PROPERTY: Demand for single office units still going strong in quiet market

Investors turn more cautious, but small firms still interested in strata-titled officesALL has turned quiet on the housing front, but some other segments of the property market appear to have escaped that fate.

Still going strong in particular are sales of single office units in larger commercial buildings. Known as strata-titled offices, these properties recorded active demand in the fourth quarter last year, even as home sales were taking a breather.

A healthy 13 transactions of strata offices occurred between October and December, up from only five in the previous quarter, according to data from CB Richard Ellis (CBRE).

Most of the properties were in the city area – Suntec City, Tong Building in Orchard Road, Springleaf Tower in Anson Road – and changed hands at well above $2,000 per sq ft (psf), CBRE said.

Altogether, $750.8 million worth of strata offices were sold in the fourth quarter, bringing the total for last year to $1.7 billion – more than four times the figure for 2006.

Prices also rose solidly throughout the year. At Suntec City Tower 1, a favourite strata-office location, unit prices climbed about 50 per cent from just above $1,500 psf in January to almost $2,400 psf in December – the highest level in two years.

The steady take-up of single units is due largely to the wider boom in Singapore’s office market. A shortage of offices, even as expanding businesses push up demand for space, has boosted prices and rents across the board, drawing much interest from investors, said CBRE’s executive director of investment properties, Mr Jeremy Lake.

But in recent months, even investor demand for offices has slowed as the United States sub-prime mortgage problems spread and sentiment in the market grew more cautious.

This has hit sales of entire office buildings, but strata offices have been less affected, said Mr Shaun Poh, a senior director of investment advisory services and auctions at DTZ Debenham Tie Leung.

He attributes this to the smaller businesses that are the other main source of demand for single office units. These businesses plan to occupy the space themselves rather than lease it out for rental income.

‘Smaller units, of the $1 million to $3 million variety, are more digestible for some buyers,’ he said. ‘They appeal to end-users who are moving from renting to buying now that rents have risen so fast.’

DTZ is marketing a floor of offices at Peninsula Plaza near the City Hall area, consisting of six strata units with a total floor area of about 8,500 sq ft. The units are tenanted at about $4 psf, but rents in the building have moved up to between $7 and $8 psf, said Mr Poh.

The indicative price for the floor is $17.5 million, or about $2,050 psf. At this price, with a projected $7.50 psf rental, the net yield works out to about 4 per cent, he added.

Since the property went on the market earlier this week, DTZ has received ‘more than 10 enquiries’, Mr Poh said.

‘Some are investors looking to buy the whole floor, but we’ve also seen interest from end-users in electronics or shipping firms who are interested in buying just one or two units.’

In general, however, experts feel that strata-office sales might not be as strong in the first quarter of this year as last year.

Colliers International has not yet sold any strata offices at auction this year, after selling one a month between October and December. In December, a 3,003 sq ft unit was sold at United House, for a healthy $2,497 psf.

But Mr Poh said that, while sales might slow, prices are unlikely to fall any time soon.

‘Prices have not gone up, but neither have they come down,’ he said.

‘If they can be maintained in such an environment, and if things get a bit more optimistic, prices could even go up 10 to 20 per cent over the next year.’

Source: The Straits Times 9 Mar 08

PROPERTY: Demand for single office units still going strong in quiet market

Investors turn more cautious, but small firms still interested in strata-titled offices

ALL has turned quiet on the housing front, but some other segments of the property market appear to have escaped that fate.

Still going strong in particular are sales of single office units in larger commercial buildings. Known as strata-titled offices, these properties recorded active demand in the fourth quarter last year, even as home sales were taking a breather.

A healthy 13 transactions of strata offices occurred between October and December, up from only five in the previous quarter, according to data from CB Richard Ellis (CBRE).

Most of the properties were in the city area – Suntec City, Tong Building in Orchard Road, Springleaf Tower in Anson Road – and changed hands at well above $2,000 per sq ft (psf), CBRE said.

Altogether, $750.8 million worth of strata offices were sold in the fourth quarter, bringing the total for last year to $1.7 billion – more than four times the figure for 2006.

