will be ideal for a four-star business hotel serving the needs of businesses in the Central Business District,’ Mr Li said.

URA said that the Tanjong Pagar area was a ‘prominent gateway leading directly into the main financial and business areas of Shenton Way, Raffles Place and Marina Bay’.

‘It is also home to several hotels which have been established to serve the business community and tourist visitors. These include business hotels like the Amara and M Hotel, as well as award-winning hotels like Berjaya Hotel and The Scarlet.’

The planning authority, which is due to release Master Plan 2008 later this year, also noted that ‘the successful sale and on-going development of several new office, high-rise residential and hotel sites in the area will further enhance the vibrancy and activities of the Tanjong Pagar commercial district’.

 

Source: Business Times 22 Feb 08

2 good class bungalows on Leedon Road up for sale

A PAIR of recently completed Good Class Bungalows at 37 and 39 Leedon Road are being launched by their developer George Lim. His asking price is about $35 million for each bungalow. The plots’ land areas are 22,000 square feet and 21,000 sq ft respectively.

Each five-bedroom, two-storey freehold house has a basement garage for up to five vehicles.

The exteriors are clad in natural sandstone, while inside there is AMX movie-on-demand hardware.

Mr Lim launched his maiden project in 2005 with three Good Class Bungalows built on a 50,000 sq ft site in the Belmont area.

 

Source: Business Times 22 Feb 08

Maybank’s home loan promotion creates a buzz

Other banks won’t get into price war, says OCBC’s chief executive

(SINGAPORE) Maybank’s promotional home loan package has apparently drawn massive interest from new home buyers and home owners looking to refinance.

But at least one bank here has come out to say that this is unlikely to spark a mortgage price war in Singapore.

Maybank told BT that since the launch on Tuesday till end of Wednesday, the bank had received more than 1,500 inquiries at its call centre and branches. ‘We have received close to 200 applications just for one and a half days,’ said Helen Neo, head, consumer banking, Maybank Singapore.

She added that there is an equal split of applications for refinancing and new purchases and most of the applications are for private property home loans.

However, she said the promotion is not likely to be extended.

The low rates apply to those taking a loan amount of $300,000 and above and for owner-occupied properties.

On Tuesday, the Qualifying Full Bank slashed its three-year fixed home loan rates from 3.58 per cent for all three years to 1.68 per cent for the first year, 2.68 per cent for the second and 3.38 per cent for the third year. Maybank’s new first-year interest rate is about 40 per cent lower than similar packages being offered in the market.

‘We expect this promotional package to bring in new home loan customers. With this very attractive package, we do expect to meet the target we set,’ said Ms Neo.

In response to Maybank’s mortgage rate cut – which he referred to as a ‘fire sale’ – David Conner, OCBC Bank’s chief executive, said banks are unlikely to be dragged into undercutting each other on rates.

‘We’re not likely to see a big price war with the mortgage portfolio,’ said Mr Conner at yesterday’s OCBC results briefing. ‘We should see pricing firming and not deteriorating.’

He noted that most big multinational banks are strapped for capital and that credit spreads are rapidly rising. ‘We have to be more careful with our pricing,’ he said, adding that Singapore still remains one of the cheapest places to get a mortgage.

He noted that Singapore’s interest rates are low today because the strengthening of the Singapore dollar – designed to stave off inflationary pressure – has attracted liquidity into the market.

He said the strengthening of the currency should slow down in the second half of the year, and liquidity will ebb as people move to other foreign currencies. This will bring down interest rates.

He added: ‘Banks do better if interest rates are in the 3, 4 or 5 per cent range.’

DBS Bank had earlier said it has ‘no plans to adjust rates’ for now, while United Overseas Bank and HSBC both said they would monitor the situation before making a decision.

Citibank and Standard Chartered shied away from saying if they will review rates, but pointed to their Sibor packages, which they say give customers control in repricing loan packages.

Meanwhile, banking industry insiders said that fundamentals of the property market are still there, and that even with talk of the industry demand softening there was no panic selling.

They added that valuations for home prices have not come down and that there is still buying activity among the middle markets.

 

Source: Business Times 22 Feb 08

$6.4b Budget surplus poser: Was GST hike needed last year?

The question may be visited during the Budget debate

(SINGAPORE) The $6.4 billion bumper Budget surplus racked up in FY2007 has begged the question – was there a need to raise the Goods and Services Tax (GST) by two percentage points last July, if at all?

The issue has surfaced in Budget talk public and private this week, and will likely be touched on in Parliament when it convenes next week for the Budget debate. Given the surprise haul – against a $0.7 billion deficit originally projected – and the usual misgivings the public would have about any tax increase, it’s a question to be expected.

While the buoyant economy and runaway property market last year did cue, by recent weeks, expectations of a Budget bounty, the $6.4 billion surplus still exceeded analysts’ projections by at least $1 billion.

From another perspective, though, the latest surplus amounts to less than 3 per cent of GDP, and is – in absolute terms and relative to GDP – nowhere near the highs notched up during Singapore’s track record of straight strong surpluses in the 1990s.

Still, the question remains – was it necessary to hike the GST rate to 7 per cent last July amid then ‘boom-time’ conditions? Could not government spending on various social and infrastructure programmes be funded from operating inflows and reserves?

Prime Minister Lee Hsien Loong explained the backdrop to funding government spending in a speech in Parliament in November 2006, when he first served notice of an impending GST hike to 7 per cent.

In essence: Government spending can only be partly funded by investment income from the reserves (with the nest-egg left intact to grow). The rest of the expenditure must be met by other revenue, mainly tax. And with countries slashing corporate tax rates over the years in a global race to compete for investments, Singapore cannot increase direct taxes to raise revenue. Instead, with an eye on competitiveness,

Singapore’s corporate tax rate has been progressively lowered over the years, most recently by two points to 18 per cent from Year of Assessment 2008 in the 2007 Budget.

And it could go down further – as, too, could the personal income tax rate, left untouched this year. In the latest Budget statement, the Finance Minister held out hope, saying: ‘We will reassess our options on corporate and personal income tax and lower rates further should it become necessary.’

As direct taxes get cut, indirect taxes must rise to make up for the revenue shortfall. The GST hike was part and parcel of a fiscal restructuring from direct to indirect taxation, with the impact of its hits softened, if not entirely absorbed, by a package of offsets.

Still, the question might persist: What revenue shortfall in a boom year?

Well, leaving aside its staunchly conservative stance, the government could not have foreseen the property market boom when it decided early last year on the July 2007 date for raising the GST. The market had not quite stirred, let alone exploded. At that point, the Singapore economy was expected to grow 4.5 to 6.5 per cent in 2007. But GDP growth for the year came in at 7.7 per cent.

As it turned out, the biggest boosts to the coffers in FY2007 – stamp duty and property-related revenue – were $3.4 billion above projections. But stamp duty, which amounted to $3.8 billion, did not even figure as a separate item in the revenue table of early estimates in the FY2007 Budget – it was probably lumped under ‘other taxes’.

 

Source:

$6.4b Budget surplus poser: Was GST

hike needed last year?

The question may be visited during the Budget debate

By ANNA TEO

(SINGAPORE) The $6.4 billion bumper Budget surplus racked up in

FY2007 has begged the question – was there a need to raise the Goods

and Services Tax (GST) by two percentage points last July, if at all?

The issue has surfaced in Budget talk public and private this week, and

will likely be touched on in Parliament when it convenes next week for

the Budget debate. Given the surprise haul – against a $0.7 billion deficit

originally projected – and the usual misgivings the public would have

about any tax increase, it’s a question to be expected.

While the buoyant economy and runaway property market last year did

cue, by recent weeks, expectations of a Budget bounty, the $6.4 billion

surplus still exceeded analysts’ projections by at least $1 billion.

From another perspective, though, the latest surplus amounts to less

than 3 per cent of GDP, and is – in absolute terms and relative to GDP -

nowhere near the highs notched up during Singapore’s track record of

straight strong surpluses in the 1990s.

Still, the question remains – was it necessary to hike the GST rate to 7

per cent last July amid then ‘boom-time’ conditions? Could not

government spending on various social and infrastructure programmes

be funded from operating inflows and reserves?

Prime Minister Lee Hsien Loong explained the backdrop to funding

government spending in a speech in Parliament in November 2006,

when he first served notice of an impending GST hike to 7 per cent.

In essence: Government spending can only be partly funded by

investment income from the reserves (with the nest-egg left intact to

grow). The rest of the expenditure must be met by other revenue, mainly

tax. And with countries slashing corporate tax rates over the years in a

global race to compete for investments, Singapore cannot increase

direct taxes to raise revenue. Instead, with an eye on competitiveness,

Story Print Friendly Page Page 1 of 2

http://www.businesstimes.com.sg/sub/storyprintfriendly/0,4582,268583,00.html? 22/2/2008

Singapore’s corporate tax rate has been progressively lowered over the

years, most recently by two points to 18 per cent from Year of

Assessment 2008 in the 2007 Budget.

And it could go down further – as, too, could the personal income tax

rate, left untouched this year. In the latest Budget statement, the

Finance Minister held out hope, saying: ‘We will reassess our options on

corporate and personal income tax and lower rates further should it

become necessary.’

As direct taxes get cut, indirect taxes must rise to make up for the

revenue shortfall. The GST hike was part and parcel of a fiscal

restructuring from direct to indirect taxation, with the impact of its hits

softened, if not entirely absorbed, by a package of offsets.

Still, the question might persist: What revenue shortfall in a boom year?

Well, leaving aside its staunchly conservative stance, the government

could not have foreseen the property market boom when it decided early

last year on the July 2007 date for raising the GST. The market had not

quite stirred, let alone exploded. At that point, the Singapore economy

was expected to grow 4.5 to 6.5 per cent in 2007. But GDP growth for

the year came in at 7.7 per cent.

As it turned out, the biggest boosts to the coffers in FY2007 – stamp duty

and property-related revenue – were $3.4 billion above projections. But

stamp duty, which amounted to $3.8 billion, did not even figure as a

separate item in the revenue table of early estimates in the FY2007

Budget – it was probably lumped under ‘other taxes’.

Singapore’s Olympic dream comes true

It wins right to host YOG 2010; SMEs poised to ride branding boom

(SINGAPORE) Shortly after 7pm yesterday, the Padang erupted. The two-horse, Moscow-versus-Singapore race to host the very first Youth Olympic Games (YOG) in 2010 had just seen Singapore breast the tape first, and everyone – from the Prime Minister to the other VIPs present to the business community and the thousands of school children – let their emotions show.

‘We dared to dream, we worked hard to pursue our dream despite the odds. Now that dream will become a reality,’ said Prime Minister Lee Hsien Loong to the cheering crowds who had seen the announcement broadcast ‘live’ on a giant screen.

‘It will be the first time that the Olympic flame will be in South-east Asia and in Singapore. We will be the focus of a new era for sporting development for South-east Asia and Singapore,’ PM Lee added.

Small and medium-sized enterprises (SMEs), in particular, can stand to benefit from the hosting of the YOG.

Parliamentary Secretary for the Ministry of Community Development, Youth, and Sports, Teo Ser Luck, emphasised that the YOG would be a platform to help local companies, possibly through second-tier sponsorship.

‘Olympics is a big brand name. The main sponsors of the Olympics are global brands. What I hope to do is to have the YOG to bring up the brand awareness of our local companies, especially the SMEs,’ he said.

The win comes after seven months of stiff competition. The initial list of 11 cities was whittled down to two before Singapore pipped Moscow thanks to its top-notch infrastructure, strong governance and security.

The next step for Singapore is to set up an organising committee, which is expected to include people from both the government and private sector. Ng Ser Miang, the International Olympic Committee member from Singapore, is expected to chair the committee.

Elim Chew, president and founder of 77th Street, who has been rallying business associates to show their support, told BT that she had been confident that Singapore would win. ‘We reflect what Olympism is about – youth, spirit and community. The whole nation played a part. In the last one month, the atmosphere really built up,’ she said, adding that the economy would reap rewards. ‘It is important to build up Singapore businesses as it goes back to the economy.’

In recent months, over 700 companies have come forward to back Singapore with whole-hearted support and raise awareness through banners, videos, websites and car decals.

The YOG, which will be held in August 2010, is expected to welcome some 5,000 athletes and officials and will offer contests in 26 different sports.

 

Source: Business Times 22 Feb 08

Japan’s exports improve despite US slowdown

Rising import costs due to surging oil, gas prices cause big trade deficit in Jan

IN TOKYO

FACED with slowing demand in the US market, Japan’s exports still managed to improve last month on the back of solid sales to other parts of Asia and to Europe.

But surging oil and natural gas prices pushed the country’s import costs up sharply in January, resulting in an unexpectedly large trade deficit for the month.

The slowdown in the US economy in the wake of the sub-prime mortgage crisis has aroused fears that Japanese exports could take a bad knock, inflicting damage on the economy or even pushing it into recession.

But so far, global demand for Japanese motor vehicles, electronics and other key exports is holding up quite well, data published yesterday showed.

While exports to the US market fell by 3.2 per cent in January, marking their fifth consecutive monthly decline, those to China (which is now Japan’s leading export destination) rose by 4.6 per cent, and the net result was that overall exports for the month rose by 7.7 per cent to 6.41 trillion yen (S$83.6 billion).

But imports jumped by 9 per cent for January to 6.49 trillion yen as oil and natural gas prices surged.

The result was that Japan suffered a near-80 billion yen trade deficit – its biggest in two years.

Economists had predicted a 35 billion yen trade surplus for the month, and some warned that with fuel costs still rising Japan could suffer even larger deficits from now on.

Another reason for caution about the trade picture is that while exports to China are still robust and growing, the rate of growth is slowing, analysts said.

While sales of Japanese motor vehicles to China remain strong, demand for Japanese electronic products in China is weakening, yesterday’s data showed.

The relatively strong trade picture in January came after data last week showed that Japan’s economy expanded at a much more rapid rate than expected 3.2 per cent on an annual basis during the final quarter of last year.

Even so, economists say that the real test of the resilience of the economy will come in the first half of this year as the full impact of the sub-prime crisis is felt by the global economy, including that of China.

 

Source: Business Times 22 Feb 08

US Fed to focus on growth with possible risk of inflation

Most other central banks put a single goal above all others: stable prices

(WASHINGTON) A nightmare scenario of rising prices and falling growth emerged on Wednesday as the US government reported that consumer prices are surging even as the beleaguered housing sector remains stuck in its worst slump in a quarter century.

The combination of inflation and faltering growth – the infamous ’stagflation’ of the 1970s – creates a potential double bind for economic policymakers: Fight one and you risk feeding the other.

To the amazement of many analysts, however, the Federal Reserve Board signalled that it already has decided how it intends to attack that problem: By fighting the slowdown through continued interest rate cuts, while accepting the risk of higher prices.

In the minutes of its late January meetings and several conference calls released on Wednesday, central bank officials made clear that they would go for growth even if it means somewhat higher inflation.

‘In 2007, they were balancing their two objectives of price stability and sustainable economic growth,’ said Vincent Reinhart, former director of the Fed board’s division of monetary affairs. But now, said Mr Reinhart, ‘they care about growth first. They’re going to take a chance with inflation, and if you look at their projections they think they can get away with it’.

The danger is that prices will get out of hand as they did in the 1970s, and as they gave some hint of doing again in the report of January inflation.

The 0.4 per cent increase in the overall Consumer Price Index reported for last month was higher than analysts had expected. But what was most striking about the latest report was that the rises were not limited to the usual suspects, food and energy. Instead, they involved things that previously had fallen or remained stable – and thus had helped offset the recurrent food and energy increases.

Computer prices, for instance, which had tumbled 12 per cent over the past year, rose one per cent last month, said Stephen Cecchetti, former research director of the New York Federal Reserve Bank.

And restaurant meals, which have been stable till now, rose at a 4.9 per cent annual rate, he said.

And some analysts said the Fed’s decision to put boosting growth ahead of curbing inflation was almost immediately reflected in some new price increases. The benchmark gold price in New York rose to US$934.60 an ounce, up US$8, as investors snapped it up as a hedge against the inflation some fear the Fed will cause.

The Fed’s new priorities, together with tight supply, could have the same effect on oil. ‘I think oil has a shot at hitting US$150 a barrel before the end of the year,’ said Peter Schiff, CEO of Euro Pacific Capital, a brokerage house. ‘This is a highly inflationary period, and we’re creating the inflation.’

Over the past month, Fed leaders repeatedly signalled that their long-standing concern about inflation was giving way to worry about growth, housing and a freeze-up of the financial markets.

And the Fed’s policymaking Federal Open Market Committee made some of the steepest interest rate cuts in the central bank’s history in January.

But until Wednesday, the Fed had not said that it thinks rates will have to be held ‘relatively low’ for an extended period, as the newly released minutes do. Nor had it acknowledged that the low rates will mean somewhat higher inflation, as the forecasts included in the minutes effectively do.

‘Several participants noted that the risks of a downturn in the economy were significant,’ said the minutes of the Fed’s conference calls on Jan 9 and Jan 21 and Jan 29-30 meeting. ‘Many participants were concerned that the drop in equity prices, coupled with the ongoing decline in house prices, implied reductions in household wealth that would likely damp consumer spending.’ Some members of the FOMC said that when the economy had improved ‘a reversal of a portion of the recent easing actions, possibly even a rapid reversal might be appropriate’, said the minutes.

Still, policymakers suggested that their interest rate cuts are not feeding inflation as the economy is so weak there’s no pressure to push up prices. Their position was hard to square with the latest report of price rises and a pick-up in the speed of those rises.

The depth of the economic quandary in which the country and the Fed find themselves, and risk that policymakers are running in pursuing the strategy they have chosen is clearest when contrasted with that of other central banks. Most of the world’s central banks put a single goal above all others – stable prices.

‘The Fed is inverting that,’ Mr Reinhart said. ‘They’re putting growth first.’ Supporting the Fed’s slow-growth outlook, the Commerce Department said on Wednesday that housing construction puttered along at a 1.012 million home rate in January. That was a pick-up of 0.8 per cent from December’s pace. But analysts wrote off the improvement as a fluke.

Fed policymakers predicted that anaemic growth will nudge up the unemployment rate from its current 5 per cent to between 5.2 per cent and 5.3 per cent this year. That was up from their previous prediction of 4.8 per cent to 4.9 per cent.

Most strikingly, they forecast that the combination of their own growth-spurring interest rate cuts and other forces at work in the economy will cause inflation to rise faster than they had predicted previously. Using their favoured way of measuring inflation, they predicted an overall increase in prices of between 2.1 per cent and 2.4 per cent, higher than their previous prediction of 1.8 per cent to 2.1 per cent, and higher too than what was widely thought to be the outer limit of their comfort zone with inflation of 2 per cent.

Within the CPI, the so-called core inflation rate – excluding food and energy – was up 2.5 per cent for the 12 months ended Jan. 31.

 

Source: LAT-WP (Business Times 22 Feb 08)

US growth forecast cut but S’pore economists unperturbed

Outlook for Republic has already factored in a more severe slowdown for US

THE Federal Reserve on Wednesday cut its forecast for United States economic growth, but the move left American investors and economists in Singapore unfazed.

The US central bank now expects the world’s biggest economy to expand between 1.3 per cent and 2 per cent this year, down from a previous prediction of 1.8 per cent to 2.5 per cent.

The Fed’s weaker outlook ironically sent Wall Street stocks up as investors read the downgrade to mean that more interest rate cuts were on the way.

In Singapore, economists say a slower US economy is bad news for exporters. They add, however, that forecasts for the local economy, including that of the Singapore Government’s, have already factored in a more severe US slowdown.

‘People are already factoring in the worst for the US,’ said Mr Joseph Tan, a Fortis Bank currency strategist based in Singapore. ‘That worst-case scenario has been factored in and priced in.’

The Trade and Industry Ministry trimmed its Singapore growth forecast on Feb 14 to 4 per cent to 6 per cent. It said even if the US is stuck in a long and deep recession, the local economy should at least achieve the lower end of its forecast range.

Wednesday’s forecast was the Fed’s second downward revision since last November, when it cut its US growth estimate for this year by 0.75 percentage point.

It said the latest revision was due to a number of factors, including a worsening housing market, tightening credit conditions, ongoing turmoil in financial markets and high oil prices.

With growth slowing more severely, the Fed now expects the unemployment rate to increase further to between 5.2 per cent and 5.3 per cent, up from its old forecast of 4.9 per cent.

The Fed’s latest forecast was published with the minutes of the Federal Open Market Committee’s Jan 29 to 30 meeting, at which members trimmed 0.5 percentage point off the key federal funds interest rate to 3 per cent.

The minutes showed that several members noted that ‘the risks of a downturn in the economy were significant’.

‘With no signs of a stabilisation in the housing sector and with financial conditions not yet stabilised, the committee agreed that downside risks to growth would remain even after this action,’ the minutes said, referring to the Fed’s most recent rate cut.

These comments and the weaker outlook have raised expectations that the Fed will lower the target rate for overnight loans among banks again at its next meeting on March 18. The Fed has slashed rates by 2.25 percentage points since September, including an emergency 0.75 percentage point cut on Jan 22.

‘The Fed’s main focus will remain the weakening economy and dysfunctional credit markets,’ Merrill Lynch economist David Rosenberg told Agence France-Presse. ‘We continue to expect the Fed to keep cutting rates and still look for a 50-basis-point reduction in the funds rate on March 18.’

Deutsche Bank economists added that if the US slips into a recession, the benchmark rate is ‘likely to go down to 2 per cent, if not a bit less’.

But what is causing more worries is escalating inflation, which hit a two-year high last month.

The Fed on Wednesday bumped up its projection for core inflation, which excludes volatile food and energy prices. It expects this to hit between 2 and 2.2 per cent, up from a prior forecast of 1.7 to 1.9 per cent.

The combination of rising inflation and slowing growth has led some analysts to recall the infamous 1970s spectre of ’stagflation’.

The economic phenomenon presents policymakers with a tough dilemma: Easing interest rates will boost growth but spur inflation, while hiking rates will do just the opposite.

 

Source: The Straits Times 22 Feb 08

Quieter property market but outlook favourable in long run

THE real estate roller coaster that developers have ridden in recent years has taken a sharp turn, thanks to United States sub-prime woes, and left the industry wondering what is coming next.

‘Six months ago, we were concerned about the market exuberance,’ said Mr Simon Cheong, the president of the Real Estate Developers’ Association of Singapore (Redas), yesterday. ‘These coming six months, we will be wondering when the market will turn around.’

After an exceptional year of strong prices and sales, the sector has slipped into the doldrums, with buyers and sellers taking cover from the onslaught of a global economic uncertainty, America’s sub-prime mortgage crisis, stock market turmoil and escalating building costs.

Mr Cheong told a Redas Chinese New Year lunch: ‘Though Asia’s economy has a strong buttress – China – the temporary effect of weak sentiment from sub-primes will affect buying for at least the first half of this year.’

Sellers are also lying low, with developers delaying launches and pushing back project completion dates amid the construction squeeze.

Building costs have climbed at an ‘unprecedented rate’, added Mr Cheong, who is also chairman and chief executive of SC Global Developments. ‘What is clear is that developers are bearing the brunt of higher construction costs. Something’s got to give eventually.’

Developers will have to factor in high construction costs when they replenish their land bank, he said.

However, in the longer run, the market outlook is favourable, considering the Singapore economy’s sound fundamentals.

‘Rental yields will eventually dictate and underpin what capital values will be for property,’ said Mr Cheong.

The expected slowdown in supply will support the rental market.

Minister of State for National Development Grace Fu told the media during the lunch that the market may be quiet, but prices are firm while demand for commercial property is still resilient.

Those sentiments were echoed by consultancy Savills Singapore, which expects the office sector to stay buoyant.

Deputy managing director Simon Smith told a press conference that average prime rents should match Hong Kong’s by the second quarter and surpass them by year-end.

This is because Hong Kong will see a lot of new supply coming onstream this year while Singapore’s supply will remain tight in the short term, he said.

But higher rents in Singapore may not be enough to push businesses to Hong Kong. ‘Many clients we see switching between the cities tend to do so because of strategic reasons rather than cost reasons,’ said Mr Smith.

 

Source: The Straits Times 22 Feb 08

Development fees may jump for non-residential sites

For residential areas where strong land sales have lifted values, charges could surge

DEVELOPERS may soon have to pay more to redevelop non-residential sites such as land for hotels or hospitals.

A key government fee for redeveloping sites will be revised again next month, and property consultants expect it to be raised for land used for purposes other than to build homes.

The good news is: Development charges should not jump much for residential plots this time, after already having been jacked up a few times last year.

Selected areas, however, could still see bigger fee hikes, said consultants. These include Novena, Geylang, Ang Mo Kio and Orchard Boulevard, where recent strong land sales have pushed up values.

Development charges, which can amount to millions of dollars, are based on recent land and property values. They are calculated based on sectors and 118 locations, and adjusted in March and September every year to keep them up to date.

A rise in these charges for residential sites in some areas means that, for instance, it would be more expensive for developers to buy and redevelop collective sale estates in these parts of Singapore.

Overall, however, the current slowdown in the housing market means that the upcoming round of revisions should result in only very moderate rises for most residential sites.

Development charges for non-landed residential sites are likely to go up by only 10 per cent on average, compared to 58 per cent last September, said Ms Tay Huey Ying, the director of research and consultancy at Colliers International.

She said the soaring land prices that sent development charges surging last year have ’screeched almost to a halt’ since last September.

In particular, the collective sale market – previously the main driver of spikes in development charges – has quietened to near-silence in the last few months.

Consultancy CB Richard Ellis also said it expects only ‘moderate increases’ in selected locations. These include Sixth Avenue and Sentosa for landed sites and Ardmore and Orchard Boulevard for non-landed sites.

It suggested that the Government may also slow the rate of rises in development fees after taking into consideration the ’subdued state’ of the residential market. The once-frenzied response to both development sites and new home launches has waned significantly.

On the other hand, non-residential sites – including hospital, hotel, office and industrial land – are still seeing buoyant activity and could be subject to heftier fee hikes.

Hospital land could see the biggest overall hike in charges, boosted by the recent record bid for a stateowned site at Novena, said Colliers’ Ms Tay. She is projecting a rise of between 15 per cent and 20 per cent on average for hospital sites.

DTZ Debenham Tie Leung added that funds have been moving their investments into hospital assets in Singapore, which could also prompt a rise in the development fees for this sector.

Also, industrial land – which saw a rise in development fees of just 2 per cent in the last round – should experience a much bigger jump, said consultants.

Office and hotel plots are also expected to have their development charges raised, by at least 30 per cent, said Jones Lang LaSalle.

Its director for South Asia research, Mr Chua Yang Liang, said the fees could be pushed up by recent office land sales at Jalan Sultan and Toa Payoh, and hotel plot sales at Upper Pickering Street and New Market Road.

 

Source: The Straits Times 22 Feb 08

DELISTING A SUBSIDIARY

CapitaLand raises Ascott stake to 91.7%

CAPITALAND is on track to delist its serviced apartment unit, The Ascott Group, after lifting its stake in the firm to 91.7 per cent.

The property giant said yesterday that once its offer expires next Tuesday, Ascott shares ‘may be suspended’ by the Singapore Exchange.

CapitaLand has stated its aim of delisting Ascott. It has said it ‘will not take any action for such trading suspension to be lifted’.

Under listing regulations, the shares of companies with less than 10 per cent of freely available shares may be suspended.

In a surprise announcement last month, CapitaLand made an offer of $1.73 per share for Ascott shares held by minority shareholders. CapitaLand, which already held 66.5 per cent of Ascott’s shares then, added that it did not intend to revise its offer, which represented a 43 per cent premium over Ascott’s then-last traded price of $1.21.

The price was a massive 145 per cent premium over Ascott’s book value of 70.6 cents, and about 17 times Ascott’s earnings in the 2007 financial year.

Just last week, independent financial advisers recommended that Ascott’s minority shareholders either take CapitaLand’s offer or try to sell the shares on the open market before the offer closed.

Ascott is the biggest operator of serviced apartments in Asia and Europe.

Source: The Straits Times 22 Feb 08

‘US has slipped into recession’

NEW YORK – THE United States economy is in a recession, albeit a mild one, as a weakening consumer sector has compounded ongoing problems in the housing and credit markets, according to UBS economists.

‘It’s not coming. It’s here,’ UBS said in a research report on Wednesday.

The Federal Reserve on Wednesday sharply lowered its forecast for US economic growth for this year, but it is still expecting the economy to avoid a recession. Citing a deepening housing slump and tight credit, the Fed lowered its forecast to between 1.3 per cent and 2 per cent from a range of 1.8 per cent to 2.5 per cent it had projected in November last year.

UBS economists forecast US gross domestic product to fall 0.6 percentage point from the end of last year to the middle of this year.

The projected mild contraction will be led by the first decline in personal spending since the recession of 1991, UBS said.

Last month, the US government said the economy grew at an annual rate of 0.4 per cent in the fourth quarter of last year and expanded 2.2 per cent for the entire year, the weakest pace in five years.

Source: REUTERS (The Straits Times 22 Feb 08)

It’s Singapore 2010

An honour and privilege for everyone, says PM Lee; now for the countdown to the main event

THE news that Singapore waited over seven months for came at precisely 7.11pm yesterday, broadcast live via satellite link from Lausanne in Switzerland.

It was delivered by International Olympic Committee (IOC) president Jacques Rogge, who simply said: ‘The IOC has the honour of announcing that the first Summer Youth Olympic Games in 2010 are awarded to the city of Singapore.’

With that, more than 5,000 people who had gathered at the Padang for the announcement, as well as countless others glued to television sets across the island, threw up a resounding cheer.

At the Padang, the reactions of the ‘Ser’ tandem of Singapore’s IOC Executive Board member Ng Ser Miang and Parliamentary Secretary (Community Development, Youth and Sports) Teo Ser Luck, who had been instrumental in pushing the bid, reflected Singaporeans’ joy over making history.

Both men caught each other in a bear hug before jumping up and down on stage, broad grins creasing their faces.

Prime Minister Lee Hsien Loong, called on to deliver a celebratory speech, had to wait a while for the cheers to die down before saying: ‘I need hardly say how happy we all are.’

A smiling Mr Lee, with a miniature Singapore flag clutched in one hand, hailed the win as a ‘great honour and privilege for Singapore and every Singaporean’.

‘For the first time, the Olympics flame will be in South-east Asia, and in Singapore,’ he said. ‘We will be the focus of a new era of sports development for Singapore, for South-east Asia, and for the Olympic movement.’

He praised the national effort to land the Games – both young and old, from schoolchildren to taxi drivers, were involved, including one 68-year-old cabby who wrote letters to all IOC members telling them why Singapore deserved to be host.

As the PM ended his speech, the party fired up anew. It had begun at 4pm but quietened as tensions rose with the clock ticking closer to the magic hour of 7pm.

Amid a backdrop of a City Hall bathed in yellow, purple and red lights, revellers began dancing, singing and hugging each other, flashing the ‘V for Victory’ symbol.

Ms Cindy Chin, 20, a Singapore Management University undergraduate, summed up the feelings of the assembled throng when she said: ‘This is a historic moment. Some of us are having our exams tomorrow, including me, but this is more important. I wanted to let everyone see that Singapore deserves to host the games.’

The contest to play host had come down to Singapore or Moscow. According to the Associated Press, IOC members voted 53-44 in the Republic’s favour.

What clinched it was its innovative Games concept, which included a compact venue plan and a comprehensive Olympic education programme.

Speaking in Lausanne, Mr Rogge also said he thought the prevailing sentiment among IOC members was that the event should go to a ‘new city that has not organised a Games’.

He added: ‘Singapore has put together a very exciting project.’

Expressing confidence in the Singapore team, he added: ‘I have no doubt that their professionalism and enthusiasm will be instrumental in the staging of a successful Youth Olympic Games.’

Yesterday’s announcement culminated in a sensational turnaround for a bid that started slowly nine months ago.

Singaporeans were initially tepid about the bid, but galvanised around it when the country emerged as a frontrunner.

The win caps a series of sporting coups for Singapore: It will stage the world’s first Formula One night race in September, as well as be a stopover port for the Volvo Ocean Race in January next year.

Now, as Mr Lee said last night, the countdown to the Games’ opening on Aug 14, 2010 begins. ‘We have 21/2 years to prepare for the Youth Olympic Games. It’s going to be challenging, but it’s going to be full of excitement and achievements.’

 

Source: The Straits Times 22 Feb 08

Mass-market safe, high-end may take a hit

Property players sketch the best and worst-case scenarios for private homes in 2008

(SINGAPORE) Luxury-home prices could fall by up to 20 per cent in 2008, assuming sub-prime woes don’t end this year. But the mass market may hold its own or ease 5-10 per cent at most. This was the worst-case scenario according to most property players polled by BT.

In a best-case scenario with sub-prime woes clearing by mid-year, high-end prices could rise up to 10 per cent and mass-market homes as much as 15-20 per cent, the majority of respondents said.

The most optimistic is Jones Lang LaSalle Research, which forecasts an 18-22 per cent increase in luxury/prime prices and a 20-25 per cent gain in mass-market prices in a best-case scenario.

Sales activity is generally expected to be quiet in the first half, before picking up in the second half. ‘Interest is still very much there, but investors see no strong push factor to get into the market just yet,’ says DTZ executive director Ong Choon Fah.

Most developers and property consultants are hoping the sub-prime-related gloom will vanish in the second half. Voicing a common view in the industry, City Developments group general manager Chia Ngiang Hong said: ‘We expect the situation to improve after mid-year. Most of the high-profile sub-prime-related writedowns by major international financial institutions are already out. Hopefully, the rest of the write-downs, if any, should be out by March/April. This current period is good for consolidation.’

UOL Group chief operating officer Liam Wee Sin said: ‘If the sub-prime episode is short-lived, it can be seen as a welcome breather for the Singapore property market.

Both home and land prices in the high-end segment escalated too quickly, especially in Q2 and Q3 last year.’

But Wing Tai deputy chairman Edmund Cheng feels it may not be realistic to expect sub-prime problems to fade away by mid-year. ‘They are likely to linger beyond this year, as the exposure has extended to many other areas, and it may still take some time for the full extent of exposure to be discovered,’ he said.

But on a more positive note, he believes mid/ upper-mid projects near Orchard Road will be more resilient ‘as they should benefit from demand for replacement properties by those who have sold prime district homes through en bloc sales, as well as demand from expats who find prime district housing too expensive’.

Agreeing, Credo Real Estate managing director Karamjit Singh thinks mid-tier private home prices will appreciate 10-15 per cent this year in a best-case scenario, outpacing his estimate of gains of 10 per cent for the suburban/mass market and 5-10 per cent for upmarket homes.

In the high-end category, many property analysts with stockbroking firms see an oversupply of potential launches as sites sold through en bloc sales are redeveloped.

In a worst-case scenario, a major factor that could hurt high-end prices is if demand dries up and ’specu-vestors’ who bought luxury homes in the past few years offload them below current prices, as they still stand to reap huge gains given their low entry cost, reckons Knight Frank executive director Peter Ow.

In the primary market too, some smaller developers may drop prices to generate sales. But Mr Ow acknowledges that the bulk of the unlaunched high-end housing stock is in the hands of a few major players who have the financial capacity to delay launching projects. Instead, they could focus on selling their mid-tier and massmarket homes this year to generate cash flow.

Giving his take, a major developer said: ‘High-end depends on the appetite of foreign buyers and their perception of liquidity and value in the Singapore market. The strong Sing dollar will help persuade these investors that the property market here will be a good store of value.’

Observers also believe overseas funds are likely to turn increasingly to parking money in Asia, instead of the United States and Europe. Other demand drivers for the Singapore residential sector, especially in the mid and mass segments, include falling mortgage rates, the continued influx of expats from China and India setting up home here, and wage growth arising from the tight labour market.

Most market watchers say the upside for high-end residential prices will be limited even if the sub-prime problem clears around mid-2008.

‘Price increases would not so much apply to luxury-class homes as these have already increased significantly since 2005,’ CB Richard Ellis managing director Pauline Goh argues.

However, mid-tier homes could appreciate 5-10 per cent and mass-market prices 10-15 per cent this year, assuming things become more positive after June, Ms Goh added.

Frasers Centrepoint CEO Lim Ee Seng said: ‘Even in a worst-case scenario, I don’t really see mass-market home prices coming down much because construction costs are still going up and that raises the breakeven cost of such projects.’

Knight Frank’s Mr Ow says the mass-market will benefit from strong demand from HDB upgraders, given the shortage of HDB homes.

 

Source: Business Times 21 Feb 08

Plan to defer public works will have little impact: report

Delaying $3b worth of projects won’t help relieve building demand, says RLB

CONSTRUCTION industry experts are seeking to play down the significance of the government’s moves to ease the pressure on the industry’s costs.

The government is intending to defer an additional $1 billion worth of public-sector projects to help the industry – a move that follows the decision last November to postpone $2 billion worth of projects.

A report by construction cost consultancy Rider Levett Bucknall (RLB) said that the deferring of public-sector projects ‘is expected to have a limited impact on relieving construction demand as it will represent around 10 per cent of annual demand’.

Latest estimates by the Building and Construction Authority value construction contracts awarded this year at up to $27 billion.

RLB’s latest figures for its tender price index shows that it also increased by 23 per cent as at the end of the third quarter last year. It said that rising construction costs are attributed to increased costs of foreign construction labour and professional expertise, materials and equipment costs, as well as on- and off-site overheads.

Indicative construction costs of an office building in the CBD of up to 41-55 storeys is between $353- $438.5 psf of gross floor area (GFA).

The construction costs of a luxury condominium is between $325.2 and $441.3 psf of GFA, while a five-star hotel will cost between $464.5 and $627 psf of GFA to build.

Good quality retail space costs $311-$367 psf of GFA to build.

In terms of key construction materials, concreting sand has shown the highest year on-year increase, jumping 160.3 per cent as at November 2007. The price of granite aggregate increased by 32.1 per cent in the same period while the price of ready mix concrete increased by 71.4 per cent.

However, RLB noted that prices did generally ‘moderate to a downward trend’ for the second half of 2007, the period that coincides with the start of the US sub-prime loans crisis and the global credit crunch.

Indeed, RLB added: ‘Whilst the Singapore construction market will be somewhat buffered in the short term by existing development commitments within the domestic market, it will be difficult to predict the impact of the global financial crisis in the medium run.’

RLB does believe that on the back of rising crude oil prices and growing building activity particularly in the Middle East, China and India, price gains are anticipated for the first half of 2008.

Citing other industry sources, RLB said that world steel demand is forecast to reach over 1.45 million tonnes in 2011, which represents an 88 per cent growth in the ten years from 2001.

‘However, a slowdown in the rate of demand growth is anticipated towards the end of the current decade,’ it added.

 

Source:

Plan to defer public works will have little

impact: report

Delaying $3b worth of projects won’t help relieve building demand, says RLB

By ARTHUR SIM

CONSTRUCTION industry experts are seeking to play down the significance of the

government’s moves to ease the pressure on the industry’s costs.

The government is intending to defer an additional $1 billion worth of public-sector

projects to help the industry – a move that follows the decision last November to

postpone $2 billion worth of projects.

A report by construction cost consultancy Rider Levett Bucknall (RLB) said that the

deferring of public-sector projects ‘is expected to have a limited impact on relieving

construction demand as it will represent around 10 per cent of annual demand’.

Latest estimates by the Building and Construction Authority value construction

contracts awarded this year at up to $27 billion.

RLB’s latest figures for its tender price index shows that it also increased by 23 per

cent as at the end of the third quarter last year. It said that rising construction costs

are attributed to increased costs of foreign construction labour and professional

expertise, materials and equipment costs, as well as on- and off-site overheads.

Indicative construction costs of an office building in the CBD of up to 41-55 storeys is

between $353- $438.5 psf of gross floor area (GFA).

The construction costs of a luxury condominium is between $325.2 and $441.3 psf of

GFA, while a five-star hotel will cost between $464.5 and $627 psf of GFA to build.

Good quality retail space costs $311-$367 psf of GFA to build.

In terms of key construction materials, concreting sand has shown the highest yearon-

year increase, jumping 160.3 per cent as at November 2007. The price of granite

aggregate increased by 32.1 per cent in the same period while the price of ready mix

concrete increased by 71.4 per cent.

However, RLB noted that prices did generally ‘moderate to a downward trend’ for the

second half of 2007, the period that coincides with the start of the US sub-prime

loans crisis and the global credit crunch.

Indeed, RLB added: ‘Whilst the Singapore construction market will be somewhat

buffered in the short term by existing development commitments within the domestic

market, it will be difficult to predict the impact of the global financial crisis in the

medium run.’

Story Print Friendly Page Page 1 of 2

http://www.businesstimes.com.sg/sub/storyprintfriendly/0,4582,268492,00.html? 21/2/2008

RLB does believe that on the back of rising crude oil prices and growing building

activity particularly in the Middle East, China and India, price gains are anticipated

for the first half of 2008.

Citing other industry sources, RLB said that world steel demand is forecast to reach

over 1.45 million tonnes in 2011, which represents an 88 per cent growth in the ten

years from 2001.

‘However, a slowdown in the rate of demand growth is anticipated towards the end of

the current decade,’ it added.

Recent crises serve as wake-up calls

Focus on corporate governance; S’pore updating Companies Act: Lim Hwee Hua

(SINGAPORE) Think of the huge fraudulent trading losses at Societe Generale. Or think of the sub-prime mortgage fallout. The recent crises that have rocked the financial sector have also brought corporate governance under the spotlight, Minister of State for Finance and Transport Lim Hwee Hua said yesterday.

The perceived tardiness by major financial institutions in coming clean over their sub-prime exposure has led to unhappiness among investors and stakeholders, she noted. Revelations on how a rogue trader at SocGen racked up nearly US$7 billion of losses also raised questions over the robustness of internal controls, board supervision and oversight of risks.

‘Inadvertently, with financial crises of such magnitude, there will be renewed calls to strengthen and tighten corporate governance practices,’ Mrs Lim said. She was speaking last night at the Singapore Corporate Awards.

The US Securities and Exchange Commission (SEC) is now looking at tightening disclosure practices, particularly in strengthening the relationship between a company’s risk officers, the disclosure committee and the audit committee.

Singapore is not immune to financial scandals either, she added, pointing to the commercial fraud by an ex-finance manager of Asia Pacific Breweries and the allegedly unauthorised foreign exchange trading at SembCorp Marine.

As part of its continuing efforts to improve corporate governance practices among companies, the Ministry of Finance has convened an 11-member strong Steering Committee to review the Companies Act.

The Steering Committee is chaired by the Solicitor General, Professor Walter Woon, and the aim of the review is to retain an efficient and transparent corporate regulatory framework that supports Singapore’s growth as a global hub for both businesses and investors.

The committee will update the law to keep pace with relevant international legal developments and technological advances, promote greater accountability and transparency while keeping the compliance cost low.

It will be assisted by five working groups to study distinct segments of the Companies Act. The previous fundamental review of the Companies Act was done in 1999.

But Mrs Lim also noted that a robust company law framework can be an unwieldy and blunt tool and should only be used sparingly. A code of best practices will provide firms ‘the flexibility to put in place the rules and systems that are most appropriate to their context.’

To this end, the Audit Committee Guidance Committee, a joint effort of the Monetary Authority of Singapore, Accounting and Corporate Regulatory Authority and SGX, was set up to look at providing practical guidance to audit committee members.

In addition, Mrs Lim recommended the use of rewards and recognition to laud companies for adopting good corporate governance practices and going beyond best practices.

 

Source: Business Times 21 Feb 08

$200m note issue from HDB

THE Housing and Development Board (HDB) launched a $200 million, two year fixed-rate note issue yesterday under its $7 billion medium-term note programme.

The issue will have a coupon of 1.64 per cent per annum, payable semi-annually in arrears, HDB said.

The notes will be issued in denominations of $250,000 and will be offered to investors by way of placement. Application is being made to list the notes on the Singapore Exchange (SGX).

The lead manager is Citicorp Investment Bank (Singapore).

Last Friday, HDB launched a $300 million, 15-year fixed-rate note issue with a coupon of 3.63 per cent per annum, also payable semi-annually in arrears.

Under the programme, HDB issues bonds or notes to finance its development programme and working capital requirements, as well as to refinance existing housing development loans.

 

Source: Business Times 21 Feb 08

India’s Primary Real Estate plans US$500m fund

(HONG KONG) Indian fund manager Primary Real Estate Advisors is planning to launch a fund worth as much as US$500 million, probably in the second half of this year, but said it will tread carefully as the country’s property boom stutters.

Foreign investors have taken advantage of such funds to rush into property development in India since it eased rules on inward investment in the construction industry in early 2005, sparking rampant land speculation and a near quadrupling in prices.

But despite signs of a slowdown – home sales volumes have fallen by one-fifth in Mumbai and 40 per cent in Bangalore in the last year – the head of Primary Real Estate, Ashwin Ramesh, is convinced that North American and European investors will invest.

‘There are certainly cowboys out there,’ Mr Ramesh said. ‘But our style is more focused for a risk averse environment. We would typically underperform in a raging bull market but overperform in a flattish market.’

Mr Ramesh expected to launch the new fund within six months to a year, and hoped to raise between US$300 million and US$500 million.

‘At the moment there’s interest in North America and London, but we’re in touch with people all over the place,’ he said, adding that he was busy expanding a team that is now investing a US$32 million fund closed in mid- 2007.

Primary Real Estate would aim for internal rates of return of 15-20 per cent, Mr Ramesh said, below the usual 20-25 per cent often advertised by funds in Asia’s up-and-coming property markets of India, China and Vietnam.

Rival India-based funds include Trikona Capital and Kotak Mahindra Investments, while Citigroup Property Investors and Morgan Stanley Real Estate have been at the forefront of a wave of global funds entering the country.

The demographic fundamentals for India’s real estate boom touted by analysts appear compelling for many investors.

But developers have crammed projects into a few cities and certain building types, Mr Ramesh said.

Primary Real Estate, which will team up with developers – ‘high-quality people, that’s our first filter’, Mr Ramesh says – has identified a big township project outside Mumbai and will seek out projects in emerging cities.

 

Source: Reuters (Business Times 21 Feb 08)

Budget 2008: Businesses highlight what’s ‘wanting’

Panelists cite lack of measures to cut business costs, tackle manpower crunch

IT’S not just relief from rising costs that businesses find wanting in the 2008 Budget.

They could also do with help to tackle a growing manpower crunch, a Budget seminar heard yesterday.

Panelists at PricewaterhouseCooper’s seminar on the Singapore Budget cited the lack of specific measures to address the immediate problems that businesses face, and the absence of any ‘green’ initiatives, among its shortcomings.

Entrepreneur and Member of Parliament Inderjit Singh – who intends to raise the issue in Parliament during the coming Budget debate – said the government may, in response, say that Singapore’s business costs are still below Hong Kong’s, among other things.

But the issue is not so much absolute costs but more the rate of cost increases, he said. There was scope in particular for the Budget to address rising rental and manpower costs, he added.

And scope to help employers overcome a shortage of people, in the view of Philip Overmyer, chief executive of the Singapore International Chamber of Commerce.

From petrochemicals to the two integrated resorts, various sectors of the economy face problems in securing trained staff, Mr Overmyer noted.

‘And there’s nothing in this Budget that looks at this,’ he said.

Overall, the nitty-gritty of the Budget, in terms of incentives for specific industries, is good, Mr Overmyer said.

But the longer-term strategic focus – to promote innovation across the economy – appears to emphasise certain higher-end high-tech industries that lend themselves more to research and development (R&D) work. The activities that qualify for the tax perks are not quite the areas that ‘many, many small and some large companies’ delve in. Hence, some of the simpler, ‘non-fancy’ yet still important industries may be overlooked, Mr Overmyer said.

BT associate editor Vikram Khanna, another member of the panel, pointed out that R&D in Singapore is largely driven by multinational corporations. It remains to be seen if the latest tax incentives will trigger an R&D drive across industry – and particularly if small and medium-sized enterprises will ‘bite’.

 

Source: Business Times 21 Feb 08

Budget 2008: Businesses highlight what’s ‘wanting’

Panelists cite lack of measures to cut business costs, tackle manpower crunch

IT’S not just relief from rising costs that businesses find wanting in the 2008 Budget.

They could also do with help to tackle a growing manpower crunch, a Budget seminar heard yesterday.

Panelists at PricewaterhouseCooper’s seminar on the Singapore Budget cited the lack of specific measures to address the immediate problems that businesses face, and the absence of any ‘green’ initiatives, among its shortcomings.

Entrepreneur and Member of Parliament Inderjit Singh – who intends to raise the issue in Parliament during the coming Budget debate – said the government may, in response, say that Singapore’s business costs are still below Hong Kong’s, among other things.

But the issue is not so much absolute costs but more the rate of cost increases, he said. There was scope in particular for the Budget to address rising rental and manpower costs, he added.

And scope to help employers overcome a shortage of people, in the view of Philip Overmyer, chief executive of the Singapore International Chamber of Commerce.

From petrochemicals to the two integrated resorts, various sectors of the economy face problems in securing trained staff, Mr Overmyer noted.

‘And there’s nothing in this Budget that looks at this,’ he said.

Overall, the nitty-gritty of the Budget, in terms of incentives for specific industries, is good, Mr Overmyer said.

But the longer-term strategic focus – to promote innovation across the economy – appears to emphasise certain higher-end high-tech industries that lend themselves more to research and development (R&D) work. The activities that qualify for the tax perks are not quite the areas that ‘many, many small and some large companies’ delve in. Hence, some of the simpler, ‘non-fancy’ yet still important industries may be overlooked, Mr Overmyer said.

BT associate editor Vikram Khanna, another member of the panel, pointed out that R&D in Singapore is largely driven by multinational corporations. It remains to be seen if the latest tax incentives will trigger an R&D drive across industry – and particularly if small and medium-sized enterprises will ‘bite’.

 

Source: Business Times 21 Feb 08

US commercial property prices slip 1.5% in Dec

(LOS ANGELES) Commercial real estate prices in the United States dropped 1.5 per cent in December, the second consecutive monthly decline, indicating that the market is at the start of a slump, Moody’s Investors Service Inc said.

The 1.5 per cent fall measured by the Moody’s/REAL Commercial Property Price Indices is worse than the 0.2 per cent drop in November, New York-based Moody’s said on Tuesdayday in a report. It was the fourth-largest month-on month drop in the 84-month history of the indexes, the credit-rating company said.

The commercial property market has been hurt by a decline in credit availability, making it costlier to buy real estate. While the number and total value of sales tracked by the indexes in December were above average for the last two years, it was the third price decline in the past four months, Moody’s said.

‘The jump in volume in December of 2007 is likely to be atypical before a softer pace sets in,’ analysts led by Moody’s senior vice-president Sally Gordon said in the report. In December, transactions tracked by Moody’s totalled US$7.1 billion. ‘Some borrowers and/or lenders are eager to close before year-end for one or another financial reason,’ it said.

The Moody’s indexes are based on the repeat sales of the same apartment, industrial, office and retail properties across the US at different points in time.

Moody’s tracked 352 transactions in December. 

Source: Bloomberg (Business Times 21 Feb 08)

LATEST US DATA: US inflation gathering steam

Core readings above market forecasts; more grim news on the property front

(NEW YORK) US inflation accelerated in January in a worrying sign for the Federal Reserve’s campaign to bolster the flagging economy, while a separate report yesterday showed more troubling signs for the beleaguered housing market.

Annual consumer price inflation increased to an unexpectedly strong 4.3 per cent in January from an already elevated rate of 4.1 per cent in December, according to the Labor Department.

On a monthly basis, rising food costs helped push consumer prices up for a second straight month in January by 0.4 per cent, more than offsetting a moderation in energy price rises.

Excluding volatile food and energy items, growth in core consumer prices accelerated to 2.5 per cent from 2.4 per cent in December, a level that is likely to make Fed policy-makers uncomfortable.

The bad news on inflation was coupled with more grim news from the housing market, with permits to break ground on new US homes in January decreasing 3 per cent to the lowest rate in more than 16 years.

With the housing market’s problems now well publicised, financial markets focused on the inflation, which could complicate the Fed’s efforts to shore up the economy through a continuation of aggressive interest rate cuts.

‘The concern is on the inflation side. We are seeing an elevated trend, especially in the core,’ said Kevin Flanagan, fixed income strategist for global wealth management at Morgan Stanley in Purchase, New York.

Wall Street opened lower in the wake of the unexpectedly strong consumer prices but the dollar rose. Government bonds, which usually wilt at the prospect of inflation, fell in the wake of the consumer price release.

Economists polled by Reuters had expected a monthly rise of 0.3 per cent in consumer prices for an annual inflation rate of 4.2 per cent. The core readings were also above market forecasts of a 0.2 per cent increase month-on-month and 2.4 per cent year- on-year rise.

In the housing market, permits slipped to a 1.048 million annual rate, the weakest since a 984,000 rate in November 1991.

Permits are an indicator of builder confidence in future housing activity.

Starts rose to a 1.012 million annual rate, but it was only a slight rebound from the revised 1.004 million pace in December, which was the lowest pace for starts since May 1991.

In more dour housing news, US mortgage applications plunged last week, and demand hit the lowest level since the start of the year as interest rates surged, an industry group said. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ended Feb 15 fell 22.6 per cent to 822.8, the lowest level since the week ended Jan. 4.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.09 per cent, up 0.37 percentage point from the previous week, the highest since late December.

 

Source: Reuters

Weak US$ lures foreign buyers to US property

Florida is the most popular state, accounting for 26% of all transactions

(MIAMI) Canadian retiree Sheldon Kovensky felt the lure that attracts so many foreign buyers to sunny Florida these days – falling prices for luxurious oceanfront condos that can be bought with weak US dollars.

Mr Kovensky has been scouring south Florida from Miami Beach to Palm Beach in search of a three-bedroom apartment on the sand.

Armed with a Canadian dollar that has gained 25 per cent against the greenback in the last two years, he is expecting a big bargain.

‘We’re hoping to get an apartment worth about a million (US dollars) that I can purchase for about 20 per cent less,’ he said by phone from his home in Unionville, Ontario, as he faced digging out from a snowstorm.

‘The Canadian dollar is on par and the Florida market has dropped 20 to 30 per cent, so you get a lot of bang for your buck,’ he added.

Realtors, analysts and buyers said that the strength of the Canadian dollar, the euro and other foreign currencies, on top of a falling real estate market, is making the United States an enticing place for foreigners looking to buy property.

In fact, they said, the combination of the weak US dollar and the allure of Miami as a cosmopolitan, multilingual city may be helping to prop up a faltering, overbuilt condo market that had been expected to crash but has seen, to date, only a small drop in prices compared to other Florida cities.

In a study by the National Association of Realtors last year, Florida was the top destination for foreign buyers, accounting for 26 per cent of all transactions, ahead of California at 16, Texas at 10 and Arizona at 6 per cent.

More than 7 per cent of all Florida homes were sold to foreigners, the study found, and 65 per cent of realtors said that they had brokered at least one foreign deal.

Online property auction site FastHomeAuction.com in December reported a record number of foreign visitors, citing the weakness of the US dollar as a key contributor.

Jan de Vetten, a Dutch toy trader who has built a side business helping friends and business associates buy Florida homes, said that in some cases they are getting properties at half price.

‘They negotiate typically 25 to 30 per cent off the asking price and the euro is almost a dollar and a half now, so they probably have another 10 to 15 per cent in value,’ he said.

Foreign buying was also reported brisk in Arizona, New York and elsewhere.

In New York, Manhattan’s average sales price soared to a record US$1.4 million in the fourth quarter last year as foreigners pushed up demand.

In Phoenix, cash-toting Canadians are snapping up second properties, mostly high end homes on golf courses as refuges from the harsh winter, agents said. Many hail from Calgary, Canada’s oil boomtown.

‘There’s definitely some Canadian money in town,’ said Julie Goodman, a Remax agent who said that she had sold six properties and had another four families coming this month for visits. ‘They pay cash and know that cash talks.’

After the US market peaked in late 2005 and the sub-prime mortgage crisis set in, sales and prices began tumbling across Florida. The worst was felt in west coast cities like Punta Gorda, where condo sales fell 50 per cent, and Fort Myers, where the median price of an apartment fell 21 per cent in 2007.

While Miami sales fell – 39 per cent for existing single-family homes and 41 per cent for condos – median prices remained resilient before finally weakening in December 2007.

For the year, the median Miami condo price rose 6 per cent. But analysts expected a drop in coming months as thousands of new condo units come onto the market.

The weakness in the greenback, agents said, is attracting buyers to Miami from continental Europe, Scandinavia and Canada in addition to the traditional influx of cash from volatile South American countries, particularly Venezuela.

A strong pound has Britons looking outside their traditional stomping ground in Orlando, Florida, said Vani Ungapen, director of research at the Florida Association of Realtors.

‘Most of them are buying high-end homes,’ she said. ‘They are looking for a big house with a swimming pool, and you can’t buy that in London.’

Brokers said that Miami Beach’s famous South Beach district is luring Italians, French and Germans; Russians are flocking to Sunny Isles Beach to the north; Venezuelans who may be fearing socialist President Hugo Chavez are buying in Doral, to the west.

Miami broker Brigitte Benichay said that middle- class French entrepreneurs are eager to join a 30,000-strong French community in Miami and open businesses here.

‘Because of the strength of the euro, they are paying cash,’ she said. ‘Eighty per cent of the ones I meet want to pay all cash. Business is very strong.’

The Beacon Council, Miami’s business development agency, said that foreign businesses are increasingly setting up shop in the city.

The number of multinational projects it is working on has virtually doubled in five years, and those companies are bringing employees interested in buying property.

‘The economic market here is diversified. We’re not any longer dependent on one industry, like tourism, or on one region, like Latin America,’ president Frank Nero said.

Despite explosive price increases in recent years, Mr Nero said, prices can look cheap to someone from Paris or Madrid. 

‘Because of the strength of the euro, they are paying cash. Eighty per cent of the ones I meet want to pay all cash. Business is very strong.’ – Miami broker Brigitte Benichay on French buyers

 

Source: Business Times 21 Feb 08

STRONG FULL-YEAR GAINS: UOL still bullish on office rentals

OFFICE rents have been skyrocketing over the past 12 months but property group UOL Group reckons there will still be further rises to come.

The firm reported stellar full-year results yesterday. It said rents for retail space should benefit from high levels of employment, as well as strong tourist arrivals, although the pace of increase will moderate.

UOL is cautiously optimistic about the residential market and will launch three projects this year – Nassim Park Residences, Breeze by the East in the East Coast area and Green Meadows opposite Peirce Reservoir.

Its plans came with news yesterday of a 124 per cent jump in net profits to $758.9 million, on the back of a hefty revaluation gain.

The gain of $590.5 million on UOL’s investment properties boosted profit to such an extent that they exceeded revenue, which came in 18 per cent higher at $709.1 million for the 12 months to Dec 31.

Revenue from hotels was higher, due to improved numbers from hotels in Singapore, Australia and Vietnam. The inclusion of revenues from the former Negara on Claymore, now known as Pan Pacific Orchard, and subsidiary Pan Pacific Hotels & Resorts, also helped.

Full-year earnings per share rose from 42.72 cents to 95.38 cents, while net asset value per share rose to $4.96 per share as at Dec 31 last year from $3.97 previously. A final dividend of 10 cents a share and a special dividend of five cents apiece were declared.

 

Source: The Straits Times 21 Feb 08

CapitaLand, HPL sue eight owners of Gillman Heights

Developers claim contract breach as owners seek ruling over validity of sale

A GROUP of home owners in Gillman Heights Condominium are being sued by the estate’s buyers for alleged breach of contract.

They face legal action by CapitaLand and Hotel Properties (HPL), which have agreed to buy the sprawling 607-unit estate in Alexandra Road.

The eight owners, who together own four units, had filed an application to the High Court last Monday. They want to know if a supplementary deal to the original collective sale agreement is valid.

The developers responded yesterday, claiming the action breached the owners’ contractual obligations, which includes an undertaking not to do anything detrimental to the sale process.

However, the owners argue that they need their question about the sale deal answered by the High Court before they can be said to have assumed such contractual obligations.

Their question stems from Gillman Heights’ unusually complex sale process, which involved two collective sale agreements. The original expired on June 22 last year, and a supplementary agreement was tacked on to extend it. Most majority sellers signed both; minority owners did not sign either one.

The eight owners being sued said they, and some others, signed the first deal but not the supplementary one.

They say they are caught in a unique position between the majority and minority owners. The group also claims that some of the signatures on the supplementary agreement came in after the deadline. If these tardy signings were excluded, the second agreement may not reach the required 80 per cent owners’ consent.

‘All they want is a judge to decide whether there was a valid extension or not, and if not, what are the consequences,’ said lawyer N.Sreenivasan of Straits Law, which is representing the eight owners.

‘Collective sales are in fact a form of compulsory acquisition, and even those who have signed the collective sale agreement have only agreed to tie themselves up for a fixed period of time.’

Mr Pang Tee Lian and his wife are among the eight owners facing legal action. Mr Pang, 59, said yesterday: ‘We know we’re fighting someone with very deep pockets, so we’re scared. But we’re also frustrated.’

‘In my mind, a collective sale is a win-win situation, with a happy seller and happy buyer. We’re not out to make an extra buck for the fun of it,’ added Mr Pang, a general manager at an architectural firm. ‘We just don’t know where we stand: Are we the majority or minority?’

In fact, groups representing both majority and minority owners have also clashed with CapitaLand and HPL, which last year agreed to pay $548 million for Gillman Heights.

At least one unhappy majority seller circulated letters among his neighbours earlier this year calling for a concerted action to invalidate the sale. CapitaLand

responded with a series of legal letters threatening to sue for breach of contract.

In the meantime, the condo’s minority owners want the High Court to overturn the sale, which got the go-ahead in December from the Strata Titles Board, the body that governs collective sales.

Their appeal hearing will take place next Monday.

This series of legal clashes is fast becoming an eerie echo of the prolonged tussle over the collective sale of Horizon Towers in Leonie Hill.

That struggle started last May after some majority owners tried to back out of the deal. They were subsequently sued by the buyers – which incidentally include HPL – while minority owners are now appealing against the sale.

Property row

‘We know we’re fighting someone with very deep pockets, so we’re scared. But we’re also frustrated…We just don’t know where we stand: Are we the majority or minority?’

MR PANG, explaining why he and seven other home owners filed the application to the High Court

‘Any extension must be very carefully scrutinised.’

MR N.SREENIVASAN of Straits Law, which is representing the home owners

Source: The Straits Times 21 Feb 08

US homes market weakens while consumer prices rise

WASHINGTON – PERMITS to break new ground on US homes last month dipped 3 per cent to the lowest rate in more than 16 years while housing starts rose 0.8 per cent, showing signs of more struggles ahead for the homes market.

Consumer prices in the United States also rose for a second straight month in January.

Permits slipped to a 1.048 million annual rate, the weakest showing since 984,000 in November 1991. Analysts were expecting this key indicator of builder confidence in future housing activity to drop to 1.04 million.

Housing starts rose to a 1.012 million annual rate, but it was only a slight rebound from the revised 1.004 million pace in December, which was the lowest pace for starts since May 1991.

‘Housing continues to be an area that will act as a drag on the economy going forward, so no surprises there,’ said Mr Kevin Flanagan, fixed income strategist for Global Wealth Management at Morgan Stanley.

Rising food costs helped push US consumer prices up for a second straight month in January, by 0.4 per cent – more than offsetting a moderation in energy price rises as inflation showed signs of gaining steam, according to a Labour Department report yesterday.

The consumer price index, (CPI) the most broadly used gauge of inflation, has climbed 4.3 per cent since January last year.

More significantly, so-called core prices, which exclude food and energy items, rose 0.3 per cent last month, the strongest monthly rise since June 2006, after gaining 0.2 per cent in December.

Analysts said the rising prices at the same time that economic growth was slowing makes it more difficult for the US central bank to keep cutting interest rates. ‘This is going to raise the flag on the inflation front, but it’s not going to take away any of the front-end action from the Fed to support growth,’ said Ms Lindsey Piegza, a market analyst with FTN Financial.

The US dollar’s value rose against other major currencies as investors bet the stronger-than-forecast CPI number meant the Federal Reserve was less likely to cut interest rates aggressively. Prices for US Treasury debt securities and stock index futures also weakened.

The Labour Department said energy prices rose 0.7 per cent last month. But food costs jumped 0.7 per cent in January after rising a scant 0.1 per cent in December.

Source: REUTERS (The Straits Times 21 Feb 08)

TAKING STOCK: Inflation worries hammer STI and regional bourses

NO SOONER does the market show some spark than another bout of bad news clobbers it back down again.

Yesterday, it was inflation concerns after oil rose above the US$100 a barrel mark.

Red ink flowed from the word go. The Straits Times Index (STI) opened lower and kept spiralling downwards, losing more than 78 points by the early afternoon.

Asian markets were also in a similar state of distress. Hong Kong’s Hang Seng was 2.2 per cent down, while Japan’s Nikkei and broader Topix indexes sank more than 3 per cent each. Markets in South Korea, Taiwan, Australia and China were also bruised.

The STI eventually closed down 71.23 points, or 2.3 per cent, at 3,026.83 – an unwelcome gloomy ending after five positive finishes in six trading days.

Volume was low – just 1.59 billion shares worth $1.88 billion changed hands.

‘Investors were discouraged by the early fall and wanted to play safe and stand by the sidelines to watch the show,’ said a dealer.

Telco SingTel led the market’s plunge, falling 14 cents to $3.78 and bringing the index down by a whopping 13.3 points in the process.

Morgan Stanley caused the sell-off, after it downgraded the stock from ‘overweight’ to ‘equal weight’, saying that strong competition from other mobile and broadband operators, as well as government initiatives to open up the broadband industry, pose long-term risk to earnings.

Banking stocks also weighed down the STI, dogged by news of Credit Suisse’s unexpected US$2.8 billion (S$4 billion) in sub-prime write-downs.

DBS Group Holdings was the worst hit, probably also due to profit-taking after six days of gains. It fell 46 cents to $17.90, United Overseas Bank lost 28 cents to $18, while OCBC Bank slipped seven cents to $7.45.

Among the few bright spots were oil-related plays, including Singapore Petroleum Co, up 26 cents to $6.65.

‘With the oil prices back to record highs, we could see a continued rally in offshore and marine stocks,’ a UOB Kay Hian report said yesterday, favouring Keppel Corp, ASL Marine, AusGroup, SembCorp Marine and Cosco Corp.

Source: The Straits Times 21 Feb 08

MAS fears Asia will hurt if US engine seizes

A negative spiral can take hold, affecting even the real economy

(SINGAPORE) A sharp and deep recession in the United States will hit Asian economies, warned Heng Swee Kiat, managing director, Monetary Authority of Singapore (MAS), yesterday.

And in his first public comment on the global financial turmoil, Mr Heng said the credit crisis has now started to have an impact on the real economy.

Wading into the debate on whether Asia has de-coupled from the US, Mr Heng said the region has significant links with the world’s biggest economy through trade, investment and finance. Only if these linkages are significantly weakened can Asia be said to have de-coupled from the US, he said yesterday at a fund management conference.

Still, the short-term outlook for Asia remains generally positive barring any sharp deterioration in the global economy, he noted. The current forecast is for Asia ex-Japan to grow at a fairly healthy pace of around 7.8 per cent in 2008, one percentage point lower compared to last year.

Structural changes have taken place in Asian economies over the last 10 years, he pointed out. ‘Certainly, the fundamentals of the economies and financial markets in Asia have improved significantly since the Asian financial crisis,’ he said.

Most Asian economies have large foreign reserves and current account surpluses. There is a sizable educated and skilful labour force, and a growing middle class that forms a broad consumer base, he said.

Asian corporates and households are doing well after four years of robust growth. Asian capital markets are better developed. Asian banks are better capitalised, have less bad loans, and are better supervised and managed.

‘These are significant changes. However, a long-term or structural de-coupling of Asia from the US is possible only when the economic linkages through trade, investment and finance are significantly weaker,’ said Mr Heng.

Studies by MAS, and other economists, show that this is not the case at this stage, he pointed out.

What we are likely to see, however, is the weaker synchronisation of business cycles, he said.

‘The underlying momentum in the Asian economies will allow Asia to ride out the slowdown in the US if it is mild and short-lived. But a sharp and deep contraction will trigger the threshold where all economies will be affected, albeit in different degrees depending on their reliance on external demand,’ said Mr Heng.

On the global financial turmoil, Mr Heng said the credit crisis has now started to have an impact on the real economy.

Policy makers are facing the challenge of how to contain the spread of the credit crisis to the real economy, he noted.

‘What is striking is that the securitisation of loans was meant to be a mechanism for risk transfer. Instead, it became a channel through which shocks are amplified and transmitted throughout the system in unpredictable ways. These shocks have now started to have an impact on the real economy,’ he said.

In the US, the housing-sector correction is leading the slowdown in the economy. Consumer spending is constrained by high debt levels. Financial institutions have sustained large losses. And this is driving the turn of the credit cycle, which means restraint on both consumer spending and corporate investments.

Indeed, at this point there is a risk of being caught in a negative spiral involving tighter credit standards, reduced credit availability and slowing down of the macro economy.

‘The extent to which this spiral takes hold determines the extent of the US slowdown, and the extent to which the rest of the world will be affected,’ said Mr Heng.

‘Hence, the immediate challenge for policy makers is to contain the spread of the credit crisis to the real economy, to prevent this spiral.’

The full extent of the exposures is not yet known and central banks face different degrees of slowdown and inflationary pressures in their economies, he explained.

According to Mr Heng, a multi-pronged approach coordinated across jurisdictions, where necessary, was needed to tackle these challenges. ‘The situation is fluid, and we need to remain vigilant.’

