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 gaining momentum within the Chinese government.’

 

Source: Reuters, Bloomberg (Business Times 25 Jan 08)

US response to downturn worrying

Instead of addressing the cause, policymakers are addressing the symptoms – the collapse of credit quality

THOSE Asian allies and trade partners of the United States who can raise their gaze above stock market gyrations look with concern at the US response to its economic difficulties.

They note a continuing unwillingness to face realities and fear that the medium-term result will be both an enfeebled America and a sharp rise in protectionist sentiment. US policies are dominated by the twin objectives of propping up asset prices and consumer spending. Interest rates have been slashed in a panicky response to Wall Street, and the administration (and all the presidential candidates) favours US$150 billion or so of tax cuts to boost spending (and the budget deficit).

The short-sighted view in Asia is that this is good for the region because interest rates will support market sentiment and stock prices, and consumer spending boosts will help sustain Asian exports. The violent swings of Asian markets over the past few days testify to the extraordinary influence of Wall Street on the world as well as on US policies.

But step back just a little from these daily events. Why should we be so concerned with stock price falls? Even now, the Standard & Poor’s 500 is down only 7 per cent from a year ago and up 50 per cent over five years. Several markets are up 500 per cent or more over that period! Every market in Asia, with the exception of Japan, is still above year-ago levels – in the case of India and China, by a very large margin. Much froth remains to be removed before prices can be considered sustainable. Ironically, Japan has been the exception despite having the lowest interest rates, lowest inflation and a strong trade balance.

In all the talk in the United States about falling asset prices and recession fears, the issue of the savings rate and the trade balance has been forgotten. Yet it is in those issues that the crux of the US problem lies.

In November, according to the Bureau of Economic Analysis, the personal savings rate in the United States was a negative 0.5 per cent. It has been declining steadily since a double-digit level in the early 1980s, a decline that has been in part driven by rising asset prices, which masked the need for saving out of income rather than relying on credit-driven boosts to apparent wealth.

But instead of encouraging savings, the Fed is hell-bent on bailing out Wall Street by reducing its lending rate to 3.5 per cent, barely above the (well-massaged) rate of consumer price inflation. The resulting US dollar weakness will help entrench inflation. Meanwhile, if the attempt to stimulate consumer demand succeeds, the US import bill will remain around current levels. The current account deficit will gradually decline as exports rise, but will probably remain above US$500 billion a year (compared with around US$700 billion in 2007).

This will have two very damaging effects. Firstly, it will enable Asian governments to continue to put off domestic stimulus to offset what should be declining US import demand. Secondly, the continued generation of vast surpluses by Asian and oil exporting countries will lead to a backlash against their sovereign wealth funds. These will be on the prowl for US assets other than low-yielding Treasuries or the dubious financial institutions that have already caused them massive sub-prime losses. Bailing out Citi may be welcome, but will China be allowed to buy 3M and Coca-Cola?

There is already a growing sense in the United States, and elsewhere in the West, that whatever the theoretical benefits of freer trade may be, it is partly responsible for the increased income differentials against which democratic societies eventually tend to rebel. Anti-trade sentiment will be further fuelled by foreign acquisition of US icons on a scale far in excess of the Japanese purchases in the late 1980s.

US profligacy has also spilled over into unsustainable credit booms in China and India originating in the massive global oversupply of US dollars and hence of the monetary base and foreign reserves of these countries. When the dancing ends, there may also be a rethink of market-driven economics in those countries too.

There is a direct connection between easy credit in the United States, Wall Street irresponsibility, consumer excesses, unsustainable trade imbalances, the return of global inflation and the worldwide asset price boom. Yet instead of addressing the cause, US policymakers are addressing the symptoms – the collapse of credit quality, which had been going on for years but was masked by the creation of new and poorly understood new credit instruments. Instead of addressing the savings imbalance, the government proposes to make it worse by substituting government debt for any reduction in consumer debt.