Prices also rose solidly throughout the year. At Suntec City Tower 1, a favourite strata-office location, unit prices climbed about 50 per cent from just above $1,500 psf in January to almost $2,400 psf in December – the highest level in two years.

The steady take-up of single units is due largely to the wider boom in Singapore’s office market. A shortage of offices, even as expanding businesses push up demand for space, has boosted prices and rents across the board, drawing much interest from investors, said CBRE’s executive director of investment properties, Mr Jeremy Lake.

But in recent months, even investor demand for offices has slowed as the United States sub-prime mortgage problems spread and sentiment in the market grew more cautious.

This has hit sales of entire office buildings, but strata offices have been less affected, said Mr Shaun Poh, a senior director of investment advisory services and auctions at DTZ Debenham Tie Leung.

He attributes this to the smaller businesses that are the other main source of demand for single office units. These businesses plan to occupy the space themselves rather than lease it out for rental income.

‘Smaller units, of the $1 million to $3 million variety, are more digestible for some buyers,’ he said. ‘They appeal to end-users who are moving from renting to buying now that rents have risen so fast.’

DTZ is marketing a floor of offices at Peninsula Plaza near the City Hall area, consisting of six strata units with a total floor area of about 8,500 sq ft. The units are tenanted at about $4 psf, but rents in the building have moved up to between $7 and $8 psf, said Mr Poh.

The indicative price for the floor is $17.5 million, or about $2,050 psf. At this price, with a projected $7.50 psf rental, the net yield works out to about 4 per cent, he added.

Since the property went on the market earlier this week, DTZ has received ‘more than 10 enquiries’, Mr Poh said.

‘Some are investors looking to buy the whole floor, but we’ve also seen interest from end-users in electronics or shipping firms who are interested in buying just one or two units.’

In general, however, experts feel that strata-office sales might not be as strong in the first quarter of this year as last year.

Colliers International has not yet sold any strata offices at auction this year, after selling one a month between October and December. In December, a 3,003 sq ft unit was sold at United House, for a healthy $2,497 psf.

But Mr Poh said that, while sales might slow, prices are unlikely to fall any time soon.

‘Prices have not gone up, but neither have they come down,’ he said.

‘If they can be maintained in such an environment, and if things get a bit more optimistic, prices could even go up 10 to 20 per cent over the next year.’

Source: The Straits Times 9 Mar 08

US employers cut 63,000 jobs in February

Payroll data indicate that probability of recession is more than 50 per cent

(WASHINGTON) US employers cut payrolls for a second straight month during February, slashing 63,000 jobs for the biggest monthly decline in nearly five years as the nation’s labour markets weakened steadily, a government report yesterday showed.

The Labor Department said that last month’s cut followed an upwardly revised loss of 22,000 jobs in January rather than the 17,000 reported a month ago. It also said that only 41,000 jobs were created in December, half the 82,000 originally reported.

‘This confirms the fears that have been lurking in the financial markets in recent weeks. The

probability of a US recession is at more than 50 per cent,’ said Richard DeKaser, chief economist for National City Corp in Cleveland.

‘The Fed has to be more aggressive,’ he added. The US central bank is expected to cut interest rates again later this month and yesterday, just before the payrolls report became public, announced new measures to add liquidity to severely strained credit markets that are near seizing up.

The Federal announced that it was increasing the amount of money it will auction to banks this month to US$100 billion. It will make two moves to increase liquidity in the credit markets. First, it will increase the size of its March 10 and 24 auctions to banks to US$50 billion each. The auctions had been set for US$30 billion apiece initially. Fed officials said that they are prepared to move to even larger amounts at future auctions if necessary.

The Fed also said that, starting yesterday, it will begin a series of repurchase transactions expected to reach US$100 billion.

US Treasury debt prices shot up in anticipation that the Fed will cut interest rates while stock futures weakened sharply. The US dollar’s value was at a record low against the euro after the unfavourable employment report was issued.

The back-to-back January and February job losses were the first consecutive monthly declines since May and June of 2003.

The February jobs report was more bleak than expected.

Economists surveyed by Reuters forecast that 25,000 jobs would be added to payrolls last month.

They had forecast that the unemployment rate would edge up to 5.0 per cent.