 

Source: Business Times 20 Feb 08

Only one way to go for yuan – up, say analysts

Rapid economic growth, soaring inflation leave China with no choice

(BEIJING) China has no choice other than to let the yuan appreciate against the dollar, analysts say.

The combination of the world’s fastest economic growth, the highest inflation rate in 11 years and the rising cost of intervention will force gains in the yuan to accelerate, even as policymakers in Beijing resist calls from the West to let the currency appreciate at a faster pace, say Pacific Investment Management Co and Pictet & Cie, Switzerland’s largest closely held private bank.

The yuan rose for a fourth straight session yesterday to close at 7.1580 versus the dollar after hitting an intraday high of 7.1534, the highest since its July 2005 revaluation. Before the market opened, the central bank fixed the yuan’s mid-point at 7.1574, up from Monday’s 7.1667.

Central bankers in Thailand, Malaysia, Singapore and the Philippines are in the same situation, making their currencies attractive, according to money managers at the two firms and Merrill Lynch & Co. Nine of the 10 best performing currencies against the dollar in 2008 will come from Asia, surveys of foreign exchange strategists by Bloomberg show.

‘You’re likely to see less intervention,’ said Ramin Toloui, who helps oversee more than US$60 billion in emergingmarket bonds and currencies at bond fund manager Pimco. ‘Several Asian central banks see more rapid exchange- rate appreciation as an important tool to fight inflation.’

After rising 7 per cent last year, the yuan has appreciated 1.9 per cent to 7.1635 per dollar so far in 2008.

JPMorgan Chase & Co, the world’s ninth-biggest currency trader, predicts a further 14 per cent increase, while Citigroup in New York forecasts a 6 per cent advance.

Thailand’s baht has climbed 3.7 per cent to 32.53 this year, while the Taiwan dollar is up 2.4 per cent at NT$31.75.

While the International Monetary Fund expects growth in Asian emerging markets to slow to 8.6 per cent in 2008 from 9.6 per cent last year, that’s still six times faster than the 1.5 per cent expansion predicted for the US.

Consumer prices in the region’s 10 largest economies outside Japan are rising at an average annual rate of 5.3 per cent, compared with 4.1 per cent in the US, data compiled by Bloomberg show. Faster inflation raises the odds that central banks in Asia will increase interest rates, bolstering the appeal of their currencies.

‘We are long Asian currencies,’ said Donald Amstad, head of Asia-Pacific fixed-income at Aberdeen Asset Management, which oversees US$205 billion. ‘Asia is in relatively better shape than the rest of the world.’

A ‘long’ position is a bet that a currency will gain.

To keep their currencies from appreciating too fast and hurting exporters, Asian central banks have bought US dollars, accumulating US$4 trillion in foreign-exchange reserves.

The downside to intervention is that it increases the supply of the local currency, which tends to fuel inflation. To prevent that from happening, Asian central banks typically sell bonds to remove those funds from the economy.

That option has become more costly because interest on the debt is paid with income from its reserves, which are invested in dollar-denominated securities.

The People’s Bank of China pays 1.31 percentage points more on its six-month bills than it earns on similar maturity US Treasuries following the US Federal Reserve’s five rate cuts since September. Six months ago, the spread was 2.2 percentage points in favour of US debt.

After four years of profits, the bank is now losing US$4 billion a month by intervening, according to French bank BNP Paribas.

 

Source: Bloomberg, Reuters (Business Times 20 Feb 08)

Inflation in China hits 11-year high, set to rise further

(BEIJING) China’s inflation rose to its highest level in more than 11 years in January after devastating snowstorms worsened food shortages, according to data reported yesterday, and analysts warned there might be sharper increases to come.

Consumer prices in January climbed 7.1 per cent from the same month last year, driven by an 18.2 per cent rise in costs, the National Bureau of Statistics reported.

Economists warned that despite efforts to ease food shortages, China faces pressure for prices to rise across the board due to higher wages and costs for coal, iron ore and other industrial materials.

February inflation ‘is likely to be much higher than 7 per cent, and might even get close to double-digit levels,’ said Goldman Sachs economists Yu Song and Hong Liang in a report to clients. ‘Inflation is likely to have further legs to run.’

High inflation could complicate Beijing’s efforts to keep the fast-growing economy from overheating and add to pressure to let the exchange rate of its currency, the yuan, rise faster.

Surging food costs are a political concern for Chinese leaders because they hit the poor majority hard in a society where families spend up to half their incomes on food. Bouts of high inflation in the 1980s and 1990s sparked protests, which the government hopes to avoid repeating.

Economists expect interest rate hikes this year but say they should be modest because the key factor driving inflation is shortages of pork and some other food, rather than too much credit.

Beijing has nudged up rates over the past two years to cool a lending boom. But it faces the dilemma that more rises at a time when US rates are falling could attract money from abroad, adding fuel to the boom.

 

Source: AP (Business Times 20 Feb 08)

Rising costs, strapped consumers squeeze top US foodmakers

(CHICAGO) For more than a year, food makers and other consumer products companies have passed on much of the burden of rising commodity costs to consumers.

In fact, companies like H J Heinz and Hormel Foods proved again with earnings forecasts and announcements on Friday that this was still the case early this year, fuelling a rally in food stocks. But that relief could prove short-lived, because 2008 could be the year American consumers start shunning branded products for less expensive private-label alternatives, industry experts warn.

Such a shift could hurt profits at the companies that already have exhausted most measures to cut costs and become more efficient over the past several years in the wake of soaring prices for wheat, cocoa, milk and energy, just to name a few. ‘When you say input costs are going up 6 per cent and you are only getting 4 per cent net pricing, where do you make up the rest?’ asked Gregg Warren, an analyst at Morningstar.

Rising commodity costs and economically stressed consumers were expected to be the main topics when consumer products company executives meet analysts at the Consumer Analyst Group of New York conference in Florida that began yesterday.

For the past several years, many of the big food and consumer products companies have tried to mitigate rising commodity costs by cutting jobs, closing plants and taking other steps to become more efficient.

They also passed some of those costs to consumers with price increases, generally finding little resistance as shoppers continued to eat brand-name foods and use brand-name soap, while cutting back in other areas.

But the pricing power is not unlimited by any means, Ken Harris, a principal at consulting firm Cannondale Associates, said. While the round of price increases that went into place a few weeks ago might not cause a major change, the next will, he said.

Concerns about higher costs and weaker pricing power had led to a sharp downturn in stocks that would normally perform well as defensive plays in an economy that might be on the brink of a recession. Even after a rally on Friday morning, the Standard & Poor’s packaged foods index is down 5 per cent this year.

The S&P household and personal care index is down 8 per cent.

‘We think investors remain rightfully focused on US economic weakness and the potential effects around the globe,’ Bear Stearns said in a research note about the Florida conference.

Consumers have already started trading down in juice and milk, said Brian Morgan, a senior research analyst at Euromonitor International. He also said he expected to see moves down in other staples like bread.

Source: Reuters

Jurong Lake area: Big changes planned

URA in talks with stakeholders about plans for tourism, retail and entertainment centre

A WAVE of changes has been planned for Jurong Lake.

Government officials and industry captains have met and discussed the area’s potential as a commercial, retail and entertainment centre.

Preliminary discussions centred on developing office space, a commercial centre with retail shops, four to five hotels and a resort or theme park for Singaporeans and tourists alike – all clustered around the Chinese and Japanese gardens on the shores of Jurong Lake.

The site will also take in the 12ha area occupied by the now-defunct Tang Dynasty City theme park. Built at a cost of $100 million in 1991, it was forced to shut down in 1999 when it failed to pull in enough visitors.

When news broke last year that Tang Dynasty City was to be demolished, landlord Jurong Town Council and the Singapore Tourism Board said then that they were ‘evaluating the area for redevelopment’ into an attraction.

Multiple sources confirmed – on condition of anonymity – that a feedback session with more than 100 stakeholders was held last month on developing the area. At the session, the Urban Redevelopment Authority (URA) shared its proposed plans and sought reactions to it.

One source said: ‘The plan is to try and do something similar to what was done in Tampines – to have a commercial centre, but also to add leisure elements.’

Another source said Jurong Lake was at the heart of the proposed development, and the viability of a water theme park was discussed.

The Singapore Science Centre, in Jurong Town Hall Road since 1977, will also be moving, but it is unclear when this will happen or where it will move to.

Also unclear is the fate of Snow City. The Straits Times understands that Singapore’s first permanent indoor snow centre has a three-year lease and recently started turning in profits.

URA declined comment, but industry players who have heard about it are excited. A lakeside site, served by the East-West MRT line and near industrial parks and residential areas, is suitable for a mixed development, some said.

Source: The Straits Times 20 Feb 08

Falling stock volumes reflect bearish market

Many investors stay on sidelines despite STI’s rebound from last month’s drop

THE stock market’s recovery after the nasty pre-Chinese New Year selldown was nothing short of spectacular, but the headline numbers tell only half the story.

While the Straits Times Index (STI) has shot up 5.7 per cent, or 166 points, in the last fortnight, daily traded volumes have barely been registering a pulse.

Daily volume has fallen to just 1.69 billion shares worth $1.8 billion so far this month from January’s 1.95 billion shares worth $2.26 billion.

The fall from the same period a year ago is even more dramatic.

At the start of last year, foreign funds poured billions into the region, sending average daily volumes in the first quarter to 2.3 billion shares worth $2 billion. The STI responded by rocketing 8 per cent to cross 3,000 points for the first time.

As the bull run accelerated in the second quarter, daily average volumes hit 3.5 billion shares worth $2.2 billion, while the STI jumped a further 10 per cent.

On July 18, the bulls were beside themselves, with the overall market volume hitting a staggering 9.22 billion shares worth $4.4 billion – an all-time daily record.

The slide began in August, when sub-prime worries in the United States spooked global markets and sent many investors scurrying to the safety of the sidelines.

Trading levels have been reflecting the growing sense of investor unease.

Average daily volume fell to 3.1 billion shares worth $2.6 billion in the third quarter, and further to 2.26 billion shares worth $2.4 billion in the fourth quarter, with the slide continuing this year.

Nowhere is the pain of anaemic trading volumes felt more strongly than at the Singapore Exchange (SGX), which relies on clearing trades for the bulk of its income.

Its shares over the past 12 months tell a similar story of a slowing market.

SGX’s share price climbed from $5.95 on Jan 3 last year to a record high of $16.40 on Oct 8, before falling to as low as $8.70 on Jan 22.

While trading on the broad market has fallen sharply, however, blue chips continue to be traded actively, with their share prices moving in tandem with other blue-chip stocks in the rest of Asia.

This suggests that hedge funds – which deploy sophisticated investment strategies – are actively trading in and out of their portfolios as they react to day-to-day developments in the US.

That gives most other global investors little reason to cheer, and the speed of the market’s deterioration is causing much concern, said Citigroup’s chief Asian equities strategist, Mr Markus Rosgen.

The problem is that while shell-shocked investors are no longer complacent, their stock portfolios might still be filled with counters, such as banks and real estate, which prosper only in a bull market.

‘This will prove the undoing of many an investor,’ said Mr Rosgen.

Still, one dealer noted that recent trading patterns indicate that retail investors are turning out to be a savvy bunch and have avoided taking fresh positions in penny stocks.

The UOB Catalist Index – which tracks penny stocks – has fallen by 28 per cent since last October. But daily traded volumes in its shares plunged even more steeply – from an average 402.9 million shares then to only 110 million shares now.

Some experts believe that the market may undergo another round of selling before reaching a ‘bottom’, presenting investors with a good buying opportunity.

‘Between now and then, patience is what is required, and the winner is the one who loses least,’ said Mr Rosgen.

 

Source: The Straits Times 20 Feb 08

Parkway dives 8.3% on record bid for site

Winning bid of $1,600 psf ppr for Novena hospital site is over twice the second highest offer

 

SHARES of Parkway Holdings took a beating yesterday as concerns emerged that the healthcare provider might have overpaid for a hospital site at Novena.

Parkway’s stock slipped as much as 9.7 per cent yesterday following Friday’s news that the company had put in the top bid of $1.25 billion for a 1.7 ha site at Novena Terrace/Irrawaddy Road.

The stock ended the day down 30 cents, or 8.3 per cent, at $3.30. The Urban Redevelopment Authority (URA) officially awarded the site to Parkway yesterday.

Parkway’s bid, which works out to be about $1,600 per square foot per plot ratio (psf ppr) is a record price for land, and tops the previous record set by Australia’s Lend Lease, which paid $1,455 psf ppr for a commercial site above Somerset MRT station in August 2006.

The bullish bid was also more than twice the $540.9 million offered by second highest bidder, Napier Medical.

Analysts, who estimate that Parkway’s total development cost could be about $1.6 billion-$1.8 billion, said that Parkway had overpaid for the site.

‘We believe capacity constraints at Mount Elizabeth Hospital and Gleneagles Hospital have pressured Parkway Holdings to be overly aggressive to secure the site,’ said UOB-Kay Hian analyst Jonathan Koh. ‘Parkway also does not want a competitor to secure the hospital site.’

Mr Koh’s recommendation on Parkway is under review due to the massive bid. He previously had a ‘buy’ call on the stock.

Citigroup analyst Lim Jit Soon reiterated his ’sell’ call on the stock, pointing out that the project will stretch Parkway’s balance sheet.

‘Gearing could rise to 171 per cent even before development costs are factored in,’ Mr Lim said. ‘In a credit crunch environment, securing financing might be an issue.’

Mr Lim added that Parkway’s strategy could be to finance the development of the hospital by selling the medical suites to doctors at between $4,000 and $5,000 psf. But while this strategy could work, ‘the company will have to convince investors that it did not overpay for the site’, he said.

CIMB Research agreed that Parkway has overpaid, especially when looking at prices in the Novena area.

‘Compared to bids for land sites in the Novena area, (Parkway’s) bid is more than three times that of Far East Organization’s bid of $501.2 psf ppr for a hotel site at Sinaran Drive in January 2007 and Frasers Centrepoint’s bid of $506.9 psf ppr for a residential site at Sinaran Drive in July 2006,’ said analyst Tan Wei Ling.

Ms Tan cut Parkway’s target price to $4.19 from $4.53 due to rising risk aversion.

But she is maintaining Parkway’s ‘outperform’ rating for now due to the company’s growing regional franchise, good earnings prospects and relatively attractive dividend yields, she said.

 

Source: Business Times 19 Feb 08

Modest weekend sales at Waterfront Waves

IN A bellwether post-Budget property launch, Frasers Centrepoint and Far East Organization sold 20 units at the weekend at their Waterfront Waves condo fronting Bedok Reservoir. The project was officially launched at the weekend with the start of an advertising campaign.

The sales brought the total sold so far at the 99-year leasehold project to 100 units, including 80 sold earlier after the condo was soft launched around mid-January. So far, 180 units at the 405-unit development have been released.

The average price currently for the entire development is $750 per square foot after discounts, with the spread ranging from around $650 psf to $930 psf. However, for the 100 units sold so far, the average achieved is $801 psf, as they are among the better-facing units. About 85 per cent of buyers of the 100 units are Singaporeans and 35 per cent have existing HDB addresses.

Property industry watchers were keeping an eye on Waterfront Waves for an indication of buying sentiment after Friday’s Budget.

Some developers hoped the Budget would boost buyer confidence, paving the way for them to go ahead with launches they had held back because of sentiment dented by the stock market plunge and sub-prime woes.

While the 20 sales at the weekend seem modest, Frasers Centrepoint assistant general manager (sales & marketing) Elson Poon said the result was ‘within our expectations in view of current market sentiment’.

‘People are still cautious when it comes to making big-ticket purchases,’ he added.

The project’s pricing may have been a factor, market watchers reckon.

Mr Poon confirmed that the $801 psf average price achieved for the 100 units is a new high for a condo launch in the Bedok Reservoir area. Three-bedroom units at Waterfront Waves cost between $880,000 and just over $1 million.

Giving his take on the outcome for the maiden launch post-Budget, CB Richard Ellis executive director (residential) Joseph Tan said: ‘The buying mood is still cautious. But if you’re expecting a price correction, it may not happen for a while. The bulk of unlaunched projects are held by mainstream developers. They have the capacity to hold and control prices.’

Another property consultant said: ‘If there’s any price drop it may be started by smaller developers, who usually try not to hold. As long as they can make money, they’ll let go.’

 

Source: Business Times 19 Feb 08

Merchant Square and Waldorf Mansions up for sale

MERCHANT Square, a four-storey office building off Merchant Road, is up for sale with a guide price of $73 million.

With a total net lettable area (NLA) of about 50,262 square feet, the unit price works out to $1,450 psf of NLA.

The property, which was developed by carpet manufacturer Jackson Carpet and completed in 1996, sits on a land area of approximately 28,083 sq ft and has two levels of basement carparking for 76 vehicles.

CB Richard Ellis is marketing the 99-year leasehold building and its director (Investment Properties) Charles Hoon said the entry yield is about 2 per cent.

He added that while the average rental is $3.80 psf per month, new leases are being contracted at $6.50 – $7 psf per month.

The lease profile also shows that close to 50 per cent of the current leases will be expiring over the next two years.

‘Smallish mid-sized office buildings similar to Merchant Square present a good acquisition opportunity and remain sought-after amongst end-users in view of tight office space supply,’ Mr Hoon said.

The property is currently 96 per cent occupied and has as its anchor tenant cosmetics company Estee Lauder.

Waldorf Mansions at Balestier Road has also been put up for sale. The asking price is $21 million, or $659 per sq ft per plot ratio (psf ppr).

The freehold 11-storey block comprising 16 apartments has a site area of 11,384 sq ft, a plot ratio of 2.8, and maximum gross floor area of 31,876 sq ft.

The site is marketed by Realtorhub Real Estate (RH), whose executive director Daniel Ng said it can be redeveloped into a high-rise condominium with 26 units of about 1,200 sq ft each.

He added that the site is capable of being amalgamated with the two adjoining sites, Balestier Towers and Scenic Heights, to form a larger development.

Based on the asking price, Mr Ng said that the en bloc sellers will make a premium of about 33 per cent over the current market price for Waldorf Mansions.

In July last year, RH brokered the deal for nearby Ruby Plaza which was sold to Soilbuild Group for $69 million, or $582 psf ppr.

 

Source: Business Times 19 Feb 08

Maybank’s home loan rate cut sets cat among pigeons

Analysts divided on whether this will signal undercutting among the banks

(SINGAPORE) Maybank has fired a salvo that could shake up the home loan market here by slashing its rates.

This has led to speculation that banks might start to undercut each other to drum up business. Meanwhile, the banks themselves are adopting a cautious stance in a falling interest rate environment that could change direction.

For a three-week period, Maybank is launching a promotional three-year fixed rate home loan package which is the lowest of all the banks surveyed.

Home-owners pay 1.68 per cent per annum for the first year, 2.68 per cent pa for second year and 3.38 per cent pa for the third year. The rates apply to both HDB and private home loans. Homeowners are subject to a three-year lock-in period and fees will apply in case of early redemption, prepayment and cancellation during that time.

Before this promotion, the Qualifying Full Bank’s rates stood at 3.58 per cent pa for all three years. Maybank’s new first-year interest rate is about 40 per cent lower than similar packages being offered in the market (see table). But it has a lock-in period of three years while other banks generally have a two-year lock-in.

Helen Neo, head, consumer banking, Maybank Singapore, explained that interbank rates have softened over the past few months. ‘However, we expect interest rates to rebound in view of rising inflation in Singapore,’ she said.

‘Against a backdrop of potential rising interest rates, home loan customers who take up this fixed rate package will enjoy the prevailing low rates and are protected from future interest rate increases for the next three years.’

Mortgage rates are affected by the Singapore interbank offer rate (Sibor) – the rate at which banks lend to one another. Sibor has been on a downward trajectory since late last year, after hovering around 2.5 per cent.

Yesterday, the three-month Sibor fell to 1.44 per cent, its lowest level since December 2004. Economists say it is expected to go even lower by mid-year, partly due to the US steadily cutting its key interest rate. Sibor takes its cue from interest rates in the US, and last month the US Federal Reserve slashed its key interest rate from 4.25 per cent to 3.5 per cent, and then to 3 per cent.

Maybank’s move to reduce rates is prompting speculation among mortgage consultants that banks could follow suit with foreign banks leading the way. ‘I’m not surprised that this round of interest rate reductions is led by foreign banks again,’ said Dennis Ng, spokesman for Mortgage Consultancy Portal www.HousingLoanSG. com. ‘From past experience, local banks have typically lagged behind foreign banks in adjusting interest rates down.’ This is because the three local banks have the lion’s share of the housing loan market. ‘If they reduce interest rates, they have more to lose,’ said Mr Ng. While cutting rates would let them gain some more business, the advantage would be neutralised if their existing clients start paying lower rates.

But with Sibor falling, other banks could follow suit in lowering their interest rates, Mr Ng said. The last time banks were seen aggressively undercutting each other on rates was in 2003-2004, where foreign banks actively led the charge in introducing lower rates.

Leong Sze Hian, president of the Society of Financial Service Professionals, agreed that banks would be nudged into lowering their rates. ‘Sibor rates are dropping and once Maybank lowers its rates, everyone will follow, otherwise customers will move,’ he said.

However, consultants like Tang Yin Fong, a mortgage advisor at wealth and investment outfit Providend, said local banks already have Sibor-linked packages which track the movement of Sibor, and do not need to lower rates to be competitive.

‘Such packages have been relatively attractive in the current lowered Sibor environment and have since been the main packages that the banks recommend to homeowners,’ she explained.

She also added that in the current situation where the Singapore property market still seems to be on the rise and more homeowners are seeking mortgage loans, banks may be less willing to lower their interest rates.

Meanwhile, DBS Bank said it has ‘no plans to adjust rates’ for now, while OCBC and United Overseas Bank both said they would monitor the situation before making a decision.

Foreign banks Citibank and Standard Chartered shied away from saying if they will review rates but pointed to their Sibor packages, which they say give customers control in repricing loan packages. Stuart Kamp, head of mortgages, Standard Chartered Bank, added, ‘We expect interest rates to trend down over the coming months.’

 

Source: Business Times 19 Feb 08

278 HDB flats swamped by 9,900 applications

Unsuccessful buyers urged to consider build-to-order flats

THE Housing and Development Board received 9,900 applications for 278 flats offered in its February bi-monthly sale.

Most of the units offered are four-room flats, plus 64 five-room units and 20 executive flats in 13 estates.

There are 119 units in Toa Payoh and 39 in Tampines.

HDB said the strong demand was ‘because the flats offered are in established HDB towns which are popular with buyers, but the supply of new flats is tight as there is limited land available’.

HDB advised unsuccessful applicants to consider booking a flat under its build-to-order (BTO) scheme. About 4,500 flats will be launched under this scheme in the first half of the year.

More than 500 are still available from recent BTO launches at Punggol and Sengkang, such as Treelodge@Punggol, Fernvale Vista, Punggol Vista and Coral Spring.

HDB also suggested that buyers also consider resale flats, which it said still remain largely affordable. It said that in January, 25 per cent of resale transactions were completed at prices no more than $10,000 above valuation.

The recently closed sale is HDB’s fifth bi-monthly sale exercise for four-room and larger flats in the combined balloting/walk-in system. HDB is currently reviewing the scheme.

 

Source: Business Times 19 Feb 08

CPF to keep OA interest rate at 2.5% for Apr-June

THE Central Provident Board said yesterday that it will continue to pay 2.5 per cent interest a year for members’ CPF savings in their Ordinary Account (OA) from April 1 to June 30.

The concessionary interest rate for HDB mortgage loan, which is pegged at 0.1 percentage point above the CPF interest rate for the OA, will remain unchanged at 2.6 per cent a year over the same period, the Housing Development Board (HDB) said in the joint statement.

Although the computed CPF interest rate derived from the major local banks’ interest rates for the three months between November and January works out to 0.74 per cent a year, the CPF Act provides for a minimum CPF interest rate of 2.5 per cent a year.

The prevailing CPF interest rate from January to March for the Special, Medisave and Retirement

Accounts (SMRA) is 4 per cent. This was computed based on the 12-month average yield of the 10-year Singapore Government Security (10YSGS) plus one per cent under the new CPF reforms announced last year.

The SMRA interest rate for April to June will be announced in March after the average yield of the 10YSGS is computed. To help members adjust to this floating rate, the 4 per cent floor for the SMRA rate will be maintained for the first two years, as earlier announced.

An extra one per cent interest will also be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the OA. The extra interest from the OA will go into the member’s Special or Retirement Account to enhance his retirement savings.

The CPF interest rate will continue to be reviewed quarterly, the CPF said.

Source:

CPF to keep OA interest rate at 2.5% for Apr-June

THE Central Provident Board said yesterday that it will continue to pay 2.5 per cent interest a year for

members’ CPF savings in their Ordinary Account (OA) from April 1 to June 30.

The concessionary interest rate for HDB mortgage loan, which is pegged at 0.1 percentage point above the

CPF interest rate for the OA, will remain unchanged at 2.6 per cent a year over the same period, the

Housing Development Board (HDB) said in the joint statement.

Although the computed CPF interest rate derived from the major local banks’ interest rates for the three

months between November and January works out to 0.74 per cent a year, the CPF Act provides for a

minimum CPF interest rate of 2.5 per cent a year.

The prevailing CPF interest rate from January to March for the Special, Medisave and Retirement

Accounts (SMRA) is 4 per cent. This was computed based on the 12-month average yield of the 10-year

Singapore Government Security (10YSGS) plus one per cent under the new CPF reforms announced last

year.

The SMRA interest rate for April to June will be announced in March after the average yield of the

10YSGS is computed. To help members adjust to this floating rate, the 4 per cent floor for the SMRA rate

will be maintained for the first two years, as earlier announced.

An extra one per cent interest will also be paid on the first $60,000 of a member’s combined balances,

with up to $20,000 from the OA. The extra interest from the OA will go into the member’s Special or

Retirement Account to enhance his retirement savings.

The CPF interest rate will continue to be reviewed quarterly, the CPF said.

Amex signs up for Marina Bay Financial Centre

It is said to be taking 50,000 sq ft in Tower 2, in the project’s 1st phase

AMERICAN Express International is the latest new tenant at Marina Bay Financial Centre (MBFC), which means that slightly more than half of the total 2.9 million square feet of offices in the entire development has been taken up.

BT understands it will take about 50,000 sq ft or two floors in the 50-storey Tower 2, which is under MBFC’s first phase and slated for completion by early 2010. Amex will join British bank Barclays, Swiss private bank Pictet and UK-based stockbroking firm Icap as tenants in Tower 2.

Barclays is said to have agreed to lease about 100,000 sq ft or four floors in the tower, Icap is taking 35,000 sq ft and Pictet around 25,000 sq ft.

MBFC’s Tower 2 will have nearly one million sq ft of net lettable area (NLA).

The 33-storey Tower 1, also in the development’s first phase, has about 600,000 sq ft of NLA and is fully leased, mostly to Standard Chartered, which is taking 508,298 sq ft.

Smaller tenants in that tower include French corporate and investment bank Natixis, which is taking 65,000 sq ft, and Wellington International Management Co (21,000 sq ft).

DBS has leased about 700,000 sq ft in MBFC’s Tower 3 – which will be in the project’s second phase and slated for completion by early 2012.

Office leasing interest in Singapore since the start of the year does not seem to have been dented by sub-prime writedowns that have struck international banks. ‘Most banks still see Asia as a bright spot and will continue to invest in Asia,’ an executive with a major office landlord told BT.

CB Richard Ellis executive director (office services) Moray Armstrong, whose firm is the leasing agent for MBFC’s office space, declined to be drawn into speculating about the latest tenants at MBFC, when contacted by BT.

However, he said, there is a ‘healthy level of active leasing negotiations going on and further announcements are expected within the next three months’.

‘Generally, too, leasing momentum in the Singapore office market has carried forward from 2007. There has been relatively minor impact arising out of the external sub-prime crisis. There’s still plenty of activity and leasing negotiations in motion,’ he said.

CBRE data show that Grade A office rents in Singapore rose 96.5 per cent last year to hit $17.15 psf a month.

‘We expect a more modest rate of rental growth in the order of 15 to 20 per cent this year. Upside remains because of the severe shortage of available office space. But because rents have moved up so sharply, a more modest pace of growth is likely, combined with greater caution among occupiers, which is understandable. These twin factors will contribute to more moderate rental growth.’

American Express International Inc currently has operations at The Concourse while American Express Bank has operations at Hitachi Tower.

 

Source:

Amex signs up for Marina Bay Financial Centre

It is said to be taking 50,000 sq ft in Tower 2, in the project’s 1st phase

By KALPANA RASHIWALA

AMERICAN Express International is the latest new tenant at Marina Bay Financial Centre (MBFC), which means

that slightly more than half of the total 2.9 million square feet of offices in the entire development has been taken

up.

BT understands it will take about 50,000 sq ft or two floors in the 50-storey Tower 2, which is under MBFC’s first

phase and slated for completion by early 2010. Amex will join British bank Barclays, Swiss private bank Pictet and

UK-based stockbroking firm Icap as tenants in Tower 2.

Barclays is said to have agreed to lease about 100,000 sq ft or four floors in the tower, Icap is taking 35,000 sq ft

and Pictet around 25,000 sq ft.

MBFC’s Tower 2 will have nearly one million sq ft of net lettable area (NLA).

The 33-storey Tower 1, also in the development’s first phase, has about 600,000 sq ft of NLA and is fully leased,

mostly to Standard Chartered, which is taking 508,298 sq ft.

Smaller tenants in that tower include French corporate and investment bank Natixis, which is taking 65,000 sq ft,

and Wellington International Management Co (21,000 sq ft).

DBS has leased about 700,000 sq ft in MBFC’s Tower 3 – which will be in the project’s second phase and slated for

completion by early 2012.

Office leasing interest in Singapore since the start of the year does not seem to have been dented by sub-prime

writedowns that have struck international banks. ‘Most banks still see Asia as a bright spot and will continue to

invest in Asia,’ an executive with a major office landlord told BT.

CB Richard Ellis executive director (office services) Moray Armstrong, whose firm is the leasing agent for

MBFC’s office space, declined to be drawn into speculating about the latest tenants at MBFC, when contacted by

BT.

However, he said, there is a ‘healthy level of active leasing negotiations going on and further announcements are

expected within the next three months’.

‘Generally, too, leasing momentum in the Singapore office market has carried forward from 2007. There has been

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relatively minor impact arising out of the external sub-prime crisis. There’s still plenty of activity and leasing

negotiations in motion,’ he said.

CBRE data show that Grade A office rents in Singapore rose 96.5 per cent last year to hit $17.15 psf a month.

‘We expect a more modest rate of rental growth in the order of 15 to 20 per cent this year. Upside remains because

of the severe shortage of available office space. But because rents have moved up so sharply, a more modest pace

of growth is likely, combined with greater caution among occupiers, which is understandable. These twin factors

will contribute to more moderate rental growth.’

American Express International Inc currently has operations at The Concourse while American Express Bank has

operations at Hitachi Tower.

Invesco eyeing real estate in China, Japan

Global fund firm poised to make first direct investments in Asia property

(HONG KONG) Global fund firm Invesco hopes to make its first direct investments in Asian property this year,  with Chinese housing and Japanese offices at the top of its wish list as global economic uncertainty throws up new buying opportunities.

Cheng-Soon Lau, who heads Invesco’s Asia property investment unit, said his patient approach to buying in Asia could pay off.

‘The markets have pulled back, so for those who have not invested in the last year, this year might be better,’ he said.

He declined to comment on fund raising, but Reuters reported last year that the unit of Anglo-US fund manager Amvescap was raising a US$300 million, seven-year, closed-end fund for Asian property.

Because of a stock market slide, some Western investors suddenly found that their allocations to physical property were higher than expected, Mr Lau said. But many were still keen on Asian markets that lag Western property cycles.

‘Investors who want high returns see these markets as attractive,’ Mr Lau said in an interview. ‘There’s appetite, but people are still re-evaluating at this point.’

He pointed to poorly performing Japanese real estate investment trusts (Reits) as an example of new buying opportunities.

Reits, which pay most of their rent as dividends, have been popular since they were introduced to Japan six years ago because they yielded more than bonds, while an upturn in property values and rent often produced fat share price gains.

But although the Tokyo property market remains strong, the US sub-prime crisis and global credit crunch provoked a sell-off in Japanese Reits, and many are trading below net asset value (NAV) and could be willing to offload buildings to lift investor returns.

Japan’s Reit index has dropped 15 per cent this year, compared to an 8.5 per cent fall in the broad market.

‘I think some of them will be looking to sell some assets,’ Mr Lau said of Japanese Reits. ‘Smaller ones are under pressure.’

Housing Reits such as Nippon Residential Investment and Japan Single Residence are trading at 30 per cent discounts to NAV, while some commercial trusts, such as Top Reit and Creed Office, are at discounts of 10-20 per cent.

Reits tend to trade above NAV because of favourable tax treatment and a premium for liquidity – units in trusts are easier to buy and sell than whole buildings.

With competition for top-notch Tokyo offices driving up prices and making assets scarce, Mr Lau said he liked Bgrade office blocks that could be revamped to give higher returns.

He was also upbeat about residential development in China, saying that a raft of government measures to cool markets would probably drive many developers out of business and open the field to new players such as Invesco.

‘There’s a fair bit of consolidation going on,’ Mr Lau said, adding that Invesco wanted to invest in Dalian and Tianjin, as well as in the country’s biggest cities Shanghai, Beijing and Guangzhou.

‘Notwithstanding this speed bump, over the long-term, second-tier cities will do pretty well.’ With average home prices doubling since 2002 and high-end apartment prices rising much further, Beijing has tried to cool markets with curbs on supply and demand.

China has raised interest rates regularly, imposed taxes on capital gains and land appreciation, stopped nonresidents buying apartments, told banks to curb loans to developers and employed a ‘use it or lose it’ policy to deter land speculation.

The measures hit housing market transactions in some cities at the end of last year, including Guangzhou, Shanghai and Shenzhen.

With many developers struggling to recycle money from apartment sales to finance new projects, analysts believe thousands could go bust.

 

Source: Reuters (Business Times 19 Feb 08)

Chinese developer bond risk rises to a record

(HONG KONG) The risk of Chinese real estate developers defaulting on their debt soared to a record on concern they will seek to sell securities after Country Garden Holdings Co completed its first convertible bond sale.

Three-year credit-default swaps on Country Garden traded at 1,100 basis points at 4:27pm in Hong Kong, according to BNP Paribas SA prices. Five-year contracts on Shimao Property Holdings Ltd rose 75 basis points to 975 basis points while swaps on Agile Property Holdings also increased 75 basis points to 1,000 basis points. A basis point is 0.01 percentage point.

The first public bond sale by a Chinese real estate developer since November showed investors are becoming more confident in the long-term outlook of the sector’s biggest companies. House prices in China shrugged off government curbs on lending to rise 10.5 per cent in December from a year earlier, maintaining the fastest pace since records began in 2005.

‘It’s generally a good thing for Country Garden to be able to raise the funds, but the deal also opens the gate for other debt fund-raising from Chinese real estate companies,’ said Arthur Lau of JF Asset Management Ltd in Hong Kong, who helps manage US$128 billion of assets. ‘People are worried that bond sales will scramble to come to the market, not just from Country Garden but also from other developers.’

Country Garden’s share price jumped as much as 15 per cent yesterday. The stock closed up 12 per cent at HK$7.48 in Hong Kong.

Country Garden, China’s most profitable property developer, last week raised 3.6 billion yuan (S$709.3 million) selling convertible debt maturing in 2013. Investors can hand over the bonds for Country Garden’s shares at HK$9.05 apiece, which is 37 per cent more than the average price as weighted by volume on Feb 15, according to an e-mail sent to investors.

Country Garden’s 2.5 per cent convertible bonds now trade at 104.15 per cent the face value, according to Nomura Holdings Inc prices. Country Garden’s debt is rated the lowest investment grade at BBB- by

Standard & Poor’s. Moody’s Investors Service ranks it one step lower at Ba1.

Credit-default swaps on Greentown China Holdings Ltd rose 50 basis points to 1,175 basis points.

Contracts on Hopson Development Holdings Ltd jumped 50 to 1,250 basis points, according to BNP Paribas. That means it costs US$1.25 million a year to protect US$10 million of Hopson’s debt from default for five years. It implies a more than 65 per cent chance of default in the next five years, according to a valuation model by JPMorgan Chase & Co.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

New bond sales increase the risk of default as they add more debt to the companies.

The credit risk of Chinese real estate developers has exceeded that of their troubled peers in the United

States on concern that China’s government will announce new measures to more effectively rein in rising property prices, and that developers will need to sell more debt to fund expansion or risk losing market share to rivals.

High-yield bonds of US home builders hurt by the sub-prime loan crisis now trade at an average 10.55 percentage points more than US Treasuries, according to a Merrill Lynch & Co index that tracks 93 securities. Greentown’s 9 per cent US$400 million bonds maturing in 2013 trade at a record 12.56 percentage points above US government bonds, up 64 basis points from Friday, according to ING Groep NV prices. Hopson’s 8.125 per cent US$350 million securities due in 2012 widened 90 basis points to a record 12.78 percentage points over US Treasuries.

Investors should price in more risk on the bonds of Chinese property developers to reflect the weak structures of the deals and the untested legal system for defaults in China, analysts led by Hong Kong based Pradeep Mohinani at Lehman Brothers Holdings Inc said in a research note on Feb 15.

‘We reiterate a more defensive investment strategy and recommend investors to avoid this highly volatile sector in the near term because of rising industry and supply risks,’ the Lehman analysts wrote in the report.

Bonds of Chinese developers should trade at between 150 to 180 basis points more than their US peers,

the analysts said.

Source: Bloomberg (Business Times 19 Feb 08)

Two more govt agencies to vacate downtown offices

IDA, SLA making room for private businesses to ease office shortage

MORE help is on the way to ease Singapore’s office shortage, which has led to soaring rents.

At least two government agencies will give up their downtown offices to make room for private businesses that need more space.

The Infocomm Development Authority (IDA) will relinquish about a third of its 11,300 sq m office in Suntec City by moving some divisions to the Mica building in Hill Street by the end of the year.

Although it will still be close to town, IDA plans to move again in a few years to a ‘more appropriate location outside the central business area’ that can accommodate all its headquarters staff.

The Singapore Land Authority (SLA) is also planning to give up its seven floors at 8 Shenton Way, formerly Temasek Tower, although it has yet to find a new home. This is a considerably larger office space than the one IDA is vacating this year.

Other state departments may follow suit.

Finance Minister Tharman Shanmugaratnam said on Friday that the Government would move several agencies out of the central area by the first quarter of next year.

This will free up 20,000 sq m of precious prime office space for the private sector – equivalent to about 20 floors of a Suntec City office tower, Mr Tharman said in his Budget speech.

Although office space in the Republic is still cheaper on average than in Hong Kong or Tokyo, he said, the rate at which rents have risen has been ‘rapid and unsettling for businesses’.

Prime office rents shot up by 78 per cent on average last year, catapulting Singapore into the world’s top 10 most expensive office markets for the first time. The Republic jumped 10 spots to seventh place in the latest rankings, according to a report last week.

The Government has taken several steps to address the situation, including releasing temporary office sites and state properties, but these have had little noticeable effect so far.

Meanwhile, surging rents are also acting as a push factor for agencies that are relocating, especially those whose leases will expire soon.

The Economic Development Board (EDB), for example, is said to be firming up plans to move to Fusionopolis when its lease at Raffles City Tower is up next year.

Asking rents at Raffles City, where the EDB has been since 1985, have doubled in the last 15 months to about $17 per sq ft per month.

But other statutory boards that have ongoing leases – such as IE Singapore in Bugis Junction, whose lease extends to 2011 – will stay put.

Experts said this latest move would help relieve some of the immediate supply crunch, ahead of a slew of building completions expected in 2010 and beyond.

In particular, it will make things easier for firms already located in Suntec City or 8 Shenton Way that are looking to expand, said Ms Tay Huey Ying, director of research and consultancy at property firm Colliers International.

She added more agencies could jump onto the bandwagon.

‘Even those who own their own buildings could move out and lease out the offices, thereby releasing some space for the market and, at the same time, earning rental returns,’ she said.

Government offices still located downtown include the Ministries of Finance, Law, and Trade and Industry, all within the Treasury building in Hill Street next to Funan DigitaLife Mall.

There is ‘no real need’ for some of these departments to be in the central business district, and they could free up space for other occupiers who need the location more, said Mr Chua Yang Liang, head of research (South Asia) at Jones Lang LaSalle.

Merchant Square on sale for $73m

A MODEST office development with well-known cosmetics company Estee Lauder as its anchor tenant is up for sale at an indicative price of $73 million.

The price for the 99-year leasehold Merchant Square – located in Merchant Road, opposite Riverside Point – works out to $1,450 per sq ft (psf) of net lettable area.

The latest office property transaction in the vicinity involved the Apollo Centre, sold last December for $1,378 psf.

Merchant Square, completed in 1996, comprises a four-storey office tower integrated with two blocks of conserved shophouses.

CB Richard Ellis, which is marketing the property, said potential buyers can expect substantial rental appreciation in the short to medium term.

Nearly 50 per cent of the property’s leases will expire over the next two years.

Some of the leases were signed at rates as low as $3 to $4 psf, while others are at the current rates of $5 to $5.50 psf.

The Merchant Square vicinity is quiet – a far cry from the other side of the road where Riverside Point and Clarke Quay are located. It is currently 96 per cent occupied.

Estee Lauder takes up 1-1/2 floors, or about 15 per cent, of the space.

Merchant Square has a net lettable area of 50,262 sq ft and sits on a 28,083 sq ft plot. There are two basement carpark levels with 76 lots.

It was originally intended to be a retail project.

Back in 1995, however, owner Jackson International reportedly took advantage of the narrowing gap between office and retail rents to convert three of four shop floors in the development into offices.

Jackson owns one industrial building, but its main business is as a carpet and rugs distributor and manufacturer.

The tender for the property closes on March 12.

Source: The Straits Times 19 Feb 08

Day of reckoning for banks hit by US mortgage crisis

WASHINGTON – IT IS D-Day for the world’s big banks as they finalise last year’s results and try to account for the full scale of the credit upheaval spawned by the United States sub-prime crisis that threatens to stall the global economy.

Over the next two weeks, most major US banks will file annual reports with the US Securities and Exchange Commission (SEC).

Several of Europe’s biggest financial firms will also release 2007 earnings statements.

For some, it will be the first audited reckoning of how badly they were burned by the market turmoil that began with defaulting US sub-prime mortgage loans.

Those reports should go a long way towards clarifying banks’ financial positions as at the end of last year.

Figuring out how far the credit crisis will spread is much harder and may determine whether the world economy is heading for a recession.

Banks buried in bad debts have less leeway to lend to consumers and companies that drive the economy.

They have also grown wary of lending to each other because of uncertainty about which firms face heavy losses.

To date, major banks have disclosed more than US$140 billion (S$198 billion) in losses tied to mortgages, complex debts and other bad credits.

German Finance Minister Peer Steinbrueck said total write-offs could reach US$400 billion, suggesting that the barrage of bad banking sector news was likely to continue.

Mr Torsten Slok, an economist at Deutsche Bank, said bank write-downs of US$400 billion would no doubt be painful, but the impact on lending – and, therefore, the economy – would depend on how widely the losses were spread.

‘How much is $400 billion? If it is spread throughout the financial system, it’s peanuts. If it’s concentrated among only a few banks, it’s serious,’ he said.

The deadline for most publicly traded US banks to file annual reports with the SEC is Feb 29.

Although many, like Merrill Lynch and Citigroup, already revealed heavy losses when they issued fourthquarter results in recent weeks, these final year-end reports face closer scrutiny from accountants and could contain some new shocks.

European banks slated to report earnings this week include Barclays, BNP Paribas and Societe Generale.

Last week, Swiss bank UBS reported a net fourth-quarter loss of US$11.3 billion.

It also revealed that it had tens of billions of dollars in exposure to US mortgage loans, leveraged finance and other potentially risky categories.

Mr Kenneth Rogoff, an economics professor at Harvard University and former chief economist of the International Monetary Fund, said sub-prime-related write-offs were just the beginning.

With losses from commercial real estate defaults, unpaid credit card bills, auto loans, corporate debt and other items added in, the grand total may top US$1 trillion, he said.

‘We haven’t, by any means, seen everything,’ Mr Rogoff said. ‘If it were just the sub-prime debt, it wouldn’t be so bad. We’re just entering the US recession, so the defaults are just beginning.’

Source: REUTERS (The Straits Times 19 Feb 08)

CPF floating rate to be announced next month

THE interest rate for the Central Provident Fund (CPF) Special, Medisave and Retirement accounts (SMRA) for April to June this year will be announced next month, after the average yield of the 10-year Singapore Government Security (SGS) is computed, said the CPF Board yesterday.

The SMRA is based on the average yield of the 10-year SGS plus 1 per cent. A 4 per cent minimum will be maintained for two years to help CPF members adjust to the floating rate.

In addition, an extra 1 per cent will be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the Ordinary Account. This will go towards the member’s Special or Retirement account to enhance retirement savings, said CPF.

The CPF interest rate and HDB mortgage rate will remain the same for April 1 to June 30.

In a joint statement yesterday, the CPF Board said it would pay interest of 2.5 per cent a year for savings in the Ordinary Account to its members.

The concessionary interest rate for HDB loans, pegged at 0.1 percentage point above the CPF Ordinary Account rate, will remain unchanged at 2.6 per cent a year. The CPF interest rate is reviewed quarterly.

 

Source: The Straits Times 19 Feb 08

Capital will keep flowing into Asia, says fund manager

CAPITAL will keep flowing into Asia despite the turbulence across global stock markets, according to a senior executive of an international fund manager.

Fidelity International’s global head of institutional investment, Mr Michael Gordon, said long-term investors remain positive on Asia’s prospects, as the region is not plagued by debt problems being witnessed elsewhere in the world.

Fidelity is a global investment management company with more than US$276 billion (S$390.3 billion) in its portfolio.

Mr Gordon expects Asian stocks to fare ‘a little better’ than global equities this year.

Global equities will end the year about where they are now, he predicts.

‘We are still clearly favouring Asia over the rest of the world,’ he told The Straits Times.

‘Capital will continue to flow to Asia. I don’t see that changing any time soon,’ he added.

‘The debt problems that are killing markets elsewhere are not present here. In Asia, debt has not driven things. The credit crunch is not biting here.’

Global equities endured a torrid time last month. About US$5.2 trillion were wiped off their value, as investors took cover in the face of economic uncertainties.

However, that has not dampened the positive sentiment among investors with a long-term view towards Asian markets.

‘There are no nerves about Asia. The longer-term investors remain as committed to their investments in Asia as they were last summer,’ Mr Gordon said.

On his outlook for global equities this year, he said: ‘The volatility will quiet down a little bit. From here, things will probably be flat from today.

‘I expect it to close down about 5 per cent to 10 per cent overall for the year.’

He also feels Asia will be ‘quite insulated’ in the event of an economic recession in the United States.

The region’s long-term financial health is thriving, with strong foreign exchange reserves and current account surpluses, he explained.

Asia is also no longer as dependent on US capital now as it was 10 years ago, he said.

Source: The Straits Times 19 Feb 08

China, wary of social unrest, scrambles to contain food prices

It wants to avoid mistakes of 1988 as inflation hits 10-year high of 6.9%

(HONG KONG) Rocketing food prices in China have sown deep concern among the communist leadership, ever wary of social unrest, as they fumble to control inflation without repeating past mistakes, analysts say.

Overall inflation in China is running at a 10-year high – around 6.9 per cent in November year-on-year, official statistics show.

Inflation is now being driven almost exclusively by increases in the price of food, in particular the staple meat, pork, which has spiked 60 per cent year-on-year.

Prices have faced even greater upward pressure in recent weeks, as severe weather has crippled the transport system at the time demand is greatest over the Chinese New Year.

A report by Credit Suisse said 10 per cent of China’s farmland has been affected by the extreme cold, and one per cent could see a complete loss of crops and vegetables.

Price increases have been seen in food items ranging from cooking oil to apple juice, as China’s growth and global demand creates what economists have dubbed ‘agflation’ referring specifically to rises in prices of agricultural commodities.

Analysts say authorities in Beijing are becoming increasingly concerned about the prospect of food prices getting out of hand, but add that the problem is not yet approaching the levels that led to widespread popular dissatisfaction almost a decade ago.

‘They (the central government) are increasingly nervous about it,’ said Andy Rothman, Shanghai-based China macro-strategist for CLSA. ‘But it is a long, long way from the inflation problems before 1989.’

In January, the National Development and Reform Commission announced tightened supervision of prices for grain, edible oils, meat, poultry, eggs, feed and other items in both wholesale and retail markets. This followed the announcement in late December that from Jan 1 the government would slap taxes ranging from 5 to 25 per cent on exports of a range of products including wheat, corn, rice and soybeans to try and ensure stable food supplies at home.

The actions appeared to be stoked by memories of the widespread protests that resulted from the government’s clumsy handling of food price controls that led to inflation of around 50 per cent in the summer of 1988. Public anger prompted the demonstrations that the following summer morphed into anti-government protests and the death at the hands of the army of hundreds, possibly thousands, of civilians.

Vincent Chan, head of China research for Credit Suisse, cited another change in recent months, saying people were now expecting price rises.

‘If you look at the statistics, then China’s inflation problem is simply a food inflation problem,’ he said. ‘In the past, we have not really had a problem of inflation expectation (but) this year we have already seen that. And that normally means that prices will rise.’

CLSA’s Mr Rothman said pork price inflation is only a short-term problem, and predicted prices will start to fall back later this year.

‘This is a supply problem. In 2006, pork prices had a 10-year low. There was not any incentive for farmers to raise more pigs. This was made worse by blue-ear disease which stopped supply when demand was rising,’ he said.

The other major factor in Chinese inflation, cooking oil, was more complicated, he said, as 60 per cent of it is imported.

‘The major contributor to the rise is US ethanol policy and there is little the Chinese can do about that,’ he said.

Subsidies in the US have seen a major switch in land use to grow crops for fuel, rather than food, prompting worldwide increases in some staple foods.

The UN’s Food and Agriculture Organisation said in October that China was expected to slash its exports of cereals from 7.7 million tonnes in 2006-7 to 6.2 million tonnes in 2007-8. At the same time it would probably increase imports to 10.1 million tonnes from 9.3 million tonnes.

China imported 32.2 million tonnes of oilcrops, including corn and soybeans, in 2006-7, which the FAO said was expected to rise to 37.3 million tonnes in 2007-8, with exports expected to fall to 1.3 million tonnes from 1.5 million tonnes.

Mr Rothman said there had been anecdotal evidence of subsidies to poor rural areas, which if accurate could indicate the government’s willingness to take action to keep a lid on food prices and prevent any hint of social unease.

 

Source: AFP (Business Times 18 Feb 08)

Indian govt struggles to keep food prices down

Surge in global food prices hits millions of people in India

(NEW DELHI) Anand’s restaurant has served flat bread, lentils and vegetables to loyal customers every day for four decades but for the past year he’s been on the receiving end of almost non-stop complaints.

‘They argue because we’ve raised prices. But we had to increase them because everything – wheat, butter and vegetables – has gone up,’ says Sanjay Anand, second-generation owner of the Delhi restaurant.

Small restaurants like his, as well as hundreds of millions of people across India, have been hit by a huge surge in demand and prices for food worldwide.

The price hikes have triggered government anxiety over whether it can continue to ensure supply of affordable food for the country’s 1.1 billion people.

Analysts say India – which produces most of its own food, exports surplus items such as sugar and heavily subsidises supplies for the poor – has so far managed to avoid severe price shocks.

But it faces the same mix of factors as other nations grappling with rising food prices – higher incomes are boosting demand for protein, surging demand for energy is pressuring oil prices, and diversion of agricultural land to urbanisation and industrialisation, as well as grain production for biofuels, is pushing land values sky high.

‘Of course India is impacted by global events,’ said Saumitra Chaudhuri, economic adviser at Indian credit rating agency ICRA.

‘The question is whether there’ll be a supply response. Better yielding seeds, irrigation, technology and more efficient distribution can and probably will have a major impact. But it will take a little time and we’re likely to see no slack in demand or costs soon.’

The price of wheat on the Chicago Board of Trade more than doubled in the past year to a record high above US $10.60 a bushel for March delivery.

That means India’s government will have to boost the subsidies it pays to wheat farmers – and those extra costs have to be passed on to customers in restaurants like Anand’s.

Government subsidies to feed the poor have more than doubled in the past five years to US$7 billion.

Along with other efforts such as selling transport fuel below market rates to stem inflation, India now spends more than 15 per cent of its budget attempting to control food prices.

‘The government would never scrap food and fuel subsidies. It’s politically impossible and, as we’ve seen, can lead to strikes and protests,’ Mr Chaudhuri said.

Inflation in India, measured by wholesale prices, is running at around 4 per cent. Consumer prices, less widely cited, have gained around 5 per cent.

But for Saba, a housewife from Kashmir, the official figure lags far behind the hikes she has seen in her weekly food budget for staples such as cooking oil and wheat.

‘Prices are going up across the world, but in India they’re rising even faster,’ she said, adding that the prices she pays for wheat and cooking oil have doubled in the past year.

The wide gap between government figures and consumer anecdotes comes amid an unprecedented economic boom in India.

The economy is forecast to grow 8.7 per cent in the year ending March, a slowdown from a torrid 9.6 per cent rate for the previous year.

Rising incomes have created a surge in demand for food supplies from a growing middle class, even as almost two thirds of the country continues to survive on less than US$1 a day.

This has created a dichotomy in supply and pricing, illustrated by the spike in demand created by newlyestablished retail chains using grain and cooking oil to produce ranges of processed foods while the government sells bulk items below cost through its public distribution system for the poor.

‘The Indian government procures wheat and edible oils domestically and offshore and sells below world rates for the poor,’ said Si Kannan, associate vice- president at Kotak Commodity Services in Mumbai. ‘But if they pay the local farmer below global prices, he’s not going to grow the crop unless demand from private companies makes the price attractive.

‘So there’s a structural problem and prices for items like wheat, soy and oils are going to remain high in India like the rest of the world because demand is so strong and supply is limited,’ he said.

Record prices of wheat, soy meal and corn impact economic growth patterns worldwide. In India one outcome is that farmers, like their counterparts elsewhere, switch to high-priced crops and set off a chain reaction for other commodities.

As a result, the government has been forced to sharply raise domestic support prices to ensure production stays high enough to avoid large imports.

 

Source: AFP (Business Times 18 Feb 08)

Price of oil for delivery in 2015 hits fresh high

(LONDON) Oil for delivery in future years is extending record highs, a sign that investors are betting that supply concerns and other factors boosting the cost of crude are unlikely to fade soon.

Oil for delivery in December 2015 set a record high of US$92.50 a barrel last Friday. When oil for immediate delivery hit US$100 for the first time on Jan 2, the 2015 price stood at US$88.33.

‘It’s telling us that the market is still looking for a long-term oil price that works,’ said Kevin Norrish, oil analyst at Barclays Capital. ‘The market believes higher prices are here to stay; the question is, how much higher do they need to be?’

The rise in long-term prices comes as a growing number of industry officials are questioning mainstream oil supply forecasts, underscoring the challenge of meeting ever-rising world demand for fuel.

‘We are experiencing a step-change in the growth rate of energy demand due to rising population and economic development,’ Royal Dutch Shell chief executive Jeroen Van der Veer said last month. ‘After 2015, easily accessible supplies of oil and gas probably will no longer keep up with demand.’

The International Energy Agency, adviser to 27 industrialised countries, warned last year that a supply crunch in the period to 2015 could not be ruled out. Among the factors driving long-term prices are falling production in some areas outside Opec as well as rising demand led by countries such as China.

‘The fundamental influences at work on the curve are strong demand growth and the poor performance of non-Opec supply,’ Mr Norrish said.

The rising price of oil for future delivery also reflects higher costs and the changing nature of production.

Oil industry costs have surged in recent years due to rising raw material prices and as oil companies tackle more complex projects in more remote locations, such as beneath deep water.

In addition, a growing portion of future supply is expected to come from so-called unconventional sources, such as by squeezing crude from tar sands in Canada, which need a higher oil price to make money.

‘The long-dated price is supposed to represent the marginal cost of extracting a barrel of oil,’ said Harry Tchilinguirian, senior market analyst at BNP Paribas. ‘Up until 2003, that long-dated price was relatively stable, around US$22 a barrel, but it is now as volatile as the prompt price.’

 

Source: Reuters (Business Times 18 Feb 08)

Sales activity surges to 42 disposals, buying falls to 79 purchases

INSIDE MARKETS

Fund manager sentiment turns negative, while companies’ buybacks stay sluggish for third straight week

THE buying was low while the sales activity by directors and substantial shareholders was high last week, based on filings on the Singapore Exchange from Feb 11 to 15. A total of 26 companies recorded 79 purchases versus 16 firms with 42 disposals. The buy figures were down from the previous week’s two-and-a-half-day totals of 33 companies and 83 purchases, while the sales were up from seven companies and 21 disposals.

The fund manager sentiment was negative last week with 10 asset managers that posted 33 disposals against nine institutions with 18 acquisitions. The figures are a sharp turnaround from the 12 institutions that recorded 41 acquisitions and seven asset managers that posted 18 sales in the previous week.

The buyback activity was also low last week with only three firms that recorded 13 repurchases worth $18.9 million. That was the third straight week of low buyback activity by listed firms. An average of only 1.4 companies and 2.5 trades were recorded per day since Jan 28, versus the daily average of 7.1 firms and 11 buybacks from Jan 7 to 25. Overall, a total of 33 repurchases worth $55.9 million were recorded in the past three weeks versus 165 trades worth $74.5 million in the previous three-week period.

The most active firm in the past three weeks has been United Overseas Bank (UOB) with 2.5 million shares purchased worth $44.3 million at an average of $17.65 each. That brought its buybacks since January to 5.14 million shares worth $91.2 million. Investors should note that UOB has cancelled more than 1.1 per cent of its issued capital since it started its second buyback programme in June last year.

There were several significant trades in the market last week. On the buying side, the chief executive officer (CEO) of Hiap Seng Engineering recorded his first buys since 2002 following the 61 per cent fall in the share price.

Meanwhile, Tembusu Growth Fund acquired more shares of Hongwei Technologies at below its subscription price.

Lastly, there was a rare buy by substantial shareholder Lim Eng Hock in FJ Benjamin Holdings which boosted his stake by 17 per cent. On the negative side, Cohen & Steers recorded its first sale in Fortune Real Estate Investment Trust at below its purchase price.

Hiap Seng Engineering

Purchases by chairman and CEO Tan Ah Lam in mechanical engineering firm Hiap Seng Engineering from Jan 21 to Feb 11 totalling 1.8 million shares accounted for nearly 7 per cent of the stock’s trading volume. The acquisitions, which were made at 39 cents to 34 cents each, boosted his direct holdings by 153 per cent – to 2.98 million shares or 0.98 per cent of the issued capital. Mr Tan also has deemed interest of 70.1 million shares or 23.1 per cent.

The purchases in the past month were made on the back of the 61 per cent drop in the share price since the last week of September 2007, from 94.5 cents. The counter is also sharply down since mid-July 2007, from $1.22.

Despite the fall in the share price, the CEO resumed buying at sharply higher than his previous purchase price based on the 150,000 shares that he acquired in February 2002 at 17 cents each. Hiap Seng announced its H1 results in November 2007 with net profit after tax down by 47.9 per cent to $3.90 million for the six months to Sept 30, 2007. The stock closed at 38.5 cents on Friday.

Hongwei Technologies

Tembusu Growth Fund Ltd has acquired more shares of polyester differential fibres manufacturer, Hongwei Technologies, at below its subscription price in May last year. The group picked up 800,000 shares on Feb 6 at an estimated price of 25 cents each. The fund manager previously acquired 794,000 shares on Jan 23 at an estimated price of 21.5 cents each.

The trades in the past month totalling 1.6 million shares have increased its direct holdings by 14 per cent – to 12.8 million shares or 5.7 per cent. Prior to those acquisitions, Tembusu Growth Fund subscribed for an initial 11.3 million shares or 5 per cent in May 2007 at 33 cents each. The stock has fallen sharply since October 2007, from 38 cents to 26 cents on Friday.

FJ Benjamin Holdings

Substantial shareholder Lim Eng Hock recorded a rare buy in fashion retailer and timepiece distributor, FJ Benjamin Holdings, with 10.9 million shares purchased last Monday at an estimated price of 59.5 cents each, which increased its holdings by 17 per cent to 75.9 million shares or 13.4 per cent. That was his first acquisition since September 2006. He previously sold 4.5 million shares in March 2007 at an estimated price of 70 cents each.

Prior to that sale, Mr Lim bought nearly three million shares in September 2006 at an estimated price of 49 cents each and 1.5 million shares in January 2006 at an estimated price of 37 cents each.

Investors should note that Lloyd George Investment Management (Bermuda) Ltd ceased to be a substantial shareholder on Jan 24 following the sale of 1.7 million shares at an estimated price of 61 cents each, which reduced its deemed holdings to 27.9 million shares or 4.9 per cent. The fund manager previously reported an initial filing on Aug 1, 2007, of 2.4 million shares at 84 cents each, which raised its interest to 5.4 per cent. The stock closed at 60 cents on Friday.

Fortune Real Estate Investment Trust

Cohen & Steers Inc recorded its first sale in Fortune Real Estate Investment Trust since it became a substantial shareholder in February last year, with 4.1 million units sold last Monday at an estimated price of $5.20 each. The trade reduced its deemed holdings by 7 per cent – to 52.9 million units or 6.5 per cent.

The group previously acquired 16.7 million units from February to July 2007 at $5.73 to $6.30 each. Cohen & Steers reported an initial filing on Feb 8, 2007, of 641,000 units at HK$5.90 each, which raised its interest to 5 per cent. The stock closed at $5.28 on Friday.

The writer is managing director at Asia Insider Limited

 

Source: Business Times 18 Feb 08

Investors looking for some clarity on the economy

WALL STREET INSIGHT

Focus on consumer price report, results of retail giants

AFTER somewhat of a comeback week for US stocks following the previous week’s heavy losses, investors will be forgiven if they feel as though they’ve got no idea what’s coming next.

Indeed, the events of the past week alone would normally be enough to keep Wall Street talking for a month: Yahoo’s rejection of Microsoft’s unsolicited takeover offer, Warren Buffet’s offer to assume US$800 million of bond liabilities from the three major bond insurers, Fed chief Ben Bernanke’s dour outlook for the economy, and the lowest consumer sentiment reading reported by the University of Michigan since February 1992.

‘I wouldn’t read very much into last week’s gains insofar as what it means for how the stock market is going to be trading in the coming week,’ said Joe Battipaglia, chief investment strategist at Ryan & Beck, who attributed most of the week’s advance to buying into an oversold market.

‘I see stocks bouncing up and down like they’ve been doing until we get some clarity on the economy and on how much more in writedowns are still to come from the financial sector,’ he said.

The uncertainty over the economy’s fate was mirrored in several reports last Friday, two of which pointed toward a recession, the other showing the economy holding up. In addition to the slump in consumer sentiment, Wall Street got the lowest reading in the Empire State manufacturing survey since May 2003.

But the January industrial production report showed a rise of 0.1 per cent putting it back to the record level hit in September, hardly a sign of recessionary contraction.

‘Most people believe that we’re either already in a recession or that a recession is an inevitable occurrence, but we’re still getting enough contradictory evidence to support an argument that we might not slump into negative growth,’ said Joel Naroff, president of Naroff Economic Advisors, who believes that the chances of a recession are now better than 50 per cent. Perhaps that signal that a recession is not necessarily such a foregone conclusion is what enabled the S&P 500 to eke out a 1.13 point, or 0.1 per cent gain, to 1,349.99 points.

However, the Dow Jones Industrials did not fare as well, slipping by 28.8 points, or 0.2 per cent, to end at 12,348.212. The Nasdaq Composite also finished in the red, giving up 10.74 points, or 0.5 per cent, to 2,321.80.

All three indexes registered gains for the week. The Dow and the broader S&P 500 advanced 1.4 per cent each while the Nasdaq was up 0.7 per cent.

The ongoing credit crisis and the recession fears that continue to dog the stock market will make a repeat performance difficult.

Meanwhile, crude oil has been on a comeback of its own of late, gaining 4.1 per cent last week to US$95.50 per barrel, its biggest weekly gain since November.

The US stock market will be closed on Monday for the President’s Day holiday, so investors will only have four days of trading to decide on whether stocks will rise or fall this week.

With signs growing that consumer spending, which is responsible for 70 per cent of the US economy, is waning, Wall Street will be keeping a close eye on fourth-quarter earnings reports from JC Penney and retailing king Wal-Mart Stores for further indications of a slowdown.

Wednesday’s consumer price report will also be under the investor spotlight, as inflationary pressures have been rising, which could further weaken consumer spending.

Reports from the beleaguered housing sector, which Fed chief Ben Bernanke noted remains the key to just how bad the US economic slowdown will become, are due tomorrow. Investors will hear more from the Fed on Wednesday when minutes from its most recent meeting will be released.

Wall Street also will get a look on Friday at the Philadelphia Federal Reserve’s manufacturing survey, whose poor showing last month set off alarm bells to many on Wall Street that recession was on its way.

On the fourth-quarter earnings front, tech heavyweight Hewlett-Packard also reports this week, as do Whole Foods, Newmont Mining, PG&E, Trump Entertainment and MGM Mirage, amongst others.

But earnings reports from several foreign banks could draw the most interest from investors, who are on high alert for more sub-prime mortgage related write-downs. Barclays, UBS and Societe Generale, whose US$7 billion trading scandal erupted two weeks ago, are due to report.

 

Source: Business Times 18 Feb 08

Signs of US stagflation will pass off, say economists

Weakening demand will eventually cool inflation, they say

(WASHINGTON) A clutch of distressing US economic data on Friday rekindled fears of 1970s-style stagflation, but the current bout of slow growth and rising costs should be short-lived.

While there is little hope of a quick reprieve for US consumers coping with petrol around US$3 per gallon and rising costs for groceries ranging from soup to diapers, the good news is that conditions are unlikely to worsen, and slackening demand will eventually cool inflation.

‘We’re about to find out if high prices are their own cure,’ said Citigroup economist Steven Wieting, adding that higher prices have already eroded real wage gains and put a damper on consumers’ discretionary purchases.

Mr Wieting and other economists argue that higher prices will inevitably curb demand, and as demand slows, companies will end up absorbing more of the pricing pressure. While energy costs may not fall dramatically, they probably won’t rise as fast as they did last year. In January, petroleum import prices jumped 67 per cent on a year-over- year basis, Mr Wieting noted.

Friday’s economic data showed manufacturing growth in New York fell to its weakest since April 2003, import prices rose much more sharply than anticipated, and the Reuters/University of Michigan Surveys of Consumers index hit a 16-year low while inflation expectations spiked.

‘The latest set of US numbers will play to market talk of stagflationary tendencies,’ said Alan Ruskin, chief international strategist at RBS Greenwich Capital.

Still, former US Federal Reserve chairman Alan Greenspan said on Thursday that stagflation was ‘too strong a term for what we are on the edge of’, adding the likelihood of a US recession was ‘50 per cent or better’.

His successor Ben Bernanke disagrees on the recession prediction and thinks inflation will moderate in the coming quarters.

He is far from alone on the inflation prediction.

Lakshman Achuthan, managing director at the Economic Cycle Research Institute, said his group’s future inflation gauge remained in a downtrend, even as its weekly index of leading economic indicators hit recessionary levels.

‘Consumers have been losing the battle at the pump, where gas prices have been high, but winning the war on inflation at the checkout counter, where in spite of higher import prices, stores like Wal-Mart are making repeated rounds of price cuts to keep consumers purchasing,’ he said.

With wheat hitting an all-time high of US$11.53 per bushel and oil creeping back towards US$100 per barrel, corporate profit margins are hurting.

Martin Baily, a senior fellow at the Brookings Institution and former economic adviser to President Bill Clinton, said there was one key ingredient missing from the current episode of stagflation – rising wages.

It is the vicious circle of rising prices leading to wage increases and still higher prices that has marked previous severe episodes of stagflation like the 1970s.

Citigroup’s Mr Wieting said that unlike that period, labour unions have limited negotiating power now, and are unlikely to have much success pushing for big cost-of-living raises.

‘I don’t know anyone who gets a higher wage because the cost of driving has gone up,’ he said.

 

Source: Reuters (Business Times 18 Feb 08)

2008 not necessarily like 2007: UBS

(ZURICH) UBS AG does not expect 2008 to be a year like 2007, when the Swiss bank wrote down US $18 billion in bad credits and posted the first loss since its creation, its chief executive was quoted as saying yesterday.

‘I view the environment as difficult due to great uncertainties related to the US economy. Nervousness will remain high in the markets. But you cannot conclude from that that 2008 will be a year like 2007 for UBS,’ UBS chief executive Marcel Rohner told newspaper NZZ am Sonntag.

UBS, the world’s largest manager of affluent people’s money, is Europe’s biggest casualty of the credit crunch by far. Investors fear the possibility of billions of dollars in new sub-prime writedowns.

Mr Rohner said UBS’s investment banking business would concentrate in 2008 on its strengths in customer business, such as equities and mergers and acquisitions advisory business.

‘Our goal is to give the businesses that do excellent work the space to develop further, while isolating the problem portfolios in the US mortgage market, managing them separately and quickly reducing the risks,’ he said.

UBS has published details of its exposure to problem areas in US debt, totalling US$88 billion at the end of 2007, including US$27.5 billion in sub-prime debt.

But Mr Rohner said the figure could not be used to predict losses, as it comprised highly diverse positions and risks. ‘The quality of our investment in leveraged buyouts, for example, is much better than in complex securities based on mortgages with poor debtor quality,’ he noted.