One can only hope that Fed and Washington policies fail and the American consumer adjusts on his own to his true situation, returning the US to a sustainable path and forcing its Asian trade partners to respond appropriately.

 

Source: NYT (Business Times 25 Jun 08)

Bush and Congress join hands to revive economy

They set aside partisan differences to rush out $216b stimulus package

WASHINGTON – JOLTED by global recession fears, US President George W. Bush and leaders of Congress have joined hands in a rare show of cooperation, promising urgent action to pump up the economy with upwards of US$150 billion (S$216 billion) in tax cuts and government spending.

As markets roiled from a sharp sell-off around the world and the Federal Reserve scrambled to slash US interest rates by three-quarters of a percentage point – the largest cut in more than 23 years – Mr Bush met senior lawmakers on Tuesday to work out a compromise on tax breaks for consumers and businesses.

‘All of us understand that we need to work together. All of us understand that we need to do something that’ll be effective. And all of us understand that now’s the time to work together to get a package done,’ he said after the meeting at the White House.

The package, to be out within weeks, is expected to offer rebates of US$800 for individuals, bonus depreciation to allow companies to deduct 50 per cent of business investments made this year as well as boosts in unemployment benefits and food stamp payments for the poor and disabled.

White House spokesman Dana Perino disclosed that the administration was open to the possibility of a larger package, saying that Mr Bush was ‘not closing any doors’.

The current plan could help ‘avoid a potential downturn’, she said. She made clear Washington was not forecasting a recession, which many observers believe the US could face.

For Mr Bush, the economy now looms far larger as a potential crisis in his final year in office, when he had expected to remain focused on Iraq, Iran and the prospect of Middle East peace.

His plan – first mooted five days ago before the stock markets in Asia and Europe started plummeting – has produced some of the most striking bipartisanship of his presidency.

Both Democratic and Republican lawmakers emerged from the talks vowing to pass the package before Congress breaks for a holiday on Feb 18.

‘This week’s downturn in the global markets demonstrates how urgently we need to act to revive our nation’s faltering economy,’ Senate Democratic Majority Leader Harry Reid said.

‘I really feel good that we have the opportunity to do something together. We want this stimulus package to be dealing with the problems of the American people, not ideology.’

The Democrats appeared to be torn initially between compromising with the administration and blaming it for its lethargic response. But the party leadership was impressed with Treasury Secretary Henry Paulson’s willingness to compromise.

In the past, treasury secretaries could not budge because of stiff opposition from conservatives.

The conservatives – in editorial pages of The Wall Street Journal and The Weekly Standard – were making their views loud and clear. They scorned one-time tax rebates to individuals as ineffective pandering and called for permanent breaks aimed at drawing investment.

The liberals also joined in the fray. They argued that Mr Bush’s proposed package favoured the rich.

Democratic Senator Edward Kennedy said on the Senate floor: ‘We’ve tried tax rebates before, but they haven’t worked as well as they should because previous rebates left out those at the very bottom of the economic ladder – the families struggling every day to pay their bills, heat their homes and pay their mortgages.

‘Now the President wants to do the same thing again. He’s proposed a tax break in his stimulus package that would completely leave out the poorest Americans.’

Analysts believe the rescue package might be too late to avert an impending recession at home.

Lowering interest rates or passing a stimulus package may not be enough. People and investors may want to see something more concrete – lower unemployment or higher retail spending, for example.

But the economy is dealing with a huge unknown: the ultimate magnitude of the housing crash and credit crunch.

Washington Post columnist Robert Samuelson said the Bush plan was intended only to distract US consumers from their pain, like giving sweets to a crying child.

‘It’s an election year. Voters feel anxious about a weakening economy,’ he wrote. ‘Send them economic lollipops – say, a US$500 tax rebate for most families. Make them feel better. Show them you are concerned.

Prove that you are trying to improve the economy.’

 

Source: The Straits Times 24 Jan 08