Property sector braces for tougher times in 2008

Players feel squeeze from more credit woes and soaring construction costs

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

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

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

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

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

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

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

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

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

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

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

 

Source: Business Times 22 Feb 08

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

Focus will be on cardiology, oncology and orthopaedics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Business Times 22 Feb 08

Office rents in Singapore on upward climb: property firms

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Source: Business Times 22 Feb 08

Tanjong Pagar hotel site may fetch $750 psf ppr

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

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

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

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

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

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

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

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

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

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

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

 

Source: Business Times 22 Feb 08

2 good class bungalows on Leedon Road up for sale

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

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

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

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

 

Source: Business Times 22 Feb 08

Maybank’s home loan promotion creates a buzz

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Source: Business Times 22 Feb 08

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

The question may be visited during the Budget debate

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Source:

$6.4b Budget surplus poser: Was GST

hike needed last year?

The question may be visited during the Budget debate

By ANNA TEO

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

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

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

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

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

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

originally projected – and the usual misgivings the public would have

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

While the buoyant economy and runaway property market last year did

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

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

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

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

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

straight strong surpluses in the 1990s.

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

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

government spending on various social and infrastructure programmes

be funded from operating inflows and reserves?

Prime Minister Lee Hsien Loong explained the backdrop to funding

government spending in a speech in Parliament in November 2006,

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

In essence: Government spending can only be partly funded by

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

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

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

global race to compete for investments, Singapore cannot increase

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

Story Print Friendly Page Page 1 of 2

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

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

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

Assessment 2008 in the 2007 Budget.

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

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

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

corporate and personal income tax and lower rates further should it

become necessary.’

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

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

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

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

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

Well, leaving aside its staunchly conservative stance, the government

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

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

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

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

the year came in at 7.7 per cent.

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

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

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

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

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

Singapore’s Olympic dream comes true

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

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

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

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

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

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

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

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

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

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

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

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

 

Source: Business Times 22 Feb 08

Japan’s exports improve despite US slowdown

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

IN TOKYO

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

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

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

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

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

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

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

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

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

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

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

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

 

Source: Business Times 22 Feb 08

US Fed to focus on growth with possible risk of inflation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

US growth forecast cut but S’pore economists unperturbed

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Source: The Straits Times 22 Feb 08

Quieter property market but outlook favourable in long run

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

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

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

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

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

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

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

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

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

The expected slowdown in supply will support the rental market.

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

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

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

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

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

 

Source: The Straits Times 22 Feb 08

Development fees may jump for non-residential sites

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Source: The Straits Times 22 Feb 08

DELISTING A SUBSIDIARY

CapitaLand raises Ascott stake to 91.7%

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

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

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

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

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

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

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

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

Source: The Straits Times 22 Feb 08

‘US has slipped into recession’

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

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

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

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

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

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

Source: REUTERS (The Straits Times 22 Feb 08)

It’s Singapore 2010

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Source: The Straits Times 22 Feb 08