Mr Rohner said it was not currently possible to sell intact structured products. But where a collateralised debt obligation structure had become insolvent, UBS had been able to reduce its risks by selling the underlying securities at prices in line with their current valuation by the bank.

UBS’s private banking business has not been affected by the blow to the bank’s reputation, Mr Rohner said. Private banking recorded net inflows of more than 30 billion Swiss francs (S$38.8 billion) in the fourth quarter of 2007, and net inflows continued in January.

Mr Rohner defended the continuing payment of bonuses amid the losses, as the losses arose from real estate loans handled by a small part of the bank. Other areas of the bank had worked well and it was important to continue to motivate staff producing these results by treating them fairly.

 

Source: Reuters (Business Times 18 Feb 08)

HDB flat still very affordable for average S’porean

Some get up to $88k in subsidies, says Mah Bow Tan; also flats still cheap enough for families to use CPF for full mortgage payments

PROPERTY prices may be on the rise but HDB flats still remain very affordable for the average Singaporean, National Development Minister Mah Bow Tan emphasised yesterday.

That is because families have access to subsidies which can go as high as $88,000 for some households, he noted.

And flats are still cheap enough for families to be able to fund their mortgage instalments entirely from Central Provident Fund (CPF) contributions – without the need to stump up cash.

Mr Mah made these points at a Chinese New Year dinner at the Tampines East Community Club yesterday.

With HDB resale prices rising about 17.5 per cent last year, he said he is well aware that younger Singaporeans are becoming increasingly concerned about the affordability of HDB flats.

He reiterated the Government’s commitment to providing affordable public housing and said there were two ways to achieve this.

One was to give big housing subsidies to help newly-weds buy their first HDB flat. The other was to provide mortgages at a concessionary interest rate.

In terms of subsidies, an Additional CPF Housing Grant (AHG) introduced in March 2006, provided lower income families with an additional grant of between $5,000 and $20,000 to buy their first HDB flat.

The income ceiling for this grant was raised from $3,000 to $4,000 to allow more families to benefit. And the grant limit was also increased by $10,000 so that the highest tier grant is now $30,000.

Mr Mah said: ‘A recent Ministry of Finance simulation estimated that the typical young low-income household could enjoy housing subsidies worth about $88,000.’

He also revealed that HDB’s records show that recent buyers of new HDB flats use only about 20 per cent of their monthly household income to service their housing loans.

‘This means that families can service their housing loan entirely from their CPF Ordinary Account contribution, without any cash outlay,’ he noted.

In any case, rising resale prices seem also to have stabilised for now so there is no need for buyers to rush in at this point, said Mr Mah.

‘The HDB Resale Price Index grew by only 1 per cent last month, and we expect prices to grow at a more moderate pace in 2008,’ he added.

Mr Mah also noted that the proportion of resale transactions with a positive cash over valuation, as well as the median cash over valuation also dipped marginally last month.

He said HDB will continue to monitor the situation closely.

 

Source: The Straits Times 18 Feb 08

Budget could have helped more with costs, firms say

Tax rebate and cut in worker levies, fuel taxes among measures sought

THE Government’s Budget this year may look like it is hongbaos all around, but companies are disappointed that they are getting little aid with their most pressing challenge – escalating costs.

Even as families look forward to generous Budget goodies to help them cope with rising inflation, the corporate sector says it has been left to fend off the same economic demon on its own.

Finance Minister Tharman Shanmugaratnam yesterday said, however, that corporate taxes were already cut since last year, adding that the Government should not overreact to the present situation.

‘Particularly for small and medium-sized companies, the tax regime in Singapore is already more competitive than in Hong Kong or any other country,’ he told reporters at a community event.

Still, companies, business groups and economists said with a near-record surplus of $6.45 billion, the Government could afford to dish out rebates and other measures to help with spiralling rental and wage bills.

And while they welcomed new schemes to promote innovation in the long term, they said they would have liked some immediate aid, too.

‘Our costs have gone up on all fronts, be it raw materials, labour or rentals,’ said Mr Lee Tong Soon, managing director of the Thai Village restaurant chain. ‘Our profit margins will be hurt, and we had hoped that the Government would do something to help us in the Budget.’

The latest Budget was presented to Parliament by Mr Tharman last Friday. Strong economic growth and a redhot property market led to the exceptional surplus, paving the way for special transfers totalling $5.4 billion.

Most benefits went to ease the burden of rising living costs for households, especially those of the poor and needy.

‘For businesses, there was really little in terms of direct help to tackle rising costs,’ said CIMB-GK economist Song Seng Wun.

While a cut in the corporate tax rate would have been welcome, few expected it since the rate was reduced from 20 per cent to 18 per cent last year.

‘The tax rate is already fair. Our China branches are taxed at more than 30 per cent,’ said Mr Lee.

Still, companies and analysts were hoping for a one-off income tax rebate, like that offered to individuals.

Foreign worker levies and fuel taxes could also have been lowered, while foreign worker quotas could have been raised and rebates given to relieve rising transportation costs, they said.

Mr Phillip Overmyer, Singapore International Chamber of Commerce chief executive, applauded the move to allow renovation costs to be expensed. This will mean big savings for retailers and restaurants, which have to remodel their outlets every two to three years.

But he was disappointed that the Government did not address Singapore’s acute shortage of skilled labour.

‘In the hospitality sector, foreign worker sources are mostly exhausted already, so there’s scope to broaden the countries that hotels and restaurants can source from.’

DBS Bank economist Irvin Seah said it was unfair to look at this Budget only. The Government has been working to relieve rental and wage burdens through non-Budget initiatives, he said.

Citigroup economist Kit Wei Zheng also said the Government may be counting on cost pressures to dissipate as the global economy slows.

Others suggested that the Government may be keeping its powder dry for off-Budget measures that may be needed should the United States and world economy slow more severely than expected.

Reactions to Budget 2008

STAYING AHEAD

‘Budget 2008 focuses on innovation and manpower – twin strategies that require an early investment in order for Singapore companies and the Singapore economy to stay ahead of global competition.’

SINGAPORE BUSINESS FEDERATION

ATTRACTING INVESTORS

‘For the financial sector, the most significant financial incentive is the removal of the estate duty… This would certainly make Singapore more attractive to overseas investors and assist in promoting the asset and wealth management business in Singapore.’

ASSOCIATION OF BANKS IN SINGAPORE

WOOING TALENTS

‘The tax measures introduced were well-balanced and consistent with the overall aim of the Budget to create a top-quality economy… Reduction of personal tax rates would have been a real icing on the cake in helping to achieve this aim, and we look forward to this materialising in the coming Budgets.’

MR AJIT PRABHU, Deloitte Singapore & South-east Asia tax partner

BOOSTING BUSINESSES

‘The Budget is good news for SMEs with most of the goodies appearing to go to them. However, it falls short of the expectations of multinational corporations and big business.’

MR DANNY TEO, KPMG managing partner

GOING GREEN

‘We had hoped to see additional tax depreciation on energy efficient and pollution-reducing equipment for businesses. The absence of such incentives… is a big let-down given the increasing worldwide concern on sustainability.’

MR LEONARD ONG, KPMG executive director

EASING COSTS

‘Significantly higher business costs from soaring rentals, GST hike, increased transportation costs from ERP, taxi fares and fuel prices have all exacerbated the situation. The Budget could have been better if it had brought some relief to address the rising cost of doing business.’

SINGAPORE CHINESE CHAMBER OF COMMERCE AND INDUSTRY

Source: The Straits Times 18 Feb 08

Don’t expect big Budget goodies every year: SM Goh

THE generous goodies given out last Friday are the result of a bumper Budget surplus that cannot be expected every year, Senior Minister Goh Chok Tong warned yesterday.

The surplus was driven by ‘exceptional’ economic growth of 7.7 per cent last year that may not be repeated, he said.

And the other conditions that led to such a big surplus – such as fast-rising property prices – may not even necessarily be desirable.

On Friday, the Government announced a huge Budget surplus of $6.4 billion, as well as $1.8 billion in benefits in the form of Growth Dividends, income tax rebates and health care and education related top-ups.

Urging people to have realistic expectations and not to keep asking for more, SM Goh said: ‘What I find missing is a little bit of reflection. That is, people asking themselves how this Budget is possible.

‘You got to understand that the surpluses came about because of the exceptional economic performance. We cannot grow by 7.7 per cent every year.’

He also noted that a key factor behind this year’s surplus was the strong growth of the property market.

It led to the Government collecting $4.1 billion in stamp duties paid on property purchases last year, a 211 per cent increase over the previous year.

But continued growth of the property sector at such a pace is neither possible nor desirable, SM Goh said, because it may lead to an oversupply of property or an overheating of the economy.

SM Goh was speaking to reporters yesterday at a Chinese New Year lunch at the Singapore Expo for about 1,000 elderly people from Marine Parade GRC.

He said that when he looked around at the silver-haired attendees, one question in his mind was how Singapore will look after them in the future.

‘So, therefore in our budgeting, we always have an eye on the future,’ he said.

For this reason, it is important for the Government not to give out too much of the surplus, Mr Goh added.

Rather, the Government must keep aside a sum to increase the size of Singapore’s reserves, which will come in handy in the future.

Singapore’s long-term well-being was also the focus of Education and Finance Minister Tharman Shanmugaratnam’s first public comments since delivering the Budget statement on Friday.

‘We have got to turn our minds away from the immediate benefits that are being handed out…Far more important is what we are doing for our children, our youth, particularly those who are going to post-secondary education.’

A slew of incentives in the area of education was announced as part of the Budget. They included subsidies for part-time degree courses, an $800 million boost for the lifelong learning fund, enhanced aid for needy university and polytechnic students, and more top-ups to student education accounts.

Mr Tharman also encouraged local businesses to pursue innovation in order to compete against those from China, India and Western countries.

He said: ‘They must invest in some R&D, some innovation…try to improve, do something special, different.

This is most important for us in the future.’

Commenting on concerns about rising inflation, Mr Tharman said Singapore is well poised to cope with this short-term problem.

He said: ‘Inflation is not a problem for us in Singapore because we can help those who are directly affected, make sure that their families can continue to get by, continue to afford their food, and also encourage everyone to get a job. This is a Budget principally about preparing for the future.’

 

Source: The Straits Times 18 Feb 08

IMPROVING OUTLOOK: UBS expects this year to be a better one

ZURICH – UBS does not expect this year to be like the last, when the Swiss bank wrote down US$18 billion (S$25.5 billion) in bad credits and posted the first loss since its creation, its chief executive officer (CEO) was quoted as saying yesterday.

‘I view the environment as difficult due to great uncertainties related to the United States economy. Nervousness will remain high in the markets. But you cannot conclude from that that 2008 will be a year like 2007 for UBS,’ CEO Marcel Rohner told Swiss daily newspaper NZZ am Sonntag.

UBS, the world’s largest manager of affluent people’s money, is Europe’s biggest casualty of the credit crunch by far. Investors fear the possibility of billions of dollars in new sub-prime write-downs.

Mr Rohner said UBS’ investment banking business would this year concentrate on its strengths in customer business, such as equities and mergers and acquisitions advisory business.

‘Our goal is to give the businesses that do excellent work the space to develop further, while isolating the problem portfolios in the US mortgage market, managing them separately and quickly reducing the risks.’

UBS has published details of its exposure to problem areas in US debt, totalling US$88 billion at the end of last year, including US$27.5 billion in sub-prime debt. But Mr Rohner said the figure could not be used to predict losses, as it comprised highly diverse positions and risks.

Last December, the Government of Singapore Investment Corp bought a 9 per cent stake in UBS for 11 billion Swiss francs (S$14.2 billion).

On Jan 30, UBS announced a 12.5 billion Swiss franc loss for the final three months of last year and a full-year loss of 4.4 billion Swiss francs, a record for the bank. This was due to a higher-than-expected US$14 billion write-down on assets connected to sub-prime mortgages in the US.

UBS was formed in 1998 after the Union Bank of Switzerland took over local rival Swiss Banking Corp.

 

Source: REUTERS (The Straits Times 18 Feb 08)

Asia won’t catch flu if US gets a cold, says MM Lee

With China and India propelling it, Asia won’t be ‘unduly disadvantaged’ by a recession in the US

ASIA – propelled by the twin engines of China and India – will not be ‘unduly disadvantaged’ if a recession hits the United States, said Minister Mentor Lee Kuan Yew last night.

‘I believe this may be the first time where the US economy catches a cold and we are not going to catch influenza – I hope,’ he said at the Singapore Airshow Aviation Leadership Summit dinner dialogue attended by about 200 aviation pundits.

The Chinese and Indian economies are unlikely to dip below 8, 9, or 10 per cent, he added, and while about 40 per cent of intra-Asian trade today is bound for the US, even if the US cuts its imports by half, Asia will not be too badly hit.

Zeroing in on the aviation industry, he was confident Asia will continue to soar high, as new airports are built and more people take to the skies.

He said: ‘I see enormous growth in Asia in the next 10, 20 years, more in Asia than in any other part of the world.’

China alone is looking at about 240 airports by 2020 and more than 500 by 2050 – and ‘that is just the beginning’ he said.

But on whether Asia, with its booming air travel sector, is well-placed to lead the aviation industry in all areas, including liberalisation going forward – an agenda that the International Air Transport Association (Iata) led by its head Giovanni Bisignani is trying to push – Mr Lee was a bit more sceptical, adding that ‘it will be very difficult’.

Countries with airlines that are not doing so well will want their flag carriers to grow stronger first before they open up. And while in his view, this is the ‘wrong approach’, it is nonetheless the reality.

Citing Singapore Airlines’ example, Mr Lee said its success shows how you become competitive when you are forced to compete internationally.

He remembers telling management and unions when Singapore Airlines (SIA) was set up as a separate entity from Malaysia’s national carrier that ‘if you can fly the flag and make a profit, I will be proud. If you cannot, let us forget it and somebody else can fly this flag’.

Everybody in SIA – from management, to pilots, to cabin crew and catering – understood that unless SIA was better than the rest, there was no reason for people to fly the airline.

Mr Lee said: ‘So I believe many of the problems that our neighbours are facing will go if they get international competition going and get international management to bring them up to speed. Then the whole region will prosper.’

Some progress has been made, he said, noting that by December, Asean will lift all restrictions on flights between capital cities of the 10 member states and by 2015, Asean national carriers will be able to criss-cross the skies over the region with no restrictions.

Turning to the other hot potato of global warming, Mr Lee was also asked during the 45-minute session for his reactions to attacks on the aviation industry by governments and organisations, primarily in Europe. Proposals have included taxes and penalties on airlines.

He replied that the industry contributes to about 2 per cent of man-made carbon emissions, but global warming has to be attacked in every way.

Still, if the problem is to be dealt with in a more cost-effective way, ‘then you must come to the conclusion that surely you can save more by rationalising air routes and have less of this prohibited flights and no-fly zones.’

Other things like more fuel-efficient jets, maybe the use of solar cells and many other options will also have to come.

According to industry average, one minute less of flight time saves 62 litres of fuel and 160kg of carbon emissions.

 

Source: The Straits Times 18 Feb 08

PROPERTY: Where to find homes at or below $600,000

They include executive condos as well as older private apartments in suburban locations

THE property market has quietened considerably this year, but prices have yet to fall.

Nevertheless, if you have a modest budget of about $600,000 for a home, your choices are not just confined to HDB flats.

Some fairly new executive condominiums as well as older private condos or apartments are within reach, if you look hard enough.

These are typically 99-year leasehold properties in suburban locations such as Woodlands, Choa Chu Kang and Jurong.

Some city-fringe locations such as Geylang, where the red-light district is nestled, or small apartments in places such as Upper East Coast Road, may also offer some bargains. Landed homes, however, will require a bigger budget. So will new condo launches, unless you do not mind tiny studio apartments.

New versus Old

BUYERS tend to prefer buying new properties directly from developers, rather than old ones. They are drawn by the slick marketing promotions put out by developers and pay a premium for their new homes. But new properties may not be worth buying when you have a tight budget.

‘In 2006, all the record prices were achieved by new launches,’ said Knight Frank’s director of research and consultancy, Mr Nicholas Mak.

‘Units at Ardmore Park, an older development which is in a very good location and is well-maintained, were transacted at much lower prices than those in new high-end condos in not-so-good locations.’

It is the same in suburban locations, as buyers pay more for what is new, he said.

The 99-year leasehold apartments at the 636-unit Maysprings in the Bukit Panjang area are mostly going for $650,000 and below. A year ago, they went for $500,000 and below.

The 17-year-old, 616-unit Orchid Park Condominium in Yishun, which faces Lower Seletar Reservoir, also had some units that went for around $600,000.

At the West Bay Condominium, a 936 sq ft unit was sold for $585,000 in January, while a bigger 1,216 sq ft unit went for $650,000.

Studio apartments, which can range from around 500 sq ft to 600 sq ft, can be bought for $600,000 or less.

The only problem is that there are not many of them in suburban projects, Mr Mak pointed out.

Private versus HDB

NOW that HDB prices have risen and there is overwhelming demand for new HDB flats, buyers may do well to consider private homes if they can afford them.

‘There will be growing demand for mass market properties as Singapore continues to create jobs,’ said Savills Singapore’s director of business development and marketing, Mr Ku Swee Yong. The opening of the two integrated resorts alone will create a significant number of entry-level jobs, he said.

‘Our unemployment rate is at a 10-year low, which means that we will need foreigners for some of these jobs,’ he said. ‘As long as rental values remain strong, capital values should also trend up.’

For those buyers who may one day want to rent out their homes, a private property could be a better choice than an HDB flat.

First of all, not everybody can buy an HDB flat. Also, there are leasing restrictions.

Yields may be higher for some HDB flats than private homes, but a private condo unit may be easier to rent out as condos usually come with amenities and security, property consultants said.

On average, net rental yields for private homes across Singapore are at 3.6 per cent, said Mr Mak.

Government data shows that the median rental rate in the fourth quarter of last year for Maysprings was $2.38 per sq ft a month. For a 904 sq ft unit at Maysprings, the rent would work out to $2,151 a month, or a 5.2 per cent gross yield.

The median rate was $2.09 psf for Orchid Park Condominium and $2.98 psf for West Bay Condominium.

Using this rate, the rent at West Bay Condominium would work out to $2,789 a month for a 936 sq ft unit.

Whether you are buying a property to live in or to rent out, know that you have a fair number of choices even if your budget is only $600,000.

 

Source: The Sunday Times 17 Feb 08

ME & MY MONEY: He makes room only for property investments

Door company Slide & Hide MD places his faith in real estate in S’pore and China, and blue-chip property stocks

HE HAS worked in the construction industry for more than a decade and so it comes as no surprise to learn that Mr Andrew Lim, the managing director of door company Slide & Hide System, opts for property-related investments such as real estate and property stocks.

He said he has more than $500,000 invested in the Singapore stock market, mainly in blue-chip property counters like Wing Tai, CapitaLand and Chip Eng Seng.

‘I prefer to buy blue chips because they are well managed. The management is transparent so I can be assured that the company won’t collapse,’ he said.

His property investments include factories in Singapore as well as office space and an apartment in China.

Mr Lim, 48, has come a long way from his childhood days. His family was poor and he spent much of his time helping his father collect leftover food from households to feed the pigs at their squatter hut in Toa Payoh.

A polytechnic graduate in civil engineering and a student of the school of hard knocks, he had his fair share of challenges when he started Slide & Hide in 1994.

At that time, he was the first in Singapore to manufacture and supply a pre-fabricated, concealed sliding door wall system, and it took much perseverance before his product became accepted by architects and interior designers.

‘I was not able to secure any big project owing to the fact that my product was new and, hence, still not accepted in the construction industry yet. As I did not have enough money to employ people, I doubled as the salesman, factory manager, delivery man and site supervisor,’ he said.

He recalled how a contractor cheated him in his first project, creating cash-flow problems for his company.

Fortunately, he managed to avert going bust with a loan of $100,000 from his father-in-law, a retiree who used to work as a packager at flour miller Prima.

His business picked up in 1995 after he managed to secure bigger contracts, supplying his product to the Pebble Bay and Signature Park condominiums. By 1997, he had broken even and repaid his father-in-law.

His wife, Hui Ngoh, 47, whom he married in 1989, is an administrator. They have two sons aged 15 and seven.

Q What are your money habits?

A I draw a monthly gross salary of $5,000 from my company, which is enough for me and my family’s daily needs.

The profits the company makes are partly re-invested to grow the business and paid to me as director fees, which I use for my property and stock investments, whenever an opportunity arises.

I am a Buddhist and I always keep in mind the saying: Don’t consume more than what you need. For every cent I spend, I make sure it is spent wisely. I don’t buy branded goods just for the sake of flaunting them or feeling good, and we dine mostly at hawker centres and only in restaurants when I need to entertain business clients and friends.

Q What investments do you have?

A My investments are mainly in my business, properties and Singapore stocks. I started Slide & Hide with $200,000, and it has grown many folds.

As for my properties, I bought four adjoining units of a flatted factory in Singapore over time from 1996 for my own use and to guard against future rental increases, as well as to prevent eviction by the landlord.

I own a four-room HDB flat in Ang Mo Kio, which is being rented out. In late 1996, I bought a freehold condo unit in the River Valley area as an investment.

I began investing in China properties in 2005 with the purchase of an office unit in Shanghai for around half a million dollars. This was when I noticed that the supply of offices could not catch up with demand because of the influx of foreign companies there. The price has since appreciated more than 35 per cent.

I also bought two apartments in Zhuhai, a city in southern China that is next to booming Macau. One was sold for a 35 per cent profit in the middle of last year, while the price of the other unit has more than doubled. My China properties are generating net rental yields of above 7 per cent.

I started dabbling in the stock market in 1990, and I currently have more than $500,000 invested mainly in Singapore blue-chip property counters.

Q What about insurance planning?

A I don’t view insurance as an investment tool to earn a profit but as protection against disability and death.

That is why I believe in buying term insurance where the premium is low and the coverage is high. I am covered for more than $600,000 on my life. My annual premiums amount to nearly $10,000.

Q What is your investment philosophy?

A I don’t feel comfortable investing my money in instruments where I can’t make direct decisions such as unit trusts, or investing in an unfamiliar territory like a non-construction-related business.

When it comes to stock investing, I buy when there is an opportunity; that is, when there is bad news, and I feel that the price is value for money.

I monitor a few selected stocks which are mainly property-related. In the last few years, I have achieved average annual returns of about 20 per cent from my stock investments.

Q Money-wise, what were your growing- up years like?

A My parents worked very hard to support me and my two younger brothers and sister.

When we relocated from our kampung squatter to a 300 sq ft rental flat in Toa Payoh, the six of us had to adjust to sharing one small bedroom and a toilet. Living in such a cramped environment conditioned me to be more patient and tolerant.

From pig farming, my father went on to start a building construction business while I was studying at the Singapore Polytechnic.

Later, he was cheated by his partner. That experience taught me the danger of trusting people too easily, the importance of having full control and prudent management of my finances.

Today, my wife and I constantly remind our children to be thrifty. We give them only sufficient pocket money to spend on food, other necessities and transport to and from school.

Q What has been a bad investment?

A My worst investment was putting $10,000 with a friend working in a commodities company in 1990.

Over a one-week period, he made buy and sell transactions with a loss without my knowledge and called me to top up my account. I terminated it immediately.

I lost $10,000 of my hard-earned savings that week.

Q Your best investment to date?

A My best investment is my business.

It has provided me a stable income, a comfortable life for my family, as well as the freedom to decide what I want to do.

Q What is your retirement plan?

A I am financially independent now, but I want to carry on working as I enjoy the challenges of making my company grow.

My long-term plan is to use my civil engineering knowledge and experience to help charitable organisations or to link up with like-minded people to sponsor and build orphanages in poor countries.

I believe $4,000 a month is enough to cover my expenses and that of my wife in our old age.

Q And your home now is?

A When I sold my executive mansionette in 1994 to raise capital for my business, I promised my wife that I will buy her a condo unit 10 years later to show my gratitude for her support and sacrifice.

So in mid-2003, I bought a 1,400 sq ft unit near Bishan, and we have been living there ever since.

Q And your car is?

A A pearl white Toyota Camry.

Source: The Sunday Times 17 Feb 08

9 in 10 find S’pore an expensive place to live in

Respondents in Sunday Times poll blame higher cost of housing, transport, food and utilities

HOUSEWIFE Goh Lay Leng has seen her monthly grocery bills go up by 10 per cent, and that has prompted the mother of four to look for cheaper alternatives.

‘Everything is increasing and we’re spending more. My husband says there’s hardly any money left at the end of the month,’ said Madam Goh, 44.

Her engineer husband brings home about $5,000 a month and the family lives in a four-room flat in Pasir Ris.

A total of 91 per cent of the 353 respondents in a Sunday Times survey agreed with Madam Goh, saying that Singapore had become an expensive place to live in.

The survey had been conducted in late December to understand Singaporeans’ attitude to money.

Nine in 10 also felt that Singapore was an expensive place to raise a family. Less than half were confident that their living standard would improve in the next two years.

They blamed the higher cost of housing, transport and basic necessities such as food, water and power.

Almost half said that they felt the financial strain of servicing mortgages or rents, although 36 per cent were contented.

Nearly half felt that a family of four needed between $50,000 and $70,000 a year – or $4,167 to $5,833 a month – to live comfortably.

The latest figures from the Department of Statistics show that the average household’s income went up by 9.6 per cent last year, the biggest increase in at least a decade.

It rose to $6,280, up from $5,730 the year before. Families with higher incomes also had bigger pay hikes than those in lower-income households, widening the rich-poor gap.

Prime Minister Lee Hsien Loong said recently that he expected inflation this year to be 5 per cent or more. It was about 2 per cent last year.

MP Halimah Yacob said that the public’s mood may have been dampened by the continuing prospect of high inflation. But she was also heartened that Singaporeans were practical and prudent.

‘They think of investing in their children’s education and old age and that reflects that they do recognise the need to plan for the long term,’ she said.

Take 41-year-old Madam Zaina Mohammad. The part-time cashier and her Cisco officer husband’s combined monthly income is just $2,000, but the couple make sure they deposit $50 every month into each of their three children’s bank accounts for their education fund.

Like her, the priority for most Singaporeans is their children’s future. If they had a million dollars, 27 per cent said that they would spend most of the money on education.

One possible indication as to why their children’s education reigned supreme: More than half of those surveyed said that they were either not sure, or did not think that their children would be able to improve upon or afford their present lifestyle as adults.

Another indication of Singaporeans’ prudent and practical traits: More than four in five chose to save their surplus income every month.

Despite rising prices, nearly all the people polled had no plans to pack up for greener pastures.

Ninety per cent agreed that Singapore was still a place worth living in. Also, two in five were glad that Singapore had become one of the richest countries in the world, because it meant better public amenities, a more cosmopolitan society and a vibrant nightlife and cultural scene.

Despite having to scrimp and save, Madam Zaina isn’t going anywhere. ‘It’s peaceful here and it is our home after all,’ she said.

 

Source: The Sunday Times 17 Feb 08

BUDGET 2008: THE DAY AFTER: The Government’s Budget Book

The Government’s Budget Book is a fascinating treasure trove of facts and figures about how different ministries are spending their money and what standards they hold themselves to. Fiona Chan and Adam Lee plough through this year’s offering

$20.1 million To be spent for the relocation of the People’s Association headquarters

$218 million To be spent on reclamation at Pulau Tekong

788 Number of overall crimes expected per 100,000 population, up from 717 last year

90% Proportion of ‘999′ calls answered within 10 seconds, down from 98% last year

$1.9 Amount given to the universities in grants and subsidies

15% Proportion of single males in the 40-44 age group. The proportion of single females in this age group is 12.9 per cent

7.6 Number of divorcees per 1,000 female residents

3 number of cooks in PM’s office

450 Number of arts groups/artists to be assisted through grants this year

$2.9 Compensation payments for Jurong Island Project

$3 million To buy furniture and equipment for new Changi Prison Complex

45.2% Increase in Public Service Commission spending last year over 2006, mainly due to the higher civil service salaries

24.4% Percentage of Primary 1 cohort admitted into NUS, NTU and SMU

$27 To be spent developing *Scape, the new Youth Park behind Orchard Cineleisure on Grange Road

90% Proportion of all criminal cases that are proceeded with as scheduled

Source: The Sunday Times 17 Feb 08

TOP OF THE NEWS: Budget boost for middle class

THIS year’s Budget has helped Singaporeans cope with their top concern – rising prices – by putting cash in the hands of both low-income and middle class workers, said MPs yesterday.

While bonuses for the poor and the elderly have been par for the course for several Budgets now, this year’s Budget saw the so-called ’sandwiched class’ receiving a big boost from a 20 per cent income tax rebate.

‘The savings can be considerable and help middle-income earners cope,’ said Hong Kah GRC MP Zaqy Mohamad on the Budget package Finance Minister Tharman Shanmugaratnam delivered in Parliament last Friday.

The economy grew by 7.7 per cent last year. But inflation – caused in part by high food prices globally – reached a 25-year high of 4.4 per cent last December, and is expected to rise further.

‘Some countries try to address the problem by putting price controls…The more practical way is what we do in Singapore,’ said Health Minister Khaw Boon Wan at a grassroots event last night.

‘Let the prices flow down to the market but we put extra money, because of good Budget growth, into Singaporeans’ pockets. And that’s the way we address rising inflation.’

The tax rebate announced last Friday is a 20 per cent reduction of the income tax paid this year on last year’s earnings. An individual who makes just under $100,000 a year and would normally pay $3,500 in taxes can save some $700 in cash.

This dwarfs the relatively modest sums some middle class workers received in previous Budgets and is equal to the largest payout of this year’s surplus-sharing programme – the Growth Dividends.

The dividends, which range from $100 to $700 in cash, will be given out in April and October, with more for the old and poor.

‘People used to say the middle-income have been left out, but not this year. They are getting something, so it’s a welcome relief,’ said tax expert Lam Kok Shang from KPMG.

MPs also noted that significant non-cash payouts were made: Children aged seven to 20 had their post secondary education funds upped by up to $600, and Medisave accounts of citizens 51 and above received up to $450.

Mr Tharman said on Friday that investing in education and growing jobs and incomes were the best offsets against inflation.

But even for the shorter term, education top-ups and wider subsidies will help parents cope with higher tertiary fees, Aljunied GRC MP Cynthia Phua said.

Tanjong Pagar GRC MP Indranee Rajah said that it was an equitable Budget with something for everybody, yet those in need will get more.

Tampines GRC MP Sin Boon Ann wished small businesses had more help to cope with rising costs, while Pasir Ris-Punggol GRC MP Charles Chong felt rising health-care costs should be addressed. MPs said they would raise these and other issues when Parliament sits from Feb 25 to debate the Budget.

Commenting on the bumper Budget surplus of $6.45 billion, Mr Sin said it made the generous giveaways this year possible.

But Foreign Minister George Yeo sounded a note of caution when asked why there were not even more rebates. He said at a grassroots event: ‘When we look a year ahead, there are clouds on the horizon. So we have to be careful.’

 

Source: The Sunday Times 17 Feb 08

BUDGET 2008: THE DAY AFTER – Goodies for many, a tinge of regret for some

The disabled as well as single working women benefited less from this year’s Budget

STROKE patient Jason Yap will receive about $750 in total from the Government this year, from growth dividends announced yesterday and goods and service tax (GST) rebates announced last year.

Yet the good news has come with a tinge of regret.

There was, again, nothing specific in the Budget targeted at the disabled.

Along with single working women, they represent a small number of groups in society that have consistently received smaller hongbao come Budget time.

‘It seems like the disabled are classified as an invisible lot,’ said Mr Yap, 43, a former human resource executive, yesterday. ‘But we need to survive as well.’

The articulate Bedok resident, who has a bachelor’s degree from Britain, was paralysed by a stroke at age 36.

Unable to work and with his savings virtually wiped out by medical bills, he lives with his elderly parents in a three-room flat.

The family survives largely on the $230 he gets from the South East Community Development Council and the $500 or so the older Mr Yap makes as an odd-job worker at the airport.

Holland-Bukit Timah GRC MP Liang Eng Hwa, who has spoken about help for the disabled before, said that there was no ‘direct assistance’ for the disabled community and that they could be made eligible for help from several social and medical assistance funds that have been topped up by the Government as part of the Budget.

These include the ComCare fund, Medifund and funds that voluntary welfare organisations can tap.

About $200 million will be pumped into the ComCare fund alone. This fund is the primary source sustaining the Government’s social assistance schemes.

But the disabled are not the only group that may feel slightly short- changed by this year’s Budget.

Single working women who do not earn enough to pay tax also did not get much.

They already do not qualify for the NSmen bonuses given to most male Singaporeans.

But this year, they also missed out on the benefits of a 20 per cent income tax rebate, which higher-income workers received.

Customer service officer Faizah Salleh, 23, for instance, will get $500 in her Budget hongbao this year, which is less than half of what an elderly woman living in a one-room flat can get.

But she said that she did not mind both her smaller hongbao and the fact that her father or brother would get more since they had served NS.

What has left her a little disappointed is the fact that, because her family of eight lives in a five-room flat, they received around $750 less than what they would have got had they lived in a smaller unit.

‘Because our family is so big, it’s difficult for us to downgrade,’ said Ms Faizah, who lives with her parents, sister-in-law and four siblings. ‘It would be good if the Government considered family size as well while giving assistance.’

Jurong GRC MP Halimah Yacob conceded that there was ’some basis for concern’ in Ms Faizah’s argument.

Housing type, she said, was the ‘easiest proxy indicator’ of a person’s economic status. ‘But we also know that there are many large families that live in five-room flats out of necessity,’ said Madam Halimah.

‘It would be good if per capita income could also be taken into consideration in any future distribution of surpluses.’

Another group that did not receive much in terms of relief were the top income earners, since a muchanticipated cut in income tax rates did not materialise and the tax rebate was capped at $2,000 per person.

But most felt that this elite group did not need the money, since they were key beneficiaries of substantial wage increments and bonuses paid out last year.

 

Source: The Sunday Times 17 Feb 08

BUDGET 2008: STRATEGY – Some govt units moving out to free up city space

20,000 sq m or more will be available to private sector

THE government has decided to relocate several agencies out of the Central Area to free up space of 20,000 square metres or more by first quarter next year for use by the private sector.

The space being released, which will help to address the office space shortage in the near term, is equivalent to 20 floors or more of an office tower block in Suntec City.

Finance Minister Tharman Shanmugaratnam did not identify the government agencies that will be moving out of the city but market watchers suggest that they may include Singapore Land Authority, which currently occupies several floors at Temasek Tower near Tanjong Pagar MRT Station; the Energy Market Authority, which is housed in Singapore Power Building on Somerset Road; Intellectual Property Office of Singapore, located at Plaza by The Park on Bras Basah Road; and Info-Communications Development Authority of Singapore, now at Suntec City.

The Workforce Development Agency, housed at One Marina Boulevard, has also been highlighted by market watchers as being a possible candidate for relocation out of its prime CBD offices.

The Economic Development Board is expected to vacate its offices at Raffles City when its lease expires next year and move into Fusionopolis at one-north in Buona Vista.

Market watchers suggest that some of these government agencies with public counters are likely to move to city fringe locations, rather than to outlying areas to minimise inconvenience to the public. ‘Vacant state properties could be their new homes,’ an industry observer reckons.

In his Budget speech, Mr Tharman noted that in the short term, Singapore faces tight office space capacity, caused by the surge in business growth, especially in the business and financial sector.

‘Office rentals have risen sharply. Although office space still costs 30 to 50 per cent less in Singapore on average, compared to Hong Kong and Tokyo, the pace of cost increases has been rapid and unsettling for businesses,’ he added.

‘The tightness in office space should ease over the medium term, with the completion of major projects currently under construction, such as phases one and two of the Marina Bay Financial Centre, the Marina View sites and South Beach. By 2012, we will have an additional 1.4 million sq m of office space.’

To address the problem in the short term, the government has released a total of 15 transitional office sites and vacant state properties, which will yield 150,000 sq m of additional office space. Companies are already relocating to some of these sites, and to new regional centres, Mr Tharman noted.

Source: Business Times 16 Feb 08

BUDGET 2008: ESTATE DUTY – Analysts hail scrapping of estate duty

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Move will boost S’pore’s economic competitiveness

ESTATE duty is finally dead. Tax consultants and financial advisers yesterday hailed the scrapping of the tax – denounced as ‘death duty’ by its opponents – saying that the move would boost the wealth management industry and Singapore’s overall economic competitiveness.

Eliminating the tax on a person’s assets at death puts Singapore on par with rival Hong Kong, which abolished estate duties two years ago, and would make Singapore a more attractive place in which to live, they said.

‘It’s been a long time coming,’ said Ooi Boon Jin, executive director of tax services at KPMG. ‘It’ll be a boost to the wealth management industry, and it’ll also encourage families to come and sink their roots here.’

Peter Tan, tax partner at PricewaterhouseCoopers Singapore, said that it was right for the government to remove the ‘archaic’ tax and ‘keep up with countries that have already seen the light’.

Other countries such as Malaysia, India, New Zealand and Australia have already done away with estate duties.

But there are countries that still retain an inheritance tax, such as the US and the UK.

‘It’s a misconception that estate duty only applies to the super-wealthy. It applies to middle-income people as well,’ said Mr Ooi.

Here, estate duty was previously payable on all assets of an individual upon death, subject to various exemptions, including the first $9 million of residential property and the first $600,000 for non-residential assets. The tax rate was 5 per cent on the first $12 million of taxable assets and 10 per cent for assets in excess of $12 million.

‘If you had $600,000 in your Central Provident Fund (CPF) accounts, that would have soaked up your $600,000 exemption,’ said Mr Ooi. ‘Anything else outside CPF you left behind would be subject to estate duty.’

Finance Minister Tharman Shanmugaratnam yesterday said that Singapore’s estate duty – inherited from the British when the island was a colony – would be removed with immediate effect, including for people who died yesterday.

He acknowledged that Singaporeans who had built up their savings from a lifetime of work wanted to pass on their wealth to their families. Some people became liable for estate duty when their estates received large cash payouts from life insurance policies.

Roy Varghese, director of financial planning practice at financial advisory firm ipac Singapore, said: ‘Wealth redistribution should not be at the expense of those who accumulate assets legitimately and diligently.’

Critics of estate duty have long pointed out that the tax generates insignificant revenue for the government and that wealthy people can avoid it by transferring their assets into offshore trusts.

The Inland Revenue Authority of Singapore’s latest annual report for the fiscal year to last March-end shows that it collected just $98 million in estate duties, or 0.4 per cent of the total $22.9 billion in tax collections for that year.

In contrast, corporate income tax and personal income tax collections were $8.5 billion and $4.7 billion respectively.

Removing estate duty could also give a boost to the budding philanthropic sector in Singapore, as rich individuals who had already planned for estate duty may give the money to a worthy cause, said Terry Farris, Asia-Pacific head of philanthropy services at private bank UBS. ‘It may be an opportunity to give that directly to a philanthropic initiative.’

In his Budget speech, Mr Tharman also urged wealthy individuals to make a contribution to society.

With estate duty gone, the government’s remaining tax on individual wealth is property tax, which Mr Tharman said would stay. Unlike estate duty, property tax ‘does not affect our middle and upper-middle-income estates disproportionately compared to wealthier ones’, he said.

 

Source: Business Times 16 Feb 08

Parkway’s Novena bid poised to set govt land sales record

(SINGAPORE) Hospital operator Parkway Holdings looks set to shatter all records for government land sales (GLS) with its $1.25 billion bid for a hospital site at Novena.

Parkway’s bid, which works out to be about $1,600 per square foot per plot ratio (psf ppr), topped the previous record set by Australia’s Lend Lease, which paid $1,455 psf ppr (or $617.2 million) for a commercial site just above Somerset MRT Station in August 2006.

The Urban Redevelopment Authority (URA) will assess all bids and award the site in a few weeks’ time, but it is unlikely that Parkway’s bid will lose out to the two other bidders, Napier Medical and Raffles Medical Management, which put in bids of $694.5 psf ppr and $344.1 psf ppr respectively.

On its likely win, a spokesman for Parkway Holdings said: ‘We believe that the value we have placed in this tender reflects ParkwayHealth’s desire to enhance Singapore’s position as a global medical hub with leadership in specialist services.’

He added that the hospitals that it operates – East Shore, Gleneagles and Mount Elizabeth Hospitals – are operating at capacity and the new hospital will add beds and critical space needed.

The Novena site, which has a permissible gross floor area of 778,768 sq ft, is the first hospital site to have been launched in about 30 years. URA said that the last hospital site launched was at Mount Elizabeth in 1976.

Knight Frank director (research and consultancy) Nicholas Mak, who had earlier estimated that the Novena site could fetch bids of $770-860 psf ppr, said that it is difficult to price the site. However, he believes the broad range of bids received suggests that his estimated price would be closer to market expectations.

Mr Mak also noted that Parkway’s bid could boost the value of neighbouring properties, especially Novena Medical Centre, where medical suites sold for around $2,500-3,000 psf last year.

Parkway has not indicated that there could be medical suites for sale if it builds a hospital, but Mr Mak estimates these would have to sell for around $4,000 psf. He added that a unit at Mount Elizabeth Hospital recently sold for around $5,000 psf.

Still, Mr Mak does not believe Parkway’s record bid price will be used as a benchmark for future land sales, and may be considered more of an anomaly.

The possibility of injecting the new hospital into Parkway’s healthcare real estate investment trust, Parkway Life Reit, also seems unclear. ‘To put it in the Reit, the land price should be lower to make the deal yield accretive,’ he added.

Napier Medical director Mark Wee also ‘cannot fathom’ Parkway’s bid except to suggest that it could have been a defensive play against competition.

Based on Napier’s own projections, a new hospital would probably not make money for the first six years either.

 

Source: Business Times 16 Feb 08

Demand for mass market projects shifts into higher gear

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Developers not keen to release high-end projects in shaky market, say analysts

DEVELOPERS’ housing sales figures for January reflect a change in strategy to focus more on mass market projects.

Despite the still lacklustre figures for overall developer launches and sales last month, an analysis by Knight Frank shows the number of private homes (excluding executive condominiums) launched and sold in January in the Outside Central Region (covering traditional mass-market/suburban locations) rose 190 per cent and 123 per cent respectively from December 2007.

In contrast, launches and sales in the Core Central Region and Rest of Central Region fell in January, compared to December.

Given the dearth of activity in high-end locations, the Core Central Region suffered the biggest drop in median prices for units transacted during the month, with the figure halving to $1,623 per square foot in January, from $3,200 psf the previous month.

Elsewhere, median prices held steady, edging up 1.6 per cent to $1,053 psf in the Rest of Central Region and $811 psf in the Outside Central Region. The median prices include private homes as well as ECs.

Property consultants expect developers to continue to push out mass market projects, since demand fundamentals are stronger in this segment than the high-end sector, where buying traditionally emanates more from speculators.

‘Despite the more dismal global economic outlook, the employment rate in Singapore is still high and this will continue to support demand for mass market homes,’ says Colliers International director of research and consultancy Tay Huey Ying.

‘As for high- end/luxurious projects, developers are quite cautious and not so prepared to release them amid the current, uncertain market conditions. They will want to wait for better conditions before they launch these projects,’ she said.

Monthly data from the Urban Redevelopment Authority (URA) show developers sold a total 316 private homes (excluding ECs) in January, up slightly from 305 units in December, which was the lowest figure since URA began publishing developers’ monthly sales figures and prices in June 2007.

However, Colliers’ Ms Tay says that stripping out the bulk sale of 97 units at Goodwood Residence in December, the January sales figure was roughly a 52 per cent improvement from December.

January volume was boosted by the launch of new projects like Waterfront Waves at Bedok, which sold 79 units during the month, and Wilkie 80, which saw 50 units sold.

‘We observed that luxury prices remained firm despite a decline in sales volume. In the prime districts, units in Grange Infinite, Helios Residences, Hilltops and Scotts Square were sold at median prices between nearly $3,300 psf and $3,700 psf.

‘At Sentosa Cove, units in Marina Collection and Turquoise were sold at above $2,650 psf,’ says CB Richard Ellis executive director Li Hiaw Ho.

However, Knight Frank director (consultancy & research) Nicholas Mak points out that the number of homes priced above $4,000 psf sold by developers has fallen from 72 units last July to five units in December.

In January, there was not a single primary market transaction in this price range.

Colliers’ analysis shows the highest priced home sold in January was a $3,671 psf unit at Scotts Square, compared with $5,146 psf in December achieved at The Ritz-Carlton Residences, and the record $5,600 psf achieved for a unit at The Orchard Residences last October.

The number of new private homes (excluding ECs) developers launched in January sank to a low of 410 units, about 8 per cent less than the 446 units in December and about a fifth of the high of 1,885 units in August last year.

Property consultants suggest developer sales in February may be lower than those in January because of the Chinese New Year.

‘However, developers are likely to maintain prices at current levels as they monitor the market situation,’ CBRE’s Mr Li says.

 

Source: Business Times 16 Feb 08

BUDGET 2008: BUSINESSES (COMMENTARY) – S’pore sharpens new edge in rivalry with Hong Kong

Battle could go beyond taxes to areas like innovation and pacts with other countries

BOTH Hong Kong and Singapore have the advantage of proximity and to a certain extent, blood relationship to China.

However, as close as they seem ethnically where their majority populations are concerned, they could also not be more different in terms of their commercial views of the world.

With Singapore inflation now hitting a 25-year high at the end of last year, and expected to rise to as high as 5.5 per cent this year, the questions over Singapore’s competitiveness in the regional and global market place has many businesses concerned.

Strictly from a commercial perspective, both are equally affected by the external factors which are driving up global prices and so it may be fair to say that Singapore’s current inflationary woes are not limited solely to the island.

So how does Singapore stack up against Hong Kong and do the recent budget changes in Singapore enhance our position?

Key thrust

While the 2008 budget announcement by Finance Minister Tharman Shanmugaratnam was limited in terms of tax changes for big business, the minister announced incentives to signal that innovation would be a key thrust of Singapore’s economic progress. Many measures were clearly also targeted at encouraging innovative thinking in small and medium enterprises.

Indeed, the message is that developing new and leading-edge products will be a key focus for strengthening Singapore’s position as one of the leading knowledge hubs in Asia.

Hong Kong has yet to introduce enhanced tax incentives for R&D.

In terms of tax rates, Hong Kong’s standard rate of corporate income tax of 17.5 per cent compares favourably to Singapore’s standard rate of corporate income tax of 18 per cent. However, once Singapore’s broad network of tax incentives and partial exemptions are taken into consideration, Singapore’s effective tax rate is significantly lower than Hong Kong’s.

With the Hong Kong government having announced an impending one per cent cut to 16.5 per cent however, the differential can become insignificant.

However, tax rates are not the only factor for investors.

On the international tax front, Singapore has negotiated almost 60 double-tax agreements with most of its major trading partners throughout the world, including the majority of its Asian trading partners and, in particular, the major growth engines of China and India.

On the other hand, Hong Kong has negotiated only three double-tax agreements, including treaties with China and Thailand. Even these treaties are comparable to the benefits negotiated by Singapore with these jurisdictions.

Accordingly, when it comes to a ‘one-stop’ shop for investment in Asia-Pacific, Singapore remains attractive as the first port of call for foreign multinationals.

In Singapore, the standard rate of Goods and Services Tax (GST) has been 7 per cent since July 2007. There is no VAT or GST in Hong Kong.

One apparent advantage that Hong Kong has over Singapore is therefore the absence of an indirect tax regime similar to Singapore’s GST. So far, the Hong Kong government has been forced to defer the introduction of such a tax from the business community and the populace at large.

It is worthwhile noting that GST in Singapore is a tax on the final consumer, a cost which finds its way into the final price of goods and services which contributes to overall inflation.

In the area of individual taxes, while Singaporean residents did not receive the highly anticipated 2 per cent cut in top-tier tax rates, what they received was bittersweet. There was a 20 per cent rebate, but this is capped at $2,000.

Singapore’s personal tax regime may not be viewed as being as competitive as Hong Kong’s in terms of attracting high-income talent. As the table above shows, the effective tax rate for most senior executives remains more competitive for executives working in Hong Kong.

However, while the numbers speak for themselves, there are other non-tax factors such as air quality and housing costs which may sway in Singapore’s favour.One area where there was some cheer this time in Singapore was the long-awaited abolishment of Singapore estate duty.

This tax, which is essentially a ‘tax on the handing down of wealth’ finally came through after some years on many pre-Budget wish-lists.

The promotion of Singapore as a wealth management hub also saw the introduction of a tax incentive scheme for family-owned investment holding companies, allowing them to enjoy increased exemptions. This announcement should be an added boon to the wealth management industry in Singapore which will now find it far easier to attract wealthy foreigners to Singapore’s shores in competition with Hong Kong which abolished its estate duty back in 2005.

The most apt description, then, for Singapore Budget 2008 is that while still aimed at ensuring Singapore’s longer term competitiveness, was largely a bread and butter Budget for Singaporeans.

Nothing earth-shaking was announced for corporate Singapore.

However, the message remains that the government will focus on what it believes is right for the long-term growth of the country as always, while caring for the vulnerable, came through.

The writer is head of tax services at KPMG in Singapore. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in Singapore

 

Source: Business Times 16 Feb 08

BUDGET 2008: STRATEGY(COMMENTARY) – Deficit next year? Just don’t bet on it

Wealth management gets a boost, but Tharman keeps his powder dry

EVERY year at Budget time, Singapore’s Finance Minister, Tharman Shanmugaratnam, faces a task that must make him the envy of his peers in the rest of the world: he must explain why the nation’s tax revenues were so much higher than originally planned. Like those of his immediate predecessors, Lee Hsien Loong and Richard Hu, Mr Tharman’s Budgets have been inherently conservative in outcome – even if they are often (as this year and last) intended to be stimulative at the outset.

In each of the last four years, real GDP has grown much faster than anticipated at Budget time. Tax revenues have consequently far exceeded those projected at Budget time. This fiscal year (which ends on March 31, 2008) was expected to yield a fiscal deficit of $0.6 billion, but the government now estimates that the final outcome will be a surplus of $6.35 billion. In fact, over the first three quarters of the fiscal year, the actual fiscal surplus was $10.8 billion. All tax revenues were higher (as they almost always are in Singapore), but asset taxes surged most spectacularly as property values soared.

The January-March quarter tends to be the seasonally-weakest one for the fiscal balance, but the deficit for that quarter is unlikely to be $4.4 billion, so the actual surplus for this year will almost certainly be larger than the government’s current estimate.

With a larger surplus as the base, next year’s fiscal balance will also be stronger, assuming budgeted increases in revenue and expenditure. A betting man could do worse than place a large wager on actual revenues comfortably exceeding the Budget’s projections next year too!

The government’s intention is to provide a fiscal stimulus in the year ahead – evident in the projected fiscal deficit next year of $0.8 billion, which is not very different from last year’s projection.

Modest tax reductions include a 20 per cent rebate on personal income tax (capped at $2,000), revenue-neutral changes to the alcohol tax, a slight reduction in vehicle taxes (largely offset by planned increases in the coverage of ERP), and the elimination of estate duty.

Of these, the last will have a permanent positive impact on the wealth management industry (and Singapore’s attractiveness as a home for the wealthy) without hurting the exchequer much. The market will be disappointed that the top rate of income tax will not decline from 20 per cent, and the corporate tax from 18 per cent.

Mr Tharman has kept his powder dry for a rainy day – leaving ample room to lower taxes further were the global economy to weaken substantially more. He has still outlined an ambitious spending programme on further honing Singapore’s world- beating transport infrastructure, tweaking its skills-development schemes, and moving Singapore’s three (soon to be four) universities closer to the global frontiers of research and innovation.

Fiscal incentives and spending will further bolster Singapore’s R&D capabilities, by boosting both start-ups and existing companies’ research and also by attracting global talent. And for the community, there are further incentives for more voluntary saving and a deepening of funds to help the needy, vulnerable and sick.

Most exciting for the longer term, however, are the steadily-widening schemes for sharing surpluses with citizens.

Singapore’s budgetary accounting system is among the most conservative in the world. The fiscal balance is obtained by subtracting both operating and development expenditure from the government’s operating revenue alone.

The government’s ample investment income (from land sales, as well as the dividends, interest and capital gains of its sovereign wealth funds) is not counted as government revenue. In recent years, the government has made a small concession by using up to 50 per cent of the dividends and interest income from its invested reserves to fund the special transfers (to MediShield for the elderly, growth dividends for citizens, GST credits, etc, which are properly skewed towards benefiting the needy more).

However, the substantial capital gains on the government’s investments continue to accumulate, and cannot yet be distributed to citizens.

By next year, a constitutional amendment will allow the government to share the fruits of the capital gains made by investing its burgeoning reserves over the past several decades. That will give Singapore the ability to turn the dream of being the pre-eminent global city into reality. Clearly, only a small proportion of capital gains will be made available for spending in this way – the prudent practices of rich university endowment funds being cited as a precedent to preserve much of the corpus for the future while spending largely the recurrent components of capital gains.

When it begins to free up some of the capital gains from past investments, Singapore will have the wherewithal to realise the vision of an innovative, research-driven global city. This Budget contains merely the hint of those vast possibilities, but the vision is already there for those who choose to look.

 

Source: Business Times 16 Feb 08

BUDGET 2008: INDIVIDUALS (COMMENTARY) – Great expectations … dashed for now

One-off rebate can’t make up for an income-tax cut, especially when inflation is expected to rise sharply

THE collective groan of disappointment that greeted the government’s announcement of no cuts in personal tax rates this year was just about matched by the cheers that went up when a one-off 20 per cent rebate was subsequently announced.

But make no mistake: the rebate, generous as it was, cannot make up for the much-needed tax cut.

And that’s because what’s at stake are not just lower individual tax bills – but how tax cuts can help Singaporeans cope with the rising costs of living and aid Singapore’s regional and international competitiveness.

But don’t get me wrong: the 20 per cent rebate is a very welcome measure. It would mean having a fifth of your tax bill knocked off this year, subject to a maximum reduction of $2,000.

Public accounting firm KPMG has done the math, and calculated substantial savings for the lower to middleincome earners. The benefits thin out for the big-income earners, expectedly, because of the $2,000 cap.

But are the savings enough to help Singaporeans cope with one of their most pressing concerns in recent times – the rising costs of living here?

Inflation in Singapore, as mentioned in the Budget speech yesterday, was about 2 per cent for 2007 as a whole – and was much higher towards the end of the year. And inflation is expected to hit between 4.5 per cent and 5.5 per cent this year.

As Finance Minister Tharman Shanmugaratnam himself said: ‘Inflation today is higher than what we have been used to in Singapore for many years.’

The unprecedented level of inflation will be a grave concern for Singaporeans, going forward – which makes the need for lower taxes all the more urgent.

And the 20 per cent rebate, while generous and targeted at the low to middle-income earners, is just a one-off measure – that is, it will only mean lower tax bills this year. What’s needed to help Singaporeans cope with rising costs over the longer term is a more permanent move, in the form of a reduction in the tax rates for all individuals.

To a lesser extent, a cut in personal income taxes would also have helped to boost Singapore’s competitiveness as a wealth management hub in the region.

The abolition of estate duty in Singapore will go far in luring wealthy individuals to park their money here – and that announcement in the Budget yesterday will, for now, help to increase Singapore’s attractiveness as a wealth management hub, even without a cut in personal taxes.

But, one needs to remember that neighbouring Hong Kong – Singapore’s fiercest rival for private banking and wealth management funds – is pulling ahead of Singapore, in terms of being able to offer a competitive tax environment for individuals.

Hong Kong slashed personal taxes in its 2007 Budget – it widened the marginal salaries tax band, cut the top two income tax rates, and announced a one-time waiver of 50 per cent of salaries tax and tax under personal assessment payable – when Singapore chose to keep its rates on hold. KPMG worked out that a person earning S$1 million would pay less tax in Hong Kong than in Singapore, as a result of these measures.

Assuming the individual is married with two children below the age of 16, he would pay an effective tax rate of 12.29 per cent in Hong Kong, as opposed to an effective tax of 17.42 per cent in Singapore, after deducting the respective reliefs applicable to him.

Experts agree that it’s not something Singapore can afford to ignore – and all eyes will be on whether Hong Kong decides to cut its tax rates again this year.

And it’s not just Hong Kong; with tax rates coming down across the globe, Singapore can ill-afford to lag behind.

The country has always prided itself on being one of the most competitive in the region, and it will need to seriously consider lowering personal taxes – along with the other generous incentives it’s offered to make itself the preferred hub for science and technology, businesses and individuals – to maintain that edge.

Expectations had been great that this would be the year for Singapore to bring its personal tax rates down to 18 per cent at the top level, but those expectations have been sorely dashed.

 

Source: Business Times 16 Feb 08

BUDGET 2008: STRATEGY – Five-pronged strategy to fight inflation

A key problem is imported inflation, especially of food and oil

SINGAPORE will adopt a five-prong strategy to tackle inflation which is expected to stay high at 4.5-5.5 per cent this year, more so especially in the first half, said Finance Minister Tharman Shamugaratnam.

This includes steps like diversifying the Republic’s food sources and more fundamentally, keeping the economy competitive.

Inflation is a concern ‘not expected to go away soon’, he warned, adding that Singaporeans have to brace themselves for more cost rises.

Over the last year, global oil prices have spiked by 50 per cent, raw food prices by 55 per cent and commodity prices by 31 per cent. These have cascaded down into higher transport costs, more expensive manufactured goods, and costlier consumer foods.

‘We cannot say how long it will last, but we have to expect that it will remain high, in the first half of this year especially. For example, China’s worst winter in 50 years will likely add pressure to prices of certain foods in the next six months,’ he added.

While last July’s Goods and Services Tax (GST) increase had partly contributed to inflation, this has been compensated for by substantial GST offsets – spread over four years – for most Singaporeans, Mr Tharman said.

‘The key problem we face going forward is that of imported inflation caused by high global prices, especially of food and oil.’

Outlining his five-prong anti-inflation plan, Mr Tharman said that this firstly involves the Monetary Authority of Singapore’s (MAS) use of the exchange rate to moderate imported inflation.

‘Had the MAS not allowed the Singapore dollar to appreciate over the last two years, our CPI inflation in the last quarter would have averaged 6.5 per cent, instead of the 4.1 per cent that was actually recorded,’ he said.

However, there is a limit to this strategy as it can hurt the Republic’s economic performance and growth, he warned.

An overly strong Singapore dollar can bring inflation down, but at the cost of lower growth and higher unemployment.

Secondly, Singapore is stepping up the diversification of its food sources so as to minimise spikes in the prices of imported foods.

The Agri-Food and Veterinary Authority of Singapore (AVA) is helping private importers buy from new overseas sources and the government will also continue to work with retailers to increase public awareness of cheaper food choices and substitutes.

The third way has been the government’s support of home ownership, especially through the heavy subsidies provided to lower-income Singaporeans to own a home.

This insulates Singaporeans, especially retirees, from increases in rental costs which are a significant long-term concern in other countries, he said. In the US, for example, about a fifth of older Americans rent their homes, with rentals accounting for close to one-third of their monthly expenditures.

Fourthly, the government provides assistance directly to Singaporeans who face problems coping with the cost of living, such as through the Workfare Income Supplement scheme and GST Offset Package.

‘This approach of helping those in need directly is better, and more sustainable than taking reflex actions such as imposing price controls on essential goods,’ he said, adding that the latter will only lead to negatives like hoarding and black markets.

Finally, the government aims to keep the economy competitive and build up capabilities for strong economic growth.

‘This is the best offset to global inflation – to educate and train up our people, attract new investments, create jobs, and sustain good growth of incomes for our whole population.

‘If global inflation stays high, all countries will be affected by it and we will not be able to totally insulate ourselves. But there is no reason why we cannot keep growing, and keep outperforming,’ he stressed.

 

Source: Business Times 16 Feb 08

China’s economy may grow around 10% in 2008: IMF

Its MD says a faster pace of appreciation of yuan is needed to address economic challenges

(BEIJING) China’s economy is likely to grow around 10 per cent this year despite a global slowdown stemming from the US sub-prime mortgage crisis, Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), said yesterday.

Mr Strauss-Kahn said he had agreed with Premier Wen Jiabao and central bank governor Zhou Xiaochuan on the need for China to run a continued tight monetary policy to contain investment growth and inflation.

The inflation-adjusted exchange rate of the yuan, measured against the currencies of China’s main trading partners, has been moving in the right direction recently, Mr Strauss-Kahn told a news conference during a two-day visit to Beijing.

‘However, we encourage a faster pace of appreciation that would be helpful for addressing China’s key economic challenges and would also contribute to preserving global economic stability,’ he said in a prepared statement.

The central bank, which keeps the currency on a tight leash, let the yuan rise yesterday to 7.1760 per US dollar, the highest since it was revalued by 2.1 per cent in July 2005 and cut free from a dollar peg to float within narrow bands.

The yuan has now appreciated by 13 per cent against the dollar since then. But it has gained much less when measured against a basket of currencies and, to the ire of European policy makers, is actually worth less against the euro than it was in July 2005.

Relations between the IMF and China have been strained since the fund introduced new currency surveillance rules last June. Beijing objected to the rulebook, which will make it easier for the fund to determine whether a country is pursuing policies that lead to a fundamentally misaligned exchange rate in order to boost exports. China regards the new framework as a ploy by the United States to enlist the fund in its campaign for a stronger yuan.

The dispute has delayed the completion of the fund’s 2007 report on China detailing economic consultations between the two sides.

Mr Strauss-Kahn sidestepped a question on whether the yuan was fundamentally misaligned, saying the decision was one for the IMF’s board. But he said he had sought to make the case to Chinese policy-makers that a more flexible exchange rate would contribute both to a better-balanced Chinese economy and to global stability.

 

Source: Reuters (Business Times 16 Feb 08)

Priority is curbing inflation: PM Singh

Rising prices last year caused Congress party to lose power in three states

(NEW DELHI) Indian Prime Minister Manmohan Singh said that inflation hurts the poor the most, indicating that controlling prices was the government’s top priority.

‘There have been some impatient editorials about the sacrifice of growth at the altar of inflation,’ Mr Singh said at a conference here yesterday. ‘I see things differently. Inflation is an iniquitous tax. It is essential that we ensure that the poor are not adversely affected by high inflation.’

India, the world’s fastest growing major economy after China, may slow for the first time this year since 2005, as the highest interest rates in six years hurt consumer demand and investments. While companies seek conditions that favour faster growth, Mr Singh may prefer a firmer grip over inflation, with general elections just a year awayin a country where more than half the people live on less than US$2 a day.

‘Slowing growth is unacceptable to us,’ said Habil F Khorakiwala, president of the Federation of Indian Chambers of Commerce and Industry and managing director of drugmaker Wockhardt Ltd, before Mr Singh’s speech.

‘Interest rates must be brought down to stimulate demand.’ Reserve Bank of India governor Yaga Venugopal Reddy refrained from reducing interest rates at the last monetary policy meeting on Jan 29 on concern that rising oil and food prices will stoke inflation.

The yield on the benchmark nine-year bonds held losses after Mr Singh’s comments, rising two basis points to 7.47 per cent at 12.30 pm in Mumbai. A basis point is 0.01 percentage point. The benchmark stock index was little changed from Thursday’s close.

India’s inflation slowed to 4.07 per cent in the week ended Feb 2 from a year earlier, near a five-month high.

While the pace of price gains is low in relation to historical data, it is still high by world standards and must be reduced, the central bank’s deputy governor Rakesh Mohan said on Thursday.

Rising prices last year caused Mr Singh’s Congress party to lose power in three states and fall further behind in the most populous province of Uttar Pradesh. The party faces 10 state elections this year and general elections before May 2009. People’s tolerance level of inflation is 4 per cent, according to Finance Minister Palaniappan Chidambaram.

India’s statistics office on Feb 7 said that India’s US$906 billion economy may expand 8.7 per cent in the 12 months to March 31, the weakest pace in three years. Growth was 9.6 per cent in the last financial year.

‘I am confident that this year, too, we will be able to sustain 9 per cent growth and hold the price line at acceptable levels,’ Mr Singh said. He said that construction of new roads, railway tracks, airports and other infrastructure was the ‘cornerstone’ of India’s development.

The prime minister said that civil aviation was going through an ‘unprecedented boom’ with two new international airports poised to start operations in the next few weeks in the southern cities of Hyderabad and Bangalore, apart from the ongoing modernisation of the airports in New Delhi and Mumbai.

Mr Singh said that the country’s railway system has undergone ‘revolutionary transformation’ in the past few years and expects companies to soon start investing in building logistics parks, railway stations and railcars.

He said that the planned 2.2 trillion rupee (S$78.5 billion) investment in roads in the next five years will further boost the nation’s infrastructure. He reiterated India’s plan to almost double spending on infrastructure to 9 per cent of gross domestic product by 2012. India’s growth is led mainly by domestic consumer and investment demand, and that was another reason to be optimistic about the nation’s growth prospects as the global economy shows signs of shrinking this year, Mr Singh said.

 

Source: Bloomberg (Business Times 16 Feb 08)

Citigroup funds may be in trouble: paper

(NEW YORK) Citigroup Inc has barred investors in one of its hedge funds from withdrawing their money, and a new leveraged fund lost 52 per cent in its first three months, the Wall Street Journal reported yesterday.

The largest US bank suspended redemptions in CSO Partners, a fund specialising in corporate debt, after investors tried to pull more than 30 per cent of its roughly US$500 million of assets, the newspaper said.

Citigroup injected US$100 million to stabilise the fund, which lost 10.9 per cent last year, the newspaper said.

The fund’s manager, John Pickett, left following a dispute with Citigroup executives and complaints from investors after he tried to back out from committing more than half the fund’s assets to buy leveraged loans tied to a German media company, the newspaper said.

That matter was settled when CSO agreed to buy US$746 million of the loans at face value, though they were trading at 86 per cent to 93 per cent of face value, it said.

Meanwhile, Falcon Plus Strategies, launched Sept 30, lost 52 per cent in the fourth quarter, after betting on mortgage-backed and preferred securities and making trades based on the relative values of municipal bonds and US Treasuries.

Some collateralised debt obligations in the fund traded at 25 per cent of their original worth, the newspaper said.

Both funds are run in Citigroup’s alternative investments unit. That unit was briefly headed last year by Vikram Pandit, who in December replaced Charles Prince as Citigroup’s chief executive.

Old Lane Partners, a hedge fund that Mr Pandit founded and sold to Citigroup last year, has also had weak performance, falling 1.8 per cent in January, the newspaper said.

Since June, Citigroup has disclosed some US$30 billion of writedowns and losses tied to sub-prime mortgages, complex debt and deteriorating credit.

The problems contributed to a record US$9.83 billion fourth-quarter loss. Profit that quarter in the alternative investments unit fell 89 per cent to US$61 million.

Citigroup was not immediately available for comment.

A spokesman told the newspaper that CSO and similar hedge funds are subject to comprehensive risk oversight, and that Falcon Plus’s returns suffered from volatile fixed-income markets.

Shares of Citigroup closed on Thursday at US$25.74 on the New York Stock Exchange.

 

Source: Reuters (Business Times 16 Feb 08)

US on verge of recession: Greenspan

(SAN FRANCISCO) Former Federal Reserve chairman Alan Greenspan said the US economy is on the verge of its first recession in six years as falling home values hurt consumer spending.

‘We are clearly on the edge,’ Mr Greenspan told a group of energy-industry executives at the Cambridge Energy Research Associates’ 27th annual CERAWeek conference in Houston. He reiterated comments from last month that the odds of an economic contraction are ‘50 per cent or better’.

Mr Greenspan’s view has evolved from a year ago, when he saw a one-in-three chance of a recession, citing slowing profit growth and becoming one of the first economists to warn of the risk. Now, Wall Street firms including Merrill Lynch & Co and Goldman Sachs Group Inc are forecasting a contraction in the aftermath of the worst housing downturn in a quarter century.

Fed chairman Ben S Bernanke, Mr Greenspan’s successor, acknowledged ‘downside’ risks to the expansion on Thursday, while telling lawmakers he expects growth to pick up later this year. He reiterated the central bank is prepared to take ‘timely’ action to aid the economy as needed.

‘While we are at stall speed in the US at the moment, we haven’t yet seen the discontinuity that characterises a recession,’ Mr Greenspan said during a question-and-answer session on Thursday.

‘American business was in such extra-good shape before this problem hit. Otherwise we would be talking about how long and how deep. We are not there yet.’

The lack of available credit ‘hasn’t been a major problem yet for American business’, he added. Consumer spending has been slowed by falling home values, which leaves homeowners with less capital to borrow against, Mr Greenspan said.

‘Home prices will continue to weaken,’ the 81-year-old former Fed chief said. ‘When a bubble breaks, you go into primordial fear.’ The former chairman, a Republican, gave a nod toward Republican presidential candidate John McCain, comparing him with ex-president Ronald Reagan.

‘John McCain has the same roots as Reagan, being a Goldwater Republican.’

 

Source: Bloomberg (Business Times 16 Feb 08)

BUDGET 2008: More office sites in the offing to ease space crunch

AT LEAST 20,000 sq m of office space – equivalent to 20 floors or more of an Suntec City block – will be freed up to help the private sector deal with the space crunch.

The initiative will kick in by early next year.

Finance Minister Tharman Shanmugaratnam said the tight supply of office space, a short-term problem, stemmed from the surge in business growth, which has brought higher rents in its wake.

‘Although office space on average still costs 30 per cent to 50 per cent less in Singapore than in Hong Kong and Tokyo, the pace of cost increases has been rapid and unsettling for businesses,’ said Mr Tharman.

The Government is even planning to relocate several agencies out of the pricey and congested central business district (CBD). A Jones Lang LaSalle report said these could include the Economic Development Board at Raffles City, the Singapore Land Authority at Temasek Tower, and the Ministry of Law and Ministry of Finance at The Treasury.

Mr Donald Han, the Singapore managing director of property consultant Cushman & Wakefield, said the move was a practical one: ‘It’ll create some breathing space for the private sector. Government agencies will be better off, as they won’t need to incur the opportunity cost of prime CBD rental.’

Mr Tharman said the Government has released 15 transitional office sites and vacant state properties, which will yield 150,000 sq m of additional office space.

‘Companies are already relocating to some of these sites and to our new regional centres,’ he said.

He noted that the shortage should ease over the medium term, given the completion of big projects now under construction. These include Phases 1 and 2 of the Marina Bay Financial Centre, the Marina View sites and South Beach.

‘By 2012, we will have an additional 1.4 million sq m of office space,’ said Mr Tharman.

The Government will also defer projects worth about $1 billion to ease the pressure on construction costs. This follows a decision last November to postpone public-sector building projects worth at least $2 billion.

But the latest deferment will not affect key projects such as the expressways, the Downtown Line or NUS University Town.

 

Source: The Straits Times 16 Feb 08

New home sales remain low with cautious property market

Developers launching fewer units as fears over US slowdown, stock volatility linger

CAUTION remains the watchword in the property market, with buyers still kept on the sidelines by concerns over the United States economy and choppy stock markets.

Developers sold just 316 new homes last month – a tad up on the 305 sold in December – and launched only 410 units, compared with December’s 445.

Prices also reflected the uncertain mood and remained largely flat, with overall median prices showing a slight dip.

The removal of the deferred payment scheme has brought transactions to a more sustainable level, according to property services firm Jones Lang LaSalle.

There were some bright spots. Wilkie 80 in Wilkie Road was sold out, while Waterfront Waves in Bedok Reservoir Road reported favourable sales. They made up 41 per cent of all new units sold last month, according to the sales figures out yesterday.

The pinch was felt most in the high-end sector, with few homes sold and none above $4,000 per sq ft (psf).

This is a sign that the high-end segment may be experiencing a ‘challenging period’, said Knight Frank director of research and consultancy Nicholas Mak.

The new figures, which came from developers but were released by the Urban Redevelopment Authority, show that some of the heat may have come out of the market.

Median prices for new private homes, excluding executive condos and landed homes, fell 3.2 per cent from $1,124 psf in December to $1,088 psf last month.

The lowest transacted price was $737 psf for a unit at Coastal View Residences in Jalan Loyang Besar, while Scotts Square in Scotts Road achieved the highest at $3,671.

Projects outside the central region performed best. There were more sales, and the 220 units launched marked the highest since last August.

Buyers at the leasehold Waterfront Waves picked up 79 units and pushed prices up to $909 psf.

In the mid-end segment, Wilkie 80 was sold out at a median price of $1,544 psf. Zenith in Zion Road, launched in December, sold 22 units, while 12 out of 50 units at Mount Sophia Suites went for a median price of $1,719 psf. At the landed project Pavilion Park, 24 terrace houses sold at between $1.8 million and $2 million.

Consultants project lower sales this month, as the Chinese New Year festival will deter buyers from venturing into the market.

‘However, developers are likely to maintain prices at current levels as they monitor the market situation,’ said Mr Li Hiaw Ho, the executive director of CBRE Research.

Mr Mak expects sales volume for the first quarter to remain thin due to uncertainties over the US economy and stock market turbulence. More developers are delaying or reviewing launches, particularly high-end ones.

‘The challenging period experienced in the high-end segment is expected to continue, but the fall in the volume could be compensated by the steady volume in the other segments,’ he added.

Colliers International director for research and consultancy Tay Huey Ying said: ‘We see the mass and mid-end segments supported by en bloc sellers looking for replacement homes.’

Developers could end up launching and selling up to 9,000 new private homes this year, compared with 14,811 last year, she said.

 

Source: The Straits Times 16 Feb 08

New trouble brewing as another debt market falters

Investors now refusing to buy US securities regarded not too long ago as safe as cash

NEW YORK – SOME investors got a big jolt from Goldman Sachs this week: Goldman, the most celebrated bank on Wall Street, refused to let them withdraw money from investments they had considered as safe as cash.

The investments at issue are so-called auction-rate securities, instruments at the centre of the latest squeeze in credit markets.

Goldman, Lehman Brothers, Merrill Lynch and other banks have been telling investors the market for these securities is frozen – and so is their cash.

Banks typically pitch these securities to corporations and wealthy individuals as safe alternatives to cash. The bonds are, in fact, long-term securities, but banks hold weekly or monthly auctions to set interest rates and give holders the option of selling the securities.

Only this week, almost 1,000 of these auctions have failed. The banks also refused to support the auctions, leaving many investors wondering when they will get their money back.

‘Investors have lost confidence in the liquidity of these instruments,’ said Mr G. David Mac- Ewen, the chief investment officer for fixed income at American Century Investments, a mutual fund company. ‘These types of instruments depend on new investors showing up to own the securities.’

The US$330 billion (S$467.7 billion) auction-rate market is dominated by municipalities and other tax-exempt institutions like the Port Authority of New York and New Jersey, which issued some auction securities and had its interest rate soar to 20 per cent on Wednesday. Closed-end mutual funds, student loan companies and corporations also issue such securities.

A failed auction does not mean the securities go into default because the issuer continues to pay interest at the higher rate – the ‘fail rate’.

The market, however, has a troubled history. In 2006, the Securities and Exchange Commission (SEC) reached a US$13 million settlement with 15 investment banks, and the industry agreed to impose a voluntary code of conduct for the auction-rate market.

The SEC investigation centred on how bidding was conducted for these securities. Critics complain that investment banks have the upper hand in bidding because they can bid after seeing what other investors have bid.

Brokerage firms are not legally obligated to make a market in auction securities or give clients a price, even if there is not one in the market. Clients who are unable to sell, however, are likely to argue that they were wrongly put into long-term securities when their intention was to buy shorter-term debts.

‘If these were pitched as cash equivalents, if that is what the broker said they were, the banks may be held responsible for losses and clients’ inability to get their money out,’ said Mr Jacob Zamansky, a securities lawyer who represents individual investors.

The situation is an awkward one for investment banks and brokers that have had to tell clients that their cash is frozen until at least the next auction – if not longer.

One affluent New Jersey family has sued Lehman Brothers for the declining value of its cash in auction-rate securities. Lehman has said it acted properly.

 

Source: NEW YORK TIMES (The Straits Times 16 Feb 08)

Estate duty R.I.P.

Death tax removal makes S’pore an attractive place for wealth to be built up, says Tharman

IN A LONG awaited move, the Government yesterday read the last rites for the death tax here.

The tax, known as estate duty, had been imposed if the assets of a person who died exceeded certain limits.

It was abolished with immediate effect yesterday.

The Government believes the move will boost the wealth management industry by encouraging both foreigners and Singaporeans to base their assets here.

Although the move had been keenly awaited, it drew gasps of surprise when announced by Finance Minister Tharman Shanmugaratnam in Parliament yesterday.

Calls to abolish the tax had grown more frequent in recent years as growing affluence meant that even the middle classes were caught by it.

A key grouse was that the exemption limits were lopsided. An estate could, for example, own up to $9 million worth of residential property and not pay the duty.

But everything above $600,000 in cash, shares and other non-residential assets was subject to the duty.

Mr Tharman said the exemption limits tended to ‘affect the middle- and upper-middle-income estates disproportionately compared to wealthier ones’.

The intended target of the tax – the super rich – had been able to set up trusts and other legal arrangements that allow them to minimise the duty.

Estate duty was taxed at 5 per cent on the first $12 million of applicable assets and 10 per cent on amounts above. Assets of $1 million, for example, incurred duty of $50,000.

The duty had been whittled down considerably over the years. In 1984, the top rate was a hefty 60 per cent.

Mr Tharman said that removing the duty was not just a practical and expedient measure but also in Singapore’s collective interest.

‘If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society, not just the individuals who build up their wealth.’

This will be a boost to the wealth management industry here, said KPMG Tax Services executive director Ooi Boon Jin. ‘It will encourage the inflow of foreign talent. People will bring money here, sink their roots here and invest here,’ he added.

On average, the Government collected about $75 million a year in estate duty.

Mr Tharman is encouraging people with accumulated wealth to think of how they can use the savings from the scrapping of the tax to make a contribution to society.

Already, one foreigner living here is making such plans after learning of the move.

Mr Iain Ewing, 62, founder of management training consultancy Ewing Communications, plans to channel half of the estate duty savings to fund university scholarships and other causes. The rest will go to his son, Tejas, 27.

Mr Ewing, a Canadian with permanent residence here, has worked here for 23 years and expects the savings to be millions of dollars.

Two likely recipients are Singapore Polytechnic – where he previously worked as a media producer – and his alma mater, the University of British Columbia in Canada.

‘It’s great that some of my money can do more for other people after I’ve gone,’ he added.

 

Source: The Straits Times 16 Feb 08

Robust economy, property market lead to $6.4b surplus

THE Government racked up a Budget surplus of $6.45 billion last year, the highest since 1994, outdoing even the most bullish of market forecasts.

Unexpectedly strong economic growth and a runaway property market sent tax revenues surging, putting paid to an initial projection of a $700 million deficit.

But such a sizzling performance is not expected in the next financial year, with an $800 million deficit pencilled once handouts and changes announced in the Budget are accounted for.

Economists, who were predicting a surplus of between $4 billion and $5 billion, said they were caught out by higher-than-expected consumption and real estate-related tax collections.

They were also surprised by the size of ‘budget hongbaos’ that will be given out next year. ‘It’s a very generous Budget, with much more special transfers than last year,’ said United Overseas Bank (UOB) economist Ho Woei Chen.

Finance Minister Tharman Shanmugaratnam yesterday told Parliament the unexpected surplus came on the back of exceptionally strong economic growth.

‘We started the year expecting a growth rate of 4.5 to 6.5 per cent, which was also in line with market forecasts. With actual growth at 7.7 per cent, corporate and personal income taxes came in some $1 billion higher than projected.’

As anticipated, strong company profits sent income tax collections from businesses up 6.2 per cent to $9 billion despite a cut in the corporate tax rate from 20 per cent to 18 per cent.

Bigger wages and a tight job market sent personal income tax revenues up 18.1 per cent to $5.56 billion.

The strong economy also boosted goods and services tax (GST) revenues.

While a rise was factored in, given last July’s GST hike from 5 per cent to 7 per cent, the final figure was $1.2 billion higher than initial estimates. This, said Mr Tharman, was due mostly to higher consumption.

He added that the rate hike raised $1.4 billion in revenues, matching the size of benefits paid out in the year through the GST Offset Package and Workfare.

Economists said a buoyant economy enabled retailers to raise prices to pass on the GST hike. The higher prices, in turn, translated into more GST paid.

But the biggest surprise came from the red-hot property market, said Mr Tharman. Stamp duty rose to a record $3.8 billion, $2.3 billion higher than expected. Other property-related revenues also clocked in $1.1 billion above projections.

‘These were large gains, out of the ordinary, and which we cannot expect to see very often,’ he said.

UOB’s Ms Ho noted that net investment income contributions seemed low at $2.3 billion, given buoyant markets last year. ‘It’s the lowest since Sars-hit 2003.’

Mr Tharman said the Government is amending the Constitutional framework to let it draw on more investment income from its reserves. This would allow it to further enhance tax competitiveness.

A Bill will go before Parliament later this year.

In the year ahead, operating revenues are predicted to inch up 0.5 per cent. Spending will rise 12.5 per cent and special transfers will more than double.

Citigroup economist Chua Hak Bin said the estimates are very conservative as in previous years. ‘We could see another surplus next year.’

 

Source: The Straits Times 16 Feb 08

IMF predicts 10% growth in China

Beijing – THE International Monetary Fund (IMF) still sees China’s economy expanding 10 per cent this year.

‘The current financial crisis, which began in the United States housing market, is spreading to affect the real economy in the US and elsewhere,’ IMF managing director Dominique Strauss-Kahn told reporters in Beijing yesterday.

‘There will be some impact on China, but we still expect the economy to expand by 10 per cent this year.’

The World Bank this month cut its forecast for China’s growth to 9.6 per cent. The world’s fourth-largest economy expanded 11.4 per cent last year, the fastest pace in 13 years.

China is trying to slow inflation that is close to an 11-year high without triggering a sharp slowdown.

‘It’s even more necessary than before to have high growth in China,’ the IMF head said, referring to a slowing global economy.

‘More domestic-demand-driven growth will be what China needs rather than export-led growth.’

Mr Strauss-Kahn urged faster appreciation of China’s currency, the yuan, and said the IMF and China agreed the nation still needed a tight monetary policy to contain investment growth and inflation.

He said faster appreciation ‘would be helpful for addressing China’s key economic challenges and would also contribute to preserving global economic stability’.

China’s currency has climbed 1.7 per cent versus the US dollar this year. It traded at 7.181 to the US dollar yesterday.

Mr Strauss-Kahn said that ‘for a number of months now, the real exchange rate is moving in a good direction’.

 

Source: BLOOMBERG NEWS (The Straits Times 16 Feb 08)

US economy: Paulson, Bernanke play it cool

WASHINGTON – THOUGH economic officials have to avoid hysteria so that they don’t cause panic, United States Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke, testifying before the US Senate banking committee on Thursday, went so far the other way that they seemed bored.

Mr Paulson could have been the secretary of ennui as he slouched in the witness chair before the Senate banking committee.

‘Are we headed towards or in danger of being in a recession?’ asked Democratic Senator Bob Menendez.

‘I don’t have a crystal ball,’ the secretary said.

‘Aren’t you underestimating – not paying enough attention to, the severity of the problem in the credit markets?’ inquired Democratic Senator Charles Schumer.

‘It’s one thing to identify a problem,’ Mr Paulson returned. ‘It’s another to know exactly what to do about it.’

Democratic Senator Bob Casey, asked about home foreclosures and the ’sub-prime crisis’.

Replied Mr Paulson, ‘I didn’t create this problem.’

No, but if he and his fellow Bush economic advisers get any more laid back about the state of the US economy, they will have to make their next appearance before Congress in a horizontal position.

For much of the exchange, Mr Paulson leaned back, draping his left arm over the back of his chair.

Mr Bernanke looked down, admired the chamber’s marble walls, and stroked his beard.

Even a few Republicans on the panel were troubled by the lethargy. ‘Chairman Bernanke, I just want to give you a heads-up: When you see something coming, don’t put it off,’ suggested Senator Jim Bunning.

Senator Bob Corker tried a semantic question to draw out the witnesses. Is it a housing ‘crisis’ or a ‘correction’?’

‘I don’t use loaded words,’ came Mr Paulson’s inevitable reply, ’so I’ve been using ‘correction’ because it is a correction.’

By contrast, committee chairman Chris Dodd used the word ‘crisis’ 12 times in his opening statement alone.

Mr Paulson must have known he sounded off-key, because towards the end, he threw in disclaimers such as ‘I don’t mean to be overly complacent’ and ‘I don’t mean to sound heartless’.

Heartless? No. But complacent was harder to avoid.

Mr Schumer noted that Wall Street bankers ’seem much more worried than you guys’.

‘Some see more worry than others,’ Mr Paulson replied.

Clearly.

 

Source: NEW YORK TIMES (The Straits Times 16 Feb 08)

Govt raises inflation forecast, sees peak in H1

Forecast upped to 4.5-5.5% as S’pore feels effect of rising food and oil prices

(SINGAPORE) Singapore’s inflation will get worse before it gets better, the Ministry of Trade and Industry (MTI) said yesterday, expecting inflation to peak in the first half of 2008 before moderating in the second half.

The government raised its full-year forecast for the headline consumer price index (CPI) to 4.5-5.5 per cent, from 3.5-4.5 per cent previously.

Rising food and oil prices globally have filtered through to domestic prices of food and oil-related items here, MTI said.

Last year, Singapore’s CPI grew 2.1 per cent year-on-year after growing by one per cent in 2006. It hit a 25-year high in December when it grew 4.4 per cent year-on-year. It rose 4.1 per cent for the fourth quarter.

MTI second permanent secretary Ravi Menon noted that part of the increase in the headline inflation here was due to the one-off effect of the two percentage-point hike since last July and technical factors like the revision of annual values of HDB flats.

‘We expect inflation to get worse before it gets better,’ he said at a media briefing yesterday. ‘The revised forecast is premised on fairly high inflation rates in the next few months. This is only to be expected given the very low base in the first half of last year.’

While inflation is expected to taper off in the second half during which the effect of the GST hike wanes, a return to the low inflation rates enjoyed in recent years will not happen any time soon as commodity prices are still likely to rise albeit at a slower pace than in 2007, Mr Menon added.

When asked if the Monetary Authority of Singapore (MAS) would be prompted to change its monetary policy stance given the higher inflation outlook, MAS deputy managing director Ong Chong Tee said the current monetary policy stance ‘remains appropriate and the macroecnomic and inflation outlook has been broadly consistent with the planning parameters’.

This policy of a modest and gradual appreciation of the S$NEER policy band has been in place since April 2004. Mr Menon noted that the current inflation outlook has to be viewed in the context of historically low inflation. For the last 40 years, Singapore’s inflation rate averaged 1.5 per cent, excluding the two oil shocks in the mid

1970s and early 1980s. Average inflation for the past 10 years was half that rate at 0.7 per cent due to the weak global demand in the aftermath of the Asian financial crisis, the downswing of the technology cycle and disinflationary impact from the emergence of China and other economies.

After years of low inflation, the world is now returning to ‘a more normal inflation environment,’ Mr Menon said.

But he added that the fact that long-term bond yields remain low and reflect that despite the current spike in inflation, the long-term inflation outlook remains low. And as long as jobs are created and wages grow, the impact of inflationary pressures will be dampened.

A recent report released by the Department of Statistics shows that household income has risen faster than inflation. Average household income from work was 32.4 per cent higher than 10 years ago, while consumer prices rose by a smaller 7.6 per cent over the same period.

Ministry of Manpower divisional director (manpower planning and policy) Jeffrey Wong said he expects employment growth to be sustained into 2008, after adding a record 236,600 jobs in 2007.

 

Source: Business Times 15 Feb 08

Sembawang E&C bags $400m IR contract

SEMBAWANG Engineers and Constructors (SEC) has been awarded a $400 million contract by Marina Bay Sands Pte Ltd to build the Marina Bay Sands integrated resort’s (IR) North Podium comprising the casino, theatres and retail arcade.

But with a construction period of just 15 months, pressure will already be on Singapore’s biggest construction company to start work soonest possible.

Saying that the timeframe is ‘pretty tight’, SEC president and CEO Alwyn Bowden added: ‘The Marina Bay Sands (MBS) North Podium is a fast-track project which will require our dedicated attention.’

In November 2007, SEC was also awarded a $463 million contract for architectural, civil and structural works at the Bayfront MRT station in Marina Bay.

Mr Bowden added: ‘We are especially well placed to handle (the MBS) project as we are also constructing the new Downtown Line Bayfront MRT station in Marina Bay, which will connect directly to the resort’s MICE (Meetings, Incentives, Conventions and Exhibitions) centre.’

The MBS project involves building the substructure and superstructure of the North Podium, and will have four upper levels and a four-storey basement.

Work is expected to start this month and is set for completion in April 2009.

Apart from maintaining a 24-hour construction site, fast-tracking construction will also require coordination with various parties involved who will invariably have inputs. Mr Bowden explained that they have to ‘make sure changes do not impact on construction process’.

On the complexity of the project, and the possibility of delays, he said: ‘We have tried to cover whatever eventuality that may arise.’

As far as equipment and building materials are concerned, Mr Bowden is confident that its supply chain management has sources and prices under control. ‘We have not found materials to be a problem,’ he added.

Mr Bowden could not say how many other construction companies had been in the running for the coveted contract, but he did say that there was ‘an emphasis on price’, when it came to bidding.

However, with construction company services in high demand at the moment, the days of ‘razor- thin margins’ are over.

Mr Bowden added: ‘For construction companies, the volume (of work) means that one can look around and be a bit more choosy.’

 

Source: Business Times 15 Feb 08

Playfair Rd site gets bullish top bid of $142 psf ppr

Sim Lian unit’s offer is whopping 63% above second highest bid

A 60-YEAR leasehold industrial site at Playfair Road has attracted a top bid of $142 per square foot per plot ratio (psf ppr) from Sim Lian Development unit Trio Link Development – a record price for such a site in the Ubi/Paya Lebar/Eunos area.

The tender for the 92,870 sq ft reserve-list plot attracted 12 bids, reflecting growing interest in industrial property as it comes into play amid the breather in residential and office values, says Colliers International director (industrial) Tan Boon Leong.

Sim Lian’s top bid of $33 million, or $142.13 psf ppr, was a huge 63 per cent above the next highest bid of $20.23 million, or $87.13 psf ppr, by Orion-Three Development.

Orion group, which is linked to Indonesian interests, has also been active in state tenders for industrial sites. It clinched plots at Serangoon North Ave 4 and Changi North St 1 in 2006.

Asked about Sim Lian’s aggressive bidding in yesterday’s tender, executive director Ken Kuik said the company had been encouraged by recent demand for strata-titled flatted and ramp-up factories at its Vertex project at Ubi Ave 4/Ubi Link.

‘We’ve sold about 160 of the 200 units released since September last year, achieving an average price of about $330 psf,’ he said.

The eight-storey property has 552 strata-titled units. Sim Lian is developing it on a 60-year leasehold site it won at a state tender in 2006.

Like the Playfair Road site contested yesterday, the Ubi plot is zoned for Business 1, allowing clean and light industrial and warehouse uses.

Mr Kuik said Sim Lian plans to develop the Playfair Road plot into a 13-storey project with strata-titled units for sale.

He noted that the site is just a few minutes’ walk from Upper Paya Lebar MRT Station on the Circle Line.

Colliers’ Mr Tan estimates Sim Lian’s breakeven cost could be around $260 psf, considering the saleable area for such industrial developments can exceed the maximum permitted gross floor area by 15-20 per cent after factoring in features like terraced areas and air-con ledges.

‘This is the first time a 60-year leasehold industrial site is being sold in the area, which traditionally has freehold industrial properties. That may have added to the plot’s attraction,’ he suggested.

Property consultants say the $142 psf ppr that Sim Lian offered for the Playfair plot surpasses the last high achieved in the Ubi/Paya Lebar/Eunos area – $85.50 psf ppr for a 60-year plot at Eunos Link/Kaki Bukit Avenue 1 in 1996.

However, yesterday’s top bid is still shy of the island-wide high of $170 psf ppr achieved late last year for a 30-year leasehold site near Commonwealth MRT Station.

The other bidders in yesterday’s tender were KNG Development, Soilbuild Group, Prosperity Realty (linked to Hotel Royal’s Lee family), HLH Development & Brothers (Holdings), Superbowl Land, See Young Investments, Lian Beng Group unit LB Property, Boustead Projects, Boon Keng Development and  Lim Huay Ren, which placed the lowest bid of $12 million or $51.68 psf ppr.

 

Source: Business Times 15 Feb 08

Slower growth, higher prices and uphill climb ahead

2008 growth forecast cut to 4-6% in shadow of US uncertainty

(SINGAPORE) The Singapore economy will see lower growth and higher inflation this year, but remains wellpoised to ride the upturn when it comes, says the Ministry of Trade and Industry (MTI). Most economists agree.

In view of heightened risks in recent months, chiefly a sharp US slowdown, MTI has shaved its forecast of Singapore’s 2008 GDP growth by half a percentage point to 4-6 per cent, which would be down a few notches from 2007’s revised 7.7 per cent pace.

The previous 2008 forecast in November had already factored in a US slowdown, MTI second permanent secretary Ravi Menon explained at a media briefing yesterday on the 2007 economic results.

But downside risks have since risen. And while it is not known if the US economy is in fact in recession, ‘what we do know is that the US is already experiencing a significant slowdown in growth, and the key uncertainty now is the length and severity of this slowdown’, said Mr Menon.

The new official 4-6 per cent growth forecast captures two scenarios. The

brighter outlook sees – as current conditions suggest, by MTI’s reading – the United States tackling a mild recession in the first half but recovering in the second half on the back of strong fundamentals, and fiscal and monetary stimulus.

Singapore will then likely grow in the upper half of the 4-6 per cent forecast, supported by healthy, if slower, growth in Europe and Japan, and a robust Asia.

But if the US falls into a severe recession brought on by a prolonged credit crunch, with knock-on effects in Europe and Asia, ’sentiment-sensitive and external-oriented’ sectors in Singapore, such as electronics, wholesale trade and financial services, will be hit hardest, said Mr Menon.

Even sectors with more of a regional exposure, such as health care and tourism, will not be totally unscathed. The Singapore economy will then likely grow nearer the 4 per cent end of the forecast range.

‘In either scenario, we’re looking at slower growth this year,’ he said.

Already, GDP growth slowed to 5.4 per cent in Q4 last year – down from Q3’s 9.5 per cent pace, and lower than early estimates of 6 per cent for Q4. On a quarter-on-quarter basis, GDP contracted by 4.8 per cent.

According to MTI, the Q4 slowdown reflected more the plunge in biomedical manufacturing – which fell nearly 30 per cent in Q4 because of cyclical pharmaceutical downtime – rather than any impact from the US.

Asked about the chances of Singapore slipping into a technical recession – if the economy sees a second consecutive negative quarter in quarter-on-quarter terms – Mr Menon said: ‘Most of the simulations we have done don’t show that outcome.’

MTI’s economics and strategy director, Cheang Kok Chung, also declared it ‘quite unlikely’, adding that there is ‘good potential’ for a biomedical rebound in Q1.

In fact, some of the more upbeat private sector economists see a quick rebound in GDP – in the current quarter.

While OCBC Bank’s treasury economist Selena Ling thinks the slowing growth momentum from Q4 2007 ‘could bleed over into Q1 2008′, others such as HSBC’s Prakriti Sofat see the Singapore economy bouncing back strongly in Q1. One reason – she is confident of a pharmaceutical turnaround ‘over the next few months’.

A recent Merrill Lynch report also voiced confidence that the Singapore economy is ‘well-positioned to cope with a US downturn this time’.

And P K Basu, the ever bullish chief economist (Asia ex-Japan) of Daiwa Institute of Research, declares: ‘I see no reason for even one iota of pessimism about the Singapore economy.’

Apart from the pharmaceutical bleed, Q4 was hardly a weak quarter at all, he says, pointing out that the rest of the economy, notably electronics, was ‘accelerating’.

But the ‘most eye-popping number’, Mr Basu said, was the Q4 manufacturing investment commitments of $8.7 billion – that spells jobs and output down the road.

Depending on the pharma sector rebound, he reckons GDP growth could hit 7-8 per cent in Q1.

‘I see no significant downside risk to my 7.4 per cent GDP growth forecast for 2008,’ he tells BT.

MTI – which yesterday also raised its 2008 inflation forecast for Singapore to 4.5-5.5 per cent – would be cheered by such confidence.

‘Growth will be lower and inflation higher, not a great combination,’ Mr Menon said. But the slowdown – after four years of above-trend growth – towards the economy’s underlying potential will help ease supply-side constraints and relieve cost pressures, he added.

Beyond 2008, the economy is well-positioned for any pick-up, he said. ‘Notwithstanding the weakened macroeconomic picture, the economy remains in fundamentally good shape structurally.’

Rising costs – and Singapore’s ever-strong fiscal balances – set the stage for the Budget today. Rebates and other goodies for lower-income households, as well as a cut in the personal income tax rate, are widely anticipated.

 

Source: Business Times 15 Feb 08

US economic outlook has worsened: Bernanke

Fed chief signals that he is ready to lower key interest rate

(WASHINGTON) Federal Reserve chairman Ben Bernanke told Congress yesterday that the United States’ economic outlook has deteriorated and signalled that the central bank is ready to keep on lowering a key interest rate – as needed – to shore things up.

In prepared remarks to the Senate Banking Committee, Mr Bernanke said that the one-two punch of the housing and credit crises has greatly strained the economy. Hiring has slowed and people are likely to tighten their belts further as they are pinched by high energy prices and watch the value of their single biggest asset – their homes – weaken, he warned.

‘The outlook for the economy has worsened in recent months, and the downside risks to growth have increased,’ Mr Bernanke said. ‘To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so.’

Mr Bernanke also said that the ‘virtual shutdown’ of the market for sub-prime mortgages – given to people with blemished credit histories or low incomes – and a reluctance by skittish lenders to make ‘jumbo’ home loans exceeding US$417,000 have aggravated problems in the housing market.

Unsold homes have piled up and foreclosures have climbed to record highs.

‘Further cuts in homebuilding and in related activities are likely,’ Mr Bernanke cautioned.

Given all the dangers facing the economy, the Fed ‘will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks’, he said, indicating that additional rate cuts were likely.

Mr Bernanke said that his forecast is for the economy to continue to endure a ‘period of sluggish growth’. That would be ‘followed by a somewhat stronger pace of growth starting later this year’ as the effects of the Fed’s rate cuts and a newly enacted stimulus package begin to be felt. The US$168 billion package, which includes rebates for people and tax breaks for businesses, was speedily passed by Congress last week and signed into law on Wednesday by US President George W Bush.

Even though Mr Bernanke’s forecast envisions an improving economic picture later this year, the Fed chief said that it was nonetheless ‘important to recognise that downside risks to growth remain, including the possibilities that the housing market or the labour market may deteriorate to an extent beyond that currently anticipated’ or that credit will become even harder to secure.

That is why, for now, Mr Bernanke indicated that the Fed is still inclined to lower interest rates.

Yet, that could change, depending on how the economy and inflation unfold.

‘A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives’ of promoting healthy employment and economic growth while keeping inflation under control.

Inflation should moderate, Mr Bernanke said. Yet, last year’s steep run-up in oil prices is a reminder that the Fed cannot let down its inflation guard and must keep close tabs on the inflation expectations of investors, consumers and businesses. Those expectations can affect their behaviour, which can affect the economy.

‘Any tendency of inflation expectations to become unmoored or for the Fed’s inflation-fighting credibility to be eroded could greatly complicate’ the Fed’s job, he said.

The troubles in the housing and credit markets threaten to push the US economy into its first recession since 2001 – if it has not fallen into one already.

 

Source: AP (Business Times 15 Feb 08)

Singapore cuts growth forecast to 4% to 6%

Concern over a US recession leads to revision; inflation estimate is raised to 4.5%-5.5%

SINGAPORE has lowered its economic growth forecast for the year but also tipped that consumer prices are expected to rise faster than previously thought.

Concern over a possible United States recession led the Government to trim its growth forecast from an earlier estimate of 4.5 to 6.5 per cent to between 4 and 6 per cent. Last year, the economy expanded by 7.7 per cent.

Its inflation estimate has gone the other way with prices now tipped to rise on average between 4.5 and 5.5 per cent, up from a three-month-old forecast of between 3.5 and 4.5 per cent.

The Ministry of Trade and Industry (MTI) released the revised figures yesterday and raised its concerns about the US economy.

‘Compared to three months ago, there is broad consensus now that the US economy is entering a slowdown,’ said the ministry.

‘The key uncertainty is over the length and severity of this slowdown, which will in turn influence how the rest of the world and key industries are affected.’

The MTI’s new forecast shaves 0.5 percentage point off the estimate made three months ago and reflects the recent welter of bad news from the US.

MTI Second Permanent Secretary Ravi Menon told a news conference that the earlier forecast had already factored in a US slowdown.

But ’since then, the downside risks have increased somewhat… The US is really experiencing a significant slowdown in growth.’

Economists were not surprised at the revision, given the deteriorating global outlook. Many had slashed their Singapore estimates in light of surprisingly weak data out of the US in recent weeks.

The MTI said current conditions suggest that the US will probably enter a mild recession in the first half but recover as the year goes on.

‘Strong fundamentals, coupled with fiscal and monetary stimulus, will help to support recovery in the second half,’ it said.

In this scenario, the local economy should grow in the upper half of the forecast range, said the MTI. But if the US has a more severe recession, growth here will be nearer the lower end of the range.

Electronics exporters and the trading and logistics firms that serve the industry will take the biggest hit, said the MTI, while financial services will be more vulnerable to weaker market sentiment.

The slower growth comes after four years of robust expansion and is still within the economy’s underlying potential growth rate, said Mr Menon.

Singapore should also escape a technical recession, defined as two straight declines in quarter-on-quarter growth. ‘Most of the simulations we have done do not show that outcome,’ said Mr Menon.

Action Economics economist David Cohen said, ‘4 to 6 per cent is realistic. It’s nothing to be embarrassed about.’

On the inflation front, prices are set to rise even faster than the record-breaking pace of recent months, due largely to surging oil and food costs.

Mr Menon said inflation will peak by the middle of the year before moderating.

The Monetary Authority of Singapore (MAS) said its policy of allowing a slightly faster appreciation of the Sing dollar remains appropriate.

Economists said the Government may announce today a more generous Budget to help low-income earners cope with escalating living costs.

This would allow the MAS to focus more on the slowing economy when it reviews its policy stance in April.

 

Source: The Straits Times 15 Feb 08

Economy grows 7.7%, beats expectations

Growth is somewhat dampened by surprise downward revision for fourth quarter

SINGAPORE’S economy grew even faster than expected last year, with a robust 7.7 per cent expansion fuelled by the booming construction and services sectors.

That was a notch up from an earlier estimate of 7.5 per cent – thanks to upward revisions to growth in the first nine months.

There was, however, a sting in the tail of the latest figures, published yesterday by the Trade and Industry Ministry (MTI).

The strong full-year growth was somewhat overshadowed by fourth-quarter figures, which turned out to be weaker than previously estimated.

Economic growth slowed to 5.4 per cent from October to December, said the MTI, lower than the 6 per cent previously estimated and far below the 9.5 per cent recorded in the third quarter.

On a seasonally-adjusted, quarter-on-quarter basis, the economy shrank 4.8 per cent, more than the 3.2 per cent estimated earlier by the Government The downward adjustment surprised economists, who said the final quarter would best indicate prospects for this year.

Already, the fast-deteriorating United States economy has prompted the MTI and other economists to cut their growth forecasts for this year.

‘We think the slowing growth momentum from the fourth quarter could bleed over to the first quarter of this year,’ said OCBC Bank economist Selena Ling.

Last year’s strong growth was powered by the red-hot construction and services sectors. The once-mighty manufacturing sector turned out to be the laggard.

Construction growth hit a record 19.6 per cent, the fastest pace since 1996, while services expanded 8.1 per cent, accelerating from 2006’s 7.5 per cent.

Manufacturing growth, on the other hand, slowed to 5.8 per cent from 11.9 per cent in 2006.

It was a similar picture in the fourth quarter, except that manufacturing growth was an exceptionally dismal 0.2 per cent.

The revised data came a month after advanced estimates for the fourth quarter were published at the start of the year. The early figures were based largely on the first two months of the quarter, so the latest statistics suggested that conditions worsened considerably in December, analysts said.

The adjustment was mainly due to services, which grew 7.7 per cent instead of 8.3 per cent, and manufacturing, which fared even worse than an earlier predicted 0.5 per cent expansion.

‘Financial services have peaked as we have forecast. The industry will likely moderate further. The heady days of high-teens growth are over,’ said Citigroup economist Kit Wei Zheng. He said the fall in financial services growth to 15.9 per cent in the fourth quarter suggested that the industry peaked in the third quarter, when it surged 20.1 per cent.

OCBC’s Ms Ling said manufacturing would remain lacklustre in the current quarter, if not the first half of the year. ‘With the global slowdown story, we do not expect any quick turnaround on the manufacturing front,’ she said.

Still, some economists are not ringing the alarm bells just yet.

HSBC economist Prakriti Sofat said while US growth slowed in the fourth quarter, that was not the cause for Singapore’s weak figures.

Analysts pinpointed the volatile pharmaceutical industry as the main reason for the slowdown.

‘Manufacturing output plunged, largely due to protracted production delays and technical problems at Singapore’s biggest pharmaceutical plant,’ said Barclays Capital economist Leong Wai Ho. ‘Supply bottlenecks were the main cause, not a drop-off in demand.’

Indeed, pharmaceutical’s recent sharp contraction could well set it up for a big rebound in the next few months, said analysts.

More optimistic economists are also looking to resilience in domestic and regional economies.

The construction sector is expected to continue growing robustly, given the strong pipeline of both public and private projects.

Sectors such as tourism and real estate services will be partially shielded from a US slowdown by neighbouring economies, on which they are more dependent, said the MTI.

 

Source: The Straits Times 15 Feb 08

Troubled banks want to transfer some mortgage risks to US govt

New proposal for delinquent borrowers to refinance into loans backed by state

THE United States banking industry, struggling to contain the fallout from the mortgage debacle, is now proposing to move some of the risk for troubled housing loans to the government, The Wall Street Journal reported yesterday.

One proposal, being urgently advanced by officials at Credit Suisse Group, calls for the Federal Housing Administration (FHA), a US government agency, to guarantee mortgage refinancing by some delinquent borrowers, said the paper.

Credit Suisse officials have met senior officials from the Department of Housing and Urban Development, which runs the FHA, and other policymakers to discuss the proposal, it added.

The risk: If delinquent borrowers default on their refinanced loans, the federal government would have to absorb the loss, said the Journal.

Just a few months ago, such a proposal would have been considered unreasonable. But the fact that the plan is receiving serious consideration suggests the level of concern in Washington, as housing problems worsen and efforts to tackle them fall short, said the report.

A plan by banks to rescue bank-affiliated funds that had invested in mortgage-backed securities fell through, while a hotline for troubled borrowers has helped only a small fraction of those in need.

This week, the government announced its latest idea – Project Lifeline – a mortgage-industry plan that would give seriously delinquent borrowers extra time to avoid foreclosure.

The Credit Suisse plan would open the way for nearly 600,000 sub-prime borrowers, many of whom are delinquent on their mortgages, to refinance into loans backed by the FHA, said the Journal.

Around 1.3 million borrowers in the US were either seriously delinquent or in foreclosure at the end of the third quarter, according to the latest figures from the Mortgage Bankers Association.

Credit Suisse said the plan would make US$89 billion (S$126.1 billion) in sub-prime loans eligible for refinancing.

The FHA was created during the Great Depression and provides mortgage insurance for qualified borrowers.

The agency grew less popular during the recent housing boom because credit was widely available, but it has recently rebounded as some credit markets have dried up. Home owners with FHA insurance pay premiums into an insurance fund.

Another bank, JPMorgan Chase, is putting together its own proposal to expand the number of home owners who could refinance into FHA-backed loans, said the Journal.

 

Source: The Straits Times 15 Feb 08

Japan’s growth beats forecasts, but economists remain cautious

TOKYO – JAPAN’S economy grew at double the expected rate in the last quarter of 2007, but some economists saw this as the last hurrah before a slowdown this year.

Strong capital spending and exports helped drive quarterly growth to 0.9 per cent, compared with a forecast 0.4 per cent rise, government data showed yesterday.

The bullish growth – an annual pace of 3.7 per cent compared with a yearly growth rate of just 0.6 per cent in the United States in the October-December quarter – eased investor worries about Japan slipping into a recession, pushing Japanese stocks up 4 per cent.

But economists were less upbeat.

‘The Bank of Japan will likely keep open the option of keeping the current interest rate levels or even rate cuts, as situations have gotten a lot worse since January, and on growing uncertainty about the economy,’ said Mr Yasuhiro Onakado, chief economist at Daiwa SB Investments.

Japanese exports have so far held steady despite the slowdown in the US economy from late last year due to strong demand from elsewhere in Asia and other emerging economies.

The gross domestic product data showed net exports contributed 0.4 percentage point of the 0.9 per cent growth.

Still, as weak US economic data in recent weeks has stoked fears of a recession in America, many economists worry that Japan may not be able to count on exports for much longer.

That, in turn, could curb corporate capital spending, possibly jeopardising the Bank of Japan’s view that strength in corporate activity will spill over to households.

Said Economics Minister Hiroko Ota yesterday: ‘The US economy is slowing down. There is a good chance of Japan’s economic growth slowing temporarily.’

 

Source: REUTERS (The Straits Times 15 Feb 08)

Revision of DC rates expected to be ‘moderate’

Consultants project smaller DC rate rise for residential and commercial use

THE coming March 1 revision of development charge (DC) rates – payable to enhance the use of sites or build bigger projects on them – is generally expected to be more moderate than the past couple of revisions, which imposed steep rises.

That’s because on the whole, land price increases have slowed considerably in the the past few months. And collective sales, which traditionally account for the lion’s share of private-sector land sales, have virtually ground to a halt, property consultants have told BT.

‘We believe collective sale brokers are unlikely to feel inspired by the upcoming DC rate revisions,’ says Jones Lang LaSalle’s regional director and head of investments Lui Seng Fatt.

Most consultants project smaller average DC rate increases for residential and commercial use this time. However, JLL is predicting bigger hikes for industrial and hotel use, as hotel and industrial sites sold at government land sale (GLS) tenders in recent months have fetched top bids significantly higher than the land values implied by current DC rates.

This can be attributed to the shortage of hotel rooms and strong demand for industrial space by office tenants looking for cheaper backroom space, says JLL’s head of research (South-east Asia) Chua Yang Liang.

For non-landed residential use, JLL reckons the average DC rate will go up just about 5 per cent come March 1, compared with the 58 per cent hike that took effect on Sept 1, 2007.

CB Richard Ellis executive director (investment sales) Jeremy Lake also reckons that on the whole, non-landed residential DC rates are unlikely to rise significantly, although there may be hikes in locations where land sales have taken place at prices significantly above values implied by the prevailing Sept 1, 2007 DC rates.

Market watchers point to examples such as Westwood Apartments in Orchard Boulevard, Toho Garden in Yio Chu Kang Road and 15 terrace houses at Jalan Bunga Raya in the Balestier/Novena area.

Agreeing, Credo Real Estate executive director Yong Choon Fah says the increases for such locations could be in the order of 30-40 per cent, while the average islandwide hike will be much smaller at 5-20 per cent.

DC rates – revised every six months, on March 1 and Sept 1 – are listed according to use (for example, non-landed residential, commercial, and industrial) and 118 locations across Singapore.

Savills Singapore director Steven Ming, who predicts a 0-10 per cent rise in the average non-landed residential DC rate, reckons both prime and suburban/mass-market areas will see only moderate increases.

However, bigger rises may be seen in mid-tier locations like Pasir Panjang, Balestier, Upper Bukit Timah, Hillview and Upper Thomson, where condo prices have risen 20-40 per cent in the past six months.

For landed residential use, JLL projects the average increase this time could be 8-15 per cent – again lower than the 11.3 per cent rise in Sept 2007.

Jones Lang LaSalle expects the rates for places like Dunsfold Drive and Binchang Rise in the Bishan/Ang Mo Kio area, Sentosa and Chestnut Drive to increase about 20-25 per cent, as market values of landed properties in these locations are significantly above the values implied by prevailing DC rates.

JLL reckons that after a 42 per cent spike in the average commercial-use DC rate on Sept 1 last year, the rate could still rise a further 30-35 per cent come March 1. However, it believes rates may generally stay put in the central business district (CBD), and expects increases mostly in suburban locations, particularly in the Jalan Sultan and Toa Payoh areas. In the past few months in these areas, commercial GLS sites have been sold at prices more than double the land values implied by prevailing DC rates.

Agreeing, Credo’s Ms Yong sees the islandwide increase in commercial DC rates around 5-15 per cent, with increases mostly outside the CBD.

Market watchers highlight the sharply different top bids for two white sites – with stipulated minimum office components – at Marina View in the CBD sold just three months apart late last year, reflecting how swiftly investor sentiment in the office market turned cautious.

JLL estimates industrial DC rates will appreciate around 30 per cent on average, compared with a 2.2 per cent increase last round. It also expects the average hotel DC rate to go up 30-35 per cent, after a 23 per cent hike last round, pointing out that hotel sites offered under the GLS programme at Upper Pickering Street and New Market Road/Merchant Road have been sold at premiums of 80 and 64 per cent respectively above prevailing DC rate based land values.

The coming round of DC rate revisions will have ‘minimum impact on the already slowing collective sales market’, according to Savills’ Mr Ming.

But for en bloc sites with a significant DC component, and where the reserve price has been fixed by owners, a substantial DC increase will make it even harder to find takers, says Credo’s Ms Yong.

JLL’s Dr Chua reckons owners of properties in fast-changing neighbourhoods like Buona Vista and Telok Blangah – and possibly Paya Lebar and Jurong East, which are earmarked by the government for development into business hubs – will be watching the coming DC rate changes as they may set the tone for potential change-of-use applications.

Potential bidders for reserve list sites under the GLS programme will also be watching the revisions to get a sense of the Chief Valuer’s sentiment before making any applications for these sites to be released, says Dr Chua.

 Source: Business Times 14 Feb 08

Average monthly household income grows at fastest pace in 10 years

But income inequality widens despite govt effort

(SINGAPORE) Income inequality in Singapore widened last year to its most pronounced state since at least the year 2000, with some high-income households enjoying big pay increases while the less well-off saw more modest wage gains, according to a report released yesterday by the Singapore Department of Statistics.

On average, almost everyone is somewhat better off than they were. Among Singapore resident households with at least one working member, average monthly income from work rose 9.1 per cent to $6,830 in 2007, from $6,260 the previous year, the fastest growth in the last decade, the report said.

However, the average was skewed by disproportionately higher income gains for the wealthiest households. The average monthly household income for the top 10 per cent earners rose 10.5 per cent to $20,240, up from $18,310 in 2006.

For the bottom 10 per cent, income from work increased just 3.9 per cent to $1,210, or 1.9 per cent after inflation.

When computed on a per household member level, average income per member for the bottom decile was only $310, up $10 from $300 in 2006. For the top decile, income per household member was $7,940, up from $6,990.

Domestic workers are considered household members, although their wages are not included in the income figures.

The income disparity even among the well-off in Singapore was also large, according to the report. The average household income of the 80th to 90th percentile of earners was $11,190, compared to $20,240 for the top decile.

In 1995, the equivalent figures in nominal terms were $6,990 and $11,190.

The big disparities in income gains resulted in a sharp jump in the Gini coefficient – a statistical measure of income inequality – from 0.472 in 2006 to 0.485 in 2007. The figure has grown every year since it was first computed using the current method in 2000, when the value was 0.442, according to the Department of Statistics.

Gini coefficient was 0.44 in 1990 and 0.47 in 1999, but those figures were computed using a different methodology and coverage, said the department.

Government measures to alleviate the income disparity have failed to narrow the gap.

After adjusting for government taxes and benefits, including last year’s Goods and Services Tax offset package, the Gini coefficient was 0.460 in 2007, still a substantial rise from 2006’s similarly adjusted figure of 0.439.

Most developed countries such as Switzerland, the United Kingdom and Japan, have coefficients of between 0.25 and 0.40, while South American countries like Brazil and Argentina tend to score between 0.40 and 0.60.

However, cross-border comparisons are difficult because each country’s figures may be computed differently.

But the Gini coefficient may underestimate total income and wealth inequality in Singapore as the Department of Statistics used only income from work – wages, as well as business proceeds for the self-employed. Income from dividends, rentals and interest was not included, and such income is likely to accrue more to high earners.

Also, the Department of Statistics only included employed households – defined as households with at least one working member – in its computation of the Gini coefficient, leaving retiree or unemployed households out of the picture.

 

Source: Business Times 14 Feb 08

S’pore world’s 7th most expensive office location

Prime office rents rose 78% last year to US$130.48 psf per annum: report

SINGAPORE has jumped 10 places to become the world’s seventh-most expensive office location.

According to Cushman & Wakefield’s (C&W) report on office occupancy costs, prime office rents rose 78 per cent in Singapore last year. Occupancy costs are now at US$130.48 psf per annum, up from US$954 psf per annum in 2006.

Rental increases here were the fifth highest globally last year, after locations in Turkey and Norway. However, Singapore still ranks below London, Hong Kong, Tokyo, Mumbai, Moscow and Paris in terms of occupancy costs.

London remains on the top of the list, with occupancy costs rising 30 per cent to US$312 psf per annum followed by Hong Kong, with an increase in occupancy costs of 40 per cent to US$238.58 psf per annum.

Paris, which was put in sixth place, registered occupational costs of US$141.57 psf per annum.

C&W executive managing director (South-east Asia) Arsh Chaudhury said that rental growth in Singapore was led by strong demand from the banking and services sectors coupled with limited supply of quality office space.

He said: ‘Whilst the effect of a US slowdown on Asia will be muted, the uncertainty of growth plans of US institutions, especially banks, may possibly result in an easing of demand.’

But he said that C&W expects the upward trend in rents to continue, albeit at a slower pace.

The C&W report compares office occupancy costs in 203 locations in 58 countries. New entries include Kyiv in Ukraine at 16th place with occupancy costs at US$78.22 psf per annum, and Ho Chi Minh City in Vietnam at 17th place with occupancy costs at $75.81 psf per annum.

Of these 203 locations, 79 per cent registered rental growth, 20 per cent showed stable growth and only one per cent experienced a fall in rentals compared to 6 per cent in 2006.

Perhaps also interesting to note is that of the bottom 10 locations in C&W’s list of 58 countries, neighbouring South-east Asian cities took up four spots.

Bangkok took the 58th position, with office occupancy costs at US$26.52 psf per annum, preceded by Jakarta, at 57th position with occupancy costs at US$26.54 psf per annum, Manila in 50th place with occupancy costs at US $33.75, and Kuala Lumpur 49th, with occupancy costs at US$34.39 psf per annum.

Source: Business Times 14 Feb 08

Property trusts may soon debut in India

Move will encourage foreign real estate funds to partake in construction boom

(HONG KONG) India could follow other Asian countries this year in creating a market for real estate investment trusts (Reits), making it easier for investors to buy into the country’s sparkling new office blocks and shopping malls.

The move would encourage foreign property funds, which are keen to join India’s construction boom but are not allowed to own finished buildings.

Reits or domestic funds could buy the assets they develop, offering them an easier way to exit the projects and take profits on their investments.

In December, market regulator Securities and Exchange Board of India (Sebi) issued draft guidelines for Reits, which pay most of the rent from their buildings to investors as dividends.

But people in the industry say that unless tax breaks are also offered by the government in its upcoming budget, a local Reit market would be a non-starter.

The Sebi proposal contained no mention of the kind of tax breaks that kick-started other property trust markets, but it could be fleshed out in the federal budget due on Feb 29.

‘It should’ve happened five years back,’ said Nayan Shah, chief executive of private developer Mayfair Housing Ltd, which wants to create a property trust of rental housing in Mumbai as soon as Reit regulations are in place.

‘Unfortunately, the government was never able to get over its regulations and set up a proper market,’ he said.

Arshdeep Sethi, head of capital markets at developer RMZ Corp, said he expected a market to be up and running within a year, adding that RMZ would also look to sell buildings into a trust.

‘We wouldn’t mind exploring it. It’s an instrument that will be interesting for investors and developers,’ Mr Sethi said.

Property trusts, long established in the United States and Australia, have caught on in Asia in the last five years, with investors enjoying stable yields that are higher than government bonds, and share price rises when rents and property values rise.

However, they have not been immune from global stock market turmoil, with Singapore’s Reit index , for example, dropping 20 per cent in the second half of last year and a further 13 per cent so far this year, in line with the broader market.

Reits would be riskier in India’s immature market, where a three-year building boom sparked by easing of foreign investment rules barely masks crumbling colonial-era infrastructure.

Overbuilding in some areas worries investors. For example, around 50 malls are being built in the New Delhi suburb of Gurgaon. With the information technology industry thriving, around 100 million sq ft of office space is to be built over three years, equal to all the office blocks in Washington DC.

An economy growing at around 9 per cent per year has helped push up Mumbai office rents by a fifth in the last year, but as new developments pop up in India’s main cities, old areas can also quickly go out of fashion.

Reits would help cut risks for property investors in the country by improving information flows – as listed securities they provide a constant stock market valuation of buildings and must divulge rental and other data.

As they hanker for new assets to lift investor returns, Reits would also give foreign funds new buyers for their buildings.

Although rules were eased on inward investment in the construction industry in early 2005, overseas investors are still not allowed to own finished buildings.

The likes of Citigroup, Warburg Pincus and Morgan Stanley have preferred to build and sell housing, but could now be tempted into commercial property.

Office yields are about 9-10 per cent in India.

Lacking a home market, a couple of Indian firms are looking to list Reits in Singapore, with the country’s most valuable developer, DLF Ltd, working on a US$1.5 billion initial public offering scheduled for the second quarter of this year.

As well as having an established Reit market, Singapore is attractive to Indian developers as its 10-year bonds trade at 2.3 per cent compared to India’s 7.5 per cent. So trusts, which need to draw investors with a premium to bond yields, can be sold to investors at higher prices in Singapore than in India. Reits in Singapore and Japan now offer yields of about two percentage points above domestic bonds.

But some analysts expect the Reserve Bank of India to push domestic listings by restricting the sale of more Indian assets into Singapore-listed trusts, in an effort to curb capital inflows that threaten to overheat the property market.

‘It might be too much for the RBI,’ said Param Desai, an analyst at India Infoline. ‘In the near future they might come up with a policy to restrict the flow of assets to Singapore.’

For an Indian Reit market to take root, DLF chief financial officer Ramesh Sanka said the government must waive stamp duty and introduce the tax ‘pass through’ that made Singapore’s US$19 billion Reit market popular.

Trusts there do not pay corporate tax but investors pay tax on dividends at their personal rate.

Sebi’s guidelines stipulated that Reits should pay at least 90 per cent of annual income as dividends and borrow no more than 20 per cent of gross assets, but no mention was made of tax.

 

Source: Reuters (Business Times 14 Feb 08)

New Zealand property prices, sales slip in Jan

(WELLINGTON) New Zealand house prices fell and sales dropped in January as the previously hot market continued to cool, the Real Estate Institute of New Zealand (Reinz) said yesterday. The Reinz national median house price fell 1.4 per cent to NZ$340,000 (S$379,000) from December, but was 4 per cent higher than a year earlier.

Institute members sold 5,186 houses in the month compared with 5,597 the month before, a fall of 7.3 per cent. The figure was down 31.5 per cent on a year earlier, and was the lowest since January 2001.

National President Murray Cleland said the fall in the number of house sales meant lower prices could be expected. ‘Although we would prefer to see the next two months trends first, it is obvious that people need to be prepared for prices to move back in 2008,’ he said in a statement.

The New Zealand housing market had now turned to buyers’ advantage, Mr Cleland said. ‘It is clear from the days to sell and low sales volumes that there is a growing tension between the prices vendors are seeking and what buyers are offering – buyers have been quick to sense that the market is weakening and they are ready to take advantage of that situation.’ The median number of days taken to sell a house rose to 49 days from 36 in December and 38 days a year ago. It was the longest period to sell in eight years.

The Reserve Bank of New Zealand left its official cash rate unchanged at 8.25 per cent last month, saying that the housing market, one of its major inflation worries, was continuing to slow. The latest Reuters poll has most of the 16 economists surveyed expecting no change to rates until later this year.

Prices fell in seven of the Reinz’s 12 regions and rose in five. Prices in Auckland City, the country’s biggest population and commercial centre, fell 6 per cent and by just under one per cent in the capital Wellington.

Government agency Quotable Value reported on Monday that house prices grew 8.9 per cent in the year through January, compared with 10 per cent in December. It was the fifth-straight month that growth in house prices eased.

 

Source: Reuters (Business Times 14 Feb 08)

Global commercial property sales top US$1t mark

(LOS ANGELES) Global commercial real estate sales rose to US$1.04 trillion for the first time last year, driven by Blackstone Group LP’s purchase of Equity Office Properties Trust and land transactions in Asia.

One third of the total was office space, with nearly 1.2 billion square feet of offices worth US$434 billion changing hands, New York-based real estate research firm Real Capital Analytics said in a report on Tuesday.

In 2006, there were about US$700 billion of total global transactions.

Billionaire Sam Zell’s sale of Equity Office for US$39 billion including debt a year ago was the biggest leveraged buyout up to that time.

That deal and Blackstone’s subsequent sale of buildings from the Equity Office portfolio added US$66 billion to last year’s global transactions, Real Capital said in its report.

‘In the US, transaction activity was a record year, but it was all privatisation and massive portfolios,’ Robert White, president and founder of Real Capital, said in an interview.

‘In Asia, development land is where all the dollars are flowing to.’

Office space represented 32 per cent of total sales last year, Real Capital said. The total square footage that sold is equivalent to all of the office space in London, Tokyo and New York combined, the research firm said. With more than US$209 billion in transactions, the US accounted for half of global office sales.

Real Capital identified 114 cities worldwide that each had more than US$1 billion of commercial property sales.

Forty-eight of those cities were in North America, 35 were in Europe and 21 were in Asia. Real Capital limits the size of transactions it tracks to US$10 million or greater, meaning the total size of the global commercial real estate market last year may have been closer to US$1.5 trillion, the company said.

Almost half of all land acquired by developers around the world last year was in China. Land transactions totalled US$50.7 billion in China, more than double the US$25 billion in the US, the next most active country.

Land purchases in China and other parts of Asia were driven by a lack of available buildings in many growing regions, Mr White said. ‘There are really very limited institutional-quality, income-producing assets that are sold in the open market or even exist,’ he said. Commercial property sales slowed in the US and Europe in the fourth quarter of last year as the collapse of the sub-prime mortgage industry spread from the residential market to commercial lending, making it harder for real estate investors to find financing.

Growth in Asia will help make up for this year’s expected drop in transactions in the US and Europe, Mr White said.

‘The US was a little bit more than half of global volume in 2007,’ he said.

‘In 2008, it will most likely be well under half. Emerging markets will continue to grow.’

Worldwide property transactions this year likely will ‘be comparable’ to 2007, Mr White said. ‘It might even be off a little bit.’

Real Capital collects transactional information for property sales and financings and generates reports on capitalisation rates, market trends, pricing and sales volume.

The company compiled the Global Capital Trends report using its database of transactions. The sources of its information vary by country.

Its data partners include Property Data in the UK, Thomas Daily in Germany and HBS-Research in France.

 

Source: Bloomberg (Business Times 14 Feb 08)

Bernanke ‘upbeat’ US will avoid recession

He tells lawmakers the economy may pick up dramatically

(WASHINGTON) US Federal Reserve chairman Ben Bernanke voiced optimism in a closed-door meeting with Republican lawmakers on Tuesday that the United States would avoid slipping into a recession, Senator Charles Grassley said.

‘He was very upbeat about our not going into recession,’ the Iowa Republican said in an interview on Bloomberg Television.

Mr Grassley said Mr Bernanke expects the economy ‘to pick up pretty dramatically’ after growing slowly in the first half of this year. The Fed chairman called the economic stimulus package passed by Congress ‘helpful’ and indicated he’s willing to cut rates further if necessary to aid the economy, Mr Grassley added.

‘I got the sense that he’s ready to move if he needs to move,’ Mr Grassley said, adding that a rise in inflation may not be sharp enough to prevent additional rate reductions.

‘Inflation did come up and it’s going to be a little bit higher than what they like,’ Mr Grassley said. ‘But they believe that it’s nothing that’s going to stop their decreasing interest rates if they need to be decreased.’

Senator Richard Shelby of Alabama, the senior Republican on that committee, described Mr Bernanke as ‘optimistic but guarded’ in Tuesday’s meeting.

Another Senator said Mr Bernanke expects the downtrodden US housing sector to improve by the end of the year.

‘He let us believe that the housing situation should begin to ameliorate by the end of the year,’ said Pete Domenici, a New Mexico Republican.

Homeowners in the US threatened with foreclosure would in some instances get a 30-day reprieve under an initiative the Bush administration announced on Tuesday.

Dubbed ‘Project Lifeline’, the programme will be available to people who have taken out all types of mortgages, not just the high-cost sub-prime loans that have been the focus of previous relief efforts and have contributed to a decline in the US economy.

The programme was put together by six of the largest US financial institutions, which service almost 50 per cent of the mortgages in the US.

These lenders say they will contact homeowners who are 90 or more days overdue on their monthly mortgage payments. The homeowners will be given the opportunity to put the foreclosure process on pause for 30 days while the lenders try to work out a way to make the mortgage more affordable to homeowners.

‘Project Lifeline is a valuable response, literally a lifeline, for people on the brink of the final steps in foreclosure,’ Housing and Urban Development Secretary Alphonso Jackson said at a joint news conference with Treasury Secretary Henry Paulson.

He said the goal was to provide a temporary pause in the foreclosure process ‘long enough to find a way out’ by letting homeowners and lenders negotiate a more affordable mortgage.

 

Source: Bloomberg, Reuters, AP (Business Times 14 Feb 08)

IEA’s demand forecast cut on US slowdown

(LONDON) The International Energy Agency, an adviser to 27 industrialised nations, cut its forecast for 2008 global oil demand because of the slowing US economy and said the underlying trend was ‘even weaker’.

The agency reduced its forecast for demand this year by 200,000 barrels a day to 87.6 million barrels a day. That lowers the annual growth rate to 1.9 per cent, down from 2.3 per cent in last month’s Oil Market Report.

‘The economic environment is clearly paramount,’ the Paris-based agency said yesterday in its report. ‘An economic slowdown has the potential to change the landscape over the next few years: depending on how deep it is and how long it lasts.’

Global growth may slow to its weakest pace since 2003 this year as the US credit crisis spreads through the world’s largest economy, the International Monetary Fund said in its latest economic report. The US economy lost 17,000 jobs in January, the first drop in more than four years.

Global oil demand will be 88 million barrels a day in the first quarter of 2008, 170,000 barrels a day less than last month’s forecast, the IEA said.

‘We are watching carefully the US economy and how other international organisations see the situation,’ IEA executive director Nobuo Tanaka told reporters at an energy conference in Houston on Tuesday. The ‘downward trend is a major reason for this’.

Supply from the Organisation of Petroleum Exporting Countries, whose members produce more than 40 per cent of the world’s crude, will need to average 31.8 million barrels a day this year in order to balance global demand, 100,000 barrels a day more than last month’s estimate, the report said.

Opec, scheduled to meet on March 5, held quotas unchanged at its meeting in Vienna earlier this month.

Officials said the group may cut crude production should slowing economies in the US and Europe threaten energy demand.

Crude prices have averaged more than US$90 so far this month in New York and would have to drop to around US$80 a barrel for Opec to act, Opec officials said last week.

The group pumped 32 million barrels a day in January, according to the IEA. Opec’s installed crude capacity is currently at 35 million barrels a day, an increase of 300,000 barrels a day from last month, thanks to revisions for Angola and Persian Gulf producers, the report said.

Global oil supply averaged 87.2 million barrels a day in January, an increase of about 750,000 a day from December, the IEA said.

New output from Brazil and the assumed recovery of production from December outages in Azerbaijan, Mexico and China led to the increase, according to the report.

Crude oil traded little changed yesterday after IEA made the forecast.

Petroleos de Venezuela SA, the state oil company, cut off sales of crude and fuel to Exxon Mobil Corp in retaliation for the freezing of US$12 billion in assets in a legal dispute.

‘The IEA had been over-estimating demand all over last year,’ said Oliver Jakob, managing director of Swiss firm Petromatrix. ‘They were way above everyone else, and now the slowdown in the US economy is another reason why they have further corrections to make.’

Crude oil for March delivery traded at US$92.89 a barrel, up 11 cents, on the New York Mercantile Exchange at 9.48am London time yesterday. On Tuesday, the contract fell 81 cents, or 0.9 per cent, to US $92.78 a barrel.

 

Source: Bloomberg (Business Times 14 Feb 08)

Survey of economists signals US recession

(NEW YORK) According to Wall Street’s forecasters, the recession of 2008 is now unavoidable. That is, if you read between the lines of their predictions.

In a survey released on Tuesday by the Federal Reserve Bank of Philadelphia, forecasters said on average there was a 47 per cent chance that the economy would shrink in the first quarter of this year.

But the economists surveyed, many working for investment banks or Wall Street research firms, are an optimistic bunch, and every time they have become so worried over the last four decades, the economy has ended up in a recession.

There have been six recessions since 1968, the year that the quarterly survey of economists began. At the start of each one, economists put the odds that the economy would shrink in the current quarter at 40 per cent or more.

At times, the economists have either jumped the gun or said that a recession would last longer than it did.

In late 1979, for example, the forecasters said the economy was already likely to be shrinking; the National Bureau of Economic Research – widely considered the arbiter of business cycles – later said that the recession began in January 1980.

But the recession-probability index – which the Philadelphia Fed calls the Anxious Index – has yet to miss a recession or to signal one that never happened.

Its biggest blemish came in the first quarter of 1988, when forecasters put the odds of a negative quarter at 35 per cent. The economy then continued to grow for more than two years, before entering a recession in the summer of 1990.

In the latest survey, the forecasters also said there was a 43 per cent chance that the economy would shrink in the second quarter of 2008. Every time that reading has risen above 40 per cent, the economy has gone into recession.

 

Source: NYT (Business Times 14 Feb 08)

S’pore is world’s seventh most expensive office market

It jumps 10 spots in global ranking of occupancy costs by property consultancy

SINGAPORE has moved into the global top 10 most expensive office markets for the first time due to a severe office shortage.

A survey of office costs in 203 locations in 58 countries by global real estate consultancy Cushman & Wakefield saw the Republic jump 10 places to seventh spot.

This came after prime rents shot up by 78 per cent, on average, due to the tight supply.

The consultancy found that occupancy costs in Singapore – which include rents and other costs of running an office – hit an annual average of about US$130 per sq ft (psf).

Office rents, the largest component of occupancy costs, rose 40 per cent on average in the world’s top 10 office locations, it said.

Office rental rises in Singapore were also led by strong demand from the banking and services sectors, said Cushman & Wakefield’s annual Office Space Across The World report.

Worldwide, rents climbed by 14 per cent on average, compared with 10 per cent in 2006, it said.

London’s West End – where rents rose 30 per cent last year – remains the most expensive office location in the world, followed by Hong Kong, then Tokyo. Mumbai, Moscow and Paris were next on the ranking.

Another fast-rising Asian centre, Ho Chi Minh City, is now at 17th spot, with occupancy costs at US$75.81 psf a year, ahead of Sydney, Seoul and Shanghai.

The strong performances in India and Vietnam helped the Asia-Pacific region to achieve the strongest regional growth, with rents up 23 per cent over the course of last year.

Of the 203 locations Cushman & Wakefield surveyed last year, 79 per cent showed rental growth.

Singapore registered the fifth-highest increase in office rents in the world. Istanbul’s Levent district registered a 95 per cent rise in office rents, which was the highest annual growth in all locations.

‘Last year saw the fastest level of growth in office occupancy costs in many of the world’s top locations since the turn of the property cycle in 2001, with the strongest demand coming from the financial sector,’ said the firm’s head of business space research and consultancy, Ms Elaine Rossall.

‘We are unlikely to know the full effects of the current credit squeeze on the world’s main office locations until further into 2008.’

But last year’s strong rental growth is expected to ease this year, she said.

In Singapore, the United States sub-prime crisis has affected the expansion plans of some firms.

Last year, up to nine out of 10 companies had expansion plans. ‘But now, we could perhaps see five out of 10 companies looking to expand,’ said Mr Donald Han, Singapore managing director of Cushman & Wakefield.

‘We are still seeing new firms being set up, and these firms in the financial services sector must have a Raffles Place address.’

Office rental increases will be more moderate this year and next year, he added.

Instead of a 78 per cent rise in occupancy costs to US$130.48 psf a year – or about $15.44 psf a month on average – a 20 per cent increase is likely this year, he said.

But recent rental deals done at coveted buildings in Singapore, such as Republic Plaza and Millenia Tower, have already surpassed average levels.

For instance, the asking rents at Centennial Tower are now hovering at around $18.50 psf or more.

In Raffles Place, the asking rents for some prime Grade A office space have crossed the $20 psf mark.

Some tenants have complained that their office rents rose by as much as three times or even more when their leases came up for renewal.

The majority of Raffles Place office buildings are operating at 98 per cent to 99 per cent occupancy, so rents will not come down before a major chunk of supply comes onstream in 2010, said Mr Han.

That is when phase 1 of the huge Marina Bay Financial Centre will be ready.

Because of the steep increases, some bigger space occupiers are moving their non-frontline operations to suburban locations.

Some are reconfiguring their work space to make better use of it, property consultants said.

Others are looking to relocate to fringe areas or industrial locations.

These include the Beach Road corridor, conservation shophouses, business parks and transitional sites, where rentals are generally going at single digits – which is hard to find in Raffles Place.

 

Source: The Straits Times 14 Feb 08

Surging business costs worry Chinese chamber

SURGING business costs, brought on by last year’s increase in the Goods and Services Tax (GST), higher office rents and rising oil prices, are chief among the worries of Singapore Chinese Chamber of Commerce and Industry members.

This was the finding of the chamber’s annual pre-Budget survey sent to all of its 4,000 corporate members in December and last month. It showed that members are hoping this year’s Budget, to be announced tomorrow, will address the issue of the rising costs of doing business.

Respondents believed that increased business costs caused by dearer raw materials such as oil and more expensive manpower, among other factors, had also led to lower customer sales. This caused corporate profits to fall even further.

Looking to the year ahead, respondents expressed fears that escalating taxes, levies and other charges might have an impact on businesses directly.

This would further erode Singapore’s competitiveness, especially when foreign competitors are able to undercut the Republic with lower overheads and labour costs, the chamber said.

On the list of wishes that the companies have is a lowering of government taxes and charges, especially corporate income tax.

‘Personal income tax should be reduced to 18 per cent. As for the corporate income tax, the Government could also consider increasing the ceiling of chargeable income qualifying for tax exemption,’ the chamber said in a statement yesterday.

In order to ensure Singapore continues to excel as a hub for meetings, incentive trips, conventions or exhibitions, the chamber also urged the Government to consider exempting such events from the GST to help local businesses cope with surging rents.

The respondents also called on the Government to relax laws to open up new labour sources.

‘For local enterprises, the respondents hoped that the Government could render more support, such as more assistance schemes for local companies to upgrade and train their workers,’ the statement said.

‘They also called for more pro-enterprise measures so that smaller companies could gain greater access to public projects.’

 

Source: The Straits Times 14 Feb 08

Household incomes up but rich-poor gap widens

THANKS to a booming economy and rising salaries, the average family in Singapore saw its household income rise by 9.6 per cent last year, the biggest increase in at least a decade.

But the rich again got richer in 2007. Higher-income households generally enjoyed bigger pay hikes than lower-income ones, widening the income gap between the rich and poor.

Data published yesterday by the Department of Statistics (DOS) showed that average monthly household income from work last year rose to $6,280, up from $5,730 the previous year.

Much of this was due to strong economic growth and a tight labour market, which drove up just about all salaries last year.

The data comes on the heels of a set of rosy numbers for Singapore’s workers. The unemployment rate is at a 10-year low, while average bonuses paid out are at their highest since 1990.

Even after accounting for inflation, income still grew 7.4 per cent, beating a previous high of 6.2 per cent in 2001 at the height of the dot.com boom.

Citigroup economist Chua Hak Bin said: ‘It’s very encouraging that workers are finally seeing big gains from the economic boom of the past few years.

‘The earlier part of the recovery from Sars in 2003 had benefited companies more, with wage gains being relatively modest in previous years.’

But yesterday’s figures from the DOS also showed that the wages boom was clearly skewed in favour of richer families.

Income per family member in the top 10 per cent income bracket surged 11.1 per cent.

This is compared to 3.3 per cent for the lowest 10 per cent income bracket.

The result is that the Gini coefficient, a widely used measure of income inequality in a country, has gone up to 0.485 from 0.472 – one of the biggest increases in the past seven years.

The DOS acknowledged this yesterday, saying that it reflected ‘higher wage increases for skilled and knowledge workers’.

Economists agreed, positing that the unusually large jump could be due to more top global business executives relocating here.

But they also noted yesterday that a widening income gap is to be expected in a globalised economy. This is because low-skilled workers may not have as much bargaining power even in a tight labour market as companies can easily turn to cheaper foreign labour.

This means the Government will have to help poorer families more as the spoils of globalisation are not equally distributed, they added.

Indeed, economists said that with economic conditions turning south, more help should be announced at tomorrow’s Budget statement as lower-income, lower-skilled workers may be more vulnerable.

Said DBS Bank economist Irvin Seah: ‘I would not be surprised to see many measures at this Budget to alleviate the lower-income families from the escalating costs of living.’

In this vein, the DOS noted yesterday that Government benefits targeting the lower-income, such as the Goods and Services Tax offset package offered at last year’s Budget, helped to narrow the income gap.

If those were taken into account, the Gini coefficient would come down to 0.46, it said.

 

Source: Business Times 13 Feb 08

Construction on MRT Downtown Line starts, ready by 2013

A GROUNDBREAKING ceremony in Chinatown yesterday marked the start of construction of the $12billion, 40-kilometre Downtown MRT line.

The ceremony, conducted by the Land Transport Authority (LTA), took place at the Chinatown station on Downtown Line (DTL) Stage 1. Chinatown is one of six stations on the 4.3km fully underground line, which is scheduled to be completed by 2013. The other stations are Cross Street, Landmark, Bayfront, Promenade and Bugis.

‘The DTL will enable commuters on all existing MRT lines to transfer to the DTL with ease at designated interchanges,’ said LTA chairman Michael Lim.

‘By 2013, the completed DTL1 will link commuters to the exciting developments in Marina Bay, such as the Business Financial Centre and (Marina Bay) Sands Resort, as well as the Central Business District.’

The LTA says DTL1 will run through some of the busiest corridors in the city, easing congestion at major interchanges like Dhoby Ghaut and Raffles Place interchanges.

Five contracts, worth a total of $1.18 billion, have been awarded for DTL1. Two others, for Bugis and Promenade stations, will be awarded by the end of this year.

The DTL will be built in three stages, with Stage 2 to be completed in 2015 and Stage 3 in 2016. When fully completed, the DTL will strengthen the connectivity of the Rapid Transit System network and facilitate direct travel from the north-western and eastern areas of the island to the CBD and Marina Bay.

The DTL is expected to cater to over 500,000 passengers each day when fully operational.

‘The DTL is one of several extensive new rail and road projects that will be a significant boon to Singapore’s transport network, and to the economy,’ Mr Lim said.

The government has committed $20 billion for the DTL, as well as the in-progress Boon Lay Extension and Circle Line. Other plans include the Thomson Line, and extensions to the North-South line and East-West line.

By 2020, Singapore’s rail line will have doubled in length to 278km, said Mr Lim.

 

Source: Business Times 13 Feb 08

Global tech outlook cut on US recession fears

(SAN FRANCISCO) Two leading technology research firms have cut global technology outlook for this year, citing the risk of a US recession.

Forrester Research Inc said it now expects global technology purchases to grow 6 per cent in dollar terms this year, down from an earlier projection of 9 per cent. It expects US purchases of technology goods and services to grow 2.8 per cent, down from a previous forecast of 4.6 per cent.

The revisions assume a mild recession in the United States in the first two to three quarters of 2008, Forrester said on Sunday. The US accounts for about a third of global technology purchases.

‘While it is by no means certain that the US economy will in fact experience a recession, the risks of one are high enough to justify a more conservative outlook,’ Forrester vice-president Andrew Bartels said.

IDC also lowered its global outlook, citing similar concerns. It said on Monday it now expects worldwide IT market growth of 5 per cent this year, down from its previous forecast of 5.5 per cent and off from 2007’s 6 per cent.

‘While there is still debate over the severity and length of a US economic slowdown, we do know that the IT market will not escape unscathed from any significant downturn,’ said Stephen Minton, vice-president of Worldwide IT Markets at IDC.

Within technology, software investment will likely do better than the average, growing 8 per cent globally in 2008 but still down from 11 per cent last year, Forrester said.

 

Source: Reuters (Business Times 13 Feb 08)

Credit crisis spreading far beyond sub-prime loans

Repayments on prime mortgages, credit cards and car loans also affected

(NEW YORK) The credit crisis is no longer just a sub-prime mortgage problem.

As US home prices fall and banks tighten lending standards, people with good, or prime, credit histories are falling behind on their house payments, car loans and credit cards at a quickening pace, according to industry data and economists.

The rise in prime delinquencies, while less severe than the one in the sub-prime market, nonetheless poses a threat to the battered housing market and weakening US economy, which some specialists say is in a recession or headed for one. Until recently, people with good credit, who tend to pay their bills on time and manage their finances well, were viewed as a bulwark against the economic strains posed by rising defaults among borrowers with blemished, or sub-prime, credit.

‘This collapse in housing value is sucking in all borrowers,’ said Mark Zandi, chief economist at Moody’s Economy.com.

Like sub-prime mortgages, many prime loans made in recent years allowed borrowers to pay less initially and face higher adjustable payments a few years later. As long as home prices were rising, these borrowers could refinance their loans or sell their properties to pay off their mortgages. But now, with prices falling and lenders clamping down, homeowners with solid credit are starting to come under the same financial stress as those with sub-prime credit.

‘Sub-prime was a symptom of the problem,’ said James Keegan, a bond portfolio manager at American Century Investments, a mutual fund company. ‘The problem was we had a debt or credit bubble.’ The bursting of that bubble has led to steep losses across the financial industry.

American International Group said on Monday that auditors found that it may have understated losses on complex financial instruments linked to mortgages and corporate loans.

The turmoil is also stirring fears that some hedge funds may run into trouble. At the end of September, nearly 4 per cent of prime mortgages were past due or in foreclosure, according to the Mortgage Bankers Association. That was the highest rate since the group started tracking prime and sub-prime mortgages separately in 1998. The delinquency and foreclosure rate for all mortgages, 7.3 per cent, is higher than at any time since the group started tracking that data in 1979, largely as a result of the surge in sub-prime lending during the last few years.

The default rate for prime mortgages is still far lower than for sub-prime loans, about 24 per cent of which are delinquent or in foreclosure. Some economists note that slightly more than a third of American homeowners have paid off their mortgages completely. This group is generally more affluent and contributes more to consumer spending and the economy relative to its size.

Unlike sub-prime borrowers, who tend to have lower incomes and fewer assets, prime borrowers have greater means to restructure their debts if they lose jobs or encounter other financial challenges.

 

Source: NYT, AP (Business Times 13 Feb 08

White House does not expect a recession

(WASHINGTON) The White House predicted on Monday that the economy would escape a recession and that unemployment would remain low this year, though it acknowledged that growth had already slowed.

‘I don’t think we are in a recession right now, and we are not forecasting a recession,’ said Edward Lazear, chairman of the White House Council of Economic Advisers.

Presenting the White House’s annual report to Congress on the economy, Mr Lazear acknowledged that the plunge in housing and mortgage markets had yet to hit bottom and that growth would be low in the first half of 2008.

But administration officials are counting on a lift this summer from the US$168 billion economic stimulus package that Congress passed last week and from the Federal Reserve’s recent decisions to reduce shortterm interest rates.

The administration’s forecast calls for the economy to expand 2.7 per cent this year and for unemployment to remain at 4.9 per cent. That is much more optimistic than predictions by many analysts on Wall Street.

Among economists surveyed by the Blue Chip Economic Forecast, a closely watched monthly survey, the consensus prediction is that the economy will expand 1.7 per cent.

Indeed, many analysts contend the US has already slipped into a recession and will get only a temporary lift from the stimulus package.

The report on Monday predicts that business investment growth and job growth are both likely to remain ’solid’ in 2008.

 

Source: NYT (Business Times 13 Feb 08)

Some small property launches but most still hold back

Developers selling projects abroad first before launching them in Singapore

PROPERTY developers are starting to gingerly test the volatile market with a few launches now that the festive season is behind them.

Those dipping their toes into the choppy waters, however, are mostly offering smaller projects away from the prime areas, said property agents.

Home seekers may have to wait a bit longer for major launches, with the earliest set for next month or April.

Meanwhile, developers waiting for the market to regain momentum are selling Singapore projects overseas before launching them locally, said Mr Ku

Swee Yong, director of business development and marketing at Savills Singapore.

‘Developers are still waiting for the stock market here to settle down,’ said Mr Ku.

Savills is dispatching a large sales team to Dubai next week to market Skypark at St Thomas Walk, CapitaLand’s condo on the Silver Tower site in Cairnhill, and the units Kuwait Finance House bought in Reflections at Keppel Bay and Goodwood Residences last year.

For local buyers, one project likely to be launched within weeks is the 47-unit Cosmo at Guillemard Lane.

Prices could be $1,100 to $1,200 per sq ft (psf), said Mr Patrick Oei, associate group director for Huttons Real Estate, which is marketing the project.

Another upcoming launch is that of the 108-unit Verve Residences near Jalan Rajah, with prices likely to range from $900 to $1,100 psf.

These prices are similar to recent transactions in each area, showing that levels are still holding steady.

Homebuyers also picked up a few units in three freehold boutique projects launched in Telok Kurau recently.

One is the 28-unit Costa Este, which is selling at $663 to $980 psf. The others are Palm Galleria and Espira Spring, launched during the Chinese New Year weekend with average prices of $850 to $870 psf.

Generally, smaller projects have done well, even in shaky market conditions, said Mr Oei, citing Casa Fortuna in Balestier and Wilkie 80 in Wilkie Road. Both were sold out within three days of their launches late last year.

The 106-unit Casa Fortuna sold at about $1,000 psf, while Wilkie 80’s 50 units were taken up at $1,500 to almost $1,800 psf, Mr Oei said.

As for bigger projects, the first phase of Waterfront Waves at Bedok Reservoir will be officially launched this weekend. Prices for the 60-odd units still unsold will rise marginally from the current average of $750 psf, said Ms Kellie Liew, a project director at HSR Property Group.

The next brand-new launch may be Frasers Centrepoint’s Martin Place Residences in Kim Yam Road, due next month. Staff previews for the 302-unit condo started last month, at $1,800 to $2,300 psf.

Other launches to look out for include the delayed Marina Bay Suites and Ho Bee’s project at Dakota Crescent.

Not all industry players, though, have high hopes for upcoming launches. ‘The market is really quiet,’ said one agent. ‘Showflat crowds have thinned out to five or 10 people at a time. We’re still placing advertisements, but no telephone calls are coming in.’

 

Source: The Straits Times 13 Feb 08

2007 Budget surplus expected to hit eight-year high

Figure forecast to reach between $4b and $5b on higher tax revenues

THE Government is widely expected to report its largest Budget surplus since the dot.com boom, after a robust economy boosted tax collections last year.

Good corporate profits, strong wage growth and a rip-roaring property market are likely to mean that public revenues exceeded expenditures by between $4 billion and $5 billion, say economists.

This would give the Government considerable leeway to be extra generous with one-off financial aid measures to help the elderly and poor cope with escalating living costs, the experts said.

‘It’s going to surprise on the upside,’ said DBS Bank economist Irvin Seah, who is expecting an overall surplus of $4.28 billion for the fiscal year ending March 31. ‘Due to strong economic growth, tax collections will be higher than expected.’

Finance Minister Tharman Shanmugaratnam will be presenting the Budget to Parliament on Friday. The expected bumper surplus follows economic growth last year, likely to come in at 7.5 per cent.

The final figures for gross domestic product, or economic output, for last year will be announced tomorrow and are expected to reflect estimates published last month.

The Government has recorded, at best, a small surplus in recent years. The last time it achieved a bulging surplus was in 2000 at $4 billion and in 1999 at $4.9 billion.

Standard Chartered Bank (Stanchart) economist Alvin Liew noted that when a fiscal deficit of $690,000 was estimated a year ago, the Government was forecasting growth at 4 per cent to 6 per cent.

‘But actual growth has exceeded their expectations by more than 2 percentage points,’ he said.

CIMB-GK economist Song Seng Wun said the Government’s operating revenues probably jumped by 25 per cent from the previous year, instead of the official 5 per cent forecast.

Economists said personal income tax receipts rose as the strong economy lifted wages and created jobs.

Average bonuses paid out to workers have hit a 17-year high, while the unemployment rate has come down to a 10-year low.

Businesses should also post much stronger earnings such that they will pay more taxes overall despite a cut in the corporate tax rate from 20 per cent to 18 per cent.

Citigroup economist Kit Wei Zheng estimates that combined income tax collections from companies and individuals, which make up almost half of all tax revenues, surged 20 per cent.

Stanchart’s Mr Liew said revenues from the goods and services tax (GST) probably exceeded government projections, too. He noted that the booming economy has allowed consumer prices to rise strongly, probably exceeding government forecasts, which will boost GST receipts.

The experts say the Government should distribute the bulging surplus mainly to individuals who face a slowing economy and rising inflation.

‘The key focus will likely be measures to address the widening income gap and help the lower-income group cope with high costs of living,’ said United Overseas Bank economist Ho Woei Chen. This will likely take the form of one-off help, such as rental and utility rebates for the poor.

Beyond addressing acute challenges, economists said the Government would likely keep an eye on the medium to long term also.

A cut in personal income tax rates to match last year’s reduction in company taxes is widely anticipated to help Singapore attract foreign talent to live and work here.

The Government may also look to further enhance public infrastructure to keep Singapore competitive.

 

Source: The Straits Times 13 Feb 08

Don’t over-stretch yourselves: MM Lee

Financial prudence in periods of boom will enable S’poreans to ride out bad times

MINISTER Mentor Lee Kuan Yew last night urged Singaporeans not to over-stretch themselves financially in a period of boom, so that in the event of bad times, they would be better able to ride out the cycle.

Describing the effect of the property cycle, he warned that property prices go in cycles and will not keep going up all the time.

‘They go up, then they go down,’ he said. ‘So when they go up, don’t believe that it’s going to go up further and further, and you start buying bigger and bigger, and mortgage for bigger and bigger amounts. Because the day it starts to fall, the cycle goes around, you will find yourself with a negative value asset.’

It is by such prudent attitude that the government has refrained from spending the hundreds of billions of dollars of reserves that it has built up over the decades. Pointing to the recent investments made by the Government of Singapore Investment Corp and Temasek Holdings, Mr Lee said the two agencies were able to increase the value of their assets because they hang on in a recession, and sell part of their assets and keep cash when the boom becomes too intoxicating. The strategy ensured that when international banks like UBS, Citigroup and Merrill Lynch needed cash, GIC and Temasek would have the cash to invest in them.

Mr Lee was speaking at the Tanjong Pagar GRC Chinese New Year dinner when he made those comments. The constituency dinner, held at Farrer Park Primary School, was attended by some 1,200 residents and guests.

At the event, Mr Lee also cautioned against failing to plan for old age, saying: ‘The government will not allow anybody to die of starvation, but we are not going to cover you for your indiscretions.’

Along with the guarded tone in his message, he spoke of a bright outlook for Singapore. While the rise in food and energy prices and the widening income gap are causes for concern, he said Singapore can mitigate these problems.

‘But we must press ahead and maximise our chances to break through in the coming five to 10 years to reach a higher quality of development,’ he said. ‘We are now into a period of steady growth and transformation.’

Apart from the massive foreign infrastructure investments Singapore has attracted, the Republic is also spending about $28 billion in new MRT lines and a new expressway. The city centre is undergoing a makeover with the upcoming integrated resorts, the soon-to-be-completed Marina Barrage, and a Formula One night race.

Mr Lee said that Singapore has become successful thus far ‘because we have assumed individual responsibility for our lives’. Without natural resources, the way Singapore has managed to attract investors has been to keep taxes low, and offer a highly efficient, non-corrupt system and an industrial climate where workers, employers and government can work together.

‘And that is the basis on which we have huge investments coming in, because they (investors) know that this system will ensure that there will be no sudden dive down,’ he said.

‘I therefore urge everyone to remember, individual responsibility and family responsibility for each other is the way to go forward and the way to build one of the best cities in the tropics.’

 

Source: Business Times 12 Feb 08

Q4 GDP seen shrinking by 3.4%: poll

But Singapore not expected to slide into recession

SINGAPORE’S economy probably shrank in the fourth quarter by an annualised 3.4 per cent, weaker than an advance government estimate and the first quarterly contraction since 2003, a Reuters poll showed.

The preliminary government estimate suggested the economy shrank an annualised 3.2 per cent in the final three months of 2007. Factory output at the end of the year was lower than expected, after a 4.3 per cent expansion in the third quarter.

Most economists do not expect Singapore to slide into recession – defined as two consecutive quarterly contractions in economic growth – although slower growth will probably prevent the central bank from tightening monetary policy to rein in inflation, which is at a 25-year high.

The slowdown, after four years of booming growth averaging 6.6 per cent, is due to a sharp fall in manufacturing activity as demand for electronics in the United States and Europe dropped in the fourth quarter.

Drug output was also weak at the end of 2007.

‘The fourth-quarter slowdown was due to a contraction in the biomedical sector, but we can expect a rebound in the first quarter,’ said David Cohen, an economist from Action Economics.

‘The biomedical sector would be the least vulnerable to weakness in global demand,’ he said.

Many Asian economies are expected to slow this year on the back of the struggling US economy, the region’s largest export market.

The International Monetary Fund cut its global 2008 growth projection to 4.1 per cent from 4.4 per cent in January because of continuing stress in global credit markets, and it warned that economic activity could slow even further.

Singapore’s economic growth in the fourth quarter is expected to have slowed to 6 per cent from a year earlier, down from 8.9 per cent in the third quarter but in line with the advance government estimate, the poll of 10 economists showed.

For 2007 as a whole, the economy probably grew 7.5 per cent, also in line with the government’s estimate but slightly lower than the 7.9 per cent in 2006.

‘A US recession is likely to deepen the manufacturing and export slump this year, causing GDP growth to slow to 5.6 per cent in 2008,’ said Kit Wei Zheng, a Citigroup economist.

Factory output, which generates a quarter of Singapore’s gross domestic product, unexpectedly fell a seasonally adjusted 4.7 per cent in December as annual drug production fell for the fourth straight month due to lower output of active drug ingredients.

The manufacturing sector grew just 0.5 per cent in the fourth quarter, an advance government estimate showed, braking from 10.3 per cent growth in the previous quarter.

 

Source: Reuters (Business Times 12 Feb 08)

Stanchart joining quest for space in Changi

Bank seeks to build complex of up to 400,000 sq ft to house backroom operations: sources

STANDARD Chartered looks set to be the next financial institution to head out east to Changi Business Park (CBP), which is fast becoming a hub for financial backroom operations.

Already, Citibank, Credit Suisse, DBS and OCBC have either staked their claims on space there, or are in the process of doing so.

As for Standard Chartered, sources say that it is looking to build a complex of between 300,000 and 400,000 sq ft to consolidate its backroom operations currently spread out in locations like Tampines, Bukit Merah and Bras Basah.

It is also understood that the bank expects to increase its headcount when it expands its offices to CBP.

It has already committed to take up over 500,000 sq ft of space at the upcoming Marina Bay Financial Centre.

Industrial and business parks developer Ascendas, which is a subsidiary of JTC Corporation, is said to be the developer of Standard Chartered’s CBP offices.

It will be a built-to-suit building which will be leased to Standard Chartered in a similar way that Ascendas Real Estate Investment Trust (in which Ascendas holds a 60 per cent stake) is developing and leasing to Citibank its new backroom office space at CBP.

Earlier, Citigroup said it would invest $220 million to cover the capital, relocation, rental and operating costs of the new CBP office and will lease the space until 2016 and has an option to extend its lease for another six years.

CBP is a 66.54 ha business park which currently comprises around 60 development plots. JTC revealed earlier that about 50 per cent of these have already been allocated. While it is not clear which plot will be the site for Standard Chartered’s new backroom office, a JTC map of the area reveals that Ascendas has been allocated plots near The Signature, which is also near Expo MRT Station.

Other plans afoot at CBP include a hotel.

While the idea of a hotel was first mooted several years ago, there was little interest from industry players then.

It is understood that interest for a hotel has now been revived with CBP growing to become more than just a business park.

Cushman & Wakefield managing director Donald Han believes that while CBP may not have the critical mass to become a sub-regional town centre, it could become a fringe commercial centre along the lines of Harbourfront or Alexandra Road which Mr Han believes came about through ‘organic growth’.

With more businesses moving to CBP, Mr Han says that the authorities may have to, ‘over time, transform CBP into a fringe centre too’.

Mr Han also believes that in the process, Singapore Expo could be amalgamated to create the critical mass that will sustain support functions like the hotel as well as retail facilities.

For now, however, Mr Han reckons CBP is still ‘a bit disconnected’.

 

Source: Business Times 12 Feb 08

HDB offers 278 flats for sale

By end of yesterday, there were 2,224 online applications

THE Housing and Development Board launched the sale of 278 flats in various towns and estates yesterday. And by the end of the day the units were many times subscribed, with 2,224 online applications received.

Most of the units are four-room flats, plus 64 five-room units and 20 executive flats. They are spread over 13 estates.

Toa Payoh had the largest number of flats available at 119, followed by Tampines with 39 and Bukit Merah with 30.

Cushman & Wakefield managing director Donald Han said: ‘Obviously we’re seeing a better response for mature estates in fairly central locations. These are the first to experience demand and price increases.’

This is HDB’s fifth bi-monthly sales exercise for four-room and bigger flats under the combined balloting/walk-in system. Some 3,350 units have been offered so far.

In the first four exercises, 2,917 of the 3,034 units offered were selected, representing a take-up rate of 96 per cent.

There is also healthy demand for HDB’s build-to-order (BTO) flats. The 698-unit Coral Spring @ Sengkang, launched in September 2007, is about 70 per cent taken up, with just 200 units remaining. ERA Singapore assistant vice-president Eugene Lim said this is ‘not bad’ considering the location.

The strong economy has helped boost BTO and bi-monthly sales. But Mr Lim said increasingly higher asking prices for resale HDB flats are pricing some people out of the resale market. ‘There appears to be a stand-off between buyers and sellers in the resale market at the moment,’ he said, though there is still demand for resale flats.

HDB, which has stepped up its building programme since 2007, will offer 4,500 new BTO flats in the first half of 2008.

Whether this will help cool the resale market – where at the top end a 21st-storey executive flat in Queenstown went for a record $890,000 last month – is uncertain.

PropNex CEO Mohamed Ismail reckons the resale market will remain strong for now.

‘Supply (of flats) through walk-in selection is drying up and BTO flats will take time to build,’ he said. ‘I also believe the first half of 2008 will see people who sold their private flats en bloc earlier start to receive their collective sale proceeds, and some will downgrade to HDB resale flats.’

As such, Mr Ismail believes the resale market could see more than 30,000 transactions this year.

 

Source: Business Times 12 Feb 08

Developer stocks may rise above flat property prices

Goldman says that physical market correction already priced in

(SINGAPORE) Goldman Sachs predicts that private home prices will remain flat this year, but is sticking to its view that Singapore’s strong structural story is driving a sustainable multi-year residential upswing.

The US bank does not expect a repeat of the mid-1996 (anti-speculation) regulatory measures that caused Singapore’s residential market downturn or an economic environment like in 1998, when property prices fell sharply amid negative economic growth and job creation, and an interest rate spike. Goldman Sachs has also upgraded CapitaLand from Neutral to Buy.

‘We argue that the share prices of developer stocks have priced in a severe physical market correction, which we believe is unwarranted.

‘Notwithstanding near- term headwinds, we recommend investors start accumulating Singapore property developer stocks. We believe developer stocks will start trending up to their RNAVs (Revalued Net Asset Values) once investors get comfortable that property markets in Singapore and China are not heading for a severe correction,’ Goldman Sachs said in a report dated Feb 8 and authored by its analyst Leslie Yee.

Even after lowering its RNAVs for Singapore developers, Goldman’s 12-month target prices (set at parity to 2008 Estimated RNAV) offer potential upside of around 28-37 per cent.

Goldman Sachs attributed its lowering of 12-month target prices and valuations to Singapore private home prices staying flat, lower values of listed investments and a lower multiple of 15x (from 20x) for asset management fees.

Although Goldman Sachs assumes zero growth in overall private home prices this year, it acknowledges that prices may increase in the second half of the year.

The property market is currently caught between the negatives of macro concerns over the fallout from a US-led recession on the Singapore economy and equity market weakness, and the positives of strong Singapore domestic growth drivers such as robust job creation and wage growth, Goldman’s report said.

‘We have greatest confidence in the private mid- to mass-market segment, based on our analysis of different key drivers, such as affordability, income growth, population growth, and HDB resale market trends, among others. We believe strong Singapore fundamentals support this segment, which is likely to benefit most from any reduction in mortgage rates.

‘In the prime residential segment, we see a dampener from a fall in speculative activity but would not underestimate the appetite of bulk buyers such as the Middle Eastern funds. We note affordability for the mass market remains strong, while the prime segment should benefit from the rise in the number of people with high incomes,’ it added. Besides the Singapore residential market, other key drivers for developer stocks are the performance of the Singapore office market, the Chinese residential and commercial markets, and real estate investment trusts, the US bank said.

It argues that new office supply here in 2011/2012 can be absorbed without significant negative impact on rental and occupancy rates, and expects capitalisation rates across various property asset classes in Singapore to remain stable.

Goldman Sachs also sees little downside for residential prices in the China market, and has a positive bias on the outlook for Beijing, Shanghai and selected second-tier cities.

As for Singapore Reits, Goldman sees their unit prices rising from current levels over the next six months – given firm property rentals and the possibility of the overhang from primary and secondary equity raisings being removed.

Goldman has lowered its 2008 estimated RNAV for City Developments from $15.80 to $14.70 and for CapitaLand from $8.30 to $7.70.

‘Amidst a more uncertain environment, our top pick is CapitaLand, which we upgrade to Buy from Neutral. With its multiple growth engines, highly regarded management team and low gearing, our Buy rating on CapitaLand is premised on its attractive and resilient valuation which performs well in various stress tests,’ Goldman said.

The US bank is maintaining its neutral rating for CityDev.

 

Source: Business Times 12 Feb 08

Ayala Land bullish on Philippine housing market

(MANILA) Ayala Land, the Philippines’ biggest developer, plans to sell more homes this year, betting that housing demand will shrug off the impact of an economic slowdown in the US, the Philippines’ largest export market.

The company will sell more than the 4,404 lots and condominiums that it sold last year, chief financial officer Jaime Ysmael said yesterday in an interview in Manila. Ayala will offer 5,622 residential properties for sale this year, up from 5,182, he said. He declined to discuss sales and profit forecasts.

‘The domestic market could neutralise the negative effects’ of a US slowdown, Mr Ysmael said. The government last month said that the Philippine economy expanded 7.3 per cent last year, the fastest pace in 31 years.

The US is the source of half the remittances from overseas nationals, which make up a tenth of the Philippine economy. Sales to Filipinos abroad and the families that they support at home make up about a third of Ayala Land’s residential sales, Mr Ysmael said. Many of those customers are Filipinos living and working in the US, he added.

Last Friday, Ayala Land said that its 2007 profit rose 13 per cent to 4.4 billion pesos (S$154 million). Its sales were little changed, at 25.7 billion pesos. The developer said that it would boost capital spending by 60 per cent, to 24.3 billion pesos. About 20-30 per cent of that will fund new projects, Mr Ysmael said.

The company will probably sell more than two billion pesos of bonds this year to pay that amount of debt maturing in the fourth quarter, he added.

Mr Ysmael also said that an Asian property fund co-founded by Ayala Land may invest in Vietnam and expand its investments in China after closing itself to investors.

ARCH Capital Management Co, the fund’s management company, raised US$330 million, compared with the US$200 million targeted when Ayala Land and two partners set up the fund in 2006.

A US or global economic slowdown ‘may close some doors but the deal flow is still quite robust’, Mr Ysmael said. ‘There might be an impact but Asia is big. There are opportunities out there despite the possible slowdown.’

Ayala Land joined with its parent company Ayala Corp and Hong Kong-based Great ARCH Co to set up ARCH Capital Management. The fund is authorised to invest in Asian countries except Japan and the Philippines. ARCH Capital’s projects in Bangkok and Macau, China, comprise a fifth of available funds, Mr Ysmael said.

Source: Bloomberg (Business Times 12 Feb 08)

New Zealand house price growth slows as demand cools

(WELLINGTON, New Zealand) House prices in New Zealand rose at the slowest pace in a year last month as record-high interest rates and rising living costs curbed demand for property.

Prices climbed 8.9 per cent in January from a year earlier, moderating from a 10 per cent increase in December, Quotable Value New Zealand Ltd, the government valuation agency, said in a report released in Wellington yesterday.

A cooling property market will further slow an economy that expanded at the slowest pace in a year in the third quarter.

Reserve Bank of New Zealand governor Alan Bollard raised the benchmark interest rate four times last year to 8.25 per cent, straining the budgets of lower-income homeowners and forcing some property investors to renegotiate finance.

‘Over the course of the year, we will see prices drop on a national basis,’ said Nick Tuffley, chief economist at ASB Bank in Auckland. ‘Sales are slowing but the number of houses on the market is rising, so many sellers are going to have to look at the price they are willing to accept.’

The number of house sales in December slumped 32 per cent to a seven-year low, the Real Estate Institute said on Jan 16.

Mr Tuffley said that people are seeking to sell properties that they had been using as an investment, while buyers are ‘on the sidelines’ because of the increasing cost of home loans.

The average price of a New Zealand house was NZ$390,636 (S$437,500) in January, yesterday’s report showed.

In December, the interest rate on a two-year fixed mortgage was 9.38 per cent, up from 8.18 per cent a year earlier.

The cost of mortgage repayments on a median-priced New Zealand home was about 82 per cent of the nation’s average income in December, a measure of housing affordability that is close to the record low, according to the website interest.co.nz.

‘Higher mortgage interest rates are affecting property owners on low discretionary incomes,’ said Blue Hancock, a Quotable Value spokesman. ‘There are increasing reports from our valuers of properties going to mortgagee sale, with the number of these sales likely to increase.’ Property price growth has already stalled in some parts of the country, Mr Hancock said.

Source: Bloomberg (Business Times 12 Feb 08)

British home repossessions at 8-year high

(LONDON) British home repossessions last year hit their highest level since 1999 and are likely to increase, the Council of Mortgage Lenders (CML) said last Friday.

The trade group said that more than 27,000 homes were repossessed in 2007 and forecast that repossessions would rise to a total 45,000 in 2008 – still far fewer than the 75,000 homes that were repossessed in 1991 at the height of the last recession.

Economists expected a sharp rise this year as the global credit crunch bites.

‘The financial pressure on many home owners is increasing,’ said Howard Archer from Global Insight. ‘It seems certain that repossessions will trend up significantly during 2008, particularly if the economy suffers an extended marked slowdown and unemployment starts rising.’

Separate figures from the government showed that mortgage repossessions in England and Wales rose an annual 6 per cent in the last three months of 2007.

The mortgage lenders said that 13,500 homes were repossessed in the second half of 2007, marginally below the 13,600 in the first half and 10 per cent lower than they had forecast.

But the global economy now appears to be entering the slowdown presaged by the soaring rate of repossessions in the US that led to the dismantling of complicated credit derivatives underwritten by mortgages.

Britain’s economy grew by around 3 per cent last year but is expected to expand by less than 2 per cent this year.

‘The number of repossessions is likely to be higher in 2008 as a result of wider issues in the economy and the mortgage funding markets,’ said Michael Coogan, CML director-general.

 

Source: Reuters (Business Times 12 Feb 08)

Australia’s home loan approvals rise in December

Increased lending shows economy is weathering higher interest rates

(SYDNEY) Australia’s home loan approvals unexpectedly rose in December to a six-month high as jobs growth and wage gains underpinned demand for property.

The number of loans granted to people to build or buy houses or apartments climbed 0.1 per cent to 65,645 from November, the Bureau of Statistics said here yesterday. The median forecast of 21 economists surveyed by Bloomberg News was for a one per cent decline.

Increased lending adds to evidence that the A$1 trillion (S$1.3 trillion) economy is weathering higher interest rates and slowing economic growth in the US, Europe and Japan. The central bank said yesterday that it may need to increase borrowing costs further to curb the nation’s fastest inflation in 16 years.

‘The housing market will remain tight, putting upward pressure on prices and rents,’ said Craig James, Sydney-based chief equities economist at Commonwealth Bank of Australia, the nation’s largest mortgage lender. ‘The central bank is talking tough on the economy about inflation and the need to lift interest rates.’

The Australian dollar traded at 90.18 US cents at 4.38 pm here from 89.75 US cents before the lending report and central bank comments were released. The yield on the five-year government bond rose 10 basis points, or 0.10 percentage point, to 6.6 per cent.

Australia’s economy is in its 17th year of expansion, which is underpinning growth in employment and stoking borrowing demand. The jobless rate is at the lowest in more than three decades as retailers including Harvey Norman Holding Ltd and miners such as Rio Tinto Group hire more workers to expand.

‘Demand for finance has so far proved resilient to the Reserve Bank’s interest rate rises,’ said Bill Evans, chief economist at Westpac Banking Corp here. ‘We still expect rate increases to have some damping impact, particularly with the additional hike in February.’

Reserve Bank of Australia governor Glenn Stevens raised the benchmark interest rate by a quarter point to an 11- year high of 7 per cent last week, adding to increases in August and November.

The bank will raise the rate to 7.25 per cent by June, according to 13 of 24 economists surveyed by Bloomberg last week.

About 90 per cent of mortgages are taken out on a so-called floating rate, which is tied to the central bank’s rate.

A 25-basis-point rate increase adds about A$42 a month to the average A$250,000 home loan, according to the Housing Industry Association.

Westpac boosted its interest rate on home loans by 25 basis points following the central bank’s latest adjustment and Commonwealth Bank of Australia raised its main rate by 30 basis points. National Australia Bank Ltd added 29 basis points.

Australia’s five largest lenders also raised rates by between 10 and 20 basis points in January to recoup funding costs that have been driven up by the global credit squeeze.

Housing affordability in Australia dropped to the lowest level on record in the third quarter, according to an index compiled by Commonwealth Bank and the Housing Industry Association. Mortgage repayments accounted for almost 32 per cent of the average first-home buyer’s income.

There are signs that builders are scaling back projects, with a report last week showing that growth in the construction industry slowed in January.

The total value of lending fell 0.6 per cent to A$22.1 billion in December.

Lending to owner- occupiers rose 0.5 per cent to A$15.6 billion in December, yesterday’s report showed. The value of lending to investors who plan to rent or resell homes declined 3 per cent to A$6.58 billion.

Loans to build new houses slipped 2.1 per cent to A$4.68 billion from November, yesterday’s report showed. The number of loans to buy newly built dwellings declined 3.8 per cent.

 

Source: Bloomberg (Business Times 12 Feb 08)

MEDIA & MARKETING: Newspapers still among top media platforms

Despite hype over Internet, traditional forms of advertising still have edge: Poll

DESPITE the buzz and hype surrounding advertising on social networking and other Internet sites, newspapers still trounced other media as the most effective marketing platform last year.

This is because newspapers and other traditional forms of media still have a far wider reach, said the Fournaise Marketing Group in a recent survey.

The Singapore-based firm is one of the world’s top trackers of marketing effectiveness.

Its Marketing Effectiveness Report for last year, issued earlier this month, contained the results of a poll of more than 3,000 business-to-business and business-to-consumer marketing professionals working for small and medium-sized enterprises as well as larger firms, in Britain, Australia, China, India and Singapore.

Among the key findings was the fact that newspapers still easily beat other media in terms of marketing effectiveness despite the rise of online advertising.

Globally, newspapers ranked third behind direct marketing and public relations in terms of effectiveness in reaching out to target markets, ahead of online e-mail messages, referrals and display ads.

In booming economies such as Singapore, India and China, newspapers topped the list ahead of television and outdoor advertising.

Fournaise chief executive officer Jerome Fontaine said this was not surprising.

‘In markets which are growing fast, companies are still keen to build awareness and interest in their brands.

‘A big draw for established media such as newspapers is the fact that they still have a relatively wide and established reach.

‘Another attraction is that there are avenues for them to be audited externally, unlike many online forms of marketing. This allows marketeers to know precisely what they are getting for their money.’

The report also showed that for every $100 spent on marketing by businesses around the world as they tried to reach out to customers last year, a whopping $65 was likely to have been wasted.

The level of wastage was lower in high-growth centres such as Singapore, it found.

But the problem that marketeers face in getting their message through is universal: lots of media clutter, along with savvy and sophisticated customers and an extremely competitive marketing environment.

The survey concluded that marketeers around the world believe the marketing wastage rate for businesses trying to sell their wares to consumers was a significant 65 per cent. It was a lower 45 per cent for business-to-business firms.

In countries with relatively low economic growth, such as in North America, Britain and Australia, the estimated overall wastage rate is 60 per cent, compared to 40 per cent in countries with higher levels of growth such as Singapore, India and China.

Top 10 platforms

THE most effective marketing platforms of 2007 according to Fournaise’s report:

1. Direct marketing

2. Public relations

3. Newspapers

4. Online e-mail messages

5. Outdoor

6. Online (referrals)

7. Online (display ads)

8. Television

9. Sponsorships

10. Endorsements

 

Source: The Straits Times 12 Feb 08

2,224 in HDB line and it’s only Day 1

A BATCH of 278 surplus Housing Board flats in established towns like Bedok, Geylang and Toa Payoh drew more than 2,200 buyers within hours of going on sale yesterday.

Buyers have until Feb 18 to submit online applications for a computer ballot that will fix their position in the queue to pick a flat. The results will be out on Feb 21.

Yesterday’s ‘apply to buy’ rush will not have come as a surprise given the past response to the HDB’s year-old sales scheme.

A batch of 316 flats offered in outlying towns drew 5,147 applications in December, while about 840 others offered in two prior sales exercises were fully taken up.

The latest batch comprises mainly four-room units, with some five-room and executive flats – all in mature locations with amenities.

‘There will an overwhelming response,’ predicted Mr Albert Lu, the managing director of C&H Realty.

By 5pm yesterday, 2,224 people were in the queue.

The biggest group of units is in Toa Payoh, with 105 four-room and 14 five-room flats on offer. Flats are also available in Jalan Membina in Bukit Merah town and Geylang Serai.

The four-room flats cost $141,000 to $398,000, the five-roomers cost $218,000 to $532,000 and the executive flats, $333,000 to $470,000, depending on location and features of the units.

Demand is expected to come from buyers who want flats urgently but cannot stomach the prices that owners in choice areas are demanding.

Administration assistant Ellis Ang, 26, who plans to get married this year, has struck out in three ballots for a new flat so far.

‘There are a lot of couples like us out there,’ she said.

Unlike build-to-order flats, where construction starts only after most of the units are booked, most of the 278 flats on offer are ready and the rest are expected to be completed by 2011.

The HDB said: ‘Given the overwhelming popularity of new flats in established towns and the limited number of new flats available here, HDB would like to encourage flat buyers to consider flats in non-mature estates as well.’

Increased demand has shrunk the HDB’s surplus stock from more than 10,000 four years ago to about 2,200 at the end of last year.

But it is ramping up the number of build-to-order flats, with about 4,500 new flats offered this way in the first half of this year.

There is ‘ample supply’ of such new flats, it said, pointing out that 200 flats in the 698-unit Coral Spring estate in Sengkang were not taken up when booking ended last month.

 

Source: The Straits Times 12 Feb 08

Stock of surplus flats vanishing fast

Buyers on tight budgets looking for finished flats will be vying for fewer units

THE Housing Board’s offer of 278 surplus flats in mature towns yesterday will be likely to slash its stock of readily available units to less than 2,000, down from 17,500 in 2002.

Surging demand and a shortage of affordable completed property has dramatically cut the surplus supply.

At the end of last year, HDB was estimated to have just 2,200 surplus flats left. The almost 100 per cent takeup rate in previous sales exercises will push this figure down further.

It means that buyers on tight budgets hoping to purchase a completed flat will find themselves vying for fewer and fewer units, with the only alternative being coughing up more cash to buy a resale flat.

Those who were unlucky in ballots or who lack the cash will just have to wait.

Most new HDB flats come under the build-to-order (BTO) scheme. These flats are constructed only when most units are taken up. A person booking a BTO unit today could still have to wait three years or more for his home to be ready.

In the meantime, newly married couples will just have to rent or live with their parents until their new flat is ready, said PropNex chief executive Mohamed Ismail.

The resale prices of HDB flats jumped 17.5 per cent last year, prompting hordes of buyers to try their luck in the queue for surplus new flats, which come at highly subsidised prices.

A batch of 316 flats in Hougang, Punggol and Sengkang drew 5,147 applications, while 840 units offered in other parts of Singapore were all snapped up.

While the Government has committed to offering more flats under the BTO system – 4,500 in the first half of this year – it cannot guarantee that these new flats will be available on the spot.

It learnt a hard lesson in the 1990s when it built too many flats in anticipation of demand that fizzled out fast in the Asian financial crisis.

The subsequent overhang, which numbered 17,500 in 2002, meant that families wanting a flat could simply walk into an HDB branch and pick a ready-built flat on the spot.

In 2005, the HDB even sold about 100 of its older surplus flats on the resale market. This had HDB flat owners fearful that the move could depress the value of their homes.

Those days look set to be over, say property experts.

C&H Realty managing director Albert Lu said that buyers will simply have to choose between waiting for a new flat or paying more for a resale one in move-in condition.

 

Source: The Straits Times 12 Feb 08

A touch of glass for Moulmein HDB flats

RESIDENTS of HDB flats in Cambridge and Owen Roads will be the first in Singapore to get see-through, bubble lifts like those found in hotels and shopping malls.

They will be up and running by next year, said Minister of State (Education) Lui Tuck Yew yesterday at a Chinese New Year dinner for Tanjong Pagar GRC.

These lifts are cheaper to install because they are not enclosed in a concrete shaft. They cost about 25 to 35 per cent less than that of the lifts now found in HDB blocks.

Residents in Buffalo Road in Serangoon will also have such lifts by 2010, said Rear-Admiral (NS) Lui.

The authorities had previously said that by installing shaftless lifts, they could quicken the pace of upgrading so that HDB blocks would have lifts that stop on every floor.

In all, 1,200 HDB homes in the MP’s Moulmein division will gain from lift upgrading in the next two years.

Residents strongly support the programme to improve their lifts, with 85 per cent to 100 per cent of them giving the green light in polls, RADM Lui said at the dinner attended by the GRC’s six MPs, including Minister Mentor Lee Kuan Yew.

Meanwhile, efforts to upgrade private estates have been less successful.

Three submissions last year to the National Development Ministry’s Estate Upgrading Programme were not selected. RADM Lui did not identify the estates.

He plans to approach the ministry’s Community Improvement Programme for funds to do minor improvements to the private estates.

He also disclosed that ‘after much deliberation and some persuasion’, the Government gave more money for the renovation of the iconic Tekka Market, at the corner of Serangoon Road and Bukit Timah Road.

The sum has been raised from $5 million to $12 million for a more thorough make- over, he added.

Beyond the physical improvements, RADM Lui also highlighted the need for more community awareness. He urged the residents to play their part in helping the needy and be more neighbourly.

One resident who is looking forward to the bubble lift is deliveryman Tan Soy Tee.

The 61-year-old lives in a three-room flat on the sixth floor of Block 46 in Owen Road. The lift does not stop on his floor but on the seventh floor.

Daily, he would have to take the flight of steps to and from his home.

He expects to pay about $760 for the lift upgrading, a sum he finds affordable: ‘I earn $1,200 a month and cannot afford it if I have to pay much more than that,’ he said in Mandarin.

 

Source: The Straits Times 12 Feb 08

MM confident S’pore will ride out global slowdown

US troubles won’t hurt Asia for the first time, thanks to investments and region’s resilience

SINGAPORE will do well despite trouble in the global economy, said Minister Mentor Lee Kuan Yew.

And, for the first time, Asia will not tip into recession even though the United States economy is faltering, he said at his annual Tanjong Pagar Chinese New Year dinner yesterday.

But while he registered confidence in Singapore’s prospects, he was also mindful of the widespread worry among Singaporeans over the cost of living.

Speaking in English as well as Mandarin, he noted that economists have forecast that Singapore will still achieve 4 per cent to 6 per cent growth.

‘This is quite remarkable for it will be the first time that when the American economy slows down and reduces imports from Asia, Asia will not go into recession,’ he said.

He cited two main reasons for Singapore being able to ride out the financial disturbances.

One, it stands at the heart of the world’s highest-growth region. Two, the massive investments that are pouring into the island.

On the region’s prosperity, he highlighted the domestic growth momentum in China and India as well as the buoyant economies of neighbours such as Indonesia, Malaysia and Vietnam.

In his Mandarin speech, he said Vietnam will have South-east Asia’s most lively economy in 20 to 30 years.

Among Asean scholarship students here, he noted, the Vietnamese are the most serious, intelligent and reliable.

As for the massive investments here, he noted that the construction industry will be busy for several years building $20 billion worth of new MRT lines, the two integrated resorts and more.

Foreign investors, too, are here. Citing three billion-dollar projects, he said: ‘Huge investments cannot be recovered in a few years but will take decades to get back.’

Mr Lee believes these developments, in the region and at home, can help Singapore ‘mitigate’ its problems.

‘The rise in food and energy prices, and the widening income gap between high and low earners is cause for concern. But we must press ahead and maximise our chances to break through in the coming five to 10 years to reach a higher quality of development.’

He also said that Singapore is into a period of steady growth and transformation that includes the HDB estates.

‘We will not leave our heartlands behind,” he promised, as the 1,200 Tanjong Pagar GRC residents and guests celebrated with yu sheng (raw fish salad) under a white tent at the Farrer Park Primary School.

In the festive crowd was lawyer Michael Chia, 37, who said: ‘It’s comforting to know that Singapore will continue ticking.’

While assuring people about the days ahead, Mr Lee also warned against overreaching in good times and called it ‘a blessing’ that the financial crisis had cooled the property market.

‘Please remember that property prices go in cycles,” he added. ‘So when they go up, don’t believe it’s going to go up further and further and you start buying bigger and bigger homes…”

‘Boom and bust is in the nature of business cycles. You must be able to ride through a recession and emerge the better for it.’

This is how the Government of Singapore Investment Corporation and Temasek have been able to increase the value of its assets, he said, focusing on opportunities present in dark times.

‘In a recession we hang on. As the boom gets too intoxicating, we sell part of our shares and other assets and keep cash.”

So when UBS, Citigroup and Merrill Lynch needed a cash infusion, Singapore invested $22 billion in these distressed international banks.

‘When the share prices of these banks recover that $22 billion investments, it will be worth $50 to S$70 billion.”

 

Source: The Straits Times 12 Feb 08

Firms hope for tax measures that help combat rising costs

Faced with possibility of global slowdown, they call for Budget moves to ease inflation pressures

TAX relief to help businesses cope with spiralling costs is the key item that just about every company in Singapore is clamouring for in this Friday’s Budget.

Companies are unanimous in calling for more government help to combat rising inflation. The wish list ranges from a further cut in corporate tax rates to rebates for transport and rental costs.

Tax experts also hope to see Budget items such as tax exemption for income received by companies from abroad and ‘green’ incentives.

Still, after last year’s sterling corporate profits and a 2 percentage point cut in corporate taxes to 18 per cent, they do not expect a bagful of goodies this year.

But faced with the spectre of a global slowdown, companies are hopeful that the Government will dish out more measures to minimise the pain of rising costs.

‘What is unique about this year’s Budget is that inflation concerns are the dominant theme,’ noted Singapore Indian Chamber of Commerce and Industry (SICCI) chief executive Predeep Menon.

Fears that rising business costs will erode competitiveness in a global market is one of the key issues keeping the 800 corporate members of SICCI up at night, he said.

This was reflected starkly in a recent survey of 556 companies by the Singapore Business Federation about their Budget wish list. Almost 40 per cent of the companies polled hope to see a cut in corporate tax rates, with some seeking a 1 percentage point cut to 17 per cent.

Another 31 per cent of respondents called for tax measures to help cut rental costs, while 16 per cent wanted help in handling steeper operating costs. Other key concerns are transport, utilities and labour costs.

Tax experts and industry players said the Budget is likely to tackle inflation. But rather than sweeping measures to tackle costs across all sectors, the Budget is likely to target specific sectors to relieve cost pressures.

Lowering the levy for foreign workers to help the manufacturing sector could serve as a means to manage rising labour costs, said Mr Edwin Khew, president of the Singapore Manufacturers’ Federation.

Also, the Budget may grant the shipping industry’s wish for an extension of concessions to companies to get tax exemption on gains from the sale of vessels, due to end this year, said Mr Chiu Wu Hong, KPMG executive director, tax services.

Tax rebates on transportation costs may be offered to logistics companies, which are hardest hit by rising oil costs and road taxes.

Singapore companies may get tax incentives to expand in the Middle East or Eastern Europe to diversify their business away from the United States, suggested Association of Small and Medium Enterprises president Lawrence Leow.

Consumer-related and services companies are also hoping for a cut in personal taxes so that consumer demand would not be too severely dampened by inflation.

Mr Roman Scott, economic spokesman for the British Chamber of Commerce Singapore, called for a tiered reduction of the top personal tax rate from 20 per cent to 18 per cent over two years.

Tax experts also called for measures to enhance the tax regime to attract more foreign companies and build up certain key sectors.

Ernst & Young partner for tax services Choo Eng Chuan suggested that the Government consider using fiscal measures such as providing additional tax depreciation on equipment that reduces pollution or saves energy to complement its national policy to make Singapore an eco-friendly hub.

To promote the wealth management sector, a key growth engine of Singapore’s financial hub, Mr Yeo Kai Eng, Ernst & Young partner for GST services, suggested that the Government allow trusts to recover the GST incurred on their business expenses in full.

GST of 7 per cent is currently levied on fund management services or legal services provided to trusts with Singapore trustees and overseas beneficiaries.

Another bugbear plaguing the industry is estate duties. ‘Many other jurisdictions have already abolished it.

May it rest in peace in Singapore,’ said PricewaterhouseCoopers tax partner David Sandison.

Singapore International Chamber of Commerce chief executive Philip Overmyer called for the removal of a tax that companies in Singapore pay on the income they bring in from overseas units.

He noted that other jurisdictions like Malaysia and Hong Kong have done away with this tax.

 

Source: The Straits Times 12 Feb 08

US-linked worries drag Asian markets down

Delayed reaction due to holiday break as recession fears dog investors

ASIAN stock markets were battered yesterday, after a four-day break for the new lunar year failed to dispel the same old fears that have been unnerving investors.

Steep falls on Wall Street last week had a delayed reaction here as markets waited to re-open after the holiday, with a rush for the exits once the opening bells rang.

Singapore’s Straits Times Index (STI) tumbled 63.68 points, or 2.17 per cent – to 2,868.29, its lowest close since Jan 22.

But volumes were relatively low with just 1.08 billion shares worth $1.64 billion traded, suggesting that most investors are seeking safety on the sidelines.

But the STI’s drop was nothing compared to the selldown in India, where the Sensex Index plunged 4.78 per cent, after a much-awaited stock listing made its debut more than 17 per cent below its issue price.

India was joined on a southward spiral by Hong Kong’s Hang Seng Index, which slumped 3.64 per cent, and South Korea’s Kospi Index, down 3.29 per cent.

Markets in Indonesia, the Philippines, Malaysia and Australia were also belted.

JP Morgan Private Bank’s senior portfolio manager, Mr Elan Cohen, said: ‘The weight of negative news in the US last week and the 4 to 5 per cent fall in stocks there factored heavily in Asian markets today.’

Wall Street, racked by recession fears and more subprime red ink, dived 4.4 per cent last week to close at 12,182.13 – down more than 8 per cent for the year.

The already jittery Asian market sentiment was exacerbated by comments from the Group of Seven policymakers who said yesterday that the global economy faces growing threats from a United States housing slump and credit crunch.

The wave of pessimism sent the STI down from the opening bell, with many blue chips taking a hit. Weaker US futures during Asian trading hours pushed the STI further south in the afternoon.

The banks were thumped. United Overseas Bank dropped 58 cents to $17, the day’s fifth-largest loser. DBS Group Holdings lost 36 cents to $16.66, while OCBC shed 16 cents to $7.14.

Property plays were also down. City Developments shed 40 cents to $11.06, Keppel Land lost nine cents to $5.74 and CapitaLand fell 23 cents to $5.45.

Other bruised blue chips included Singapore Exchange, off 47 cents to $8.79, and Singapore Airlines, which retreated 28 cents to $15.18.

The FTSE ST Mid Cap Index lost 1.7 per cent to 752.55, while the China Index plunged 3.1 per cent to 524.54.

But SingTel had a better day, adding a cent to $3.72 due to bullish analyst reports, while Neptune Orient Lines was up 10 cents at $3.20 ahead of its full-year results today.

Analysts warn of more volatility to come but note that the worst may soon be over.

DMG & Partners Securities senior dealing director Gabriel Yap said: ‘The downside could last another one to three months more. We’re already quite close to the bottom.’

 

Source: The Straits Times 12 Feb 08

Write-downs from sub-prime problems could touch $568b

German minister sounds warning as officials await audits from banks

THE bloodbath is not over yet.

Sub-prime-related write- offs may hit US$400 billion (S$567.8 billion) – more than treble the US$130 billion losses that Wall Street banks and other financial institutions have revealed in recent weeks, according to the world’s top finance officials.

Speaking on Saturday after last weekend’s Group of Seven (G-7) meeting in Tokyo, German Finance Minister Peer Steinbrueck said the grouping now feared that write-offs of losses on securities linked to United States sub-prime mortgages could reach US$400 billion.

This is also far bigger than the US Federal Reserve’s estimates for sub-prime losses last year of US$100 billion to US$150 billion.

According to Bank of Italy governor Mario Draghi, the next two weeks will be critical in revealing how much damage the credit crisis has done to the global financial system.

‘The next 10 days to two weeks will be crucial because we are going to have the first audited accounts from financial institutions since the crisis started,’ said Mr Draghi, who is the chairman of the Financial Stability Forum (FSF). The FSF, a committee of international regulators and central bankers, is heading an international inquiry into the crisis.

Some of the world’s biggest banks have already disclosed billions of dollars of bad credits related to the US sub-prime mortgage market collapse, but these are only preliminary estimates, he added.

‘Auditors have become more vigilant’ as the fallout from the sub-prime crisis continues to spread and audited accounts for last year could reveal a grimmer picture, Mr Draghi told The Business Times.

The FSF’s preliminary report at the G-7 meeting warned that ‘there remains risk that further shocks may lead to a recurrence of the acute liquidity pressures experienced last year’, adding that ‘it is likely we face a prolonged adjustment, which could be difficult’.

Mr Draghi also said regulators were ready to force banks to reveal their losses and replenish their equity ratios.

He did not rule out the possibility that governments might eventually need to inject capital into banks, although he stressed that market solutions should take precedence. The FSF will issue its full report on the causes of the credit crisis and ways to tackle it in April.

The G-7 policymakers, in their statement, painted a grim picture, saying the US economy may slow further, eroding global growth, while banks, despite falling interest rates, will tighten credit even further.

While the G-7 did not propose specific measures, European Central Bank (ECB) president Jean-Claude Trichet said countries will do what was necessary, both individually and collectively, to counter a ’significant market correction’.

Economists, however, said the ECB is held back from cutting interest rates by its fears of rising inflation.

‘The problems are going right through all parts of the financial markets and there’s not much the G-7 can do about this,’ Mr Gilles Moec, an economist at Bank of America in London, told Australia’s The Age newspaper.

‘There’s a danger that the downturn will become a self- fulfilling prophecy,’ he was quoted as saying.

 

Source: The Straits Times 12 Feb 08

Singapore’s competitive edge eroding

Hourly wage cost rise for production staff in 2006 was second highest among 33 locations in US study

(SINGAPORE) A shortage of talent is still the biggest headache for businesses in Singapore, but sharp pay hikes in recent years – on top of increases in rentals and other costs – are triggering concerns about the island’s competitive edge.

And this comes just as the US Department of Labor released data showing that American factories here have been among the hardest hit by the rising wage costs US manufacturers are facing in most of their overseas operations.

In US dollar terms, the hourly wage cost for production workers in Singapore – including contributions to the Central Provident Fund (CPF) – shot up sharply by 17.1 per cent to US$8.55 in 2006 (the latest year for which data is available), bouncing back from a 2.3 per cent dip in 2005. For 2007, costs in US dollar terms probably rose even more, partly due to the strengthening of the Singapore dollar against the greenback.

Only in Brazil, among the 33 overseas locations in the study, was the increase higher in 2006 – up 17.8 per cent to US$4.91, according to a study by the US Labor Department’s Bureau of Labor Statistics (BLS).

Pay in Singapore continued to shoot up in 2007. Polls taken showed Singapore workers have been enjoying the biggest bonuses in Asia in the past two years – and their pay, already higher than that in emerging economies, was rising just as fast as in these economies.

Economists and businesses acknowledge that the jump in pay reflects the tight local labour market, as employers up salaries to attract scarce workers. But the persistence and scale of the increases are leading bosses to keep a closer eye on wage movements. And some observers caution that if they continue, sharp pay hikes will hurt Singapore’s competitiveness.

‘Singapore doesn’t compete on wage costs,’ said Robert Prior-Wandesforde, an economist at HSBC Bank.

‘Nevertheless, there must come a point that the (wage increases) become problematic.’

According to him, Singapore’s manufacturing costs continued to rise sharply last year even as production dipped in the final quarter. HSBC estimated that the unit labour costs of manufacturing here went up by around 15 per cent year- on-year in the last three months of 2007.

‘By any standards, this is an extraordinary rise, particularly for such an internationally exposed sector and, if sustained, will seriously threaten the competitiveness of the sector,’ Mr Prior-Wandesforde said in a report released last week.

For now, according to Song Seng Wun, CIMB- GK’s research head, there is enough business for companies here to sustain higher salaries. Still, he cautions that they have to ‘watch out’ as the global economy grows more uncertain down the road.

Which is what many companies are already doing, although their main worry is still hiring enough staff to meet orders, according to Philip Overmyer, chief executive of the Singapore International Chamber of Commerce.

Yet, at least in the eyes of US manufacturers, the pay hikes in recent years could have blunted some of Singapore’s competitive edge.

‘Hourly compensation costs in Brazil, South Korea (15.5 per cent), the Philippines (16.2 per cent) and Singapore all showed double-digit growth in 2006,’ says the BLS in its study.

The compensation costs on a US dollar basis are often used as indicators of competitiveness of manufactured goods in world trade.

The BLS study shows hourly compensation costs for production workers in the US were flat at US$23.82 in 2006, while those in the 33 foreign locations in the study jumped 4.7 per cent. The result: manufacturing wages in these locations edged up to an average 82 per cent of the US pay level, up from 79 per cent in 2005.

Among the Asian Newly Industrialising Economies (NIEs) – Hong Kong, Singapore, South Korea and Taiwan – the hourly compensation increase for production workers was 9.5 per cent in US dollar terms, raising their wage levels from 37 to 42 per cent of that of the US.

Singapore’s hourly production wage level rose from 31 per cent in 2005 to 36 per cent of that of the US – the highest since 2000.

The stronger currencies of the 33 locations contributed 2.1 percentage points of the 4.7 per cent rise, while domestic wage jumps accounted for 2.6 percentage points.

‘The movements of foreign currencies relative to the US dollar in 2006 had an influence on hourly manufacturing compensation costs measured in US dollars,’ the BLS report says.

In local currency, the hourly production wage costs in Singapore surged 13.57 per cent in 2006, the study says. The Singapore dollar rose 4.8 per cent against the greenback that year.

‘Singapore doesn’t compete on wage costs. Nevertheless, there must come a point that the (wage increases) become problematic.’ – Robert Prior-Wandesforde, an economist at HSBC Bank

 

Source: Business Times 11 Feb 08

Jakarta to cut 2008 growth forecast on downside risks

(TOKYO) Indonesia will cut this year’s growth forecast amid greater ‘downside’ risks stemming from record oil prices and a global economic slowdown, Finance Minister Sri Mulyani Indrawati said.

South-east Asia’s largest economy is expected to grow between 6.4 per cent and 6.5 per cent in 2008, lower than the 6.8 per cent expansion predicted earlier this year, Ms Sri Mulyani said. ‘We are working on a new forecast taking into account the prospect of a global recession and the effect of higher commodity prices,’ she said on Saturday in an interview here. ‘Higher growth is becoming even more difficult.’

Indonesia’s non-oil export growth has dropped below 10 per cent four times in the past five months, less than half the 23 per cent average of the previous year. That may threaten tax revenue for President Susilo Bambang Yudhoyono’s government, which has increased subsidies on cooking oil and rice and will this year double spending to cap fuel prices.

‘If exports slow, that translates into negative growth,’ said Helmi Arman, an economist at PT Bahana Securities in Jakarta. ‘The wild card is domestic demand.’

Ms Sri Mulyani was in Tokyo to attend a meeting between finance ministers from the Group of Seven nations and their counterparts from China, Russia, South Korea and Indonesia.

‘We’re still very optimistic from the domestic side, but we’re looking at the export risks,’ she said. ‘Our deficit will be larger than originally planned’ because of food subsidies, in additional to money being spent to keep energy affordable to consumers.

Indonesia may spend 106.8 trillion rupiah (S$16.4 billion) this year in capping fuel prices, up from an earlier estimate of 45.8 trillion rupiah, while it may spend 44.2 trillion rupiah on keeping power costs below market rates, the Finance Ministry said in a proposal submitted to Parliament last month.

The government has also set aside 2.6 trillion rupiah to finance a plan to allow poor families to buy 15 kg of rice a month at subsidised prices, up from a 10 kg limit last year.

 

Source: Bloomberg (Business Times 11 Feb 08)

Taxes to be cut despite rising inflation: Rudd

Govt is optimistic about growth prospects: minister

(SYDNEY) Australian Prime Minister Kevin Rudd said the government will go ahead with promised tax cuts, even as inflation rises at the fastest pace in 16 years.

‘There will be absolutely no change to people having tax cuts to take as additional income,’ Mr Rudd said on the Nine television network’s ‘Sunday’ programme. He said inflation remains the government’s greatest challenge.

Australia’s annual core inflation accelerated to 3.8 per cent in the fourth quarter, the fastest since 1991. The central bank aims to keep price gains between 2 per cent and 3 per cent on average.

Treasurer Wayne Swan said he remained optimistic about the outlook for the Australian economy amid the highest borrowing costs in 11 years and concern the United States is headed for recession.

‘We do face substantial challenges but I think our growth prospects are very solid,’ Mr Swan said yesterday on channel Ten’s ‘Meet the Press’ programme. ‘It’s a very big inflation problem. We have to deal with it because inflation pushes up interest rates, erodes living standards and, in the end, inflation is a threat to growth.’

The economy is showing few signs of cooling as rising consumer spending and exports to China help Australia ride out a global financial market slump. It grew 4.3 per cent in the third quarter from a year earlier, the fastest pace in three years.

The Reserve Bank of Australia last week increased the overnight cash rate target to an 11-year high of 7 per cent.

A US recession would probably curb global economic growth, cooling demand for Australia’s exports. Increased borrowing costs, rising living costs and declining share prices may also damp consumer spending in coming months.

Mr Swan said measures allowing customers to more easily switch banks will bolster competition in the sector and help keep borrowing costs lower. Cuts to public spending will also curb inflation.

‘We have to really take the axe to public spending given the inflation problem that we’ve inherited,’ he said. ‘And that will mean that we will go through the budget looking at all areas of the budget to make the savings that are absolutely essential if we’re going to put downward pressure on inflation and downward pressure on interest rates.’

 

Source: Bloomberg (Business Times 11 Feb 08)

NEWS ANALYSIS: Financial fears form correlation between oil and equities

Liquidation, profit taking in energy markets offset losses in equities

(LONDON) Oil and other commodities typically lag more mainstream assets, making them attractive as investment portfolio diversifiers, but since January, they have been swept up in the volatility gripping nervous equity markets.

The correlation between US crude and US equities has been 82 per cent, compared with 37 per cent the previous year and -63 per cent in 2006, according to figures from Standard Life covering the start of the year to last week.

For North Sea Brent crude and British equities, the link has been even tighter at 88 per cent, compared with 7 per cent last year and -37 per cent in 2006.

The new-found – and probably short-lived – closeness can be explained at least in part by liquidation and profittaking in energy markets to help to offset losses in equities and other assets that have headed lower in response to fears of recession.

‘At times oil and equities can briefly track each other for a variety of reasons . . . but there is nothing stable in that relationship,’ said Antoine Halff of Newedge brokerage.

The economic worries that have driven selling on stock markets are also bearish for oil markets as an economic slowdown would reduce demand, but traditionally oil markets react at a different pace from equities.

‘Equities discount growth fluctuations upfront. Commodities do it when it actually happens . . . Equities will fall first going into recession and recover first,’ said Tim Bond of Barclays Capital.

Negative correlation, or commodities and equities behaving differently, is useful for long-term investors, who want balanced portfolios.

But for some speculators on the oil markets, the stock market sell-off has provided much-needed direction.

‘The oil market has been in a relatively quiet period with no major winter threats, no major supply disruptions, and the higher volatility in equities has become a directional input for oil markets that were lacking a clear driver,’ said Olivier Jakob of Petromatrix.

He traced the link between oil and equities back to Jan 17, when the Dow Jones Industrial Average broke a major support line and he too predicted that the correlation would be temporary.

Technical traders can run an algorithmic model that trades oil according to equity indexes when the correlation becomes high.

‘This will work as long as the two markets trade on the same fear factor, but will break down as soon as the core fundamentals start to price back in,’ Mr Jakob said.

Fundamentals of supply and demand for oil and other commodities remain strong and are likely to do so for as long as economic growth fears are focused on the United States and Europe.

These regions have accounted for a small proportion of incremental demand compared with the expanding Chinese market.

‘Chinese growth estimates have slipped a couple of points,’ said Mr Bond.

‘If they slip another couple of percentage points, we’d have a more convincing case for commodities coming off.’

The growth of consumption in China and elsewhere in Asia has tightened supplies to the extent that commodities in general look more resilient than they have during previous economic slowdowns.

‘Commodity prices are more inelastic to changes in growth than they were in the past,’ said Mr Bond.

Over time, they were still expected to perform the task of diversifying a portfolio, although in the event of ‘a severe downturn’, they would be expected to fall in line with general market weakness.

Fundamentals for oil can always be strengthened by producer group the Organisation of Petroleum Exporting Countries (Opec), which can cut supply in an effort to support prices.

‘Opec – specifically Saudi Arabia – has a record of acting as swing producer, reining in flows when demand drops,’ said Mr Halff.

He added, however, that Opec’s ability to manage supplies should not be overstated and the lengthy amounts of time needed to bring on new supplies is one of the reasons oil markets tend to lag other asset classes.

‘While the demand side of the oil market may broadly track the underlying economic cycle, the supply side doesn’t do so as closely because of the long lead time of oil development projects,’ said Mr Halff.

Oil prices can set the pace, as well as follow. A major oil supply shock, for instance, would have knock-on effects for equity markets, which include significant numbers of resource-holding companies sensitive to commodity price movements.

‘UK equities have a large oil component in them – 17.4 per cent – plus mining – 9.5 per cent – meaning that more than a quarter of the equity market is commodity price sensitive,’ said Richard Batty of Standard Life.

 

Source: Reuters (Business Times 11 Feb 08)

Critical week for news of sub-prime damage: G-7

Leading banks to present first audited accounts since crisis

IN TOKYO

THIS week will be critical in revealing how much damage the credit crisis has done to the global financial system, according to a key official involved in last weekend’s meeting of Group of Seven (G-7) finance ministers in Tokyo.

Leading banks will present the first audited accounts since the crisis erupted, said Bank of Italy governor Mario Draghi, who heads an international inquiry into the crisis.

Some of the world’s biggest banks have already disclosed billions of dollars of bad credits related to the US subprime mortgage market collapse but these are only preliminary estimates, said Mr Draghi, who chairs the Financial Stability Forum (FSF) working group on the crisis. ‘The next ten days will be crucial’ in revealing the true extent of the damage, he said after the G-7 meeting ended last Saturday.

‘Auditors have become more vigilant’ as fallout from the sub-prime crisis continues to spread and audited accounts for 2007 could reveal a grimmer picture, Mr Draghi told BT. The FSF report warned that ‘there remains risk that further shocks may lead to a recurrence of the acute liquidity pressures experienced last year’, adding that ‘it is likely we face a prolonged adjustment, which could be difficult’.

G-7 ministers and central bank governors shied away from any concerted fiscal or monetary actions to address the crisis at their Tokyo meeting but said that they were ‘deeply engaged in working together to strengthen financial stability, limit the impact of the financial turmoil and address the factors that contributed to it’. But even as the crisis unfolds, they recognised its growing impact on the global economy.

‘The current financial turmoil is serious and persisting,’ acknowledged US Treasury Secretary Henry Paulson after huddling with his colleagues from Japan, Canada, Germany, France, Britain and Italy. ‘There was a climate of much greater pessimism and worry than in October (when G-7 finance ministers last met) in Washington,’ added Italian Finance Minister Tommaso Padoa Schioppa.

The Tokyo meeting revealed continuing splits among finance ministers as to how far the global economy will slow under the impact of the sub-prime crisis, and what actions G-7 governments should take to combat a slowdown.

Japanese Finance Minister Fukushiro Nukaga called these ‘differences rather than discord’ and said that each country should take whatever actions are appropriate to its circumstances. But they agreed that ‘the world confronts a more challenging and uncertain environment than when we met last October’.

With spreading financial turbulence and the threat of recession looming in the world’s two biggest economies – the US and Japan – the finance and central bank officials paid little attention to issues such as exchange rates which usually dominate G-7 meetings. And, although they called on Opec countries to raise production in a bid to control spiralling oil prices, it was the shaky state of the global financial system that was at centre stage.

‘The potential exists that risk-shedding (by banks and other financial institutions) could tighten constraints on a widening set of borrowers and thereby slow economic growth, which could further impair growth,’ the FSF said in its interim report presented to the G-7. The final report on solutions to the credit crisis is due in April, when the ministers next meet in Washington.

Led by this year’s chairman, Mr Nukaga, the G-7 ministers called for greater disclosure by financial institutions of the full extent of damage to their balance sheets from the sub-prime mortgage and credit crisis. But there are growing fears the process will reveal huge holes in the capital base of global financial institutions. ‘There was a general view the need for write-offs at banks will amount to about US$400 billion,’ said German Finance Minister Peer Steinbrueck.

Mr Nukaga, meanwhile, warned his G-7 colleagues that Japan’s own financial crisis after the collapse of the bubble economy had forced authorities to inject huge amounts of public funds into toppling banks. Japan left it ‘too late’ in dealing with the situation, one senior financial source told BT.

 

Source: Business Times 11 Feb 08

Sub-prime probes focus on disclosure, valuation

(WASHINGTON) The Securities and Exchange Commission (SEC) is investigating how banks, creditrating firms and lenders valued and disclosed complex mortgage-backed securities that ultimately led to the sub-prime crisis, a top agency enforcer said on Saturday.

‘The big question is, who knew what when, and what did they disclose to the marketplace?’ said Cheryl Scarboro, an associate director in the SEC’s enforcement division in charge of the sub-prime working group.

The SEC has opened about three dozen investigations into firms and individuals involved in the sub-prime mortgage market.

The investor protection agency has not named any names. But Morgan Stanley and Merrill Lynch are some of the firms in the financial services industry that have disclosed that government investigators are seeking information about their sub-prime activities.

Ms Scarboro said the cases can be broken down into three main areas: the securitisation process, the origination process and the retail area. Insider trading is also a key area.

‘Our investigations into potential misconduct is clearly a priority at the division,’ Ms Scarboro said at a Practising Law Institute conference in Washington.

Banks, due diligence firms and credit-rating agencies are being examined for their role in the securitisation process, or how mortgages were sold, repackaged and bundled into special financial products. The SEC is looking at the valuations and accounting treatments of mortgage-backed securities.

It is looking at whether the securities were valued correctly in the first place, what was the level of risk and if that was adequately disclosed to shareholders.

The methodology and models that companies used to value the complex financial products are being examined as well.

The agency also is looking at write-downs that financial firms have been forced to take and whether the assets should have been taken down and disclosed earlier.

 

Source: Reuters (Business Times 11 Feb 08)

A year of denial in US sub-prime crisis

It took months for a consensus that crisis would spread to the broader economy

(NEW YORK) One year after the first alarm bells of the sub-prime mortgage crisis rang in Wall Street, many of its victims are trading at half their value or less, while others have long been buried.

On Feb 8, 2007, HSBC said it would take a charge of about US$10.6 billion on sub-prime loans. The evening before, the No 2 US sub-prime lender, New Century Financial Corp, had unexpectedly warned it faced a quarterly loss and said it would restate previous earnings.

New Century shares lost more than a third of their value on Feb 8, but to look at the overall market, there was no telling how big a toll the crisis would take on the US stock market; the S&P 500 shed less than 2 points that day.

By spring, the stocks of sub-prime lenders were falling into a death spiral and dropped from the major exchanges in steady succession.

On April 2, New Century filed for bankruptcy protection.

American Home Mortgage Investment Corp followed in August.

Accredited Home Lenders Holding Co was bought out by a private equity firm in October.

Countrywide Financial Corp, the nation’s No 1 lender, hit a high of US$44.92 on Feb 7, 2007; the shares are now trading at US$6.58 as it awaits a takeover by Bank of America Corp.

But despite the bloodbath in the mortgage finance sector, investors last autumn were still confident enough that the sub-prime debacle was contained that they pushed both the Dow and S&P 500 to lifetime highs on Oct 11.

From its intraday high on Oct 11 to last Friday’s close, the S&P 500 index has fallen 15.5 per cent.

‘That’s been the history of the last year – denial, denial denial,’ said Gary Shilling, president of A Gary Shilling & Co, an investment research firm in Springfield, New Jersey. ‘That’s what held stocks up in October.’

That confidence was shaken shortly after, when Merrill Lynch warned it would have to write down billions of dollars more in sub-prime-related debt than it had previously said. Citigroup, Bear Stearns and others added to the writedown chorus.

In a year, Merrill Lynch has fallen nearly 45 per cent.

Citigroup stock has fallen more than 52 per cent and Bear Stearns has shed nearly 51 per cent. In addition to millions in market capitalisation, all three firms have lost their chief executives.

By New Year, consensus formed that the sub-prime crisis would indeed spread beyond the mortgage and financial market and into the broader economy, and potentially beyond US borders.

‘More recently, people realised the theory of decoupling was a fairytale, that the US really is the world’s economic leader,’ Mr Shilling said. ‘There’s still a lot of denial. The consensus is begrudgingly admitting we’re into or close to recession, but the consensus is now that it will be over in the first half of the year.’

Wall Street may have been late to recognise the impact of the sub-prime crisis, but the public caught on fast.

Less than a year after HSBC and New Century fired their warning flares, the television show Law and Order featured a plot about a con artist who scammed sub-prime mortgage holders facing foreclosure to sign over their homes.

 

Source: Reuters (Business Times 11 Feb 08)

Odds of US recession now at 50%: Blue Chip forecast

Outlook dampened by data showing a contraction in hiring, consumer spending

(WASHINGTON) The odds of a US recession have increased and stand at nearly 50 per cent amid a spate of data showing a weakening labour market, signs of more credit tightening and turmoil in the financial markets, the latest Blue Chip economic forecast projects.

A month ago, economists in this closely watched forecast put the chance that the world’s richest economy would fall into recession at 40 per cent, but government data showing a contraction in hiring, slowed consumer spending and other reports pointing to sagging business activity have indicated a much more deteriorated outlook.

Among those economists, slightly more than 20 per cent are now expecting to see the economy contract in at least one or two quarters.

‘The economic malaise that originated in the housing sector during 2006 (and) spread to the financial market in 2007, now appears to be infecting Main Street,’ the newsletter wrote.

And even as the economy slows, inflation is expected to creep higher.

The majority of those surveyed between Feb 5 and 6, however, continue to say that a recession will be avoided.

But growth is going to be weak.

Economists are now projecting that the economy will grow by just 1.7 per cent in all of 2008, down from the 2.2 per cent forecast a month ago.

Blue Chip economists are expecting that the Federal Reserve will continue to cut interest rates to help avert a recession. They expect that the central bank will reduce its target federal funds rate by at least half a percentage point more this year.

Last month, the Fed cut benchmark interest rates by a sharp 1.25 percentage points in a bold move to support growth as weakness, which was largely contained in the housing market last year, began to spread.

The series of recent cuts took overnight rates, which stood at 5.25 per cent in early September, down to 3 per cent.

But those rate cuts may fuel inflation, a concern that has been voiced by a growing number of economists and some Fed officials.

‘Despite lowered expectations for economic growth, consensus forecasts of inflation this year continued to creep higher,’ the newsletter said.

Consumer prices, excluding food and energy, are expected to increase 2.3 per cent in 2008 and by 2.2 per cent in 2009, well above the Fed’s 2 per cent comfort ceiling.

New home building activity is expected to drop by 25 per cent from levels seen in 2007.

‘All of our panelists think real residential investment will remain a drag on GDP growth during the first half of this year and 42 per cent of them say it will subtract from GDP growth throughout 2008,’ the newsletter said.

The consensus predicts that sales of both new and existing homes will fall another 14 per cent this year and prices will decline 9.3 per cent.

Even so, the trade sector is expected to remain the bright spot in the economy, as the decline in the value of the US dollar and better growth abroad has fuelled demand for American goods.

 

Source: Reuters (Business Times 11 Feb 08)

New HDB upgrading scheme won’t add much more to resale prices

The Home Improvement Programme will not boost prices of resale flats as much because upgrading is on a smaller scale, say property experts

THE Home Improvement Programme (HIP) is the newest kid on the block in the Housing Board’s two-decade long upgrading scheme.

Property experts, however, say that it will have a far smaller impact on the value of flats compared to previous upgrading plans. This is because upgrading under HIP will be smaller in scale.

HIP and another scheme, the Neighbourhood Renewal Programme (NRP), are devised to stretch the government dollar over many more households and to pay closer attention to residents’ views. They will be rolled out soon in up to 12 locations islandwide, including Yishun and Tampines.

The outgoing Main Upgrading Programme (MUP) involved more extensive work as it overhauled the insides of flats with new toilets, extra rooms and doors, as well as the common areas of the blocks and precincts.

The MUP proved a gold mine for people like Mrs N. L. Chan, who bought her four-room flat in Holland Close for $290,000 in September 2006, when her estate was in the last throes of the upgrading programme.

Just eight months later, she sold it for $330,000 as she had to move closer to her daughter in Dover Crescent.

Such jumps in value may be harder to come by under HIP, say property agents.

The new programme focuses on the essential improvements in the flat, such as the repair of spalling concrete and replacement of waste pipes.

Once at least 75 per cent of flat owners vote for such upgrading, this essential work is compulsory, although it is fully paid for by the Government. The flat owners, however, have the option of having their doors and toilets replaced at a subsidised rate.

Meanwhile, the NRP promises to spruce up a few adjoining sites together, unlike the previous Interim Upgrading Programme Plus scheme which was conducted in one precinct at a time.

Apart from the economies of scale, the bigger budget under the amended programme would make it possible for items such as tennis courts and skating parks to be considered.

About 300,000 flats will be eligible for the HIP, while 200,000 units can undergo work for the NRP.

A third programme – lift upgrading – will run concurrently with the new schemes. This aims to give almost every HDB flat resident direct lift access to his floor by 2014.

The director of Dennis Wee Properties, Mr Chris Koh, estimates that while the MUP usually boosts a flat’s value by $20,000 to $30,000 over and above what the flat owner pays for the upgrading work, the equivalent expected for flats which undergo HIP is only about $10,000.

This is because the work done will be smaller in scale.

While flats which undergo the MUP make a big impression with their additional rooms, new doors and windows, and spanking new precinct facilities around them, the improvements under the HIP may not be that noticeable.

More people, for example, are now likely to opt out of having new doors and windows to reduce their bills under the HIP.

It may not produce the ‘entire fresh look’ needed to raise the value of the home by much, said Mr Koh.

Similarly, the executive director of Roof Real Estate Group, Mr Dave Lau, does not expect the value of a home under the HIP programme to rise by more than 2 to 3 per cent, compared to 10 to 20 per cent under the MUP before.

But he reckoned that ‘the HIP would probably make property easier to sell’.

Both programmes were devised from the feedback received during a series of forums held last year to find out what it takes to strengthen bonding within HDB estates.

During these discussions, participants wanted a greater say in how their estate turned out.

No matter the smaller increase in value, the executive director for HSR property group, Mr Eric Cheng, said that buyers can usually wrangle a better price from sellers if they buy a flat that is undergoing upgrading, compared to after it is done.

Most of the time, sellers try to hold off putting their flat on the market until after upgrading, when the new look of their estate will bolster their position at the negotiating table.

 

Source: The Straits Times 10 Feb 08

Fragrance Group buys $4m Pasir Panjang Road site

DEVELOPER Fragrance Group said on Thursday that it has bought a freehold property at Pasir Panjang Road for $4 million.

Fragrance said the property has a land area of 3,450 sq ft, which means that the land cost was $1,159 per square foot (psf).

The company intends to redevelop the property for commercial uses subject to the necessary conditions and approvals from the relevant authorities, it said. The acquisition is funded by internal funds.

Fragrance said that the transaction is not expected to have any material impact on the earnings and net tangible assets of the company in its 2008 financial year.

Earlier this month, Fragrance reported that net profit for its 2007 financial year more than doubled from $14.8 million to $30.4 million as turnover rose 39.2 per cent to $136.1 million.

The company attributed the increase to its property development business which contributed $112.5 million to revenue. Its hotel business contributed the other $23.6 million.

Fragrance’s shares closed half a cent up on Wednesday at $0.40, the last day of trading before the Chinese New Year break. The stock has climbed 10.5 per cent so far this year.

 

Source: Business Times 9 Feb 08

CentraLand to tap into commercial property market

It says China’s anti-speculative measures won’t hit property prices

CHINESE property developer CentraLand Ltd is poised to tap into the commercial property market in the city of Zhengzhou with its ongoing development of J-Expo, a wholesale commodities building located in the heart of Zhengzhou city.

Yan Tao, executive director and chief executive officer of CentraLand, said in Mandarin that he has been observing the property market for the past 10 years and recognised a demand in the commercial property market which other industry players had failed to meet adequately.

Located at the junction of the main road and rail network in Central China, Zhengzhou city enjoys good traffic and is an important wholesale centre, especially for women’s apparels.

Branding itself as a premium brand property developer, CentraLand specialises in high-end residential and commercial developments.

Mr Yan said that the recent anti-speculative measures of the Chinese government have had minimal impact on his company.

This is because its target consumers are either well-heeled residents in Henan province who pay cash for their residences in developments like Guoling Shanshui in the suburban area of Zhengzhou city or businessmen who buy retail and office units in J-Expo.

These consumer habits are unlikely to change due to the cooling measures.

Mr Yan said: ‘The measures are not meant to bring down the property prices in China.

‘Rather, they are implemented to ensure that property prices continue to rise, albeit in a healthy and progressive way.’

Mr Yan said that the measures are aimed at the ‘bubble’ created due to the phenomenal growth in major cities like Beijing and Shanghai.

Hence, the impact of the measures is not that great on second and third-tier cities like Zhengzhou.

Mr Yan believed that the China property market presents more opportunities than challenges due to the rising affluence of its people.

Referring to a Chinese saying that one shop can support three generations of a family, Mr Yan believed that the typical Chinese businessman would be more than willing to invest in a shopfront as his disposable income increases.

Mr Yan also considered the recent listing on the Singapore Exchange (SGX) as a strategic move in terms of talent management.

His company’s listing in Singapore is expected to increase the appeal of the company to promising talents.

Already, the listing has helped Mr Yan persuade a friend from Carrefour China to join his company.

Mr Yan is confident that with the listing, his company would be able to offer higher salaries to its employees. This should help to retain talent in the company too.

While it had considered Hong Kong, CentraLand decided that SGX was more suitable for its medium-sized operations since there are already many larger players in the Hong Kong market.

Instead of being a medium-sized fish competing with bigger fish in the unexplored seas, the company would rather be in familiar waters.

CentraLand also chose Singapore over other South-east Asian countries based on the recommendation and experience of CentraLand’s other major shareholder, Li Wei, who owns Synear Food Holdings, a Singapore-listed frozen dumpling maker in Zhengzhou city.

Mr Yan believed that with a clear strategy, efficient management team and strong financial background, the company should be able to face the everyday challenges in the property market.

Following the listing on SGX, CentraLand’s operations will continue to concentrate geographically in the city of Zhengzhou in Henan province but the company is consistently on the lookout for opportunities to expand.

CentraLand shares closed 0.5 cents higher on Wednesday at 60.5 cents with 1.1 million shares traded.

 

Source: Business Times 9 Feb 08

China faces economic, political woes on price fears

(CHONGQING, China) China is supposed to be getting richer, but for Liu Gaohua, rising prices on everything from cabbages to houses mean life is only getting tougher.

‘It’s hard to get by day-to-day,’ said the resident of Chongqing, a western Chinese industrial city on the upper reaches of the Yangtze river.

‘We eat less pork than before. Before, we would eat it every day. Now it’s just too expensive. We eat it about every third or fourth day,’ he said.

Mr Liu, who works in the railway industry and is married with a 14-year-old son, is typical of those being squeezed hardest by soaring prices – the lower middle-class urban residents far from China’s wealthier coastal cities.

With consumer prices rising at their fastest rate in 11 years, China’s inflation is not only a sign of economic woes, it has become a political challenge for a leadership worried that any slowdown will erode its support and trigger instability.

President Hu Jintao, Premier Wen Jiabao and their team of economic policy-makers find themselves caught between the goals of their reform programme and their need to step in to moderate prices and ward off the spectre of social unrest that has haunted every generation of China’s Communist rulers.

Inflation figures have been disproportionately affected by rising food costs, especially staples like pork and cooking oil, leading some economists to predict the rises would not last.

But others say that Mr Hu and Mr Wen might be victims of the very success of their programme to build a ‘harmonious society’.

The term has become a catch-phrase referring to a model of more moderate growth that seeks to account for costs previously overlooked, from worker safety to environmental protection. An emphasis on work safety means smaller coal mines are being shut down, a campaign on food and product safety has taken some of the cheaper – and more harmful – pesticides and fertilisers off the shelves and a crackdown on polluters is forcing factories to install better equipment. Wages are also rising as the reservoir of surplus labour begins to be mopped up.

But all of that reflects a broader adjustment in the economy that could mean higher prices will not quickly abate.

‘There’s obviously mounting costs all along the way,’ said Matthew Crabbe, managing director of consumer research group Access Asia.

For some residents, the benefit of those policies that aim to save lives, curb environmental degradation and create a more equitable society, are being obscured by the only immediate consequence they see: the effect on their wallets. Mrs Li, a 52-year-old housewife, complains that she pays about 15 yuan (S$2.96) per half kilo of pork, compared with six yuan a year ago.

It was in a supermarket here in Chongqing that three people were killed in a November supermarket stampede as they scrambled for cut-price cooking oil.

Housing prices in the gritty port city are also soaring.

Mrs Li, who only gave her surname, said that houses in Chongqing were going for around 7,000 yuan per square metre, compared to about 1,200 per square metre a few years ago. ‘We have no means to get by,’ she said.

Her friend, joining her in a game of cards at a chilly temple courtyard tucked away from the city’s bustle, chimed in. ‘Wages are rising but the price of food is going up much faster,’ said the woman, surnamed Tan. ‘Our demands, our wishes, are that the government controls this. They shouldn’t let prices rise too high.’

The government stepped in earlier this month, announcing that it would ‘temporarily intervene’ in the market to prevent excessive price rises, harkening back to China’s planned economy days.

‘Essentially, the government is saying, where possible, and especially if you are a state utility, don’t raise prices and contribute to these worries,’ said Yang Dali, director of Singapore’s East Asian Institute.

In the past few weeks, the Education Ministry has also weighed in with temporary subsidies for student canteens, and Vice-Premier Hui Liangyu called for stricter implementation of farming subsidies and preferential policies for rural workers.

The policy moves play to the image Mr Wen has cultivated for himself as a man of the people. But the strategy, while appeasing the masses, is not without risks.

‘The worry is, if you impose those price controls you may distort the price situation and let deformities increase over time,’ said Singapore’s East Asian Institute’s Yang Dali.

But without controls, the spectre of social unrest looms. Inflation is often cited as a reason the Nationalist government lost the civil war to Communists in 1948-49. Market relaxations in 1988 caused sharp price rises that were seen as contributing to discontent that culminated in the Tiananmen Square demonstrations a year later.

 

Source: Reuters (Business Times 9 Feb 08)

Growth may slow for first time in 3 years

Govt forecasts India’s economy to expand 8.7% as higher interest rates cool consumer demand

(NEW DELHI) India’s government expects economic growth to slow for the first time in three years, as higher interest rates cool consumer demand for homes, motorcycles and electric appliances.

Asia’s third largest economy is forecast to expand 8.7 per cent in the 12 months to March 31, the weakest pace since 2005, the statistics office said in a release in New Delhi on Thursday. Growth was 9.6 per cent last financial year.

The pace of expansion will still be the quickest after China among the world’s major economies. And it may remain so even if the US suffers a recession as India’s growth is being driven by the spending of a middle class of about 50 million people, equal to the combined population of Singapore, Hong Kong, Malaysia and Australia.

‘This is not a collapse,’ said Sonal Varma, a Mumbai-based economist at Lehman Brothers Inc. ‘Growth is slowing because of higher real interest rates. US recession or not, the structural drivers of India’s rising potential growth remain intact.’

The government’s growth estimate beats the central bank’s 8.5 per cent forecast and is almost in line with the average 8.8 per cent annual growth in the previous four years, the best expansion since the country’s independence in 1947.

Finance Minister Palaniappan Chidambaram who said that he was ‘disappointed but not too despondent’, expects the final growth figure to be closer to target.

‘Growth will be closer to 9 per cent than what may appear at this moment,’ Mr Chidambaram told reporters here on Thursday.

Reserve Bank of India governor Yaga Venugopal Reddy has raised interest rates nine times since October 2004 and ordered banks to set aside more money as reserves five times since December 2006 to contain inflation stoked by rapid consumer demand and high oil and food prices. The central bank has also allowed the rupee to strengthen to near a decade-high to make imports cheaper.

Six of nine economists surveyed by Bloomberg News last week said that Mr Reddy will maintain the repurchase rate at 7.75 per cent, the highest in six years, in the next monetary policy statement on April 29, as inflation still does not reflect last year’s 57 per cent increase in crude oil costs.

Inflation, currently at a five-month high of 3.93 per cent, may also accelerate on increased money supply caused by capital flows from overseas investors, seeking higher returns in India, where growth is almost three times that in the US, Europe and Japan. Only China, among economies of more than US$500 billion, grew faster than India, at an 11.2 per cent pace last quarter.

Global investors bought a record US$17.2 billion of shares and US$2.3 billion of bonds in India last year.

Higher interest rates have reduced demand in some segments of the Indian economy. Property prices, for example, have declined. The value of residential flats in Gurgaon, a suburb outside the capital New Delhi, have dropped 40 per cent in the nine months ended Sept 30, according to real estate company Cushman & Wakefield Inc.

India’s manufacturing is expected to expand 9.4 per cent this fiscal year, according to Thursday’s statement.

Agricultural output may grow 2.6 per cent and financial services will advance 11.7 per cent. Bajaj Auto Ltd, India’s second largest motorcycle maker, posted a 7.2 per cent drop in sales in December, its 11th straight month of declines.

‘Rising incomes should support consumption growth,’ Andrea Richter Hume, an International Monetary Fund economist, said in a report on India this week. The IMF expected the South Asian nation to grow at 8 per cent ‘over the next few years’.

India’s middle class, those with annual disposable incomes between US$4,380 and US$21,890, has more than doubled to 50 million in the past decade, according to McKinsey & Co, the New York-based consulting firm. It estimated that this group will further increase tenfold to 583 million people by 2025.

Incomes are rising in India because of a spurt in economic growth after Prime Minister Manmohan Singh started dismantling barriers to foreign investment and other Soviet- style controls on industry when he was finance minister in 1991.

India’s economy has expanded at an average annual pace of 6.3 per cent since 1991, compared with growth of about 3.5 per cent between 1950 and 1980.

That acceleration in growth is attracting companies such as Glitnir Bank, Iceland’s third biggest lender by market value, and McDonald’s Corp to India.

‘We think this is the perfect time for us to come to India,’ said Bala Kamallakharan, executive director at Glitnir, which on Wednesday unveiled an Indian joint venture with the LNJ Bhilwara Group to produce thermal energy.

Glitnir is not alone in trying to tap opportunities in India. McDonald’s, the world’s largest restaurant company, last month said that it will boost its stores in India this year by as much as 30 per cent.

Volvo AB, the world’s second largest truckmaker, plans to create a joint venture with India’s Eicher Motors Ltd to win a larger share of the fourth largest truck market, the Swedish company said in December.

 

Source: Bloomberg (Business Times 9 Feb 08)

ECONOMY WATCH: Asia not immune to global market turbulence: ADB chief

Bank will help region if drastic slowdown occurs, by changing ‘lending priorities’

IN TOKYO

WITH the US economy poised on the brink of possible recession this year, the dangers of economic shocks being transmitted to Asia via trade and financial linkages are very real, Asian Development Bank (ADB) president Haruhiko Kuroda warned yesterday in Tokyo.

Asian economies are ‘not immune to global market turbulence and negative developments’, he told a symposium on regional growth prospects. The ADB stands ready to help the region, should a significant slowdown occur, by changing its ‘lending priorities’, Mr Kuroda told The Business Times after the meeting.

While he expected major Asian economies to continuing growing at relatively robust rates in 2008, certain smaller countries with low growth rates could need help, he indicated.

‘So far, the region’s strong macroeconomic fundamentals have helped mitigate the impact of a US slowdown,’ Mr Kuroda noted in his speech to the ADB seminar. Despite a slowing in US growth to 1.5 per cent this year projected by the International Monetary Fund (IMF), the impact on the emerging countries of Asia should be limited by strong expansion in China and India.

But ‘a significant slowdown in the US economy would most certainly affect the region’s growth performance through trade, investment and financial linkages. With its unparalleled presence in world trade, finance and investment, the US exerts a significant influence on the global business cycle. A deep and prolonged US recession could be accompanied by much slower growth in Asia.’

Nearly 42 per cent of exports from emerging Asian economies still go to the Group of Three (G-3) economies – the US, European Union and Japan – and this figure rises above 60 per cent if that part of trade among Asian countries that eventually ends up in exports to the G-3 is included, Mr Kuroda said. ‘Changing conditions in the world’s major economies are still important to emerging Asian export growth.’

Global financial linkages are also strengthening, Mr Kuroda noted, ‘and emerging Asian stock markets tend to follow the US market closely. As stock markets in the region have grown and become more open to foreign investors, stock prices have become more sensitive to global financial shocks. And Asian economies have become more sensitive to swings in stock prices through the balance sheets of both households and financial institutions.’

Likewise, although the exposure of Asian banks to US sub-prime mortgages and related credit products has so far been small relative to the size of their assets, ’spillovers from US and eventually other G-3 financial markets could be potentially large’, Mr Kuroda suggested. ‘The rapid transmission of financial volatility during the recent market sell-off is a vivid reminder of this region’s vulnerability to disruptions in the global financial system.

‘With the region’s trade, investment and financial linkages to global markets still high, potential spillover from a further tightening in global credit markets and a slowing in the US and other economies do pose a significant risk to the regional economic outlook.’

Asian policymakers need to take steps to bolster confidence in the region’s financial markets, Mr Kuroda suggested. They also need to take measures to increase domestic consumption – especially in China – and elsewhere to step up levels of domestic capital investment, which have flagged since crisis struck emerging Asia 10 years ago, he said.

Climate change will be a major theme of the ADB’s annual meeting in Madrid later this year, and Mr Kuroda urged the creation of a ‘pool of funds to help dampen the financial impact on countries that may be called upon to accommodate large populations displaced by climate change’. No single country ’should have to bear the burden of climate-driven refugees on its own’, he said.

 

Source: Business Times 9 Feb 08

LATEST US DATA: ‘Painful’ and ‘drawn out’ recession likely: report

(NEW YORK) The US economy has entered a recession that will be more painful and drawn out than the usual downturn, the director of the Reuters/University of Michigan consumer sentiment survey said yesterday.

Inflation pressures will linger despite the retrenchment in consumer spending, complicating the task of policy makers, the University’s Richard Curtin said in a report, citing data from industry group The Conference Board.

‘This is no ordinary recession,’ he said. ‘The after-effects will last much longer than the typical downturn.’

He said the Conference Board’s expectations index is a strong predictor of economic contractions, and that it is currently flashing red.

With Americans getting hit with everything from a housing downturn to excess borrowing, things will get worse before they get better.

‘Consumers must take more drastic steps to stabilise their finances in the midst of high fuel and food prices, stagnant incomes, and record debt,’ Mr Curtin said.

The new report adds that a rising wealth gap will, even more than usual, lead to disproportionate pain for middle and lower-income Americans.

‘Growing income inequality has insulated higher income groups to a greater extent than ever before,’ the report said.

Meanwhile, inventories of unsold goods at US wholesalers jumped a larger-than-expected 1.1 per cent in December, while wholesale sales of durable goods posted its biggest drop in more than six years, government data showed yesterday.

 

Source: Reuters (Business Times 9 Feb 08)

Rising cost of going en bloc adds to cooler market

New rules bump up lawyers’ fees, draw out collective sale process by months

GOING en bloc is now a more costly and time-consuming business for home owners because of a new set of stricter rules implemented last October.

The rules – aimed at making the process more regulated and transparent – have bumped up the price of organising a collective sale by about 20 per cent to 30 per cent and drawn out the process by a few months, say property consultants.

Most of the higher cost comes from rising lawyers’ fees, which have doubled or trebled to reflect a similar increase in workload.

According to one industry source, lawyers ‘previously charged maybe $2,000 per household, but now they can charge anything from $3,000 to $6,000′.

Among other things, the new rules now require a lawyer to be present whenever a resident signs a collective sale agreement and to explain the terms of the agreement to each resident during the signing process.

Lawyers may also have to assist the owners in vetting the minutes of sale committee meetings, as well as draft motions for the general meetings, said Ms Tng Peck Chin, the partner in charge of collective sales at law firm WongPartnership.

Another law firm, Rodyk & Davidson, said it has mostly tried to double its fees, although the actual increase varies from estate to estate.

Rodyk partner Lee Liat Yeang said the new rules now double or treble the amount of time lawyers need to put in to get a collective sale going.

‘Also, looking at market conditions, prices are already quite high,’ he said. ‘Lawyers worry that a buyer cannot be found and nothing will materialise from all the effort they had to put in at the initial part.’

In addition to higher lawyers’ fees, owners now need to bear the cost of a valuation report for the estate, previously not a requirement, said Mr Karamjit Singh, the executive director of Credo Real Estate, which specialises in collective sales.

The report can cost between $100 and $300 per owner, depending on the size of the project, he said.

Some marketing agents have also raised their fees. Savills Singapore’s investment director, Mr Steven Ming, said the firm now charges about 15 per cent to 20 per cent more to make up for ‘the extra effort and time’.

Mr Shaun Poh, a senior director of investment advisory services at DTZ Debenham Tie Leung, said while there has been no ‘great jump’ in the fees his firm quotes, there is no longer any room for bargaining.

‘Previously, it was very competitive. We used to make our fee more negotiable,’ he said. ‘Now, if we quote a fee, we will stick to it.’

A big reason is that it takes much longer to get a collective sale going under the new rules.

One rule, for instance, provides for a five-day cooling-off period during which a home owner may still change his mind after he signs a collective sale agreement.

‘Last time, consultants would meet an owner, persuade him of the benefits of going en bloc, and he could just sign the agreement,’ said Savills’ Mr Ming.

‘Now, we have to meet them. After they agree to sign, we have to schedule another time for the lawyer to come down to witness the signing.

‘If it all goes well, that’s good, but if they change their mind later, we may have to go through the whole process a few times.’

In the four months since the rules were changed, not a single estate has gone up for sale under the new system.

And while the property boom last year owed much to an unprecedented collective sale frenzy, the almost silent collective sale market now is similarly contributing to the cooling property sector.

Marketing agents say plans for a sale are under way at several developments, although most are still in the preliminary stages.

 

Source: The Straits Times 9 Feb 08

Investors withdraw £1.7b from UK funds

(LONDON) Almost £1.7 billion (S$4.74 billion) was withdrawn from UK property funds in the last three months of 2007, data from the Association of Real Estate Funds (AREF) showed yesterday.

According to the survey of 64 funds with a combined value of £37 billion, the vast majority of investors continued to flee the sector after Britain’s extended commercial property boom hit the buffers in the summer and £939 million was withdrawn from the funds in the previous quarter.

More than £400 million was also raised by the funds in the fourth quarter.

Some of the respondents to the AREF survey have made it harder or more expensive for investors to exit their funds in recent months in order to shore up liquidity and avoid a firesale of property assets on the open market.

AREF members include authorised property unit trusts (known as APUTs) which are targeted at retail investors such as Legal & General UK Property Trust, M&G Property Portfolio, New Star Property Unit Trust, and the Norwich Property Trust.

 

Source: Reuters (Business Times 7 Feb 08)

CBRE Q4 earnings slide 2.1% on interest expenses

It also cites softer investment sales environment

(NEW YORK) CB Richard Ellis Group Inc, the world’s largest commercial real-estate broker by market value, said fourth-quarter profit fell 2.1 per cent on higher interest expenses.

Net income declined to US$122.4 million from US$125.1 million a year earlier, the Los Angeles-based company said on Tuesday in a statement distributed by Business Wire. Per share net income rose to 54 cents from 53 cents because of a stock buyback. Revenue increased 30 per cent to US$1.84 billion.

‘Our performance was especially strong over the first nine months of 2007 but moderated later in the year,’ Brett White, chief executive officer of CB Richard Ellis, said in the statement. ‘Fourth-quarter results were impacted by the softer investment sales environment brought about by the continuing difficulties in the credit markets.’ The broker paid US$118 million more last year in interest associated with financing its December 2006 acquisition of rival Trammell Crow Co. CB Richard Ellis earns nearly a third of its revenue from commissions on leasing commercial space and another 23 per cent from property management. US office building sales plunged as much as 50 per cent in the quarter on rising borrowing costs, according to New York- based Real Capital Analytics Inc.

CB Richard Ellis’ net income was projected to be 75 cents a share, according to a Bloomberg survey of two analysts. By that measure, the company missed estimates.

The broker reported net income, excluding items, of 63 cents a share, 10 cents less than the average estimate of eight analysts in a Bloomberg survey. That measure doesn’t conform with generally accepted accounting principles.

In the Americas, including the US, Canada and Latin America, CB Richard Ellis reported a 33 per cent increase in revenue to US$1.05 billion. European revenue rose 21 per cent to US$437.6 million and revenue from the Asia-Pacific region climbed 69 per cent to US$198.4 million, the broker said.

The company reported earnings after the close of US stock markets. CB Richard Ellis shares fell US$1.35, or 7.1 per cent, to US$17.75 at 4 pm in New York Stock Exchange composite trading. The stock is down 54 per cent in the past 12 months.

Jones Lang LaSalle Inc, the second-largest commercial real estate broker, last week report a 31 per cent profit gain on rising fees from investment and property management and on European property sales.

Jones Lang’s stock has fared better in the past year than CB Richard Ellis, which earns 65 per cent of its revenue from the Americas, a region where defaults on sub-prime mortgages have raised borrowing costs and made it harder for real estate investors to find lenders. Jones Lang gets about 31 per cent of its sales from clients in the Americas.

CB Richard Ellis has more than 24,000 employees in 300 offices worldwide. The company markets, sells and leases commercial real estate, manages property, appraises sites and manages real estate investments.

 

Source: Bloomberg (Business Times 7 Feb 08)

London luxury-home prices jump again

1.1% rise in average price of units costing £2.5m or more; overall market unchanged

(EDINBURGH) Luxury-home prices in London, the world’s most expensive city for prime real estate, rose at the fastest rate in four months as the overall UK market stagnated, industry reports showed.

The average price of houses and apartments costing at least £2.5 million (S$6.96 million) climbed 1.1 per cent in January from December, Knight Frank LLC said in a statement on Tuesday. There was no change in the average cost of homes across the country, HBOS plc said in a separate report.

‘It is being totally led by the purchase of properties of £10 million or more,’ Liam Bailey, head of residential research at Knight Frank, said in an interview. ‘The number of deals done at that level in the past three months was double a year ago.’

The wealthiest property buyers don’t need to borrow money to make purchases, so they’re not dependent on lenders that have made it more difficult and costly to obtain mortgages, Mr Bailey said.

Britons are now buying between 40 and 50 per cent of all London homes priced at more than £10 million, up from 30 per cent a year ago, according to Knight Frank, a real estate broker based in the city.

London’s most expensive new- built home was sold for £50 million last month to Hourieh Peramaa, a 75-year-old real estate entrepreneur from Kazakhstan, Sunday Times reported on Jan 27.

The house on Bishops Avenue in Hampstead, northwest London, has nine main bedrooms, 16 bathrooms and five reception rooms, and was acquired from Turkish businessman Halis Toprak.

Ms Peramaa plans to spend another £30 million extending and redecorating the property, the newspaper said.

Earlier in January, Lev Leviev, an Israeli diamond billionaire, paid £35 million for a house in the same district as Ms Peramaa, according to Daily Telegraph.

Indian steel entrepreneur Lakshmi Mittal owns the UK’s most expensive home. He paid £57 million in 2004 for a home close to Kensington Palace in central London. Both Kensington Palace Gardens and Bishops Avenue have been dubbed ‘Billionaires Row’.

January’s increase in luxury-home prices was the biggest since September, when prices advanced 1.2 per cent.

For the year ended Jan 31, the gain was 26 per cent, the smallest since October 2006.

Across Britain, prices in January were 4.5 per cent higher than a year earlier, according to HBOS, the country’s largest mortgage provider. Lenders are selling fewer mortgages as they contend with losses stemming from the collapse of the US sub-prime mortgage market.

Properties at the lower end of Knight Frank’s prime index are now moving more in line with the UK market, said Mr Bailey.

Bonus-earners in the UK’s financial industry will invest £2 billion in homes this year, compared with £5.5 billion in 2007, as they look for higher returns, Savills plc said in November. Savills and Knight Frank are the biggest brokers for prime London properties.

This year, top-quality dwellings in the UK capital will appreciate about 3 per cent, Knight Frank said on Tuesday, reiterating an October forecast. The Bank of England’s ability to cut interest rates to ward off an economic slowdown may be hindered by inflationary pressures, said Knight Frank.

‘It is fair to say that the issues of confidence and affordability that have so far dogged the main market may now promote a more cautious purchasing environment in the prime sector too,’ Mr Bailey said.

Britain is home to about 68 billionaires, according to the Sunday Times 2007 Rich List. Many are investors from China, India and Russia who have bought homes in London for its schools, stores, theatres and restaurants.

The most expensive houses can fetch as much as £4,000 a square foot, CB Richard Ellis Hamptons International estimates. That compares with about £2,075 a square foot in New York, the broker said.

Purchasing at such prices so far isn’t being inhibited by the prospect that the UK may impose an annual tax of £30,000 on wealthy individuals who live in the UK and keep their residence elsewhere for tax purposes, said Mr Bailey.

‘There is a lot of interest in deals being done by super-rich foreign buyers,’ he said.

 

Source: Bloomberg (Business Times 7 Feb 08)

 

The markets are leading Asia to ruin

Europe’s successful politically-led integration model is showing Asia the way ahead – if its leaders would only be willing

TOKYO

WHILE Europe goes from strength to strength as a united continent with a strong economy and a currency to match, Asia continues to wander directionless waiting fearfully to see whether it will be spared the fate of sliding with the US into recession. The contrast could not be greater and the coming trials of the global economy may vindicate Europe’s politically-led integration model while damning Asia’s market-led version.

Two events in Tokyo over the past week have highlighted the differences of approach. On the European side, a confident Hans Poettering, president of the European Parliament, came to Japan bearing tidings that the new European Constitution (the Treaty of Lisbon signed last December) is expected to be fully ratified and go into force on Jan 1, 2009.

The Constitution will mark the culmination of a truly remarkable chapter in European history that will see 27 countries representing a market of 500 million people emerge. Not just a ’single market’ with integrated economies and a common currency and monetary system but also with its own effective foreign policy and with credible defence and security systems, as well as its own Parliament and executive branch, of course.

It will be a united Europe stretching from the Mediterranean to the Baltic and from the Atlantic Ocean to the Black Sea – a Europe that embraces countries at many different stages of economic and political development, speaking a multitude of different languages and with myriad cultural traditions. Even some of the smallest ‘transition’ economies such as Slovenia have been able to adopt the euro.

A few days before Mr Poettering brought the good news of Europe’s latest advance to the Foreign Correspondents Club of Japan in Tokyo, I heard Japanese Minister of Economy, Trade and Industry Akira Amari declare proudly that Japan is ready to ‘consider economic partnership agreements with large markets such as the United States and the European Union’ – a rather modest ambition compared to Europe’s achievements If Tokyo does conclude a free trade or economic partnership agreement with the US, there is no doubt that this will draw Japan more closely into America’s sphere of influence, in the economic and perhaps political sense. It remains to be seen then whether any conflict of interest could arise for Tokyo in negotiating an agreement with Brussels. But the real casualty could be any hope of real Asian unity.

Japan’s philosophy, and that of at least some other Asian countries, boils down to this: go where the markets are, and the market knows best.

This applies not only to their pursuit of mega export markets in the US and elsewhere (rather than building an ‘internal’ market as Europe has done so successfully) but also to their own misguided view that the ‘market-led’ model is the best way to achieve greater economic integration among their own economies. This conception is a wrong one, as Mr Poettering implied.

‘If you want to progress with unification, then it must be on the basis of law,’ he said. ‘Without that, you go nowhere. Political decisions should lead to a legal basis.’

In other words, tackle the process of economic and political integration boldly from the top down by political agreements, statutes and institution building, as Europe has done, rather than timidly leaving it all to businessmen, as Asia is doing (with the exception now of Asean).

The usual excuse offered by Asian policymakers for the lamentable lack of progress in knitting together this region into a coherent and strong whole is that it took Europe 50 years to get there – so, have patience. But what is never started is certainly never finished, and there are no signs yet of any comprehensive plan for Asian unity. There are just a lot of competing countries and alliances, dealing with each other and with the outside world.

Another excuse is that Asia is too diverse culturally and ethnically to follow Europe’s example, and that its member countries are at too different stages of economic development to be able to contemplate integration in the foreseeable future.

Europe’s achievement of unity in diversity has given the lie to this claim, and it is always possible for integration to take place at ‘two speeds’ or more, as accession to the euro under the Maastricht Treaty has proved.

If these arguments do not convince Asian leaders that they need to start talking seriously to one another about market and community building, then events that are likely to unfold during the remainder of this year almost certainly will.

The US will slide inexorably into recession, and Japan will be not far behind. China could slow abruptly under the impetus of reduced external demand and internal restraints, and then the rest of Asia will follow. Only then will the need for a true Asian market (and currency) become apparent.

 

Source: Business Times 7 Feb 08

Banks hold key to City office market

Lenders holding off expansion plans as credit mess lingers

(LONDON) The difference between a correction and a major slump in London’s City office market could turn on a few key tenants such as Deutsche Bank and JP Morgan, Knight Frank LLP said on Tuesday.

But record rents were likely to hold up in London’s West End district, the haunt of hedge funds, media companies and tourists, where very low vacancy rates will continue falling, the property services firm said.

Leasing activity across London fell 44 per cent in the last three months of 2007 from the previous quarter as key tenants like banks grew nervous about a global credit crunch and reassessed their City office needs, Knight Frank said at a presentation.

How soon that nervousness evaporates will depend on the state of financial markets, and will determine how much of the UK capital’s growing pipeline of new skyscrapers is absorbed.

‘The issue is all about what has gone from active (demand) to potential (demand), and then what will go from potential back to active, and then hopefully transact,’ John Snow, Knight Frank’s head of central London offices, told Reuters.

Australia’s Macquarie Bank and South African-owned Investec INVP.L are among the firms that have recently put expansion plans on hold, accounting for just over 300,000 square feet of City demand.

More pivotal, though, could be JP Morgan’s 1 million square feet City redevelopment – a deal yet to close – and the 1.5 million square feet of office space that Knight Frank said Deutsche Bank was likely to need in the future.

Deutsche and JP Morgan are among the few major investment banks that have yet to consolidate the bulk of their London operations into a single building, having so far also resisted the lure of a shift further east to Canary Wharf.

A spokeswoman for Deutsche Bank said that its London office requirements were still under review, while a spokesman for JP Morgan declined to comment on its plans for new City headquarters.

Knight Frank said total ‘active demand’ in the City at the end of 2007 was 3.9 million square feet, which included JP Morgan, while ‘potential demand’, which included Deutsche Bank’s projected needs, was another 5.4 million square feet.

Almost 14 million square feet of office space is currently under construction in central London, according to data from Knight Frank. More than 8 million of that is in the City, of which more than three-quarters is classed as ’speculative’ because it is not prelet.

Mr Snow said Knight Frank had adopted a ‘cautious and realistic approach’ in its projections, which saw ‘net effective rents’ in the City easing by £4.5 (S$12.50) to £59 per square foot per year after an extended period of double-digit rental growth.

City office vacancy rates were likely to rise above 10 per cent this year to 2005 levels from 7.9 per cent at the end of last year as new buildings came onstream and banks shed jobs, Knight Frank said.

The Centre for Economics and Business Research has forecast a loss of about 8,000 City jobs by the end of 2008, while data provider Experian puts the number between 10,000 and 20,000.

Knight Frank said the contrast could not be greater with London’s West End, which benefited from a more eclectic mix of tenants and a tighter control of new developments.

It said the core West End districts of Mayfair and St James would likely cement their position as the world’s most expensive office locations, with prime benchmark rents rising by 8 per cent to £118 per square foot per year by end-2009 as the area’s vacancy rate dipped below 4 per cent.

 

Source: Reuters (Business Times 7 Feb 08)

Americans in for worst recession in 20 years?

Recent job and other data show an economic downturn may last longer, too

(WASHINGTON) The chances of the United States avoiding a recession appear to be growing dimmer by the day, and any contraction in the economy will likely last longer and be more severe than other downturns in the past 20 years.

Recent reports have shown the US housing market slump and rising defaults in the mortgage market are now taking their toll on job growth and on the manufacturing and services sector.

But heavy consumer debt, a growing federal budget gap and rising prices could make any recession worse than Americans have experienced over the past two decades.

‘If we do go into recession, it’s going to be more severe and long-lasting than the last one,’ said Jeffrey Frankel, a Harvard professor and member of the private-sector panel that dates US recessions.

The nation’s last two recessions, in 1990-1991 and 2001, each lasted for just eight months.

But the two downturns that ended in 1975 and 1982, when economic conditions bore some similarities to today, each lasted 16 months, making them the longest recessions since the Great Depression of the 1930s, according to the National Bureau of Economic Research (NBER), the accepted arbiter of US recessions.

The US economy entered the recessions of 1975 and 1982 saddled with huge government budget deficits from spending on social programmes and the Vietnam war, and was suffering double-digit consumer price inflation.

Mr Frankel said members of NBER’s business cycle-dating panel have been in contact with each through e-mail messages other over the prospect of a recession , but it would likely take months, or perhaps even more than a year, for the panel to determine whether the economy had turned down.

Even though the latest data showed a loss of jobs in January, and the largest monthly decline on record in an index of service sector activity, Mr Frankel thinks a recession is not yet at hand. ‘My description is that we are teetering on the edge,’ he said.

Some economists warn against counting on government spending and lower interest rates, the tools commonly used to battle recession, because the fiscal deficit is already large and consumer price inflation rose to its highest level in 17 years in 2007.

‘So far, the Federal Reserve has been having a lot of luck,’ said Eugenio Aleman, senior economist at Wells Fargo in Minneapolis, but Mr Aleman thinks inflation will tie the Fed’s hands.

‘But the Federal Reserve will be pushed to increase interest rates and then we are going to go into a true recession, a longer recession than what we are expecting today,’ he said.

The main factor keeping overall inflation high has been soaring energy prices, the single-largest driver of inflation over the past year. Crude oil prices reached a record US$100 a barrel last month.

‘I would be happier to see if we got a real break on oil prices and that’s not happening and that’s a little bit disconcerting,’ said Bernard Baumohl, managing director at The Economic Outlook Group in Princeton Junction, New Jersey.

While the central bank has said it expects inflation to moderate, there are signs lofty energy prices have begun to filter through to prices more widely.

The government said last week that the Fed’s favourite inflation gauge, the core price index for personal spending excluding food and energy, rose 2.2 per cent last year, above the 2 per cent ceiling seen as the top of the ‘comfort zone’ for the index.

At the same time, the government’s budget is moving further from balance. On Monday, President George W Bush released a budget plan that would see the US deficit widen to US$410 billion for the current fiscal year and US $407 billion for fiscal 2009, not far from the record hit in fiscal 2004.

The last time the economy moved into recession, in 2001, there was a budget surplus, providing an opportunity for extra government spending to boost economic growth.

In addition, consumers were not as heavily in debt and credit was more freely available.

Consumer spending represents for roughly two- thirds of total US economic output and for the 2007 year consumer spending grew at the slowest pace since 2003.

‘My biggest concern right now is the consumer. The consumer is highly levered and when the economy faces a credit crunch on in a highly levered scenario, then you have trouble,’ warned Mr Aleman.

 

Source: Reuters (Business Times 7 Feb 08)

US productivity growth seen slowing in Q4

Economists expect data to show a rise of just 0.5%

(NEW YORK) US worker efficiency probably grew in the fourth quarter at the slowest pace in more than a year, pushing up labour costs, economists said before a government report yesterday.

Productivity, a measure of how much an employee produces for each hour of work, rose at an annual 0.5 per cent rate following a 6.3 per cent pace from July through September that was the highest in three years, according to the median estimate of 71 economists in a Bloomberg News survey.

Businesses are trimming staff to stem the slowdown in productivity and to control labour expenses to avoid having to raise prices. Federal Reserve policymakers are counting on a slowdown in inflation to be able to keep cutting interest rates to stave off a recession.

‘The pace of efficiency gains likely slowed substantially in the fourth quarter as economic activity stalled,’ Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said before the report.

The Labor Department’s report was due later in the day in Washington. Estimates in the Bloomberg survey ranged from a drop of 0.6 per cent to a gain of 2.7 per cent.

Labour expenses probably rose at a 3.5 per cent rate in the fourth quarter, after dropping at a 2 per cent pace in the previous three months, according to the survey median. Estimates for labour costs ranged from increases of 1 per cent to 5 per cent.

Productivity gains may be harder to come by as the economy weakens because businesses are usually slow to reduce staff, economists said.

Economic growth slowed to an annual rate of 0.6 per cent in October through December, down from a 4.9 per cent pace in the third quarter, according to government figures last week. A report from the Institute for Supply Management on Tuesday showed that service industries unexpectedly contracted in January at the fastest pace since the 2001 recession.

Still, some businesses have already reacted to the demand slowdown in order to contain costs. Companies added 1,000 workers to payrolls in January, down from 54,000 the previous month, and government agencies reduced staff. The economy lost 17,000 jobs overall, the first decline in more than four years. Hourly wages rose 0.2 per cent last month, less than economists had forecast.

Labour expenses account for about two-thirds of the cost of producing a good or service.

Less growth and fewer price pressures will allow Fed policymakers to keep cutting the benchmark rate, economists said.

Central bankers lowered the benchmark rate by half a percentage point on Jan 30, following an emergency threequarter- point reduction a week earlier. Investors are betting on another half-point cut at or before the next meeting in March, according to futures trading.

Some economists are concerned that the productivity surge that began in 1996 is waning. Efficiency increases have slowed every year since reaching a peak of 4.2 per cent in 2002. Productivity rose just 1 per cent in 2006, the smallest increase since 1995.

 

Source: Bloomberg (Business Times 7 Feb 08)

Lower interest rates for clients with good credit card record

Citibank is latest to offer tier pricing on rates for unsecured credit products

CITIBANK has joined the likes of Standard Chartered Bank (Stanchart) and American Express in introducing a scheme to reward customers with a good credit record with lower interest rates for unsecured credit products.

Under the scheme, known as tier pricing, Citibank will offer from April 1 annual rates of 18 per cent on rollover credit for its most creditworthy clients – below the industry average of 24 per cent.

A Citibank spokesman declined to give more details, but the scheme will apply to Citibank Gold and Platinum cards initially.

Customers are evaluated on a number of factors, including how long a customer has been a cardmember, usage and payment behaviour, the bank said.

If the customer, however, fails to pay at least the minimum sum required by the due date twice or more within six months, then the interest rate could go as high as 27 per cent a year. An account is considered past due if the minimum payment due is not received in full before the payment due date.

This rate will revert to the usual 24 per cent a year once a customer’s account is no longer twice or more past due in the last six months, it said.

‘We want to be able to reward customers who have shown good payment behaviour over a period of time with a promotional lower interest rate,’ said Mr Radha Suvarna, director of portfolio management and cross-sell, Citibank Singapore.

‘The implementation of tiered pricing based on payment behaviour seeks to encourage all customers to adopt good payment practices and be rewarded for it.’

From the standpoint of a consumer, in particular a creditworthy one, using credit cards that offer different interest rates depending on spending behaviour and risk profile, or risk-based pricing in short, can be beneficial.

For one, a customer could save on interest charges.

Take Citibank’s rates, for example. Your credit statement shows that you owe the bank $5,000 and you decide to pay off $1,000.

The prevailing annual interest rate of 24 per cent will see you being charged 2 per cent a month on the $4,000 outstanding balance. This works out to $80 in interest.

Now, suppose you are a customer who pays your bills diligently. With these changes, you will save money as you could possibly enjoy interest rates of 18 per cent a year, or 1.5 per cent a month.

This would work out to just $60 in interest instead.

In other words, you could save $20 as a result of this tier pricing system that, according to one banker, is already ‘the norm’ in countries like the United States.

Some bankers say the industry will move their unsecured credit products, such as credit cards, towards such a system in the near future, as ‘tiered interest rates’ catch on among customers.

‘It’s the next level of competition,’ said Mr Kartik Taneja, Stanchart’s head of credit cards.

‘We’ve had competition on fees, and that has pretty much wiped out annual fees. Nowadays, you can hardly find any card that charges an annual fee.

‘Typically, if you look at the evolution of the industry, once you stop competing on fees, then you start on the interest side.’

When contacted, the likes of DBS Group Holdings and OCBC Bank said they had no plans currently to introduce risk-based pricing on unsecured credit products.

According to OCBC’s head of group marketing services and unsecured lending, Mr Andy Chan, their customers want a ‘choice of financial tools to help them rationalise and consolidate their borrowings’. He also said the bank recognised that their customers have ‘different credit needs and payment habits’.

 

Source: The Straits Times 7 Feb 08

Slump in services sector signals arrival of US recession

Shockingly weak services data could be final proof of economy shrinking

ANY hope that the United States economy might escape a recession has now all but disappeared, say analysts.

The last straw came when the country’s huge services sector – covering industries such as banking, retail and construction – shrank last month for the first time in five years.

The shockingly weak data released on Tuesday is just about the final proof that the world’s biggest economy started contracting last month, said economists in the US.

Indeed, the surprise slump in the Institute of Supply Management’s (ISM’s) index of non-factory activity led one top analyst to say the looming slowdown may be worse than 2001’s dot.com bust.

For Singapore, economists in the Republic said momentum in Asia will help keep the local economy in positive territory, though some added that a slew of bad US news may prompt the Government to trim its growth forecast for the year.

‘Not only is the economy in a downturn, the abruptness and depth of the decline seen in this report…adds to our concern we are facing a much deeper downturn than we saw in 2001,’ Merrill Lynch economist David Rosenberg wrote in a note to clients.

Mr Rosenberg cited other signals – the collapse in car sales and unprecedented credit tightening conditions – for his bearish prognosis.

The January ISM reading for services fell from 54.4 to 41.9, under the 50-point threshold, indicating a contraction. This was far below market expectations of 53 and was the lowest reading since October 2001.

The dismal data followed another bleak statistic last Friday when the US government reported the economy lost 17,000 jobs last month, the first dip since 2003.

‘This is an indication for the first time that the bulk of the economy is contracting,’ MFR economist Joshua Shapiro told the New York Times. ‘It is sending people into recession panic mode.’

Wells Fargo economist Scott Anderson said: ‘The number’s so terrible it’s almost beyond belief, especially among the optimists.

‘I think the writing’s on the wall. More and more economists are talking about recession and whether it’ll be a severe or mild one.’

A recession is typically defined as two straight quarters of economic shrinkage in quarter-on-quarter terms.

With all indications that a recession is all but certain, economists said the Federal Reserve may spring another surprise cut on benchmark interest rates, possibly by half a percentage point.

‘This keeps the Fed in aggressive rate-cutting mode with a strong chance of an inter-meeting move possible before the March 18 meeting,’ said Merrill economists.

Disappointing data from Europe on Tuesday also signalled that the US slowdown is spreading out, increasing pressure for the European Central Bank to follow the Fed and cut rates, reported Bloomberg News.

Economists in Singapore said with the US slowdown seemingly more severe, US consumers may start to feel the pinch soon and reduce purchases of goods made in the Republic.

OCBC Bank economist Selena Ling said US consumers are being hit by falling home values, rising difficulty in getting credit, a weaker jobs market and tanking bourses.

But CIMB-GK’s Mr Song Seng Wun said it is still too early to be sure how US consumers will adjust spending patterns. ‘It’s still a close call. I wouldn’t get too concerned.’

Action Economics’ Mr David Cohen said momentum from Asia’s fast-growing economies will provide a buffer.

Also, expected monetary easing from the Fed should provide some support.

‘It’s still likely Singapore will show continued growth. Maybe we’ll be at the lower end of the Government’s range, but still positive growth in 2008,’ he said.

Still, Ms Ling reckons that the fast-deteriorating outlook for the US in the past month may prompt the Government to review its forecast of 4.5 to 6.5 per cent growth this year.

‘They may bring it down to 4 to 6 per cent, or at least give an indication that it’ll be at the bottom of their current range.’

 

Source: The Straits Times 7 Feb 08

Indian property trust poised to launch $1.7b IPO in S’pore

INDIA’S fourth-largest realty company by market value is going ahead with its plan to launch a potentially huge initial public offering (IPO) for its Indiabulls Properties Investment Trust in Singapore.

Reports in India suggest that the IPO by Indiabulls Real Estate Ltd could be worth a whopping US$1.2 billion (S$1.7 billion), which would make it the biggest IPO in the Republic in years.

Thai Beverage, the brewer of Chang beer, which raised $1.37 billion in 2006, was the largest IPO in the Republic since SingTel’s in 1993.

The Indiabulls real estate investment trust (Reit) would own property in the booming commercial centre Mumbai.

The company said on Tuesday that the Singapore Exchange (SGX) has granted its property trust an ‘eligibility to list’ status for the mainboard.

India’s developers are keen to expand via a Singapore listing into the Reits business, which is not yet allowed in their home country.

Indiabulls’ plan comes not long after India’s largest and second-biggest property developers – DLF and Unitech – announced plans for Reits in Singapore. The former is reportedly planning an even bigger US$1.5 billion IPO.

Those numbers would probably make them the largest IPOs since SingTel made its debut back in 1993, raising $4 billion. Still, there were earlier concerns that the Indian listings may be delayed due to the fallout from the United States sub-prime crisis.

A report in India’s The Business Standard newspaper quoted Indiabulls Group president for corporate affairs Ajith Mittal as saying that the IPO would hit the market by the middle of next month, and that market sources expect Indiabulls to make a total offer of nearly US$1.2 billion.

The trust will acquire One Indiabulls Centre in Mumbai and Elphinstone Mills, which are developed and owned by Indiabulls Properties and Indiabulls Real Estate Co, respectively. The two properties are held by Indiabulls Real Estate Ltd through investments in those two latter firms.

Indiabulls Real Estate Ltd will offload a 14 per cent stake in the two projects – out of a 40 per cent stake – via the IPO and mop up nearly US$250 million, said the report. The two properties are valued at over US$2.2 billion.

‘We are planning to lodge the final documents two weeks from now and hit the market in March,’ said Mr Mittal in the report. ‘The total offering will depend on the call taken by other investors and market volatility.’

The report said US hedge fund Farallon Capital and Dev Property Developer are 60 per cent stakeholders in the two projects. The latter is listed on the London Stock Exchange’s Alternative Investment Market.

One Indiabulls Centre in the Parel area of Mumbai has 1.5 million sq ft of commercial space and half a million sq ft of retail space. It is part of the emerging new business centre of Central Mumbai.

Elphinstone Mill is being built in Lower Parel and will have 1.5 million sq ft of leasable office space, according to the Indiabulls website.

According to estimates, Indian real estate developers may raise nearly $20 billion from the SGX in the next two years, said the report.

 

Source: The Straits Times 7 Feb 08

What is scary about latest economic data?

The Institute of Supply Management (ISM) issues a monthly index of activity in the non-manufacturing or services sector in the United States by surveying purchasing managers around the country.

The ISM is a US-based industry association.

The ISM survey on the services sector is a closely-followed gauge of a wide swathe of the US economy – from hotels and restaurants to banks and insurance companies, telecommunications firms and retailers.

The index for January, released on Tuesday, showed that a sharp contraction is under way in businesses that represent almost 90 per cent of the US economy.

The drop in the index was sharp and shocking. It plunged to 41.9 last month from 54.4 in December.

‘This is an absolute collapse of the index,’ Mr Nigel Gault, the chief US economist at Global Insight, told the Associated Press.

Economists had been expecting a modest fall to 53. A number above 50 shows an expansion, while a number below 50 indicates a contraction.

The figures show that the US economy’s one silver lining is now in trouble.

The massive services sector had been propping up the US economy when its other legs – the housing and manufacturing sectors – have already weakened.

The ISM figure is also the lowest since October 2001, when the US economy was in a recession, and was the first time in five years that the services sector shrank.

• Particularly worrisome, economists said, is that the elements of the survey that forecast future activity – new orders and jobs – are among those that dropped the most, signalling more trouble ahead.

  New orders fell to 43.5, while employment fell to 43.9.

• The ISM report was also the US economy’s second shock surprise in a week. Last Friday, the US government reported that the country lost 17,000 jobs, the first fall in employment since August 2003.

Source: The Straits Times 6 Feb 08

NEWS ANALYSIS: US slowdown likely to be worse than recent ones

WASHINGTON – THE chances of the United States avoiding a recession appear to be growing dimmer by the day, and any contraction in the economy will likely last longer and be more severe than other downturns in the past 20 years.

Recent reports have shown the US housing market slump and rising defaults in the mortgage market are now taking their toll on job growth and on the manufacturing and services sectors, reported Reuters.

Heavy consumer debt, a growing federal budget gap and rising prices, however, could make any recession worse than Americans have experienced over the past two decades.

‘If we do go into a recession, it’s going to be more severe and long-lasting than the last one,’ said Harvard Professor Jeffrey Frankel, a member of the private sector panel that dates US recessions.

The nation’s last two recessions – in 1990-1991 and 2001 – each lasted for just eight months.

But the two downturns that ended in 1975 and 1982, when economic conditions bore some similarities to today, each lasted 16 months, making them the longest recessions since the Great Depression of the 1930s, according to the National Bureau of Economic Research (NBER), the accepted arbiter of US recessions.

The US economy entered the recessions of 1975 and 1982 saddled with huge government budget deficits from spending on social programmes and the Vietnam war, and was suffering double-digit consumer price inflation.

Prof Frankel said members of NBER’s business-cycle dating panel had been in contact with each other over the prospect of a recession through e-mails, but it would likely take months, or perhaps even more than a year, for the panel to determine whether the economy had turned down.

Even though the latest data showed a loss of jobs last month and the largest monthly decline on record in an index of service-sector activity, Prof Frankel thinks a recession is not yet at hand. ‘My description is that we are teetering on the edge,’ he said.

Some economists warn against counting on government spending and lower interest rates, the tools commonly used to battle recession, because the fiscal deficit is already large and consumer price inflation rose to its highest level in 17 years last year.

‘So far, the Federal Reserve has been having a lot of luck,’ said Mr Eugenio Aleman, a senior economist at Wells Fargo in Minneapolis, but he thinks inflation will tie the Fed’s hands.

‘But the Federal Reserve will be pushed to increase interest rates, and then we are going to go into a true recession, a longer recession than what we are expecting today,’ he said.

The main factor keeping overall inflation high has been soaring energy prices, the largest single driver of inflation over the past year. Crude oil prices reached a record US$100 a barrel last month.

‘I would be happier to see if we got a real break on oil prices. That’s not happening, and that’s a little bit disconcerting,’ said Mr Bernard Baumohl, the managing director at The Economic Outlook Group in Princeton Junction, New Jersey.

While the central bank has said it expects inflation to moderate, there are signs lofty energy prices have begun to filter through to prices more widely.

The government said last week that the Fed’s favourite inflation gauge – the core price index for personal spending, excluding food and energy – rose 2.2 per cent last year, above the 2 per cent ceiling seen as the top of the ‘comfort zone’ for the index.

At the same time, the government’s budget is moving further from balance. On Monday, President George W.

Bush released a budget plan that would see the US deficit widen to US$410 billion (S$579.9 billion) for the current fiscal year and US$407 billion for fiscal 2009, not far from the record hit in fiscal 2004.

The last time the US economy moved into a recession, in 2001, there was a budget surplus, providing an opportunity for extra government spending to boost economic growth.

In addition, consumers were not as heavily in debt and credit was more freely available.

Consumer spending represents roughly two-thirds of total US economic output, and consumer spending grew at the slowest pace last year since 2003.

‘My biggest concern right now is the consumer. The consumer is highly levered and when the economy faces a credit crunch on in a highly-levered scenario, then you have trouble,’ warned Wells Fargo’s Mr Aleman.

The job market could take the biggest hit. According to the Centre for Economic and Policy Research, up to 5.8 million additional workers in the US could join the ranks of the unemployed by 2011, if the economy were to fall into a severe recession.

The report, according to the Seattle Times, comes on the heels of the government’s news on Friday that US employers are already cutting back on hiring. Last month marks the first monthly contraction in non-farm payrolls in four years – data that may be the smoking gun showing that the economy has entered a recession.

 

Source: The Straits Times 6 Feb 08

CDL luxury development garners green award

CITY Developments Limited (CDL) was yesterday conferred the Green Mark Platinum award by the Building and Construction Authority (BCA) for its luxury residential development, Cliveden at Grange.

The award is for exemplary green projects that achieve 30 per cent energy and water savings. Such projects also need to have environmentally sustainable building practices, and innovative green features.

A joint press statement from CDL and BCA said some 3.5 per cent of Cliveden’s construction cost was invested in the design of its green features.

These green features include the installation of ‘4 Green Ticks’, the highest rating in energy efficiency for air-conditioners and refrigerators, and the use of renewal energy technology. Solar photovoltaic cells are installed to harness solar energy which then power up the lighting in the guardhouse and clubhouse areas.

Cliveden’s green features are expected to achieve savings in energy costs of over $400,000 a year for the entire development, and cut carbon dioxide emission by 1,100 tonnes a year. As a gauge, it takes about 5,000 trees to absorb this amount of carbon emission.

Cliveden’s award is the latest in a string of accolades CDL has received for its environmentally friendly projects.

Just last year, the property developer clinched two Green Mark Platinum awards – one each for The Oceanfront @ Sentosa Cove (residential), and City Square Mall (commercial).

Kwek Leng Joo, CDL’s managing director, yesterday said CDL embarked on its green journey over a decade ago believing that it could make a positive contribution towards the environment. He called for the Green Mark to be made mandatory to help propel Singapore to become an eco-hub in the region.

 

Source: Business Times 6 Feb 08

Germans remain bullish about S’pore

Business community upbeat on growth prospects: survey

THE German business community remains bullish about Singapore as a regional business hub, a survey published yesterday shows.

The survey of businesses varying from small operations to multinationals was conducted by Droege & Comp in December, for the Singaporean-German Chamber of Industry and Commerce.

The companies were asked about growth prospects and about what they saw as the challenges ahead.

Findings show that all participating companies here strongly confirm Singapore’s position as the undisputed hub for Asean markets, affirming that Singapore would be the cornerstone of their future Asia strategy. The republic will continue to attract foreign direct investments from German companies.

Respondents attributed their positive attitude to the competitive advantages of the ‘Singapore package’ of excellent infrastructure, socio-political stability, efficient logistics hub and protection for intellectual property rights, which outweighed the rising costs of doing business here.

There were also several less promising findings. One hot topic was that despite Singapore’s push for R&D, most German companies were reluctant to shift R&D capabilities here.

In addition, some medical and healthcare companies were seriously considering neighbouring countries as alternative locations for further investments, particularly Malaysia.

A grouse of all the companies is that despite viewing themselves as attractive employers, they are finding it difficult to recruit and retain skilled personnel.

But even so, a majority of the companies still planned to hire more local people and cut back on their expatriate staff. Calling Singapore the gateway to Asean, Alexander Melchers, vice-president of the chamber, said that Germany is an important trading partner, with bilateral trade valued at more than $20 billion last year. There are 5,600 German people working in Singapore.

Mr Melchers added that Singapore could look forward to better business relations with German companies, especially in the area of environmental engineering and technology such as the clean energy sector where the interests of both countries are ‘perfectly matched’.

 

Source: Business Times 6 Feb 08

Americans preoccupied with fears of recession

Financial institutions in Wall Street remain very apprehensive about the many ‘unknowns’

WASHINGTON

INVESTORS in Wall Street were biting their nails early last week as they waited for US Federal Reserve chairman Ben Bernanke and his colleagues to decide whether to slash short-term interest rates for the second time in eight days. But with much of the focus of official Washington centering on heated Democratic and Republicans races for the presidential nomination, not many officials and lawmakers were paying much attention to the deliberations that were taking place among the US central bank’s policymakers on Tuesday and Wednesday.

Indeed, when the Fed announced late on Wednesday that it was lowering its benchmark interest rate by half a percentage point, the news didn’t receive as much play on the 24/7 television news programmes as did the decision by former New York mayor Rudolph Giuliani to withdraw from the Republican presidential race and to endorse his former rival, Senator John McCain who was portrayed now as the Republican ‘front-runner’.

But this perceived divergence between Washington and Wall Street was quite misleading. In fact, the majority of American voters are more and more anxious over the dramatic downturn in the American economy – falling home values, credit crunch, rising unemployment, a weakening dollar, rising costs (inflation?) in the energy and food sectors.

And the presidential election campaign is more and more dominated by economic policy issues. Those who are running for the presidency recognise that the policies embraced by the Fed could have major impact not only on the American economy but also on American politics.

Hence, several political scientists and economists have already developed complex models to forecast the presidential elections based on the changing economic conditions that could figure out, for example, that the chances of a Democratic presidential candidate grow by X per cent if economic growth falls Y per cent.

And observers are starting to criticise Mr Bernanke and the Fed, describing their response to the anxiety in the financial markets as excessive or inadequate or as too little or too late.

There has been a suggestion that the Fed ‘panicked’ when it cut the rate by three quarters of a percentage point two weeks ago. Some pundits are warning that the next White House occupant may not reappoint Mr Bernanke when his first term ends in 2010.

No doubt, politicians in Washington will use Mr Bernanke as a scapegoat if America will find itself in a painful and long economic recession this year, in the same way that his processor, Alan Greenspan, was treated as a superstar when the economy was on a roll. But as economist Alan Reynolds of the Cato Institute pointed out, the US recession that began in July 1990 and ended in March 1991, ‘Fed funds rate did not get as low as it is today until 16 months after the recession had ended (which really was too late)’.

Similarly, in the recession that began in July 2001, the Fed Funds rate remained above 5 per cent until April and did not get down to 3.5 per cent until late August.

From this perspective, Mr Bernanke’s Fed is actually quicker in its response than Mr Greenspan’s Fed. The question is whether the response will also be effective in terms of making the economic downturn shorter and milder.

And in any case, against the backdrop of bad economic news, pointing to a major economic slowdown, including a report showing the economy growing at its slowest rate in five years, soaring foreclosure filings, up 75 per cent last year, and sales of new homes dropping to their lowest level in 12 years in December, Mr Bernanke and his colleagues probably felt enormous pressure to take bold action in the form of an extraordinary amount of easing in a very short period.

The statement issued by the Fed made it clear the policymakers in the central bank were clearly concerned about the economy – pointing to stress in the financial markets, tightening credit conditions for businesses and consumers, a softening labour market, and falling homes prices – and that they were ready to inoculate it as a way of preventing a recession.

The message coming out of the Fed was that downside risks require more interest rate cuts, perhaps in the rest of this year. Most analysts expect the federal funds rate will fall by at least 0.75 per cent more before the year ends.

The Fed’s decision to cut rates raises not only economic issues but creates a political dilemma for Mr Bernanke.

The previous week’s stunning rate cut, which followed the fall in the European markets and the Asian markets, plays into the hands of critics who bash the Fed for paying too much attention to the concerns of investors in Wall Street.

But a refusal to take action, which is bound to create more volatility in the financial markets and will put added pressure on the weak economy and end up igniting other criticism: that Mr Bernanke is too much of a spacey academic who is not ’street-smart’ in terms of what’s happening in the real financial world.

The Fed insists that its response is based on the recognition that a crisis in the stock market could have a devastating effect on the economy. And it hopes that the combination of the Fed moving so dramatically and the president and the Congress embracing a fiscal stimulus package will give a bit of confidence to investors and consumers that the managers of the economy in Washington are in control of the situation.

With the Fed’s key rate now at 3 per cent, it still has enough ammunition in reserve to use if the economy continues to deteriorate. And they certainly could. The financial institutions in Wall Street remain very apprehensive about the many ‘unknowns’ that could result from the housing crisis and the credit problems.

The Fed and the rest of the officials and lawmakers in Washington, as well as the presidential candidates, seem to be entering into an unknown economic territory that could also determine who will occupy the White House next year.

 

Source: Business Times 6 Feb 08

It’s still the economy – but presidents can’t control it

AS THE US economy weakens and the campaign intensifies, Americans will hear more of liberal writer James Carville’s familiar refrain: It’s the economy, stupid.

Well, it ain’t or, at least, shouldn’t be. I’m not claiming that Mr Carville is wrong about voting. People vote their pocketbooks. In the latest Washington Post-ABC News poll, the economy overshadows Iraq as the most important issue by a 39 per cent to 19 per cent margin. What I’m saying is that this sort of voting is short-sighted. It rewards or punishes candidates for something beyond their power.

America has a US$14 trillion economy. The idea that presidents can control it lies between an exaggeration and an illusion. Our presidential preferences ought to reflect judgments about candidates’ character, values, competence, and their views on issues where what they think counts: foreign policy; long-term economic and social policy – how they would tax and spend; healthcare; immigration. Forget the business cycle.

True, presidents try to manipulate it. In 1971, President Nixon imposed wage and price controls in part to prevent inflation from jeopardising his re-election. The economy boomed in 1972. But the controls were a time-delayed disaster. When they were removed, inflation exploded to 12 per cent in 1974. In 1980, the Carter administration adopted credit controls to squelch raging inflation. The result was a short recession – a complete surprise – that probably sealed Mr Carter’s defeat in November.

History’s long view teaches the same lesson. No president tried harder, with good reason, to influence the business cycle than Franklin Roosevelt. When he took office in 1933, unemployment was roughly 25 per cent. By executive order and congressional legislation, FDR effectively abandoned the gold standard, adopted deposit insurance, tried to prop up falling farm and factory prices, rescued many defaulting homeowners, regulated the stock market and embarked on massive public works.

With what result? Well, leaving the gold standard aided recovery. But some economic research suggests that other New Deal measures may have frustrated revival. In any case, all of them together didn’t end the Great Depression. World War II did that. In 1939, unemployment was still 17 per cent.

No matter. When the economy is good, presidents claim credit; when it’s not, their opponents blame them.

Political phrase-making compounds the error by personalising the process. Hence, ‘Reaganomics’ and ‘Clintonomics’. Among Republicans and Democrats alike, there is much myth-making.

To his worshippers, Ronald Reagan’s great economic achievements were tax cuts and spending restraint.

Not so. Mr Reagan’s singular feat was supporting Paul Volcker’s Federal Reserve in suppressing doubledigit inflation, which had destabilised the economy (four recessions between 1969 and 1982). From 1980 to 1983, inflation dropped from 13 per cent to 4 per cent. This set the stage for the long expansions of both the 1980s and 1990s. Mr Reagan’s cut in tax rates probably helped slightly, but the overall tax burden wasn’t much reduced.

Bill Clinton had little to do with the causes of the 1990s’ economic expansion: low inflation, low oil prices, a computer and Internet boom, a stockmarket boom. The claim made for Clintonomics is that paring the federal budget deficit in 1993 provided the essential catalyst by reducing interest rates. But long-term rates in 1994 were actually higher than in 1993. Many forces affect rates aside from the budget deficit: inflation and inflationary expectations, saving behaviour, Federal Reserve policy, overall credit demand. Mr Clinton’s contribution was self-restraint. Unlike Mr Nixon and Mr Carter, he didn’t meddle with the Fed. He was a ‘conservative’ in a pragmatic way.

Of course, presidents do affect the economy. But their greatest influence often occurs after they’ve left office. FDR’s enduring legacy was Social Security; Mr Reagan’s was low inflation. Some policies that are initially popular turn out to be calamitous. Under John Kennedy and Lyndon Johnson, the government followed highly expansionary policies to reduce unemployment. Initially popular, they ultimately spawned high inflation.

Sensible voters should look beyond the cheery or dreary economy of the moment. They should recognise that, if presidents could control the business cycle, recessions would never occur, there would always be ‘full employment’ and inflation would remain forever tame. Instead of judging prospective presidents on what they can’t do, voters ought to concentrate on what they can do. There are plenty of real differences among the remaining candidates. But Mr Carville is probably right. For many, it will be the economy; and it will be stupid.

 

Source: The Washington Post Writers Group (Business Times 6 Feb 08)

US banks raise standards on commercial property loans: Fed

(NEW YORK) The Federal Reserve said it became tougher for US companies and consumers to get loans in the past three months, particularly to buy real estate.

Most lenders anticipate more delinquencies and losses this year, assuming ‘economic activity progresses in line with consensus forecasts’, according to the central bank’s quarterly survey of senior loan officers released today in Washington.

The survey, conducted last month through Jan 17, was available to Fed policy makers last week and may help explain the central bank’s fastest easing of monetary policy since 1990. Chairman Ben S Bernanke and his colleagues lowered their benchmark rate by 1.25 percentage points last month, aiming to revive lending and spending, averting a recession.

About 80 per cent of banks raised standards on commercial property loans, a record, while a majority tightened terms on prime home mortgages.

Mr Bernanke warned in a Jan 10 speech that there was ‘considerable evidence that banks have become more restrictive in their lending to firms and households’.

‘Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,’ the Federal Open Market Committee said in its Jan 30 statement.

The survey covered 56 domestic banks and 23 foreign institutions. The 56 banks together have $5.95 trillion in assets, representing about 54 per cent of the country’s US$11.1 trillion total for all domestically chartered, federally insured commercial banks.

Investors anticipate the Fed will lower its benchmark rate by a further half-point by the March 18 meeting, according to futures contracts quoted on the Chicago Board of Trade. The central bank has lowered the federal funds rate to 3 per cent from 5.25 per cent since September.

About one-third of US banks said they increased their standards on commercial and industrial loans, while two-fifths said they widened spreads of interest rates over their cost of funds. Both responses represented an increase from the October.

In commercial real estate, the proportion of banks tightening terms was the highest since the Fed began seeking information on the subject in 1990. About 45 per cent, on net, of both US and foreign institutions said demand for such loans weakened in the past three months.

Many banks became stricter because of a ‘less favourable economic outlook’, and a ‘large fraction’ of US banks reported a ‘reduced tolerance for risk’, the Fed said. Examples of credit standards in commercial real estate include the maximum loan size and maturity and loan-to-value ratios, the Fed said. ‘The tightening there looks pretty significant,’ said Michael Feroli, an economist at JPMorgan Chase & Co in New York.

‘That sector is going to be challenged quite a bit this year.’

For home loans, about 55 per cent of US banks toughened terms for prime mortgages, up from 40 per cent in October, while 85 per cent of respondents made it tougher to get non-traditional loans, up from 60 per cent, the survey said. A majority of US respondents said demand worsened for prime, non-traditional and sub-prime mortgages.

 

Source: Bloomberg (Business Times 6 Feb 08)

US services sector suffers record slide in Jan

ISM index slid to 41.9 in Jan from 54.4 in Dec, stoking recession fears

(NEW YORK) The US services sector retrenched sharply in January to levels not seen since the 2001 recession, renewing fears about an economic slump, according to a survey released on yesterday.

The Institute for Supply Management’s index of non-manufacturing plummeted to 41.9 from 54.4 in December, its largest monthly decline on record and a far greater drop than Wall Street expected.

US stocks tumbled yesterday, led by a sell-off among shares of financial companies, on the ISM report. The S&P 500 index at one point fell more than 2 per cent. The Dow Jones Industrial Average was down more than 200 points in early trade. The Standard & Poor’s 500 Index was down 22.15 points, or 1.6 per cent, at 1,358.67. The Nasdaq Composite Index was down 33.63 points, or 1.41 per cent, at 2,349.22.

The ISM number ‘does bring in a heightened concern about the economy, and it adds further pressures to stock prices’, said Steve Goldman, market strategist at Weeden & Co.

A Reuters poll of economists had produced a median expectation of a slip to 53.0. ‘The recession has indeed arrived,’ said Jane Caron, chief economic strategist at Dwight Asset Management in Burlington, Vermont.

A reading below 50 indicates contraction, and bond prices jumped as the figures reinforced investors’ conviction that the US economy is already in recession.

The employment index fell to 43.9 from 51.8, corroborating last week’s dire US payrolls report, which showed the first net monthly contraction in the labour market in more than four years.

Weakness was evident across the board. A measure of new orders fell to 43.5 from 53.9. ‘It’s another recession marker on the radar screen,’ said Cary Leahy, economist at Decision Economics in New York.

Analysts said the gloom surrounding the services report justified the Federal Reserve’s recent steep interest rate cuts. The Fed slashed rates by 1.25 percentage points in the past two weeks, a rare strong dose of stimulus over such a short period.

A downturn that began in the US housing sector about two years ago has spread to banks, which made many loans to sketchy borrowers and are now grappling with rising mortgage defaults.

 

Source: Reuters (Business Times 6 Feb 08)

More colonial bungalows up for rent

Demand for these state-owned buildings is strong due to relatively low rentals

ANYONE with a hankering for a home with lots of nature and space, and does not mind living some distance from town might want to take note.

The Singapore Land Authority (SLA) will be leasing out four of these colonial bungalows this month, along with two semi-detached houses.

The properties are in Maida Vale and Brompton Road in Seletar, Gibraltar Crescent in Sembawang and Lornie Road near Bukit Timah.

This comes on the heels of a sizzling response to five similar properties the SLA put on the bidding block last month. They drew 75 bids in all and were rented out for about double the guide rents.

All these form part of the SLA’s stock of 2,360 black-and-white homes – properties ranging from apartments to bungalows dating back to the 1930s and are inherited from British colonial days.

Demand for these state-owned buildings has traditionally been very strong, partly because of relatively low asking rentals.

Monthly guide rents for the latest batch of homes, for example, start at $1,800 for a 1,367 sq ft semidetached house in Brompton Road. They go up to $6,600 for a Gibraltar Crescent bungalow with 7,212 sq ft of built-up area and 16,145 sq ft of land.

Mr Ku Swee Yong, director of business development and marketing at Savills Singapore, thinks the homes can fetch even more.

‘These guide rents are extremely attractive. Normally, you would be able to get at least double the price, if the properties are in good condition,’ he said.

Last month, the SLA rented out three apartments in Clemenceau Avenue North at between $1,856 and $2,500 – double their guide rents of $960 to $1,110. Two more bungalows in Alexandra Road and Dover were let for $20,258 and $15,100, also about twice the guidance.

The guide rents are decided by the SLA’s valuers, who take into account the property’s last rental, location, condition and whether it comes with a swimming pool, air conditioning and furnishings.

All the properties are in move-in condition and are regularly maintained by SLA-appointed managing agents.

The homes, which come either unfurnished or partially furnished, are located in areas such as Sembawang, Alexandra Park, Adams Park, Telok Blangah, Bukit Timah and Woodleigh Park.

The SLA will put another eight properties up for rent next month, including in Bukit Timah and Newton.

Another 11 are in the pipeline between April and June.

Monthly rents range from $400 for a small apartment to more than $20,000 for a black-and-white bungalow.

About 91 per cent of the homes are currently occupied, a rise of about 6 per cent over a few months ago.

Most are let for two years, although tenants are normally allowed to renew their leases when they lapse.

Deirdre Dempster, for instance, is planning to extend her lease at a black-and-white bungalow at Goodwood Hill when it runs out in August. The 40-year-old, who is in marketing, has been living there for four years with her banker husband and two kids.

‘I love it. I wouldn’t trade this house for anything,’ she said. ‘What attracted me was the area and the grounds, and there’s a lot of character and history attached to these properties. I hope they don’t tear them down.’

Interested tenants can bid for this month’s properties via the SLA’s new open bidding system. An open house will be held for the homes, and bids will be accepted for a week after the date of the viewing.

 

Source: The Straits Times 6 Feb 08

TAKING STOCK: Fresh US recession worries, Dow’s fall drag down STI

PROFIT-TAKING on renewed United States recession fears and Wall Street’s overnight dip delivered a one-two punch to abruptly halt the Singapore bourse’s two-day rally yesterday.

A sharp selldown came in the last 30 minutes, as the Straits Times Index (STI) closed 38.66 points lower at 3,038.42, after rising a combined 95 points in the previous two sessions.

A total of 1.55 billion shares worth $1.46 billion changed hands yesterday.

A dealer said: ‘Profit-taking was inevitable, after Monday’s strong pre-Chinese New Year surge and the Dow’s 108-point plunge overnight.’

The chief culprit for the STI’s fall was the financial sector.

Banking counters took a hit after US brokerages downgraded American banks and credit card firms, on signs that consumers are falling behind on debt payments.

United Overseas Bank (UOB) was among the day’s top losers, dropping 38 cents to $18.12. DBS Group Holdings fared no better, slipping by the same amount to $17.60, while OCBC Bank dipped eight cents to $7.55.

DBS Vickers has cut its target price for UOB from $27.50 to $20.80 and that for OCBC from $10.40 to $9.

It noted: ‘While sentiment in Singapore equities remain weak, we believe that earnings momentum for Singapore banks should remain positive, given the strong loans growth and asset quality.’

SingTel came under the spotlight after it announced better-than-expected results for its third quarter. It gained four cents to $3.90 and was the most heavily traded counter by value.

Citigroup said SingTel’s results were ‘better than expected’, while Morgan Stanley kept its ‘overweight’ call, citing healthy operating trends.

AmFraser Securities senior vice-president of research Najeeb Jarhom said: ‘It looks like SingTel may again come to the rescue of the broad market in the event of another downturn after the long holidays.’

There was also cheer for Chinese steelmaker Delong Holdings. It surged a whopping 47 cents, or 30.9 per cent, to $1.99, prompting a query from the Singapore Exchange.

ASL Marine had a bright outing as well, up five cents to $1.30, after the local shipbuilder reported that first half net income rose 67 per cent to $28 million.

The FTSE ST Mid Cap Index slid 0.7 per cent to 784.25 but the Small Cap Index gained 0.1 per cent to 681.31.

 

Source: The Straits Times 6 Feb 08

US services sector contracts, stocks fall

NEW YORK – UNITED States stocks tumbled yesterday, led by a sell-off among shares of financial companies, as a report showing a contraction in the vast services sector last month heightened recession fears.

Data from the Institute for Supply Management (ISM) underscored concerns that the fallout from the housing slump was spreading to the broader economy.

In early trading, the Dow Jones Industrial Average was down 237.93points, or 1.88 per cent, at 12,397.23.

The consensus among ISM’s survey respondents was that the services sector, which included industries such as restaurants, banking, construction, retailing and travel, had ‘come to the end of a long-term period of growth’, Mr Anthony Nieves, chairman of the ISM’s business survey committee, said in a statement.

ISM reported that its index of service sector business activity declined to 44.6 last month from a revised reading of 54.4 in December.

It was the first time the services sector reading contracted since March 2003. A reading above 50 indicates expansion, while a reading below 50 indicates contraction.

Price increases have slowed while costs are up, said Mr Nieves, who is also senior vice- president for supply management at Hilton Hotels.

Survey respondents cited recession fears taking hold and high energy prices dragging down profitability.

ISM said only three service industries reported growth, while 14 showed a contraction.

 

Source: REUTERS, ASSOCIATED PRESS (The Straits Times 6 Feb 08)

Markets will recover after 3-6 mths of mild recession: S&P analyst

He warns of one more major market collapse between now and rosier H2

THE sub-prime crisis will cause a mild US recession, but financial markets will recover in three to six months after most of the bad news is flushed out or priced in, says a leading US analyst.

Stephen Biggar, New York-based director for US equity research at S&P Equity Research, was one of the first to predict the sub-prime crisis and subsequent market meltdown that began in late July last year.

He sees many similarities between the current sub-prime fallout and the 1990-91 Savings and Loan (S&L) crisis.

‘The ingredients are the same: banks in trouble, credit crunch, junk bonds, worthless debt,’ he said. ‘But as is the case now, the Federal Reserve stepped in aggressively. The US went into a mild recession, but it was a three- to five-month event for the market.’

Mr Biggar reckons this US recession started in December 2007, but noted that the Fed has moved fast, cutting its key interest rate three times in as many months – the most aggressive cuts in 25 years.

The latest 50 basis points cut last week brought the key discount rate down to 3 per cent.

‘The Fed has been on the curve, if not ahead of it,’ Mr Biggar said. ‘Meanwhile, the impact of Washington’s US $145 billion fiscal stimulus package should kick in by May. And we should also see US corporate earnings improving during the second half, especially for exports.’

He says with half of the total earnings of S&P 500 companies coming from offshore, the weak US dollar environment will be a boost for them.

But while painting a sanguine picture for the second half of this year, Mr Biggar warns of one more major market collapse between now and then.

‘We haven’t seen a capitulation selling yet which will totally flush out the system and set it on course for the next recovery,’ he said. ‘But this will happen in the next couple of months as banks will demonstrate their ultimate exposure (to the sub-prime collateralised debt obligations).’

This will pull the S&P500 down to retest 1,310, he said. If this does not hold, the index will hit a trough at 1,170 points. And that will be the buy signal for value investors.

‘The shock value of bailouts will rattle many, but markets have a way of getting immune to this kind of news,’ he said. ‘Ultimately, the market will price in the risks.’

Mr Biggar is not a proponent of the theory that Asian markets and economies have decoupled from the US.

‘We have already seen how the US market’s pull-back has caused the collapse across this region,’ he said. ‘And the sub-prime losses are not just losses in the US. The exposure is global.’

Mr Biggar told BT in June last year that several US lenders were on the verge of declaring huge sub-prime losses, and that these would trigger a meltdown on Wall Street and elsewhere.

‘All it would take is a failure of one large US bank,’ Mr Biggar said then. ‘In the US sub-prime segment, which accounts for 20 per cent of total lending, delinquencies and foreclosures have been building up. But the troubles have been largely hidden away.’

Those words proved prescient. Just a month later, Countrywide Financial Corp – America’s largest mortgage lender – reported a sharp rise in delinquencies. This was followed by American Home Mortgage’s loan delinquencies, after which two of Bear Stearns’ hedge funds hit the sub-prime skids.

Fast-forward, and Mr Biggar has this prediction: ‘If the parallels to the 1990-91 S&L crisis and what we have now are anything to go by, we should pull out of this in about three to four months.’

Many here would recall that after the recovery from the 1991 crisis, Asian markets headed into their biggest ’superbull’ run ever in 1993.

And many must also be praying Mr Biggar is spot on – again.

 

Source: Business Times 5 Feb 08

Prime properties in for 5% fall in ‘08: UBS

Bank expects modest 0-5% growth in mass and mid-tier segments

ANALYSTS from Swiss bank UBS believe Singapore’s property market will ‘remain intact’, but they are nonetheless projecting a drop of 5 per cent in prime property prices for the year.

In the more affordable mass and mid-tier segments, where prices increased at a slower pace, UBS expects a modest growth of between 0-5 per cent in prices this year.

In its report on the Singapore property market, UBS says that in light of the uncertainty over the global economic outlook, buyers are likely to defer purchases of new property for at least six months. UBS said that demand ‘is highly dependent on the market’s outlook for the next three or four years, when the projects are completed’.

It added that with supply of new homes on the rise, there could be pressure on developers to reduce launch prices to ’stimulate demand’ – and some developers may start cutting prices as early as the second quarter of this year.

While the larger developers are expected to have more holding power, smaller ones could feel the strain of holding costs sooner. UBS estimates that of the units to be launched between this year and 2010, around 9 per cent are held by small, unlisted developers. Still, it said that there is little evidence to suggest that the market will be affected if small developers ‘capitulate and cut prices aggressively when holding costs build up’.

In its report on the current property market conditions, UBS made comparisons with the previous property slump of 1998. ‘Markets appear to be pricing a 70 per cent fall in Singapore residential prices, similar to 1998,’ it noted.

But UBS said: ‘We think the residential market in 2008 will not replicate the 1998 scenario where launch prices fell by 50 per cent in a year, and stock prices fell by 75 per cent.’

It added that expected GDP growth of 3.5 per cent should keep population inflow positive, which combined with negative real interest rates and low unemployment should underpin resale prices.

‘Even if job growth were to halve in 2008 to 90,000-100,000, this could still mean housing demand for at least around 15,000-18,000 units, assuming half the newly- weds (23,000 per annum) want to move out, and around 6,000 new households – of new permanent residents and expatriates – relocate to Singapore,’ UBS added. It pointed out that the figure is much higher than the expected number of home completions – 8,700 in 2008 and 16,000 in 2009.

As such UBS believes that current share prices for listed property developers have been ‘over-corrected’.

‘Allgreen’s price ($1.17 per share currently) attributes no value to its residential (portfolio), while City Development’s price ($12 per share currently) implies a 70 per cent writedown in unsold land,’ said UBS.

UBS said that it has adjusted the revalued net asset value and earnings per share for Allgreen, City Developments, CapitaLand and Keppel Land, and given current price levels ‘we have retained our Buy ratings on all these developers’.

 

Source: Business Times 5 Feb 08

Budget may soothe fears over costs creeping up

Businesses worry over transport bills, economists expect some goodies

(SINGAPORE) Amid concerns that the costs of living and doing business could go up, economists expect the upcoming Budget to provide some form of relief.

These could come in the shape of more cash handouts, particularly targeted at the low to middle-income groups, as well as a cut in top personal income taxes from the current 20 per cent.

‘I think something similar to last year’s GST offset package will be introduced. My guess is that it will be quite targeted to the lower-income group,’ Citi economist Kit Wei Zheng said.

‘There is a chance that it will come more in the form of cash,’ he added. The $4 billion Goods and Services Tax (GST) offset package over a five-year period that was announced last year comprised of $1.8 billion in GST credits while the balance was in the form of rebates.

Standard Chartered economist Alvin Liew noted that the strong economic performance last year has placed the government in a good position to offer more cash handouts.

‘But we are not looking at any increase in CPF contribution on the employer side or the employee side because that will increase business cost,’ he said.

Economists predicted a potential cut in top personal income tax from 20 per cent, after the government shaved two percentage points off the corporate tax rate to 18 per cent last year in what was seen as a pro-business Budget.

Now there are fears that costs are creeping up. Last year, the consumer price index (CPI) rose 2.1 per cent year on year, a significant jump from the one per cent seen in 2006, partly due to the two percentage-point hike in GST in July last year. The CPI jumped 4.4 per cent in December from a year ago to hit a 25-year high fuelled by higher transportation, food and healthcare costs. ‘Perhaps, of greater concern is the risk that if inflation stays persistently high, inflation expectations could become more entrenched, pushing up wages and leading to a second-round impact on the CPI numbers,’ Mr Kit said.

Sharing this sentiment was CIMB-GK economist Song Seng Wun. ‘Barring a sharp downturn in the global economy, domestic price pressures are likely to persist, due to short-term supply constraints,’ he said.

The recently announced changes in ERP charges and the uncertainty of whether means testing in public hospitals would lead to higher insurance premiums have also raised concerns over higher living and business costs.

To curb congestion on the roads, the government is raising the ERP base charge from the current $1 to $2 and the incremental charges from $0.50 to $1 from July. The increase in ERP revenue is more than offset by a 15 per cent cut in road tax and a reduction of additional registration fee (ARF) for vehicles from 110 per cent to 100 per cent of the Open Market Value (OMV).

These ERP changes take effect from July onward, when the effect of a two percentage-point GST hike last July would have waned.

For now, economists and businessmen alike are circumspect about how the impact of higher ERP charges and the offsetting measures of lower road tax and ARF on inflation will eventually play out.

‘While the usage costs may go up, I believe it should be offset by lower car ownership costs,’ said Wee Piew, CEO of steel stockist HG metal. ‘As I understand this is not a revenue-generating measure by the government but a car population containment measure, so I believe incremental costs for businesses should be negligible.’

Stanchart’s Mr Liew believe that the costs of being stuck in traffic jams and losing man hours could be just as detrimental to businesses as an increase in transport costs, if not more.

But Mr Kit of Citi wondered what it would take for motorists to change their daily routine.

‘The ERP by itself might not have a huge impact, but it’s the cumulative effect – all these price increases coming together,’ Mr Kit said, citing higher food prices and electricity tariffs, an upward revision of HDB annual values

and higher taxi flag-down rate.

Some businesses will likely feel the heat of higher ERP costs on their operations, whether they are couriers, manufacturers that deliver goods on a regular basis or companies whose employees take taxis to make sales trips and workers who may soon demand higher transport allowances or wages.

Kim Ann Engineering believes that the group’s delivery and logistic cost will increase eventually when more gantries are added as it delivers goods to many light industry estates.

‘We have eight delivery trucks/vehicles to various directions. Other than Express Highways, we will soon have to pass Alexandra and Toa Payoh gantries when they’re in operation,’ Lau Tai San, chairman and managing director of the group, said.

Predeep Menon, executive director of the Singapore Indian Chamber of Commerce & Industry, said most of the association members are bracing themselves for a significantly higher cost structure.

‘What’s happening now is that most businesses are being hit by the costs first. Then, they will need breathing time to see how to adjust to it and how best to avoid certain expenses,’ Mr Menon said.

Many economists expect CPI for the first half of this year to hover around 5 per cent year on year.

Inflationary pressures would then taper off in the third quarter where the GST effect would have dissipated and further moderation in the fourth quarter due to a high base of comparison in a year-ago period, they said.

Stanchart and DBS are expecting the full-year CPI to come in at 4 per cent year on year, CIMB-GK is predicting 4-4.5 per cent, while Citi raised its inflation forecast for 2008 to 5 per cent from 3.8 per cent previously.

 

Source: Business Times 5 Feb 08

S’pore population hits 4.6 million

Number of foreigners increasing faster than citizens, PRs

SINGAPORE’S economic planners think the country can hold 6.5 million people, a size they feel will be ideal to keep the economy humming.

Minister Mentor Lee Kuan Yew, however, feels the optimum population size for tiny Singapore might be smaller, between 5 and 5.5 million.

The latest numbers released yesterday by the Singapore Department of Statistics – after some refinements that exclude persons who were away for at least 12 months continuously, in line with United Nations guidelines – show that Singapore is just less than one million people away from hitting that figure recently suggested by Mr Lee.

Singapore’s total population has swelled to 4.6 million – and that was seven months ago.

The drive to attract foreign talent to make up the local shortage is apparently bearing fruit. The number of foreigners who work and live here has crossed the one-million mark.

In the past five years, the figure grew three times as fast as the number of Singaporeans and permanent residents.

The result: foreigners made up 22 per cent of Singapore’s total population as at June 2007, up from 18 per cent in 2003. From 2006 to 2007, the number of foreigners jumped nearly 15 per cent to 1,005,500.

Locals and permanent residents rose by less than 2 per cent to 3,583,100.

 

Source: Business Times 5 Feb 08

SMEs upbeat about 2008 growth

84% see same or faster GDP expansion: HSBC poll

SMALL businesses across the Asia-Pacific region are optimistic about their respective country’s economic prospects, with more than half of Singapore firms expecting the country’s economy to grow at the same pace as it did in 2007. This is according to an HSBC survey conducted in the last quarter of 2007, in which the bank polled 2,700 small and medium-sized enterprises (SMEs) in nine Asia-Pacific territories, including China, Taiwan and Vietnam.

The survey found that 84 per cent of small businesses in Singapore expect the same or faster economic growth this year compared to 2007.

‘Singapore’s economy saw continued strong GDP growth in 2007, and the fact that most of the small businesses surveyed expect the same or higher level of growth in 2008 bodes well for the local economy as a whole, given the collective economic might the 130,000 SMEs in Singapore can assert,’ said Tan Siew Meng, head of commercial banking at HSBC Singapore.

Acting on their positive economic outlook, 90 per cent of small businesses here plan to maintain or increase their capital expenditure, with over a third of them planning to increase investment by a little or significantly.

The survey conducted by research company TNS covered 300 small businesses in each territory. The Singapore firms polled had annual sales of less than US$6 million.

Firms were asked about their local economic outlook for the next six months, their hiring and investment plans, and their view of trading prospects with China, Asia and the rest of the world.

Some 37 per cent of businesses in the region expect faster economic growth (37 per cent), compared to the 17 per cent that expect a slowdown.

Across the region, the emerging markets of Vietnam and India were the most optimistic. In Vietnam, 90 per cent of firms thought local economic growth would accelerate this year and three-quarters of them plan to increase investment. None of the respondents in both those countries had plans to reduce staff numbers.

More than half the companies surveyed in Singapore also said that they currently engage in cross-border trade.

Most said they expect to see an increase in trade with the rest of the world, especially in China. Interestingly, small businesses with cross-border trade expect to increase their capital expenditure more than those who do not trade with other countries.

HSBC’s Ms Tan said the survey results are a testament to the resilience of the small business sector, which is learning to adapt quickly to changing global economic conditions.

‘In the face of growing economic uncertainty in the United States, emerging markets still see great opportunity for growth as they seek advantage of the rising trade flows in the Asian region,’ she said.

 

Source: Business Times 5 Feb 08

Growth in S-E Asia property market sustainable: DTZ

THE property markets of South-east Asia are expected to sustain the buoyant growth seen in 2007, says DTZ Debenham Tie Leung.

DTZ said that residential markets in the region are expected to continue to grow, ‘driven by steady economic expansion, increasing affluence and increasingly attractive projects as developers strive to refine concepts’.

In Vietnam, DTZ noted that demand for residential properties, which was already growing fast, was bolstered by the recent relaxation in rules for housing ownership, allowing foreign land ownership terms to increase from 50 to 70 years. DTZ said this also encouraged foreign developers to build residential properties there.

In Malaysia, DTZ said take-up was encouraging for high-end condominiums in Kuala Lumpur, with a complete sell-out for several luxury projects. This was supported by the relaxation of rules for foreigners to buy residential properties and the waiver of real property gains tax last April. While monthly average gross rents remained unchanged at RM4 (S$1.25) per square foot, average capital values increased 3 per cent year-on-year to an average RM500 (US$152) psf.

The residential market in Thailand is also expected to recover, as the political situation improves and developers are encouraged to launch projects which have been withheld.

In the office sector, DTZ says demand for office space in Vietnam is expected to continue to be underpinned by limited potential supply. It said that in Vietnam, most potential supply comprises nonprime office buildings, ‘which will lead to greater competition for prime office space’. Occupancy remains high, at above 95 per cent, while Grade A rents average US$3.70 psf per month in Hanoi and US$4.37 psf per month in Ho Chi Minh City.

The office market in Kuala Lumpur was also active, with increasing demand by the services, oil and gas, information technology and financial sectors. Together with limited new supply, prime office rents rose 7.8 per cent year-on-year to RM62.65 (US$18.16) psm.

Jakarta also saw office occupancy rates of over 90 per cent. Rents did, however, remain at about US$0.76 psf per month amid fluctuations in exchange rates.

The Bangkok office market was the only one that was subdued, with a negative net absorption for H1 2007. DTZ said this was due to a less favourable operating environment which affected investors’ confidence.

 

Source: Business Times 5 Feb 08

Aussie property still looking up?

THE US sub-prime mortgage problem may have put a dampener on property stocks worldwide, including Singapore. But there appears to be at least one bright spot on the planet, if ANZ Bank is to be believed.

Said the bank in a recent report on its outlook for the Australian property market: ‘Property returns have accelerated, underpinned by buoyant economic growth and tightening market fundamentals. Despite a meltdown in US sub-prime mortgages and a crisis in global credit markets, the economic outlook remains supportive.’

While it warns that rising interest rates and a ‘marked jump in risk aversion’ have raised the risks facing the property sector, it still thinks that by 2010 there will be a serious housing shortage.

‘A dramatic tightening of the housing market will force already soaring house prices and rents sharply higher. By 2010, we project a record housing shortage of nearly 200,000 homes which risks becoming an intractable imbalance as renters and first-home buyers become collateral damage in the Reserve Bank’s ongoing war on inflation,’ it said.

It also noted that in risk-adjusted terms, residential property has delivered ‘vastly superior’ returns in comparison to all other broad asset classes.

These will be sweet words to Singapore-linked Australian developers like AV Jennings, which is 42 per cent owned by SC Global, and Australand Property Group, the Australian property arm of local property giant CapitaLand. Others who will be heartened by such talk include smaller players like shipping tycoon CK Ow’s Stamford Land and Chua Thian Poh’s Ho Bee Investments, which is now trying to make inroads Down Under.

The ANZ report also pointed out that total returns over the year to last September were 20 per cent in offices, 15.5 per cent in retail, 13 per cent in industrial and 14.3 per cent in residential property.

‘Yields have continued to firm and tightening availability is forcing both rents and capital values higher.

Solid investment returns have underpinned a rebound in construction activity which has jumped to record levels, bolstered by a remarkable 24 per cent increase in engineering construction, a 7.8 per cent lift in non-residential building and a surprise 4.8 per cent rise in residential activity,’ said its analyst Paul Braddick.

He thinks that the property sector will be underpinned by Australia’s buoyant economy, which in turn now depends more on Asia’s growth than America’s. ‘Asian growth has effectively decoupled from the US and the outlook for China in particular remains very strong,’ Mr Braddick says.

While some households are being adversely impacted by rising interest rates, Mr Braddick claims that rising debt servicing costs have been more than offset by solid income gains.

He said houses were no different from bananas in that when there is a shortage, prices are likely to rise.

‘However, unlike bananas, the necessary rebound in housing supply will be far more difficult to achieve and house prices are therefore unlikely to fall.’

According to ANZ, the tightness is being felt in all sectors of the property market and across the country.

Despite some recent developments, including a contract to build 600 homes in Auckland worth some NZ $300 million (S$337 million), AV Jennings shares have been near a 52-week low at around A$0.90 apiece. Australand’s shares have been thinly traded and languish at around A$2.30. Perhaps the ANZ report should bring some cheer to their shareholders.

 

Source: Business Times 5 Feb 08

Asian CEOs bullish on 2008 prospects: PwC

ASIAN CEOs are more confident about business prospects in the year ahead, despite a fall in confidence globally, a PricewaterhouseCoopers (PwC) survey has found.

‘Many companies in Asia continue to be the engine of economic growth that has been driving prosperity for more than a decade,’ PwC said.

As a result, 56 per cent of Asian CEOs are confident going forward, up from 49 per cent last year, according to the firm’s 11th Annual Global CEO Survey.

In contrast, confidence among North American CEOs has sunk to 35 per cent, from 53 per cent last year.

Globally, half of CEOs who responded to the survey said they were ‘very confident’ about revenue growth this year, compared with 52 per cent last year.

There is a ‘wide disparity in confidence levels between CEOs in mature and emerging economies’, said PwC.

Sentiment is strongest in China and India, where 73 per cent and 90 per cent of CEOs respectively expressed confidence.

Latin American and Central and Eastern European respondents were also relatively confident, with 55 per cent strongly believing that their company’s revenue would grow.

‘The world’s economic axis is shifting as Asia consolidates its position and we have good ground for feeling optimistic about the immediate future’, said Gautam Banerjee, executive chairman of PwC Singapore. ‘Our financial systems have held up well during the global credit crisis. We expect the economic outlook to be generally favourable.’

Asian CEOs are also more interested in executing cross-border mergers or acquisitions in the next 12 months, though most would prefer to make their deals in the Asia-Pacific region itself.

Half of all respondents that head big companies with annual revenue of more than $10 billion said that they worry about handling cultural conflicts and capturing deal value.

Surprisingly, CEOs of large companies worry more about such matters than chiefs of smaller firms, despite typically having more experience in cross-border integrations, Mr Banerjee said.

Many Asian and Middle Eastern investors ‘have recognised the need to tread carefully’, he said. They tend to prefer low-profile minority stakes to minimise opposition, and are trying to improve transparency and subject themselves to scrutiny.

Worldwide, Asian CEOs are the most worried about the availability of key skills, with almost 80 per cent of respondents from the region citing this concern. Many also feel they need to change the way their company develops talent.

But CEO commitment to developing people is still highest in North America, where 85 per cent of chiefs said that their time is best spent ‘dealing with the people agenda’.

PwC’s survey involved 1,150 interviews with CEOs in 50 countries in the last quarter of 2007.

 

Source: Business Times 5 Feb 08

Asia more stable now than in 1997

ASIAN banks and markets here are a lot more stable and better placed for long- term growth, despite the sub-prime fears.

Lorraine Tan, S&P’s vice-president for Asian Equity Research, sees Singapore banks, in particular, as being very stable in a market where there is widespread fear of a financial sector collapse brought on by the US sub-prime crisis.

‘Middle Asia banks have always had a naturally growing loans market,’ she noted. ‘They did not need to do much on the treasury side for income growth.’

As such, the exposure of banks in places like Singapore, China and Malaysia to collateralised debt obligations and other financial instruments has not been as rampant, she added.

Ms Tan noted that the sub-prime jitters had nevertheless rattled markets here so badly that values had started emerging in various sectors.

‘In Singapore, we have drifted down from around 15 times earnings, to around 13 times. This is much lower than the 25 times during the 1997 Asian financial crisis.’

She noted that these valuations were supported by strong corporate fundamentals. ‘Asian corporates are much stronger now than they were during the 1997 financial crisis,’ she noted. ‘Balance sheets are strong and debt levels are low, while at the market level, there is still a lot of liquidity out there. And savings rates are very high.’

Still, the Asian markets were clearly in a bear zone. However, given the intrinsic strength within the system, the current US-contagion ‘hit’ will be less severe and the market’s recovery will be speedier than during the previous crisis, she added.

‘As soon as there is some sign of clarity, we should see markets rebound very strongly.’

But governments have to manage the tendency for Asian consumers to stop spending and oversave at the first sign of trouble. And the Asian real estate sector is a key factor, where a diminution in perceived value could have a severe psychological impact on demand and spending.

The good news, she added, was that the current jitters will prevent Asian governments from taking measures which could kill off demand. China, for example, could now hold back from manipulating the yuan.

Ms Tan has nevertheless lowered her target for the Straits Times Index this year to 3,500 points, from 4,000 earlier.

 

Source: Business Times 5 Feb 08

US economic woes, rate cuts fuelling HK property boom

Analysts see prices revisiting the heady 1997 peak

(HONG KONG) When first- time buyer Judy Kwan heard a flat was for sale in a street she admired in Hong Kong’s Wanchai district, she snapped it up within 24 hours without even seeing it, inheriting a tenant she had never met.

Now she wants to buy another as the property market surges from a strong economy and mortgages become cheap as local interest rates drop in line with rate cuts in the United States.

Ms Kwan hopes property investment will allow her to retire in five years’ time, aged 50.

‘The price was right and the market’s going up,’ said Ms Kwan, an accountant, who paid US$282,000 for the boxing ring-sized flat in November.

The apartment’s value has risen 10 per cent since then and analysts predict that falling interest rates and rising salaries will propel prices back to a heady 1997 peak.

Hong Kong’s economy is riding on the coat-tails of China’s boom, but its currency peg with the US dollar forces the territory to officially track US interest rate cuts. Local banks have more leeway but have still slashed rates by 100 basis points in the past two weeks as the US federal funds rate has fallen to 3 per cent.

So the housing downturn and mortgage crisis that threatens the US economy has indirectly bolstered Hong Kong property.

Monthly transactions for mass market housing in the final three months of last year were on average 63 per cent higher than in the rest of 2007, hitting their highest level for a decade.

Real Hong Kong mortgage rates are now negative, below inflation of 3.8 per cent and it has become cheaper to buy than rent, analysts say.

A Merrill Lynch property analyst has predicted a 50 per cent rally in property prices in the next two years, prompting several Hong Kong employees at the bank to go on an apartment hunting spree. UBS has the same forecast.

Geoff Lewis, head of investment services at JF Asset Management, said property might ‘catch fire’.

The expected boom fed a price rally late last year in Hong Kong’s biggest developers, including Sun Hung Kai

Properties, Cheung Kong Holdings and Henderson Land Development, but Hong Kong’s property sub-index has see-sawed this year.

Several Hong Kong developers are also expected to get an extra kick from their fast growing mainland China businesses.

But many analysts say buying an apartment is better than buying shares, as equity markets will probably stay volatile. Others suggest investors suffering share losses might have less cash to invest in real estate.

New housing supply in the next three years is forecast at half levels seen during the 1990s boom, and interest rates could fall further while inflation heads above 4 per cent, economists say.

With no control over monetary policy and inflation on the rise, a 50 per cent appreciation in flat prices could pose a risk for an economy that saw property prices nosedive 65 per cent when the last property boom burst 10 years ago.

Economists, however, are not worried about an asset price bubble just yet.

They think a strong property market will create wealth, spur consumer spending, and enable the territory to still notch up 4-5 per cent economic growth even if the US economy tips into recession and hits exports from one of the world’s busiest ports.

Hong Kong’s gross domestic product (GDP) has grown an average 7 per cent annually in the last four years.

‘Mass market property prices are still 35-40 per cent below their peak in 1997,’ said Nicholas Kwan, Asian head of research at Standard Chartered Bank.

‘So even if they rise 30-40 per cent, prices would only be what they were 10 years ago,’ he said. ‘It’s hard to argue that would be a bubble.’

Hong Kong home prices slid after the 1997 Asian economic crisis. Home prices were rocked by the bursting of the dotcom bubble and they slumped in a 2003 outbreak of the Sars respiratory disease, before rebounding about 80 per cent in the last four years.

Clifford Lam at Credit Suisse believes a steady Hong Kong economy could send home prices up 15-20 per cent this year but warns against complacency.

‘If the US goes into recession and China’s economic growth slows, Hong Kong businesses, including exporters and high rollers in the financial industry, are going to get hit,’ he said. ‘Some of the home buyers that are jumping into the market on the assumption property prices will rise 40-50 per cent will be disappointed.’

Prices for luxury property, on a four-year roll, have already returned to 1997 levels, with an Indonesian fund paying US$30 million for a house on Hong Kong’s iconic mountain, the Peak, last month – an Asian record on a per sq ft basis.

With the pegged Hong Kong dollar’s weakening, property has become attractive to foreigners and mainland Chinese.

For Judy Kwan, buying an apartment allows her to diversify out of a Hong Kong stock market that surged 39 per cent in 2007, and get a yield on her investment of 5.6 per cent a year. Bank deposit rates range between 0.75 per cent and zero.

‘I don’t believe in putting money in the bank, inflation is rising,’ said Ms Kwan, who has doubled her money on some mutual fund investments over the past four years. ‘You need to diversify your investments and rental income will cover my mortgage. It’s a win-win situation.’

 

Source:  Reuters (Business Times 5 Feb 08)

Subsales may spike again as projects near completion

NEWS ANALYSIS

Prices could soften if ’specuvestors’ are forced to offload properties

(SINGAPORE) Speculative activity took a breather in Q4 last year as the number of subsales as well as their share of total private home deals were down sharply from the preceding two quarters of 2007. However, many in the industry are wondering whether subsales will again spike closer to the physical completion dates for some highprofile projects sold substantially on deferred payment (DP) schemes.

Among the projects that will be keenly watched are The Sail @ Marina Bay, The Coast (at Sentosa Cove), The Grange, and The Suites at Central in the Devonshire Road area, all of which were sold amidst much hype. The first two projects are scheduled to receive Temporary Occupation Permit (TOP) next year and the latter two, this year.

The coming wave of subsales – if there’s one – may not be so much a reflection of speculative froth in the market but rather of buyers seeking to offload their units before the DP expires.

Those who bought their properties on DP schemes would typically have paid 10 or 20 per cent of their purchase price to the developer with the next payment (of 75 per cent or 65 per cent, respectively) deferred till the project receives TOP. By TOP, the developer would collect 85 per cent of the sale price.

Such buyers can shop for a bank loan until closer to the project’s TOP date.

However, buyers who picked up multiple units in some of these developments on DP schemes and are still sitting on them may not be able to secure sufficient housing loans to foot the bills when the projects obtain TOP.

Banks may turn cautious over advancing loans for multiple property purchases. Some, for example, may only be prepared to lend up to 70 per cent – based on their credit assessment and servicing ability of the borrower – instead of 80-90 per cent, of the purchase price of the property or its current value, whichever is lower.

These ’specuvestors’ may find that it makes more sense to sell their units in the subsale market before they receive a big bill from developers.

Such subsales, while apparently ‘forced’ by the difficulty of finding enough housing loans, could still yield handsome gains for such investors – given the huge rise in upmarket home prices.

However, if a sizeable number of such properties come on the subsale market, some sellers may be willing to accept below-market values. This will clip developers’ pricing power when they sell new projects in nearby locations.

Already, BT understands that some individual investors, anticipating ‘dumping’ from speculators, are teaming up to snap up some of these units at below-market prices.

Jones Lang LaSalle’s head of research (South-east Asia) Chua Yang Liang reckoned that some buyers who purchased units on DP during the initial launches may begin to review their options around five to six months ahead of TOP. ‘Supply of such properties in the subsale market could potentially increase from the latter half of this year, which could potentially see prices easing,’ Dr Chua said.

Of course, it may be a different story altogether if sentiment in the high-end market picks up again.

A lot will also depend on the holding power of those who still have units they’ve bought from developers. Some may not face problems getting housing loans, because they have the ability to service them. Such buyers may just go ahead and pay that big instalment when the project receives TOP.

Another factor that will bear on the extent of ‘forced’ subsales is the profile of buyers in each project – the mix of those who bought units with a view to living in them, and those who purchased with an eye on flipping before the project’s completion.

A seasoned property agent told BT that a condo in the East Coast area receiving TOP soon recently saw several buyers offering their units at prices considerably below what was being achieved just a few weeks ago – before the stock market plunge.

Then there’s another theory. While we may see a flurry of subsales for projects sold in the past on DP, it will be a different story going ahead.

With no new projects approved by the authorities for DP schemes since DP was scrapped in late October 2007, new launches going ahead will attract fewer potential speculators. This is because those who buy into projects without DP schemes know they will have to make regular progress payments to the developer and in all likelihood have to obtain housing loans.

‘You’ll see more genuine buyers in the market,’ as ERA Realty Network divisional director Andrew Soh said.

‘Developers may still be able to maintain current prices, or even achieve higher prices. But instead of weeks, it may take them months, or even years, to sell out projects.’

‘As new project launches attract fewer speculators, I may have to sell physical homes and not just paper (options),’ he quipped.

 

Source: Business Times 5 Feb 08

590 HDB blocks picked for upgrading

58 locations selected for improvement under revised schemes

ABOUT 590 Housing Board blocks in 58 locations islandwide have been picked for the next batch of improvement works under the HDB’s recently revised upgrading schemes. Areas set to benefit include Yishun, Tampines and Hougang.

These schemes include the new Home Improvement Programme (HIP) and Neighbourhood Renewal Programme (NRP) – unveiled last year – as well as the ongoing lift upgrading programme.

The HIP focuses on essential improvements within a flat, such as repairing spalling concrete. It also gives residents the choice of opting out of certain items to cut costs.

This scheme replaces the more extensive Main Upgrading Programme, which had been more expensive because work was done both inside and outside the flat.

Under the other new programme, the NRP, a few adjoining estates will be spruced up together, with the cost fully borne by the Government. The bigger budget involved makes it possible for larger items such as tennis courts and skating parks to be considered as part of the works.

Residents will also be consulted on how they want their estate improved.

The HDB, which said earlier that the HIP would be first done in two precincts in Yishun and Tampines, announced yesterday that it will double that number to four and include other towns in view of strong public support shown in recent surveys.

Meanwhile, eight estates have been selected for the NRP and another 52 for lift upgrading – where housing blocks are renovated to give residents lift access at every level.

The lift upgrading programme is still the mainstay of improvement works as the Government has pledged to give direct lift access to almost every block by 2014. In 2006, for example, the Government said it was selecting 70 precincts comprising 600 to 700 blocks for the programme. In 2005, it was 480 blocks in 64 precincts.

The Minister of State for National Development, Ms Grace Fu, said yesterday the Government was on track to meet the 2014 deadline.

Tampines GRC MP Irene Ng said that 16 blocks in Tampines Street 11 under her charge have been picked for lift upgrading in the latest list.

She added: ‘Many of the elderly fear becoming isolated in their flats as they find it increasingly hard to climb stairs. Over the years, some in wheelchairs had to move out of the estate, even though they loved the place, because they could not negotiate the stairs without help…’

Residents in about 70 per cent, or 3,600, of the eligible blocks have been offered lift upgrading so far.

Some estates in the latest list will have more than one type of upgrading work done at the same time to reduce inconvenience.

Six precincts comprising about 30 blocks previously picked for the Main Upgrading Programme under the old regime will also be switching to the new programmes, at the request of their MPs.

About 300,000 flats out of almost 900,000 islandwide will be eligible for the HIP, while 200,000 units can undergo work for the NRP.

Details of the specific locations of these selected precincts will be announced by their respective MPs later.

Work on this batch is expected to be completed within five years.

 

Source: The Straits Times 5 Feb 08

ROAD IMPROVEMENTS: Better traffic access for Sentosa, VivoCity and HarbourFront

Volume likely to rise due to IR, new condos; works to start in June

THE roads leading to Sentosa, VivoCity and HarbourFront will be widened to cater to an anticipated increase in traffic into the area.

With one of Singapore’s two integrated resorts opening on Sentosa and new condominiums to be built in the area by 2010, traffic is likely to go up by 30 per cent, said the Land Transport Authority (LTA) yesterday.

The Sentosa Gateway junction at Telok Blangah Road now sees about 6,000 cars during the evening peak period.

By 2010, the number will likely be between 8,000 and 9,000.

LTA director of transport planning Lina Lim told reporters yesterday: ‘Without the improvement works, I think we would expect very long queues and not being able to clear junctions…’

The road widening works, expected to begin in June and be completed in 11/2 years, will span a 2km stretch from the junction of Keppel and Kampong Bahru roads to the junction of Telok Blangah and Henderson roads.

These are the improvements to be made:

• An extra lane will be added to both sides of Telok Blangah Road, to give each side four lanes;
• Another lane will be kept specially for cars turning left into Sentosa Gateway from west-bound Telok Blangah Road, to make two left-turn lanes;
• Another lane will be added for vehicles turning right into Sentosa Gateway from east-bound Telok Blangah Road, making three lanes there;
• Adding an extra left-turn lane for vehicles going from Sentosa Gateway to Telok Blangah Road, to make three lanes there.

  Other changes: Kampong Bahru Road will be widened, and improvements will be made to the Henderson Road/Telok Blangah Road junction and the HarbourFront Walk/Telok Blangah Road junction.

  The viaduct which takes cars overhead, in front of VivoCity mall, will have an extra exit built from it.

  An exit will be created near Morse Road, just before Henderson Road, which will enable motorists to bypass the HarbourFront area and at least four traffic lights.

Miss Hwang E-wan, a 25-year-old investment banking analyst who lives along Wishart Road off Telok Blangah Road, is glad for this.

To get home, she usually goes through the jam outside VivoCity.

‘The alternative is to use the Alexandra Road exit and then make a U-turn back to my house. This will help me escape all that.’

A VivoCity spokesman said that traffic in the area was generally fine on weekdays but can build up on Fridays, weekends and public holidays.

Sentosa said its plans to increase the number of arrival lanes and to move its admission booths inland would complement LTA’s plans.

An electronic parking guidance system will also be introduced in the HarbourFront area.

Large signboards will alert motorists where carpark lots are available, which will cut down congestion by reducing the number of cars circling the area looking for lots.

 

Source: The Straits Times 5 Feb 08

F1 in S’pore ‘an opportunity on the doorstep’

THE inaugural Singapore Grand Prix offers companies in the Republic an unprecedented opportunity to do some marketing and branding to a vast global audience, said a visiting Formula One (F1) marketing expert.

Still, few Singapore names have thus far stepped forward to take advantage of the opportunity that is ‘right here on your doorstep’, said Mr Mark Gallagher, the London-based managing director of sports marketing consultancy Eden Rock Sports Management.

This, he said, was a great pity and ironic considering the way that Changi Airport’s transit lounge has been blanketed by Royal Bank of Scotland’s advertisements celebrating the Singapore Grand Prix. The bank is one of F1’s global sponsors.

Mr Gallagher is in Singapore to discuss F1-related marketing prospects with potential clients in the banking and logistics industries.The Singapore leg of the race, in September, is the first night race in F1 history.

With more than 800 print journalists and 150 TV crews covering it, the Singapore Grand Prix is expected to generate tremendous global buzz, said Mr Gallagher, who has teamed up with Singapore public relations agency Baldwin Boyle Shand to offer specialised F1-related marketing services.

The global TV audience for F1 is estimated to be in the hundreds of millions.

This lack of local participation is probably not due to a lack of interest, said Mr Gallagher.

More likely, wannabe-Singapore marketeers have been spooked by reports of multi-million-dollar F1-related deals, which have given the impression that companies without such hefty budgets have no chance to get in on the buzz.

That impression is wrong, said Mr Gallagher, who has worked for a number of F1 teams, including stints with the Jordan and Jaguar teams.

‘Commercially astute’ F1 teams are very open to sponsorship talks, he said. Prices range from US$50,000 (S$70,800) for ‘hospitality’ – industry- speak for getting an F1 team or a driver to appear at a company’s event like a gala dinner or product launch, to US$500,000 or more to sponsor one of the 12 F1 team’s Singapore races.

While this is not pocket change, such budgets are clearly well within the means of many Singapore companies, he said.

And while cash sponsorship is always a priority, teams are not above bartering for goods and services they need, such as technical support or printing supplies, he said.

The cleverest deals, he said, are probably available now, in the race’s first year. This is because success breeds success, and if the race this year is successful – and he is confident it will be – costs are likely to spiral up in the following years, he said.

The F1 race will be in Singapore for the next five years.

 

Source: The Straits Times 5 Feb 08

Small businesses in S’pore less bullish about growth outlook

SMALL businesses in Singapore are less confident about the growth outlook compared with six months ago, according to the latest survey by HSBC Singapore.

The bank conducted a survey covering more than 2,700 small businesses across nine economies.

In Singapore, only 32 per cent of the small and medium-sized enterprises (SMEs) surveyed expect faster economic growth over the next six months.

Just six months ago, 73 per cent of SMEs polled expected economic growth to speed up.

Singapore trails behind Vietnam, where 90 per cent of the SMEs polled expect faster growth over the next six months.

But Singapore SMEs are more optimistic than businesses in Hong Kong, where only 26 per cent of those polled expect the economy to grow at a faster pace.

About one-third of the respondents in Singapore plan to raise their capital expenditure over the next six months.

This was down from the 44 per cent of SMEs polled six months ago who said that they would be increasing their capital expenditure.

With fears of a global slowdown, only 24 per cent of respondents plan to expand their workforce by up to or more than 20 per cent over the next six months. Last year, about 36 per cent of Singapore SMEs said they plan to hire more staff.

In this year’s survey, a whopping 74 per cent of SMEs plan to maintain current staffing levels.

‘Clearly, these figures reflect a bit of a cautious outlook in Singapore, as compared with the previous survey,’ said HSBC Singapore’s head of commercial banking, Ms Tan Siew Meng.

Still, it bodes well for the economy as a whole that Singapore’s economy saw continued strong gross domestic product growth last year and most of the SMEs surveyed expect the same or higher level of growth this year, Ms Tan said.

The half-yearly survey, conducted in the fourth quarter of last year, covered SMEs in economies including China, Hong Kong, Malaysia, Taiwan and Vietnam.

SMEs were asked about their local economic outlook, and whether they plan to invest and hire. Those engaging in cross- border trade were asked their views on trade volumes with mainland China, the rest of Asia and the rest of the world.

 

Source: The Straits Times 5 Feb 08

HELP FOR SWISS BANK: GIC ‘prepared to adjust terms of UBS deal’

THE Government of Singapore Investment Corp (GIC) is prepared to adjust the terms of its deal to buy 9 per cent of UBS to help the Swiss bank win shareholder approval, GIC deputy chairman Tony Tan was quoted as saying yesterday.

UBS, Europe’s hardest-hit bank from the credit crisis, received a lifeline of 13 billion Swiss francs (S$17.1 billion) from GIC and an undisclosed Middle East investor in December to shore up capital hurt by hefty United States sub-prime housing losses.

Under the deal, UBS will pay GIC – which will invest 11 billion Swiss francs – and the Middle East investor a coupon of 9 per cent on securities that can be converted into shares within approximately two years of the issue of the notes.

However, the terms of the deal have drawn ire from some smaller shareholders who said it is unfair that they cannot participate in the mandatory convertible bond, with some calling for a rejection of the deal.

‘We would be prepared to adjust the terms,’ Dr Tan said, according to the transcript of his interview with the Financial Times in Davos.

‘We would be prepared to see how we could help them. But we have signed an agreement with them so that has to be honoured.’ UBS has scheduled an extraordinary general meeting for Feb 27, when it will seek approval for the investment.

 

Source: REUTERS (The Straits Times 5 Feb 08)

SM GOH IN DUBAI: Grow economy, draw investments to fight inflation

S’pore can tap Middle East and China to grow; inflation here lower than other nations: SM

DUBAI – SINGAPORE can tackle the rising cost of living with a clear focus on spurring economic growth and wooing foreign investments, said Senior Minister Goh Chok Tong.

One front of this growth strategy is to open new doors in the Middle East and China, said Mr Goh on Sunday, at the end of his week-long visit to Qatar and Dubai.

‘I would say concentrate on generating economic growth and bringing foreign investments into Singapore,’ he said in an interview with Singapore journalists.

‘When there’s growth, people are employed, at least you can buy something. You have income, even though inflation is high.’

And salaries will hopefully grow faster than inflation in most instances, he said.

But the Government is also mindful that there will be cases of workers whose salaries will not rise faster than inflation, he said.

‘Here’s where the Workfare Income Supplement comes in. Maybe we could look at what we can do for them in the coming Budget.’

He added: ‘We have always done it in the past – some special distribution to special groups.’

The big picture, he said, was that inflation in Singapore is low by most countries’ standards.

Prime Minister Lee Hsien Loong said on Sunday that this year’s inflation ‘could be 5 per cent, maybe even more. Especially in the first half, it is going to be high’.

But, SM Goh said, Dubai and Vietnam are experiencing inflation rates of over 10 per cent. In China, it is easily over 7 or 8 per cent.

‘All countries face this pressure because of high oil prices and because of the diversion of farm lands to grow biofuel,’ he said.

So in Malaysia, there was the phenomenon of a cooking-oil shortage, as palm-oil plantations are being diverted for biofuels, he observed.

Member of Parliament Ahmad Magad, who was in SM Goh’s delegation, said that Singaporeans need to know that the pressures of inflation are very much felt in the Middle East, too.

Another economic challenge facing Singapore this year is the possibility of the United States tipping into recession. In the short term, some industries may be affected, said SM Goh. ‘But in the medium term, if you have a stream of investments coming in, you’ll be all right.’

His forecast for Singapore is still bright: ‘In my own view, this year we should be able to do fairly well. MTI (Ministry of Trade and Industry) still retains its forecast of 4.5 to 6.5 per cent growth for this year.’

His expectations of a fairly good year rest on a set of good performers in the economy. ‘Construction is still very active in Singapore. There are signs that the electronic cluster may begin to pick up. Financial services are still doing well.’

But Singapore exports may be affected. This may happen if there is a US recession and, at the same time, China grows a little slower, he said. ‘But on the whole, there are enough activities to give us the confidence that we should be able to grow within the range of 4.5 to 6.5 per cent for this year.’

SM Goh on…

FIGHTING INFLATION

‘I would say concentrate on generating economic growth and bringing foreign investments into Singapore.

When there’s growth, people are employed, at least you can buy something. You have income, even though inflation is high.’

HELPING THE AFFECTED

‘Maybe we could look at what we can do for them in the coming Budget. We have always done it the past – some special distribution to special groups.’

 

Source: The Straits Times 5 Feb 08

Asian CEOs more upbeat than their Western peers

DESPITE a general decline in confidence levels, Asian chief executive officers (CEOs) are more upbeat than their Western counterparts, says a new PricewaterhouseCoopers (PwC) survey.

The annual survey, conducted late last year, found that 50 per cent of CEOs were ‘very confident’ about revenue growth over the next 12 months, compared to 52 per cent the previous year – the first time confidence levels for CEOs globally has declined since the 2003 survey.

The difference in outlook was stark when comparing mature with emerging economies, however.

The overall drop in business confidence globally was most pronounced in North America, where 35 per cent of CEOs said they were ‘very confident’ about growth, versus 53 per cent last year.

The confidence of Asian CEOs, on the other hand, increased to 56 per cent in 2007, compared to 49 per cent in 2006.

CEOs in China and India were the most upbeat about the growth prospects in the next 12 months, with about 73 per cent and 90 per cent of the CEOs there respectively saying they were ‘very confident’ about next year’s growth prospects.

‘The world’s economic axis is shifting as Asia consolidates its position and we have good grounds for feeling optimistic about the immediate future,’ said PwC Singapore’s executive chairman Gautam Banerjee.

 

Source: The Straits Times 5 Feb 08

Shanghai stocks jump 8.1% as govt comes to rescue

SHANGHAI – CHINA’S main stock index jumped more than 8 per cent yesterday in its biggest daily rise since June 2005, after the authorities intervened to halt a three-week slide in share prices.

Regulators’ approval of two new stock funds after a freeze of several months, official criticism of Ping An Insurance’s plan for a huge stock offer and the postponement of China Railway Construction’s US$4 billion (S$5.7 billion) initial public offering restored a good measure of battered investor confidence.

The Shanghai Composite Index opened more than 2 per cent higher and closed the day up 8.13 per cent at 4,672.17 points, within a whisker of its intra-day high of 4,672.214.

Gainers overwhelmed losers 865 to two, while over 300 stocks soared past their 10 per cent daily limits.

The index plunged 16.7 per cent last month amid panic-selling and remained 24 per cent below last October’s record high.

Most of the official steps were aimed at resolving one of the market’s biggest worries – the possibility of a big oversupply of fresh equity relative to demand.

In another gesture of official support, Mr Li Rongrong, head of the state asset management agency, was quoted by official media as saying China’s fierce winter weather would not affect the earnings of listed state firms controlled by the central government, so stock investors should not worry. The weather was improving and transport bottlenecks easing, local media said.

Banks helped lead the index up, continuing a rally that began on Friday amid signs China might ease a tight monetary policy to offset the impact of a slowing United States economy and ease the funding squeeze suffered by small banks and firms in recent weeks.

China’s central bank also introduced measures to enable commercial lenders to do more for developers of affordable housing.

China has long tried to boost incentives for firms to build cheaper housing, as the country’s booming real estate market has generated riches for some but put the price of home ownership out of reach for many.

Banks can now extend loans for affordable housing if the developers raise 30 per cent of the total capital. That compares with a 35 percent requirement for developers of more expensive homes.

Banks may lend to developers of affordable housing at interest rates as low as 90 per cent of the benchmark lending rate, which stands at 7.47 per cent a year, and for as long as five years, up from three years before, it said.

The central bank and the country’s banking regulator also expanded the category of those allowed to extend such loans to all financial institutions, such as joint-stock banks, from just state-owned banks.

The central bank signalled a relaxation of its credit clampdown last Thursday when it called on commercial banks to speed up loans to areas of the country battered by harsh winter weather.

A commentary published yesterday by the People’s Daily, a mouthpiece of the Communist Party, also criticised Ping An, whose plan for an equity sale as large as US$22 billion terrified investors last month because of fears the market could not absorb the share supply.

Fund managers said this almost guaranteed Ping An would not be able to proceed with the plan and might sharply cut any revised fund-raising proposal.

Metals-related shares, meanwhile, surged after Aluminum Corp of China teamed up with US aluminium producer Alcoa to buy a US$14 billion stake in Rio Tinto, which might block BHP Billiton’s effort to win Rio.

 

Source: REUTERS (The Straits Times 5 Feb 08)

ICBC sets reserves aside for possible 30% sub-prime loss

BEIJING – CHINA’S biggest bank, Industrial & Commercial Bank of China (ICBC), has set aside reserves equal to 30 per cent of its US$1.2 billion (S$1.7 billion) in sub-prime holdings to cover possible losses, a state news agency reported yesterday.

The report, if confirmed, would be the first indication that Chinese banks, which have so far avoided damage from the United States’ credit crisis, might face problems due to holdings of sub-prime mortgage securities.

ICBC chairman Jiang Jianqing disclosed the figures at a weekend meeting, the Xinhua News Agency said.

Phone calls to ICBC’s press and investor relations offices were not answered.

Chinese banks are believed to hold only modest amounts of sub-prime debt. But financial markets are watching them closely to see how they will be affected.

Last month, investors sold Chinese bank shares after a news report that the Bank of China, the country’s No. 2 lender, might record a loss for last year due to sub-prime problems. The Bank of China denied that but has yet to release details on the status of its sub-prime holdings.

Mr Jiang said ICBC’s sub-prime holdings ‘remained stable but risk reserves had been increased in the fourth quarter after supervisory departments issued warnings on a possible deterioration of the sub-prime crisis’, according to Xinhua.

The Bank of China and ICBC are believed to have China’s largest holdings of sub-prime mortgage debt.

ICBC had said earlier that it holds US$1.2 billion in sub- prime bonds, while Bank of China said in October that it had sub-prime debt valued at US$7.95 billion.

 

Source: ASSOCIATED PRESS (The Straits Times 5 Feb 08)

Bush unveils record $4.2 trillion budget

Boost in military funding and cutbacks in health schemes mooted

WASHINGTON – THE United States’ first-ever budget to hit US$3 trillion (S$4.2 trillion) has been proposed by President George W. Bush.

It aims to boost military funding, virtually freeze many domestic programmes, and will result in huge fiscal deficits of around US$400 billion for this year and next.

Democrats, who control Congress, are pledging fierce opposition to the spending plan, Mr Bush’s last before he leaves office.

The 2009 budget, sent to Congress yesterday and due to begin on Oct1, would more than double the US$163 billion shortfall recorded last year.

It would approach the US$413 billion budget gap of 2004, which was a record in dollar terms, although the Bush administration emphasises that the deficits in the next few years would likely be around 2.8 per cent of gross domestic product – not far from the historical average.

With the economy possibly teetering on the brink of a recession, revenues are expected to suffer, reversing a trend of the past three years in which annual deficits declined.

A promised US$150 billion stimulus package of tax rebates – reflected in the budget – will add to the deficit, at least in the short term, and funding for the Iraq war is another source of red ink.

In terms of cuts, the Bush plan aims to rein in domestic spending, in areas from home heating-oil assistance to health care.

While many – if not most – of the priorities of the Bush budget will be jettisoned by the Democratic-led Congress, its unveiling will trigger a new round of sparring over Mr Bush’s fiscal policies and economic legacy.

‘Today’s budget bears all the hallmarks of the Bush legacy – it leads to more deficits, more debt, more tax cuts, more cutbacks in critical services,’ said House Budget Committee chairman John Spratt, a South Carolina Democrat, yesterday.

‘Far from proposing a plan to fix the budget, the Bush administration proposes policies that worsen it.’

Last year, when Democrats were newly in the majority, there were drawn-out veto struggles. This year’s fights could be worse because it is an election year.

As in past years, Mr Bush’s biggest proposed increases are in national security. Defence spending is projected to rise by about 7per cent to US$515billion and homeland security money by almost 11per cent, with a big gain for border security.

The bulk of government programmes for which Congress sets annual spending levels would remain frozen at current levels.

The President does shower extra money on some favoured programmes in education and to bolster inspections of imported food.

His spending proposal would achieve sizeable savings by slowing growth in the major health programmes – Medicare for retirees and Medicaid for the poor. There, Mr Bush is asking for almost US$200billion in cuts over five years, about three times the savings he proposed last year.

Democrats say the plan is a continuation of failed policies that have seen the national debt explode under Mr Bush – projected surpluses of US$5.6 trillion wiped out; and huge deficits taking their place, reflecting weaker revenues from the 2001 recession.

The Democrats also blamed Mr Bush’s costly US$1.3 trillion tax cuts during his first term.

‘The Bush administration is going to hand the next president a fiscal meltdown,’ Senate Budget Committee chairman Kent Conrad told Reuters.

 

Source: ASSOCIATED PRESS, REUTERS (The Straits Times 5 Feb 08)

US December factory orders below forecast

WASHINGTON – NEW orders at United States factories rose a less-than-expected 2.3 per cent in December, the steepest gain since July, on strong aircraft sales, a government report showed yesterday.

Orders for durable goods, items intended to last three years or longer, jumped 5 per cent, also the biggest gain since July, as civilian aircraft orders climbed 11.7 per cent, the Commerce Department said. Durables orders were revised down from the 5.2 per cent gain originally reported last week.

When transportation was stripped out, orders rose a modest 0.7 per cent.

Analysts polled by Reuters were expecting a 2.5 per cent gain in factory orders and a 5 per cent rise in durable goods orders.

‘Things that are tied to housing are weakening, but things that aren’t are holding up reasonably well,’ said senior economist Mark Vitner at Wachovia Corp in Charlotte, North Carolina. ‘We may see frustratingly slow economic growth but we will still see growth.’

Non-defence capital goods orders excluding aircraft, considered a gauge of business spending, climbed 4.5 per cent, the largest increase since March.

‘Carmakers and home builders are working off inventories, and that has got to cause further reductions up the pipeline,’ said Mr Vitner.

 

Source: REUTERS (The Straits Times 4 Feb 08)

ACCREDITATION SCHEME: Plans for new group to lift standards of housing agents

A GROUP of property agencies plans to form a new association to raise standards in response to growing complaints about estate agents.

The group, which will be separate from the Institute of Estate Agents (IEA), will work closely with an ongoing accreditation scheme to lift the industry’s game.

Complaints about agents have shot up in the past two years amid a property boom, prompting disquiet among some about the sector, which remains largely self-regulated.

Unlike the IEA, which has individual agents as members, the new body will involve estate agencies, said the chairman of its interim committee, property consultant David Ong.

The new body is likely to be linked to the Singapore Accredited Estate Agencies Scheme (SAEA), which last year was reported to have vetted more than 7,000 agents out of the 30,000 or so working in the industry.

It is understood that more than 10 agencies – including HSR Property Group and KF Property Network – will be joining the group. KF Property is the agency division of Knight Frank.

More details are expected soon, but the director of KF Property, Dr Tan Tee Khoon, told The Straits Times that the new body would allow the agency heads to share information about rogue agents as well as host seminars and conferences to raise standards.

A register of agents from member agencies could also be set up.

The group could rival the efforts of the IEA, which introduced a registry in 2006. That registry lists about 350 agencies with almost 21,000 agents.

Dr Tan denied that the new group would rival IEA, saying rather that it would help curb the problem of errant agents. ‘We are really trying to cover more ground. Members of the public are free to choose whether they want to use an IEA agent or an agent with the new association,’ he said.

His firm was among a group of agencies that raised concerns about IEA’s practising certificate scheme when it was launched last year.

The certificate was given to IEA members – which number about 1,400 now – who pledged to abide by its code of conduct. The dissenting group, which included HSR, DTZ Debenham Tie Leung and Global Real Estate, felt the certificate could confuse the public and called instead for the industry to support the SAEA.

One agency chief, Mr Chris Koh from Dennis Wee Properties, said the new group could work if it united all the industry’s head honchos. But IEA’s first vice-president and the chief executive of Propnex, Mr Mohamed Ismail, felt it would divide the industry instead and spread resources too thinly.

There were 1,717 housing agencies in Singapore as at the end of last year. The largely unregulated property sector has had a bad reputation over the years. The Consumers Association of Singapore (Case) received 1,113 complaints last year, up from 991 in 2006.

Case said the complaints involved agents misrepresenting facts, failing to honour promised terms and providing unsatisfactory services, among other things.

Industry veterans say the problem lies in the fact that only agencies are licensed, so agents sacked for unethical conduct can simply practise in another firm.

The Government, however, has consistently shied away from regulating agents.

Case is working with IEA to look into setting up another accreditation system for housing agencies.

 

Source: The Straits Times 4 Feb 08

WARRANT WATCH: CapitaLand contracts active on share plunge, bond issue

THE recent plunge in CapitaLand shares and news that the company is offering a convertible bond issue are drawing traders into fresh positions on warrants for South-east Asia’s biggest developer.

CapitaLand shares fared better than other property plays during the recent sub-prime selldown, but they took a beating last week. They plunged 73 cents for the week, ending 10 cents down at $5.80 with 37.3 million units done last Friday.

Mr Ooi Lid Seng, Societe Generale’s (SG’s) vice-president of structured products for Asia excluding Japan, said: ‘The counter has dropped about 12 per cent in the last five trading days.’

One reason was the recent slew of analyst reports urging investors to exercise caution with property stocks.

For example, Citigroup cut target prices for CapitaLand and City Developments last week, citing an expected moderation in office and residential prices.

Also last week, CapitaLand announced plans to raise $1.3 billion via a 10-year convertible bond issue. With a conversion price of $8.614, the bond pays a coupon rate of 3.125 per cent a year.

Mr Ooi highlighted a CapitaLand call warrant offered by SG for those who hold a positive view of the company.

It has a strike price of $6 and expires on July 14. No trades were done last Friday.

Last Friday, the most active SG CapitaLand contract was a call warrant with an exercise price of $6.22 that lapses on July 7. That contract closed 2.5 cents lower at 21.5 cents with 5.07 million units done.

Another active SG CapitaLand contract was a call warrant that expires on March 10 with a strike price of $6.70. Last Friday, it ended one cent down at two cents with 150,000 units traded.

In Mr Ooi’s view, the short-term outlook for CapitaLand shares is negative. He added: ‘The counter is likely to retest the $5.92 level should it rebound with minor support at $5.40.’

A call warrant lets an investor buy into a stock or index at a preset price over a period of three to nine months.

A put warrant allows an investor to sell the stock or index at a preset price over a fixed period of time.

 

Source: The Straits Times 4 Feb 08

Prices up everywhere, but inflation rate for food low here

Govt casting net wider to source for food; businesses also helping to limit price hikes

FACTORY operator Loke Yew Whye, a 54-year-old father of three school-going children, is finding it hard to cope with rising food prices.

The family, which survives on about $2,000 a month, which he and his wife earn, has been buying house brands from one of supermarket chain NTUC FairPrice’s Bedok branches to save money.

Last night, for example, a 5kg bag of FairPrice Thai fragrant white rice cost the family $4.70, half the price of a similar-size bag of Royal Umbrella fragrant rice at $9.50.

Minister of State for Trade and Industry Lee Yi Shyan yesterday urged Singaporeans to consider alternatives, such as by buying house brand products, as a way to cope with rising food costs worldwide.

Last year, food prices were 2.9 per cent higher than in 2006, going by the consumer price index (CPI).

Globally, market forces pushed up food prices.

Record oil prices raised the cost of producing and transporting food, while increasing wealth enjoyed by people in China and India have pumped up demand for meat and other food items, edging them northward.

On the other hand, bad weather reduced crop yield, so the mix of higher demand and lower supply have sent prices up.

Mr Lee added: ‘As Singapore imports most of its food, we can’t run away from this worldwide trend of rising prices.’

But the Government is not going to step in to impose price controls, he added.

‘From the experience of other countries which have done so, price controls have always led to hoarding, empty shelves and black market pricing,’ he said.

Instead, the Government is fighting the problem by diversifying its food sources to reduce the impact of supply disruptions from any single source.

For example, the Agri-Food and Veterinary Authority has looked beyond Malaysia and China for vegetables.

The supply of greens now also comes from Vietnam and Indonesia.

NTUC FairPrice is doing the same with rice and other produce.

Its managing director, Mr Seah Kian Peng, said FairPrice is buying Vietnamese rice, which is 20 per cent cheaper than Thai rice.

NTUC also packages items from cooking oil to soap under its house brand. These are generally 10 to 15 per cent cheaper than branded items, he added.

Meanwhile, it appears that businesses have not passed on the full brunt of increased prices to consumers.

Last December, the prices of imported food increased by 12.1 per cent from prices in December 2006, but the non-cooked food component of the CPI, such as rice and meat, went up by only 7.1 per cent during the same period.

What this means, Mr Lee said, is that supermarkets and shops have not passed on their full cost increases.

He pointed out that inflation among food items here has remained low by international standards.

The Republic has one of the lowest rates of inflation when it comes to food, going by a survey of 14 countries by the Australian Bureau of Statistics. Only Japan, Australia and South Korea had lower rates than Singapore.

But the question is: Will food prices continue rising?

Mr Lee said did not know, because food prices were shaped by a variety of factors.

For a consumer like Mr Loke, the rising costs of utilities and public transport, as well, add to his worries. He said in Mandarin: ‘The price increases all add up. The cost of living is becoming a bigger burden by the day.’

 

Source: The Straits Times 4 Feb 08

Firms post strong gains so far, but all eyes are on bank results

Keppel Corp leads at half-time with record full-year earnings of $1.13b

THE stock market may have had a torrid time of late, but the financial reporting season has so far brought little but big smiles for investors.

With the reporting season for companies with Dec 31 year-ends now at the halfway mark, Singapore has so far registered another sterling year of profits.

Among the 32 Singapore- listed early birds that had reported by 5pm last Friday, total profits were $4.07 billion, up a dazzling 68.3 per cent on the $2.42 billion for 2006.

Of those that reported full- year results, 31 were in the black. And 22 of them posted higher earnings.

Racking up the largest profit number, in absolute terms, was Keppel Corp. The company’s earnings for the 12 months ended Dec 31 last year rose 50.6 per cent to $1.13 billion, thanks mainly to booming business at its oil rig and shipbuilding unit.

Keppel’s record gain calmed jittery investors concerned over whether it might face foreign-exchange losses similar to those that rocked other offshore and marine companies like SembCorp Marine (SembMarine) last year.

SembMarine, now mired in a lawsuit with BNP Paribas over forex losses, will report full-year results on Feb 22.

The sharp spikes in crude oil prices last year also helped propel the full-year net earnings of Keppel associate, Singapore Petroleum Company, to a record of $508.3 million.

On the property front, many real estate investment trusts have unveiled strong full-year profit scorecards.

One of the top performers in that category is CapitaMall Trust, whose net income available for distribution for last year came to $211.2 million, up 25 per cent from the $169.4 million posted in the same period a year earlier.

One of the poorest performers was Evergro Properties – a member of the Keppel group – which reported a 97.4 per cent plunge in full-year net profit for last year on the back of lower divestment gains.

Several big-cap counters – including StarHub, ComfortDelGro, City Developments, Great Eastern Holdings and SembCorp Industries – are due to report their results this month.

However, it is the traditional top earners – DBS Group Holdings, United Overseas Bank (UOB) and OCBC Bank – that are likely to come under the most scrutiny, with analysts not ruling out more write-downs on assets linked to United States sub-prime mortgages.

‘What is currently of utmost concern are the results of the local banks, as great uncertainty and anxiety rule in the wake of the big casualties surfacing from the sub-prime fiasco affecting the top banks and brokerages in the world,’ said Mr Najeeb Jarhom, the senior vice-president of research at AmFraser Securities.

Another concern is how the net interest margins of local banks will be affected by the falling Singapore interbank offered rate (Sibor) – the rate at which banks lend to one another.

‘A falling Sibor environment is likely to post a threat to the net interest margins of Singapore banks, as all three of them are net interbank lenders,’ said Kim Eng analyst Pauline Lee.

Economists expect the Sibor to go even lower by midyear, due partly to the US cutting its key interest rate.

Phillip Securities Research investment analyst Brandon Ng has declared OCBC his top pick. OCBC is a conservative bank and made the largest provisions in the last quarter to cover the fallout from risky debt, compared with UOB and DBS, he said.

Deutsche Bank analyst Michael Chang feels Singapore banks offer cheap valuations for their rapidly improving fundamentals.

‘We recommend an overweight position,’ he noted.

 

Source: The Straits Times 4 Feb 08

UBS facing probe over sub-prime mortgage investments

Swiss bank may have inflated prices of securities despite drop in valuations

CHICAGO – UNITED States government prosecutors are investigating whether Swiss banking giant UBS misled investors by reporting inflated prices of mortgage-backed securities it held despite knowing those valuations had eroded, The Wall Street Journal reported last Saturday.

The Journal, quoting unnamed sources familiar with the probe, said the investigation by the US Attorney for the Eastern District of New York had not yet issued subpoenas.

But the sources noted that the New York prosecutors work closely with the US Securities and Exchange Commission (SEC).

The SEC recently expanded its own probes of both UBS and Merrill Lynch over the pricing of mortgage securities, a move which empowers the SEC to issue subpoenas, they said.

UBS was not immediately available for comment. A Merrill spokesman had no comment.

UBS, Europe’s hardest-hit bank from the credit crisis, last week raised its sub-prime write-downs to US$18.4 billion (S$26.1 billion).

Last Friday, the bank also urged its shareholders to dismiss a plan from some dissenting shareholders demanding an external probe into the bank’s sub-prime woes.

The US Justice Department last Wednesday said it was looking into whether fraud had occurred in the packaging and selling of complicated mortgage-related securities like collateralised debt obligations (CDOs), the Journal said.

The Federal Bureau of Investigation is looking at 14 unnamed companies in that probe, the agency said.

Last Friday, the top securities regulator in Massachusetts filed a civil complaint against Merrill, accusing the brokerage of selling unsuitable sub-prime mortgage-related securities to the city of Springfield.

Massachusetts Secretary of State William Galvin seeks to take away Merrill’s profits from a transaction in which it sold CDOs to the city. Merrill invested about US$14 million of the city’s money in CDOs last year, only to see most of the value erased.

Separately, the city of Springfield said last Thursday that Merrill had agreed to pay it US$13.9 million after determining that the city had not approved the purchase of the CDOs.

UBS remains under fire at home.

Shareholder advocacy group Ethos in December called for more clarity from UBS over its sub-prime losses, adding that there should be an independent probe.

But UBS has said there is no need for a separate investigation, as the country’s banking watchdog, EBK, is already probing the reasons behind its losses.

UBS last week stunned investors with its third round of sub- prime write-downs.

It reported heavy fourth- quarter losses and a 2007 net loss of 4.4 billion Swiss francs (S$5.8 billion).

 

Source: REUTERS (The Straits Times 4 Feb 08)

HDB resale deals at a new low in 2007

Rising resale prices and higher COVs result in last year’s total of 29,436

THE number of resale HDB flats which changed hands fell to a new low in 2007 – with just 29,436 transactions recorded – as buyer resistance set in, in the face of escalating resale prices and more sellers asking for large amounts of cash-over-valuation (COV), fresh HDB data shows.

The number was lower than the 29,723 resale transactions seen in 2006, which was itself a new low. Stock-market jitters in the fourth quarter also caused resale transactions in the last three months of 2007 to fall 13 per cent to 6,700.

The fall in transaction volume came despite a 17.5 per cent increase in HDB resale prices last year. In the fourth quarter, HDB resale prices rose 5.7 per cent, lower than the increase of 6.6 per cent seen in the third quarter.

‘With escalating resale prices and more and more COV transactions, we saw the resale market hitting resistance level in the fourth quarter as HDB flat buyers do not have or are not willing to part with so much cash,’ said Eugene Lim, assistant vice-president of property agency ERA.

The COV is the amount that is paid above the valuation of a flat and cannot be paid with a home loan or monies from the Central Provident Fund (CPF). With high COVs demanded by sellers, buyers are required to fork out more cash.

In the fourth quarter, cases requiring COV constituted 86 per cent of all resale transactions, up from 80 per cent in the third quarter. The median COV amount also increased to $22,000 in the last three months of the year, from $17,000 in the previous quarter.

However, a closer look at some of the traditionally popular estates show that median COVs have actually decreased as buyers resisted forking out large sums of cash. For example, in the third quarter, the median COV for a five-room flat in Queenstown was $110,000. In the fourth quarter, it had fallen to $79,000.

But despite the lower total resale volume, the number of five-room and executive flat transactions actually increased in 2007 over 2006, ERA’s Mr Lim pointed out.

The number of five-room resale transactions rose 13.3 per cent to 7,275 in 2007. Similarly, for executive flats, there were 2,627 transactions in 2007 – a jump of 17.9 per cent compared with 2006.

The robust numbers are mainly due to cash-rich buyers from enbloc sales or private property sales downgrading to larger HDB flats in choice locations, experts said. These buyers also account for the robust COVs fetched by larger flats.

‘Based on our data, more than 50 per cent of the high COVs of $80,000 or more seen in 2007 are from private property downgraders,’ said Mohamed Ismail, chief executive of property firm PropNex.

Sellers of these larger HDB flats are either upgrading to private properties or downgrading to smaller HDB flats, Mr Ismail said. He added that there was little upgrading from smaller to bigger HDB flats.

ERA’s Mr Lim said the fact that sellers of larger HDB flats are upgrading is good news for developers of mass market condos as traditionally, the support for their projects comes from buyers living in these HDB flats.

 

Source: Business Times 26 Jan 08

Private homes losing speculative froth

Subsale activity slowed in Q4; rising rents defined 2007

(SINGAPORE) The level of speculative activity in the private property market, as measured by the extent of subsales, slowed considerably in Q4 last year, especially in the Core Central Region (CCR), according to the latest official data.

Islandwide, subsales as a percentage of total private housing sales fell from 14.4 per cent in Q3 last year to 10.7 per cent in Q4, while in the CCR, the hotbed of speculation, the subsale percentage fell from 24.8 per cent to 18.6 per cent over the same period. Property consultants attributed the drop to uncertainty about the financial markets as well as the withdrawal of the deferred payment scheme in October 2007.

Reflecting the current housing shortage, the stock of completed private homes increased by just 1,448 units last year – the smallest rise in at least 12 years. The stock had increased by 4,008 units in 2006, 7,453 units in 2005, and 10,969 units in 2004.

Rents of condos and apartments rose significantly last year – by 42.3 per cent in CCR (comprising the prime districts 9, 10, 11, Downtown Core and Sentosa), an even higher 47 per cent in the Rest of Central Region (RCR), and 41.9 per cent in Outside Central Region (OCR).

‘Looking back at 2003/2004, developers were cautious and there were not many housing starts. So three or four years down the road, we’re seeing a fall in terms of new home completions,’ DTZ executive director Ong Choon Fah explains. ‘Of course there have also been a lot of en-bloc sales in the past two years and some of these properties have been demolished,’ she adds.

‘The situation is even more severe in the prime areas, and we’ve been seeing a lot of expats fanning out from the prime districts to RCR, to rent private homes, which probably explains why the increase in non-landed rents was steeper in RCR compared to the CCR,’ Mrs Ong explains.

With many private residential projects likely to be completed only in late 2008 and 2009, property consultants including Knight Frank managing director Tan Tiong Cheng expect rentals for non-landed properties to increase further this year. The rise could be less steep – perhaps 20 per cent, or around half the rate of increase for last year.

Yesterday’s data on the private property market by Urban Redevelopment Authority showed that the overall price index for private homes rose 6.8 per cent in Q4 over the preceding quarter, slower than the 8.3 per cent hike in Q3.

For the full year, the index was up 31.2 per cent, three times the 10.2 per cent rise in 2006.

In terms of regions, the price index for non-landed private homes in CCR rose 7.5 per cent in Q4, more measured than the 8.3 per cent gain in Q3.

Price indices for RCR and OCR advanced 7.7 per cent and 7 per cent respectively in Q4, slightly more modestly than in Q3.

For the whole of last year, the non-landed home price index for CCR rose 32.7 per cent, while RCR and OCR indices were up 30.4 per cent and 26.4 per cent respectively.

Developers sold a record 14,811 private homes last year, surpassing the previous high in 2006 by 32.9 per cent.

They launched a total of 14,016 units in 2007, 26.6 per cent above the 2006 figure and also a new high.

Knight Frank director (research and consultancy) Nicholas Mak predicts that URA’s overall private residential property price index will rise at a more sluggish pace – around 10-15 per cent – this year, as buyers become more prudent.

Colliers International director (research and consultancy) Tay Huey Ying reckons that subsales as a percentage of total private homes sales islandwide will continue trending down in the coming months, to average about 8 per cent for the whole year, as the market moves to a ‘healthier and more sustainable set of fundamentals’.

Less speculation could also slow the hike in home prices, she says. ‘As a result, developers are less likely to bid aggressively for development sites and this will affect the success rates of collective sales,’ she adds.

Some seasoned market players are predicting that home prices in CCR could take a hit of up to 10 per cent this year; those in RCR will be flat, perhaps rising slightly; while OCR will post the biggest gains of about 10-15 per cent.

‘There’s significant supply of projects for launch in CCR, and that will weigh down on prices. Foreign buying will thin because of the financial market turmoil which is hitting high-net-worth bankers and others,’ a veteran industry observer suggests.

BT learnt yesterday that the release of the high-profile Marina Bay Suites, which was initially slated for the end of this month, has been delayed till after the Chinese New Year festivities – by which time the Budget should also be announced and hopefully lift sentiment.

 

Source: Business Times 26 Jan 08

Property market shows signs of cooling

AFTER months of relentless price rises, the property market finally took a breather at the end of last year.

Almost all sectors – including private and public homes, offices and shops – applied the brakes in the fourth quarter, ending almost two years of acceleration, official figures showed yesterday.

They confirmed initial estimates earlier this month that suggested, in particular, that housing demand is cooling.

Experts say this was due partly to the global fallout from the sub-prime mortgage crisis in the United States and partly to local government measures, such as the withdrawal of the deferred payment scheme in October.

The slowdown is set to continue this year. Growth will still be healthy, but considerably lower than last year’s one-record-after-another spiral, experts say.

Most predict a rise in private home prices of 10 to 20 per cent this year – a far cry from the robust 31.2 per cent growth last year.

Private home rental, which caused tenants no end of headaches by shooting up 41.2 per cent last year, are also expected to moderate to between 5 and 15 per cent.

HDB resale prices are projected to increase by not more than 10 per cent, down from last year’s 17.5 per cent. Offices and shops will also fall in line. Price rises are forecast to be less than last year’s increases of 32.6 per cent and 13.2 per cent, respectively.

Volatility in stock markets and the stream of bad economic news coming out of the US have made for a quiet start to the year, particularly in the housing market.

Developers have delayed planned launches of new projects or scheduled upcoming launches well after Chinese New Year, according to industry sources.

Plans to start sales for Marina Bay Suites yesterday, for example, are said to have been shelved until after the festive holiday.

‘We expect the residential market to remain cautious, at least in the first quarter of 2008, until the global situation becomes clearer,’ said Mr Li Hiaw Ho, executive director at CBRE Research.

Demand for homes also appears to have eased.

Although a record 14,811 new homes were sold last year, sales in the last three months contributed only 1,449 of those units – the fewest transactions in a quarter since 2005.

But homeowners can take heart: The boom has enough steam to run for some time before reaching its peak, said property consultants.

‘I would say we could be nearing a peak, but we’re not there yet,’ said Dr Chua Yang Liang, head of Singapore research at consultancy Jones Lang LaSalle.

‘Typically, we will see growth of around only 1 per cent in a quarter before we hit a peak,’ added Mr Nicholas Mak, director of research and consultancy at Knight Frank.

Private home prices rose 6.8 per cent in the fourth quarter of last year, down from 8.3 per cent growth in the third quarter.

HDB resale prices grew 5.7 per cent, compared with 6.6 per cent in the previous three months.

Consultants said while the rises in home prices will slow, prices will not actually fall until at least 2010, when a slew of new homes is expected to be completed.

In the meantime, much of this year’s residential market growth is likely to come from HDB flats and suburban mass market condominiums, which are signs of more genuine home-buying demand.

Speculative demand has already dropped dramatically. A measure of speculation is sub-sales, which are when uncompleted homes change hands. These fell to 513 in the fourth quarter – a third of their level in the previous quarter.

Source: The Straits Times 26 Jan 08

Increases in cost of offices, shops starting to slow down

RESPITE may be in sight for those who have been griping about the surging cost of doing business in Singapore.

Latest figures show that the increases in the cost of shops and offices eased in the fourth quarter of last year, in line with a general slowdown in the property market.

Prices and rentals for these commercial properties soared for most of last year, especially for office space, which reached an all-time high amid an acute short supply.

This prompted complaints from businesses and sparked off worries about Singapore’s competitiveness.

But official data released by the Urban Redevelopment Authority yesterday may finally calm these jitters.

Rentals for offices rose by 10.9 per cent between October and last month, down from 14.8 per cent in the previous three months – which was a decade-high jump, said Mr Li Hiaw Ho, the executive director of CBRE Research.

The slowing could be ‘the initial sign that the numerous efforts by the Government to cool the sector are taking effect’, said Ms Tay Huey Ying, the director of research and consultancy at Colliers International.

These moves include releasing more land for offices as well as immediate steps such as short-term leases in existing buildings and temporary office plots.

Colliers’ own data shows that office tenants are becoming increasingly resistant to further rent rises. Rents for office space in several areas, including Grade A buildings in Raffles Place, have seen declining growth rates for the past two to three quarters, said Ms Tay.

She said this is because firms are more willing to explore alternative business space locations, including business parks and high-tech industrial space.

For the whole year, rentals for office space jumped by 56.1 per cent. The rental index is now at an all-time record of 175.1 points, said Mr Li.

Ms Tay expects growth to moderate next year as tenants hold out for the expected large new supply in 2010.

She is forecasting a rise of up to 20 per cent for Grade A office space.

As for shops, the rise in rentals has all but peaked. Overall rentals rose by 0.6 per cent in the fourth quarter, compared with 8.1 per cent in the previous quarter.

In Orchard Road, rental growth was almost flat at 0.3 per cent in the quarter. Shops on the fringes saw slightly higher growth, but suburban retail space did the best with a 1.3 per cent rise.

For the whole year, shop rents rose by 18.2 per cent.

But landlords wanting to raise rents this year are likely to face strong resistance from retailers, said Mr Nicholas Mak, the director of research and consultancy at Knight Frank.

‘With the projected large supply coming on stream next year, retailers would have more space choices and would resist large increments in retail rents.’

He expects rents to increase by 5 to 10 per cent for this year.

 

Source: The Straits Times 26 Jan 08

Home prices on city fringe, suburbs still rising strongly

PRICE increases for high-end homes in the central areas may be easing, but not so for homes on the city fringe and suburban apartments – where prices are still rising strongly.

Urban Redeveloment Authority figures showed growth in the prices of uncompleted apartments in the central areas slid from 7.8 per cent to 7.6 per cent from October to December. Price increases for city fringe units, on the other hand, rose from 7.6 per cent to 8.3 per cent.

Growth in the prices of uncompleted apartments in suburban areas also crept up to 9.2 per cent from 9.1 per cent.

Dr Chua Yang Liang, head of research, South-east Asia, at Jones Lang LaSalle, said home prices in the suburbs would keep growing by 24 per cent to 26 per cent this year. This would be supported by home owners looking for new homes after being disloged by collective sales.

Last year, 14,811 new homes were sold.

Mr Li Hiaw Ho, executive director of research at CB Richard Ellis, meanwhile, expects price rises and sales volume to moderate this year.

‘Luxury prices are likely to stabilise at current levels, while mid-tier and mass market prices may have the potential to rise by 10 per cent to 15 per cent,’ he said.

 

Source: The Straits Times 26 Jan 08

Growth in rents of private homes beginning to ease up

Jan 26, 2008

EXPATRIATES and other tenants in private apartments can finally start to breathe easier. Data from the Urban Redevelopment Authority released yesterday showed a subsiding of the sharp rise in rentals for condos in key areas.

Rentals for non-landed property in the coveted core central region, which covers Tanglin and Bukit Timah, for instance, grew just 5.3 per cent, less than half the rate of 12.2 per cent achieved in the third quarter.

The drop in rental growth was not as dramatic for the rest of the central region, though, which slid from 11.9 per cent to 8.8 per cent, and outside the central region – from 11.8 per cent to 8.5 per cent. Overall rents of private homes grew 6.8 per cent from October to December, slowing from an 11.4 per cent rise in the previous period. For the whole of last year, private home rentals surged 41.2 per cent.

Mr Nicholas Mak, the head of research and consultancy at Knight Frank, expects private homes rentals to rise in a more ‘tamed manner’ of 10 per cent to 15 per cent this year.

Still, Ms Tay Huey Ying, director for research and consultancy at Colliers International, reckons rentals of luxury homes will rise by 25 per cent to 30 per cent this year.

Meanwhile, rentals for the HDB market continued to grow strongly.

The median rent for a four-room flat rose from $1,400 to $1,500 in the fourth quarter, while that for a fiveroom unit also grew $100 to hit $1,700.

From October to December, 3,300 flat owners were given approval to rent out their flats. The total number of flats being rented out rose 7 per cent to 17,400 in that period.

The chief executive of property agency PropNex, Mr Mohamed Ismail, expects rentals to rise by 15 per cent to 20 per cent for the whole of this year, as expats pushed out by high rentals for condo units look for cheaper options.

Buyers paying $22k over valuation for resale flats

Median cash over valuation amount up a third; trend filters to outlying areas

BUYERS of resale Housing Board (HDB) flats paid a median amount of $22,000 in cash over the property’s valuation for their new homes from October to last month, a whopping 30 per cent rise from the previous quarter.

The good news for HDB flat owners in outlying areas is that this trend is filtering outwards towards them from the most popular districts downtown.

HDB data released yesterday showed that 86 per cent of all resale transactions in the fourth quarter of last year required cash payments over valuation, up from 80 per cent in the previous quarter.

However, greater resistance from buyers to the surging prices of resale flats last year resulted in a 13 per cent drop in the number of flats sold, to 6,700. For the whole of last year, 29,436 flats changed hands.

In fact, despite the overall rise, the median cash over valuation (COV) of some units in traditionally more popular estates such as Queenstown actually dropped. The median COV for a five-room flat in that area, which hit $110,000 in the July to September period, actually shrank to $79,000 in the period after that – albeit off a high base.

This, said the assistant vice-president of ERA Singapore, Mr Eugene Lim, showed the extent of the current market resistance towards high COVs.

‘Very often, the deal cannot be closed or takes much longer to close because of unrealistic sellers demanding high COV transactions,’ he said.

The chief executive of PropNex, Mr Mohamed Ismail, said another reason for this phenomenon is that the number of flat buyers with thick wads of cash in hand – mostly due to the collective sales of their private homes – is shrinking.

Most people buying HDB flats rely heavily on home loans to finance their purchase.

Resale prices of HDB flats rose 5.7 per cent during the quarter to bring the year’s growth to 17.5 per cent.

Last year’s growth is the biggest in a decade but property agents are not expecting a repeat for now as the HDB is offering at least 4,500 new flats for the first half of this year to calm buyers worried that housing is growing out of their reach.

These flats, which are highly subsidised, have an advantage over resale flats because they do not require buyers to fork out cash over valuation.

While ERA’s Mr Lim expects the price of resale flats to grow by 5 to 8 per cent this year, Mr Ismail reckons it would move by about 10 per cent.

Mr Ismail pointed out: ‘The economy is still doing well. And the labour market is tight.’ 

Source:  The Straits Times 26 Jan 08

Two new MRT lines by 2020

They will run through estates in north and east; North-South and East-West lines will also be extended by 2015

TWO new underground MRT lines will be built by 2020 – one from Woodlands to Marina Bay via Thomson, and the other from Changi to Marina Bay via Marine Parade.

The 27km Thomson line will run through Sin Ming and Kim Seng, while the Eastern Region Line (ERL) will slice through Siglap and Tanjong Rhu. All are neighbourhoods not served by the MRT now.

The two new lines add 48km of rail and possibly 30 new stations.

In addition, extensions will be made to the East-West and North-South lines by 2015.

The East-West line will stretch 14km out to Tuas with an above-ground track, while the North-South line will be extended underground to Marina South.

These four additions, together with the lines now being built, will extend the rail network from the current 138km of track to 278km.

The tab: $20 billion. This is over and above the $20 billion already committed for the Circle Line, the Downtown Line and the Boon Lay extension.

When completed, cross-city trips will be faster; commuters will have a train stop within 400m, or five minutes’ walking distance, said Transport Minister Raymond Lim yesterday.

He was delivering Part Two of his three-part policy speech on improvements to Singapore’s land transport system.

He first unveiled a slew of changes to the bus system last week, and will wrap it up next week with what is in store for other road users.

With the Thomson Line in operation, commuters in Sin Ming, for example, will shave 20 minutes off their current 45-minute trip to the city; those in Marine Parade will get to Marina Bay on the ERL in 20 minutes – almost as fast as by car, said Mr Lim.

The extensions to the existing East-West and North-South lines will also shorten commuting time.

Take, for example, a commuter who lives in Clementi and works in Tuas. To get to work now, he will have to take a train from Clementi to Boon Lay, from where it will take him another 35 minutes by bus to his destination. With the extension of the East-West line to Tuas, he will save 20 minutes.

Mr Lim, who toured the Kim Chuan train depot yesterday, said: ‘Commuters can look forward to new extensions or stages of new lines opening almost every other year until 2020.’

The next milestone will be marked in the middle of next year, when Stage 3 of the Circle Line opens – a year ahead of schedule – to connect areas such as Lorong Chuan and Bartley.

But commuters will experience improvements from next month, when 93 train trips will be added every week during the rush hours to ease crowding and cut waiting times.

Down the road, new trains will be bought and work done on the two oldest tracks so they can carry 15 per cent more passengers.

As with bus routes, the Government will also open up the rail market to competition. Contracts to run rail services will be 10 to 15 years long, down from 30.

To enhance the commuter’s experience, more covered linkways and overhead bridges will be built in the next two years; the elderly and disabled will have full access to buses and improved access to MRT stations. A sixmonth trial to allow foldable bicycles on trains will also be carried out.

As for taxi commuters, a centralised call booking centre will be set up by July.

Mr Lim gave the assurance that fares will continue to be regulated by the Public Transport Council, and help will be given to those who cannot afford to pay.

 

Source: The Straits Times 26 Jan 08

Flashes of optimism over global economy

Leaders note US system’s strengths and growth in nascent economies

DAVOS (SWITZERLAND) – COATS and jackets are off as blue skies and glorious sunshine soften the stark beauty of the icy Swiss Alps.

And in the nearly non-stop discussions between the world’s top political and business decision-makers gathered for this year’s World Economic Forum, flashes of optimism could be found in the largely gloomy countdown to a slowdown.

The news of a US$150 billion (S$214 billion) deal to revive the world’s largest economy brought cheer and a reminder that policymakers are not sitting on their hands, waiting for the markets to make the ‘healthy correction’ to the excesses in the US economy.

The US package will put between US$300 and US$1,200 in the pockets of more than 115 million Americans – the all-important consumers who drive the world’s economy.

And next Wednesday, Federal Reserve chief Ben Bernanke may present an encore – another interest rate cut to ease the credit crunch and edgy financial markets.

There are inherent strengths in the US economy, India’s Finance Minister Palaniappan Chidambaram told a forum discussing the possibilities and the impact of a US slowdown.

‘The US is a highly knowledge-based, innovative society. Their economy may slow down for two or three quarters…It is resilient and is bound to bounce back,’ he said. He quoted former Fed chief Alan Greenspan, who said in a media interview that there was ‘no clear proof’ of a recession in the data emerging from the US economy.

Another ground for optimism was seen in the number of nascent economies dotting the globe with their ’shiny eyes and can-do spirit’, as a Nigerian leader described them in a session exploring the next emerging markets.

Adding to the ranks of the well-known ‘BRIC’ combination of sunrise economies of Brazil, Russia, India and China, are new investment destinations with promise: Vietnam, South Africa, Turkey, Jordan, Morocco, Nigeria, Colombia and Mexico were mentioned.

‘I remain optimistic about prospects,’ said Mitsubishi president and chief executive Yorihiko Kojima.

He said he saw many opportunities daily as he toured the Japanese giant’s 220 offices in 80 countries.

Sovereign wealth funds with their trillions of investible funds were being counted on, too, to provide the liquidity needed to bail out distressed financial institutions.

They perform the vital task of recapitalising drained-out banks, said KPMG chairman Timothy Flynn. He added that a slowdown could be ‘healthy’ for the global economy to the extent that it would force companies to reexamine their business models, risk architecture and governance.

Still, the slowdown expectations are hard to beat.

For all the excitement about China and India, the world continues to be heavily dependent on the US consumer to keep the factories running.

When asked how much the world could look to Chinese and Indian consumers, Mr Chidambaram shrugged.

‘Not much,’ he said, pointing to some figures that show that while the Americans accounted for annual consumption worth US$9 trillion, the best figure for annual consumption in China and India could not top US $1.75 trillion.

Meanwhile, British Prime Minister Gordon Brown, who also spoke at the forum, urged countries in Europe and elsewhere to open up more to trade and investment to help offset the risk of a downturn in the global economy. ‘We have to be less protectionist,’ he said.

‘I think there is a danger. I see it in parts of Europe where people resort to protectionism,’ he said, without identifying countries he was referring to.

In an op-ed article published in the Financial Times on Thursday, Mr Brown criticised reckless investors for global economic turbulence and called for the International Monetary Fund to be given broader powers to keep watch on the world economy.

 

Source: The Straits Times 26 Jan 08

Asian exporters brace themselves for slowdown

Companies changing how they operate rather than wait for things to get worse

HONG KONG – ASIAN exporters are already feeling the effects of a United States economic downturn – effects that may be magnified by a weak US dollar, volatile world markets and fears that more bad loans may be ticking in the coffers of American companies.

Rather than waiting for things to get worse, companies from Chinese garment businesses to Japanese equipment manufacturers are changing how they operate.

The weakening US demand is clear. American orders for small tractors fell 5 per cent last year at Kubota in

Osaka, Japan, and are expected to fall further this year. Orders from the US have been weak for a year at Top Form, the Hong Kong company that is the world’s largest bra manufacturer. And at Aigret Industries, a manufacturer of multi-line phone systems and fax machines in Xiamen, China, orders from the US plunged 30 per cent in the fourth quarter compared with a year ago.

In some industries, the result has been deep gloom. At Evergreen Knitting in Ningbo, China, orders from the US for T-shirts and sweaters abruptly dropped 20 per cent this winter.

‘We anticipate that this year, 10 per cent to 20 per cent of the knitwear factories will have to close due to the inability to compete,’ said Mr Sean Zhu, Evergreen’s sales manager.

In response to the downturn, some companies are pursuing remedies that will affect economic output, like Aigret Industries, which has lengthened next month’s Chinese New Year vacation for its workers to 20 days, instead of the usual 10.

Others are investing in more technological research and developing new models, like Xigo Electric in Zhongshan, China, which manufactures air conditioners and liquid-crystal display television sets.

‘We really felt the impact of the slowdown in the US during the second half of 2007,’ said Mr Stan He, a Xigo

sales manager. ‘Orders were generally down by 10 per cent to 20 per cent relative to the same period a year ago.’

Asian exporters lie at the centre of the debate in financial markets over the extent to which Asia has decoupled from the US and can grow strongly even if the American economy slows significantly. The evidence so far is that the effects of a US slowdown will vary widely, depending on each country’s reliance on exports and the extent to which each economy is overheating or stumbling.

China, which has struggled in recent months with rising inflation, has actually benefited from slower exports, although a steeper decline could prove a problem. The Chinese government announced on Thursday that growth eased to 11.2 per cent in the fourth quarter from 11.5 per cent in the third quarter.

The modest slowing, almost entirely because of less brisk growth in exports, helped reduce inflation to 6.5 percent last month from 6.9 per cent in November, the government said.

But with fixed-asset investment still soaring in China, Mr Xie Fuzhan, the director of the National Bureau of Statistics, said China was still worried that overall growth was too fast to be sustained without inflationary pressures.

 

Source: NEW YORK TIMES (The Straits Times 26 Jan 08)

‘Stormy 2008′ expected for financial services

LONDON – THE financial services industry should expect ‘turbulent conditions for 2008 and beyond’ and may report an additional US$300 billion (S$429.8 billion) in losses related to the United States sub-prime crisis, according to a study by consulting firm Oliver Wyman.

‘We expect a stormy 2008,’ Oliver Wyman said in its State Of The Financial Services Industry report. ‘While governments, central banks and regulators scramble to address the aftermath of the sub-prime fallout, several other crises are mounting.’

A slowdown in European real estate, especially in Britain and Spain, potential weakening of the US dollar and a possible collapse in commodity prices may hurt the global economy, according to the report.

A drop in Chinese and Indian stocks may be a fourth ‘potential disruption’ this year, Oliver Wyman said.

Senior executives and investors are gathering at the World Economic Forum in Davos, Switzerland, amid concerns the world’s biggest economy is sliding into a recession.

The mood contrasted with the buoyancy of last year’s meeting, where guests celebrated a bumper year of corporate profits and bonuses and the strongest global economy in three decades.

The US Federal Reserve this week lowered the target rate for overnight bank loans in the first emergency cut since 2001, as it tried to prevent a recession.

US President George W. Bush and House lawmakers announced an agreement on an economic stimulus package that would distribute rebate cheques to 117 million families.

Economists at Goldman Sachs Group and Merrill Lynch are predicting the US economy will fall into its first recession in seven years this year.

Chief executive officers (CEOs) of financial services companies surveyed by Oliver Wyman said they expected share prices of financial services companies to increase between 5 per cent and 14 per cent this year.

The same prediction was made last year, according to Mr Alex Paidas, a spokesman for Oliver Wyman.

Instead, the industry contracted by 7 per cent. This year, 48 per cent of the CEOs surveyed cited deteriorating market conditions as a key threat.

Sixty-nine per cent of the CEOs polled in November and last month said they expected their companies to outperform the industry this year.

‘North American financial services firms will have a tough year,’ Oliver Wyman said. ‘Market uncertainty, combined with further write-downs and expected home price and loan volume declines, implies more squeezes on earnings. Banks most likely will have to increase loan-loss reserves.’

Growth in Western Europe is likely to suffer, while Latin America has a positive outlook and ‘growth opportunities exist’ in Singapore, Taiwan, Indonesia and Korea, according to the report.

Private equity is an industry that is likely to grow, the consulting firm said.

 

Source: BLOOMBERG NEWS (The Straits Times 26 Jan 08)

NEWS ANALYSIS: Spectre of recession spurs US bipartisan economic deal

Republican White House and Democrat-led Congress come together on stimulus package to resuscitate ailing economy

WASHINGTON – DEMOCRATIC House Speaker Nancy Pelosi spoke about ‘bipartisanship’ 10 times.

The combative lawmaker, who has been so critical of the Bush administration’s policies over the past year, took pleasure in announcing a hard-won deal on an economic stimulus package – reached in double quick time between the Republican White House and a Democrat-controlled Congress.

‘Let us praise it for what it does, not disrespect it for what it does not,’ Ms Pelosi said on Thursday. ‘It is timely, it is targeted and it is temporary. And it was done in record time.’ President George W. Bush hailed it as the fruit of ‘patience, determination and good will’ in both parties.

It was a rare victory – and reprieve – for both sides, which have spent most of the past year at loggerheads over many issues, including the Iraq War, children’s health-care and immigration.

Mr Bush vetoed seven Bills in the process – and staged only one signing ceremony with Ms Pelosi and Senate Majority Leader Harry Reid.

The US$150 billion (S$214 billion) rescue package might be the second one if the Senate approves it next month.

What has brought them together after a year of bitter feuding?

Both sides were clearly spooked by fears of an economic downturn in the US. It has become increasingly clear that the economy is teetering on the edge of recession, if it has not already crossed that line.

The crisis in the sub-prime adjustable home loans market has hit many lending institutions hard, cramping credit for almost everyone else.

Economic growth has all but disappeared, companies are reporting big losses and Wall Street continues a losing streak despite the emergency move by the Federal Reserve earlier this week to cut interest rates.

The domestic and foreign turmoil that followed has made the economy the No.1 concern for American voters as the presidential campaign heats up. With recession looming – and threatening to gain political mileage – lawmakers jumped eagerly at the chance to mend the ailing economy.

The package passed on Thursday was aimed at spurring consumption, featuring tax rebates of US$600 to US $1,200 for most tax filers within six months. The hope is that they will spend the money quickly and jolt the economy to life. Businesses would get US$50 billion in incentives to invest in new plants and equipment.

Each side got something out of the deal.

Late in the negotiations that preceded Thursday’s breakthrough, Ms Pelosi agreed not to include two proposals with broad support among congressional Democrats: an extension of unemployment benefits and a temporary increase in food stamps.

In exchange for those concessions, the Bush administration and House Republicans agreed that the stipend of at least US$300 would be paid to all workers who earned at least US$3,000 last year, even those who did not earn enough to pay taxes.

It was unclear, however, how Democrats in the Senate would receive the package without extended unemployment benefits or increased food stamps.

Some, like Massachusetts senator Edward Kennedy and New York senator Charles Schumer, have said that such proposals offered the best prospects for quickly injecting added spending into the economy.

There was some opposition in the House to Ms Pelosi’s compromise.

‘I do not understand, and cannot accept, the resistance of President Bush and Republican leaders to including an extension of unemployment benefits for those who are without work through no fault of their own,’ House Ways and Means Committee chairman Charles Rangel said.

The main obstacle, however, remains the Senate, which very often wins its battles with the House.

But with the power of the administration behind them, House leaders are optimistic – despite criticism from some – that their proposals would go through without any significant changes.

Mr Reid said he hoped to send a completed package to the White House by Feb 15, possibly with increased spending.

With the United States on the road to recession, politics might have taken a temporary back-seat. But there is no guarantee that swift cooperation between the administration and Congress will prevent a downturn in the world’s biggest economy.

Passing a stimulus package might not be enough for an economy dealing with a huge unknown: the ultimate magnitude of the housing crash and credit crunch.

And investors may want to see something more concrete – lower unemployment or higher retail spending.

US Treasury Secretary Henry Paulson, who has led the White House negotiations, made clear the plan would allow the government to mail out tax rebate cheques aimed at stimulating consumer spending within ‘60 days, more or less’ of congressional passage.

Yet some observers have said it may take the government until May or June to get cheques to consumers, making the economic boost somewhat questionable.

There is bipartisanship today. But it might have come too late.

Many economists, instead, portrayed the package as a significant psychological boost for jittery markets around the world.

 

Source: The Straits Times 26 Jan 08

US at the edge of a recession, says Greenspan

VANCOUVER – THE United States is drawing close to a recession, with the odds at 50 per cent or possibly higher, former Federal Reserve chairman Alan Greenspan said on Thursday.

‘The odds have definitely moved up from a year ago, when I was talking of about a third,’ Mr Greenspan told a financial audience.

‘I think we are now at a point that we are at the edge or over,’ he added. ‘The probability of a recession is 50 per cent, maybe more, but we are not there yet.’

Mr Greenspan’s comments were similar to those he made earlier in the month, and he acknowledged it was very difficult to predict exactly when the economy might enter a recession or was actually in one.

The former Fed chairman said a lesson learned from previous downturns in the economy and financial markets, such as after the Sept 11, 2001 attacks, was the need to avoid protectionist trade policies.

‘The economy is exceedingly more resilient than in the past,’ Mr Greenspan said, when asked if he thought if a recession would be shallow or deep, adding later that ‘for that reason, I would argue for a relatively shallow recession’.

On the issue of sub-prime mortgages, which were at the heart of the current economic turmoil, Mr Greenspan said although the loans were risky, he believed that they were worth the risk as they helped broaden home ownership.

The ‘real big surprise’ to him was how the sub-prime crisis migrated across borders to other parts of the world because of securitisation – where the mortgages were bundled together for sale through complex financial instruments.

Mr Greenspan gave a cautious thumbs up to recent injections by sovereign wealth funds of billions of dollars in exchange for stakes in a number of US banks hard-hit by the sub-prime crisis.

‘I must admit I am a little uncomfortable with sovereign wealth funds, but I must admit there is very little evidence that they are being used inappropriately,’ Mr Greenspan said. ‘On balance, I think they are desirable”, he added.

China, Kuwait and Singapore are among the foreign governments that have pumped money into US companies in recent weeks.

 

Source: REUTERS (The Straits Times 26 Jan 08)

Bumper prices fetched by HDB flats fuel condo demand

High cash over valuation provides ‘filter-up’ demand for private homes

(SINGAPORE) More Housing Development Board flats in prime locations are now being sold for more than halfa-million dollars each, and the trend is pushing up the asking prices for mass market condominiums and adding to demand for entry-level private homes.

Data compiled by property firm ERA showed that 269 HDB flats were sold for $500,000 or more in the fourth quarter of 2007 – a 69 per cent increase over the 159 flats sold for more than $500,000 each in the previous quarter.

While most of such flats in the fourth quarter of 2007 went for between $500,000 and $599,999, 50 were sold at $600,000 to $699,999.

And 12 changed hands at $700,000 or higher.

Anecdotal evidence also suggests that larger HDB flats in Singapore’s central locations are fetching more money than before.

For instance, a 21st-storey executive flat along Mei Ling Street in Queenstown sold for a record $890,000 earlier this month.

Last November, another executive flat along the same street went for a then-record $780,000.

The sellers of such flats will now have the capacity to buy entry-level private homes, said ERA assistant vice president Eugene Lim.

New homeowners could also look at private homes for their first property purchases, rather than at resale HDB flats in the more central parts of Singapore.

‘HDB flats provide the support for entry-level types of private housing,’ said Mr Lim. ‘If HDB prices keep moving up, people will begin to look at private properties.’

CB Richard Ellis executive director Joseph Tan pointed out that the recent surge in HDB prices has narrowed the price gap between public housing and private homes.

Many of the pricier flats are being sold for high amounts of cash-over-valuation (COV), which means that sellers will have cash on hand to make the downpayment when they purchase private properties.

‘The HDB sellers now have greater purchasing power, especially with the high COVs, which can be used for downpayments on private properties,’ said Nicholas Mak, director of research and consultancy at Knight Frank.

HDB statistics show that the median COV for executive flats in Bukit Timah rose to $137,500 in the third quarter of 2007.

In Marine Parade, the COV for five-room flats hit $84,000 in the same quarter.

The massive growth in COV for larger flats in central districts can largely be attributed to homeowners that have sold their properties through en bloc sales and are now moving into HDB flats.

But the reverse also applies now, analysts said. Sellers of these flats are starting to upgrade to mass market private homes with spare money fetched from the high COVs of their old flats.

Property agents told BT that sellers of HDB flats with cash on hand are looking mostly at mass market condominiums in the resale market as they need replacement properties to move into.

New mass market homes, by contrast, are not as popular.

But eventually, this ‘filter-up’ demand will cause mass market property prices to climb, analysts said, which could once again put private homes out of reach of HDB upgraders.

Property agents also report that sellers of mass market private homes are upping their asking prices as they see HDB prices in prime locations head skywards.

‘Sellers are seeing five-room and executive HDB flats fetching $700,000,’ said one property agent. ‘So they think, I can ask for $1 million for my four-room private home.’

The agent said that at least two sellers of mass market homes that he is representing have recently upped their asking prices, even though the new prices are not ‘realistic’, in his opinion.

Knight Frank’s Mr Mak agreed. ‘Word gets around that HDB prices are going up, and quite quickly, sellers (of mass market private homes) start upping their asking prices.’

 

Source: Business Times 25 Jan 08

US DATA: Dec home sales fall, cap biggest yearly slump

Purchases fall 2.2% to an annual rate of 4.89m; 1st fall in prices in 40 years

(WASHINGTON) Sales of existing homes in the US fell more than forecast in December, capping the biggest yearly slump in more than a generation.

Purchases fell 2.2 per cent to an annual rate of 4.89 million, the National Association of Realtors said yesterday.

For all of last year, sales of single-family homes declined 13 per cent, the most since 1982, and prices dropped for the first time in at least four decades.

Falling property values and tougher borrowing rules may lead to more foreclosures and depress housing for most of this year. The worsening real estate recession is at the core of the economic slowdown and will probably prompt the Federal Reserve to lower interest rates next week and in future meetings, economists said.

‘We are not at the bottom in the housing market,’ said Nigel Gault, director of US research at Global Insight Inc, a Lexington, Massachusetts, forecasting firm. ‘The Fed is trying to battle against the fundamentals which say housing is not going to recover until we have a substantial decline in prices.’

Economists forecast that sales would fall to a 4.95 million annual rate from November’s previously reported five million pace, according to the median estimate of 71 economists in a Bloomberg News survey. Projections ranged from 4.75 million to 5.15 million.

The median sales price fell 6 per cent to US$208,400 from December 2006 and was down 1.4 per cent for all of 2007 from the previous year.

The median price of a single-family home dropped 1.8 per cent in 2007, the first decline since records began four decades ago and probably the first since the Great Depression in the 1930s, the realtors group said.

‘I do expect sales to remain soft through the first quarter and possibly the second quarter,’ said Lawrence Yun, the real estate agents group’s chief economist.

The number of homes for sale at the end of December fell 7.4 per cent to 3.91 million. At the current sales pace, that represented 9.6 months’ supply, compared with 10.1 months in November. The realtors group has said that a five to six months’ supply is needed to stabilise the market.

‘With inventories at such high levels, it’s quite clear that the housing market is going to be in a decline for a long period of time,’ Zach Pandl, an economist at Lehman Brothers Holdings Inc in New York, said before the report.

Elevated inventories leave builders with little incentive to break ground on new projects and push down prices on new and existing homes.

The Commerce Department is scheduled to report new home sales next week. Purchases of new houses, which account about 15 per cent of the market, fell to a 12-year low in November.

Builders broke ground in December on the fewest houses since 1991, making last year’s decline in homebuilding the worst in almost three decades, the department said on Jan 17.

New home sales are considered a leading indicator of the market because they are tabulated when a contract is signed. Sales of existing homes reflect contract closings, which typically come a month or two later.

Resales fell in all four regions let by a 4.6 per cent decline in the north-east.

Sales of single-family homes decreased 2 per cent to a 4.31 million pace, according to yesterday’s report. Sales of condos and co-ops dropped 3.3 per cent to a 580,000 rate.

 

Source: Bloomberg (Business Times 25 Jan 08)

79 Anson Rd stake sold for 3rd time in 2 years

SEB Asian Property Fund pays $215m for 55% stake

TRADING office buildings continues to be flavour of the month in the real estate market. A 55 per cent stake in the freehold 79 Anson Road has changed hands for the third time in about two years. The latest deal involves a fund managed by Ferrell Asset Management selling the space to an SEB Asset Management fund for $215 million.

Ferrell’s fund, FAM Maximilian Real Estate Investment Fund, last year bought the space – spread over 12 floors of the 23-storey building, for $149 million from two parties, at least one of which is linked to the Lippo group.

Pramerica Asia had sold the property to Lippo entities for over $90 million in early 2006.

The latest acquisition, by SEB Asian Property Fund SICAV-FIS, for $215 million works out to about $1,937 per square foot based on a lettable area of 110,976 sq ft.

The fund, which was launched in late-August last year, invests in Asia only. The plan is to develop a broad-based portfolio, primarily in China, Japan, South Korea and Singapore, over the coming months.

This is not the German group’s first acquisition in the Singapore office sector. It made at least two purchases last year.

In September, SEB bought 12 floors at Springleaf Tower nearby for $2,088 psf of net lettable area. And a few months before that, in April, the group bought SIA Building for about $526 million or $1,783 psf from TSO Investment, a fully owned subsidiary of a property fund managed by CLSA Capital Partners.

TSO had purchased the office block from Singapore Airlines in June 2006 for $343.88 million, or about $1,165 psf.

A Ferrell-SEB joint release yesterday said the space transacted at 79 Anson Road is currently about 98 per cent occupied. Major tenants include Kellogg Brown & Root, Mitsubishi Chemicals, interTouch and Infor Global Solutions.

Ferrell Group managing director David Lee said the group will keep searching for development and investment opportunities in the commercial property sector.

SEB Immobilien-Investment managing director Choy-Soon Chua said the group expects to capitalise on the ‘extremely positive growth prospects’ in the Singapore office sector due to rising demand and limited supply.

The remaining 45 per cent of 79 Anson Road is owned by the Central Provident Fund Board.

 

Source: Business Times 25 Jan 08

Robinson CEO throws weight behind Lippo

Says the board is fully committed to the brand and expansion strategy

(SINGAPORE) Robinson CEO John Cheston has refuted recent allegations that the company’s major shareholder, Indonesia’s Lippo Group, doesn’t cherish the Robinson brand in Singapore.

Speaking to The Business Times at the company’s headquarters in Orchard Building yesterday, Mr Cheston explained that Lippo, along with the current board of directors, have always fully supported the management’s growth strategy and its efforts to preserve the value of the brand here.

‘Lippo – as is the entire board of Robinson’s – is fiercely supportive of management’s strategy; 100 per cent supportive,’ Mr Cheston said.

And that’s come in the form of backing the management’s plans to bring in more lucrative retail brands to the Robinson fold, open more stores and increase the group’s retail floor space in Singapore – to expand its reach and influence.

‘We had three brands under the previous board: Robinsons, John Little and Marks & Spencer. Now, we have eight brands, having added on River Island, Fat Face, Coast, Trucco and Principles,’ Mr Cheston said.

Adding more brands to its stable – and only ‘hot’ brands, at that – is what the Robinson CEO believes is crucial to the group’s growth and continued profitability.

‘We don’t have real estate, we don’t own buildings, so we’re at the mercy of the landlords from whom we lease our space. As such, we have no choice but to seek growth in other areas – by bringing in new brands to boost our profitability and growth. This helps us to manage the rising rentals which eat into our earnings, and the threat of one day being booted out of our retail space,’ he said.

And he explains that it was Robinson’s current board – formed after Lippo became a major shareholder in 2006 – that has been behind Robinson’s aggressive strategy to recruit new brands.

Under the new board, the retailer has also more than doubled the number of its stores in Singapore and Malaysia to a total of 34. Its retail floor space has gone up to 670,000 square feet, from 444,000 sq ft under the previous board.

Its capital expenditure has shot up exponentially: from an average of just $4 million being spent every year, between FY2003 and FY2006, Robinson increased its spending to $28 million in FY2007 alone. For the first quarter of FY2008, it’s already spent $19 million.

Bolstering the Robinson stable is the group’s way of preserving the 150-year- old Robinson brand – a sentimental and sensitive matter for some Singaporeans.

And Lippo is very much a strong supporter of that, Mr Cheston says. ‘While the management and the current board are very much behind a regional expansion for the group, our focus is still Singapore. We want to grow a strong business here first and preserve the brand.’

Lippo has come under some form of scrutiny, after the Al-Futtaim Group made an offer this week to take over Robinson.

Tecity, a significant shareholder of Robinson’s, has offered to sell its stake to Al-Futtaim – believing the Middle- East group will better cherish the Robinson brand. That’s led some to question Lippo’s commitment to the same.

Lippo’s decision to set up a department store chain in China, called ‘Robbinz’, has also raised concerns about what this will do to the integrity of the Robinson brand here.

When asked, Mr Cheston said he could not comment on the effect the Robbinz chain would have on Robinson.

‘I can only talk about what I do know – which is the Robinson business here. I can tell you that we have no plans to go into China, only to South-east Asia, and I’ve not heard any plans from the board about merging the Robbinz and Robinson brands. As far as I know, the concept for the Robbinz chain is a very different one.’

He also said it’s business as usual at the company, with staff not being affected by news of Al-Futtaim’s offer. ‘If anything, they see it as an affirmation that we’ve been doing the right thing all along,’ he said.

 

Source: Business Times 25 Jan 08

Staff costs, inflation major issues this year

SINGAPORE’S economy is strong enough to weather the fallout of a US recession this year, while escalating staff costs will be the top problem bosses have to grapple with in 2008, human resource practitioners were told at a conference yesterday.

Speaking at the SHRI Outlook 2008 conference, Hui Cheung Tai, regional economist at Standard Chartered Bank, said the robust domestic demand which drove Singapore’s growth last year will continue in 2008. And this will help soften the blow of a US recession.

But Mr Hui dismissed the ‘decoupling’ notion that a booming Asia, including Singapore, has acquired its own dynamism to escape a US recession without a scratch. China may now have become the largest export market for many trade-dependent countries in the region, but many of the exports to China – half by Stanchart’s reckoning – eventually end up in the US or the EU, he said.

By that measure, Mr Hui finds Hong Kong to have the biggest exposure to a US downturn, followed by Singapore. China, Indonesia and India are the least exposed. So Stanchart is projecting the Singapore economy to expand by 4.5 per cent this year – at the lower end of the official forecast of 4.5-6.5 per cent.

The economy rose 7.5 per cent in 2007.

Mr Hui warned that a US recession would not be followed by a quick bounce-back – it would be a Ushaped rather than a V-shaped recession. According to him, a US downturn is likely to last for about two quarters. The subsequent pick-up would be ‘prolonged’, stretching into 2009.

Meanwhile, Mr Hui noted, inflation has made its comeback and has become a hot issue in the region.

Everywhere, including in Singapore, people are complaining that price increases are higher than what the official figures reflect. Stanchart expects the inflation rate in Singapore to rise to around 5.0 per cent in the first half of the year, before easing to 4.0 per cent in the second half.

While inflation has reared its ugly head as the economy slips into slower gear, the job market is likely to remain tight. ‘It will still be a challenge to fill vacancies,’ Mr Hui said.

A panel led by David Ang, executive director of the Singapore Human Resources Institute, picked escalating pay, fanned by job-hopping, to be the number one headache for employers.

Jacqueline Streimer, employment law editor at CCH Southeast Asia, one of the region’s leading professional publishing companies, said employees in the banking and finance sector get as much as a 50 per cent increase in pay when they jump ship to sign on with another bank. Such turnover leads to a spiral in wage costs because the employer who loses a staff member will then have to pay to advertise for a replacement, suffer downtime and lost productivity as well as need to offer a premium in higher salary to secure a new employee, Ms Streimer said.

Source: Business Times 25 Jan 08

Sustainable development a priority for S’pore: PM Lee

A top-level panel of ministers has been formed to chart the way forward, he says

IN DAVOS

PURSUE economic growth, but with an eye on the Earth.

Going forward, sustainable development will be a priority for Singapore – and a top-level panel of ministers has been formed to chart the way forward.

On the sidelines of the World Economic Forum, where he will today take part in a key session on climate change, Prime Minister Lee Hsien Loong told Singapore reporters that an Inter-Ministerial Committee on Sustainable Development will be looking into drawing up a holistic sustainable development strategy for Singapore.

The need to be environmentally friendly is patently clear, ‘but at the same time, we don’t want to have to sacrifice economic growth’, he said. Hence the premise and promise of sustainable development – to ‘grow in an environmentally friendly way, where you build into your whole development strategy an awareness of the environment, of conservation, of efficiency, so that your buildings use less energy for air conditioning, your public transport is convenient and people use public transport instead of driving cars’.

While there are no plans to levy any carbon tax, Mr Lee would not rule it out entirely, but emphasised the need to be mindful about cost and competitiveness, particularly in imposing any regulatory requirements that effectively add to business costs.

The committee is co-chaired by Minister for National Development Mah Bow Tan and Minister for the Environment and Water Resources Yaacob Ibrahim. Other members include Finance Minister Tharman Shanmugaratnam, Transport Minister Raymond Lim and Minister of State for Trade & Industry S Iswaran.

A joint statement by MND and MEWR says the committee will, for a start, ‘articulate a clear national framework and strategy to achieve a sustainable and high-quality living environment that is consistent with economic growth’.

It will also seek to build new competencies and encourage mind-share across the public, private and people sectors to develop Singapore as an ‘Eco-Hub’ – ‘an innovative thought-centre and hub for urban and environmental sustainability’.

Noting that Singapore is already a model of urban planning, Mr Lee said that if Singapore’s efforts on sustainable development are successful, it will spell one more area of expertise that it can share with other countries.

Mr Lee arrived in Davos on Wednesday afternoon from Paris, where he had been on a three-day official visit. In Davos yesterday, he had a busy day of meetings with various people, including US Deputy Secretary of Treasury Robert Kimmitt; former US Secretary of State Henry Kissinger, Harvard professor Larry Summers, as well as UBS chairman Marcel Ospel and Google chairman Eric Schmidt.

 

Source: Business Times 25 Jan 08

China economy expands 11.4%

But slower pace seen for 2008 on credit curbs, weaker global demand

(BEIJING) China grew 11.4 per cent in 2007, the fastest pace in 13 years, but is headed for a modest slowdown this year as global demand weakens and credit curbs to cap inflation ripple through the economy.

The softening was evident in figures issued yesterday, showing that annual gross domestic product (GDP) growth eased to 11.2 per cent in the fourth quarter from 11.5 per cent in the July-September period and 11.9 per cent in the second quarter.

‘If economic growth sees a mild slowdown, that would be within our expectations,’ Xie Fuzhan, head of the National Bureau of Statistics, told a news conference.

Still, 2007 marked the fifth consecutive year of double-digit growth for China, which is on course to overtake Germany as the world’s third-largest economy this year and is growing in importance as a locomotive for global growth.

‘Average growth over the last five years has been 10.6 per cent. That’s really extraordinary. The ups and downs each year have also been limited – that’s also extraordinary,’ Mr Xie said.

As global credit woes stemming from the US sub-prime mortgage crisis drag down demand for China’s exports, which contributed about a third of last year’s increase in GDP, economists expect China’s growth this year to dip to around 10 per cent.

If the economy slows more than expected, economists are in no doubt that Beijing will unwind some of the restrictive policies that it has rolled out over the past year.

And yet, China is also wary of inflation, which has touched off social unrest many times in the past. Although consumer price inflation slowed to 6.5 per cent in December from an 11-year high of 6.9 per cent in November, factory-gate inflation jumped to 5.4 per cent from 4.6 per cent.

To cap inflation and prevent overheating, Beijing raised interest rates six times last year and gave banks blunt orders to lend less. But continuing along this path could trigger a sudden slowdown as export demand weakens.

‘Tightening too much when the US is heading for a recession would be a double hit for the global economy,’ said Wang Qing, chief China economist at Morgan Stanley in Hong Kong. ‘Inflation is the key challenge.’

Currency gains, which push up export prices, may become a more important tool for cooling the economy this year. The US Federal Reserve’s unexpected cut in its benchmark interest rate to 3.5 per cent from 4.25 per cent this week makes China less likely to raise its one-year lending rate beyond a nine-year high of 7.47 per cent.

The Fed’s move increases the chances of ‘hot money’ flooding into China, Yu Yongding, director of the Institute of World Economics and Politics in Beijing, said earlier this week in Davos, Switzerland.

On Wednesday, Morgan Stanley cut its forecast for rate increases in China this year from two to none.

The yuan’s gains versus the US dollar accelerated to almost 3 per cent in the fourth quarter.

Weaker US demand and cuts to export incentives have already slowed growth in overseas shipments from China.

Exports rose at the slowest pace since 2002 in the fourth quarter.

‘The yuan should be allowed to appreciate faster to deal with excess liquidity and inflation,’ said Frank Gong, chief China economist at JPMorgan. ‘The pressure is building and the argument is