Department officials said that February’s job losses were the largest for any month since March 2003, when 212,000 jobs were cut.

During February, the national unemployment rate eased to 4.8 per cent from 4.9 per cent in January, but that was because fewer people were in the labour force. The department said that the number of people in the workforce fell by 450,000 in February.

Job losses were widespread. Some 52,000 jobs were lost in the manufacturing industries, the largest decline since July 2003 when 92,000 jobs were cut. Construction businesses eliminated another 39,000 jobs on top of 25,000 that were cut in January, a reflection of the housing industry’s deepening woes.

Retail industries also shed jobs last month, dropping 34,000 people off their payrolls, a possible reflection of concern from businesses that hard-pressed consumers are likely to begin pulling back sharply on spending.

Source: Reuters, AFP (The Straits Times 8 Mar 08)

Mortgage war breaks out as DBS and UOB offer new rates

Banks focusing on specific targets, waging battles without fanfare

THE mortgage war finally erupted, as Singapore banks responded to a dramatic rate cut by Maybank three weeks ago – with one even offering a zero per cent package.

That attractive deal comes from United Overseas Bank (UOB), which has relaunched a package with a teaser first-year rate at rockbottom.

DBS Group Holdings has also rolled out new rates on several packages, including a fixed-rate deal that claims to be the lowest of its type here in Singapore.

Unlike the fanfare that marked the rate war in 2003, though, the battle now is focused on specific targets and is being kept under the radar.

Banks are quietly offering promotional rates on a case-by-case basis and tend to target clients with loans of well over $300,000. While the market for new mortgages has softened, banks are still busy.

‘A lot of customers are looking to refinance their loans taken less than a year ago, when interest rates were much higher,’ Mr Bryan Ong of mortgage consultancy bcgroup.com.sg said.

Maybank sparked the war with an aggressive three-year, fixed-rate package at 1.68 per cent for the first year. This promo, which ends on Monday, has sent customers ‘rushing to submit loan applications’, said Maybank consumer banking head Helen Neo.

About 80 per cent of the applications were for buying private properties with an average loan size of about $675,000. Maybank is now ‘reviewing the rates’.

Other banks have not taken the move lying down. Most have tacitly matched – or undercut – Maybank’s rates.

DBS has a new three-year, fixed-rate package with an aggregate rate of 7.64 per cent – lower than Maybank’s 7.74 per cent. It offers a 1 per cent cash rebate in the first year.

UOB has revived its FirstZero Home Loan – a three-year, fixed-rate package available ‘only for a limited period’. The bank launched this in 2003, but it was quietly taken off the market last year amid interest rate volatility.

FirstZero is now back with a zero per cent rate on the first year, 3.6 per cent on the second and 4.5 per cent on the third, making a three-year aggregate rate of 8.1 per cent.

It has hefty penalty charges and a three-year lock-in period.

Standard Chartered Bank (Stanchart) actually moved before Maybank, cutting its three-year, fixed-rate package from 3.58 per cent to 2.98 per cent in January. It also cut its two-year package by 0.55 of a percentage point to 2.88 per cent.

DBS countered this week with a 2.88 per cent average annual rate for a three-year package and a 1 per cent cash rebate on the first year.

This three-week promotion is only for customers with loan quantums of at least $300,000.

OCBC Bank had not joined the fray, with chief executive David Conner saying last month that a mortgage rate war was unlikely.

OCBC said ‘from time to time, it offers loan packages with promotional rates that are highly competitive compared to other players’.

The most popular packages now are those linked to transparent rates, like the Singapore Interbank Offered Rate (Sibor) or swap offered rate (SOR), comprising the Sibor plus a bank’s lending costs.

These are official, regularly published industry rates customers can check to see how their packages are structured.

Riding on this interest, DBS has just cut by half its rate for its 12-month, two-year, Sibor-linked loans to 0.5 per cent for the first year.

Nearly 80 per cent of Stanchart’s new customers in recent months have taken up its package offering SOR plus 0.5 per cent for the first year.

The SOR has dropped from about 3 per cent last year to about 1.5 per cent currently.

Stanchart’s head of consumer banking, Mr Ajay Kanwal, said: ‘With the interest rate environment expected to soften further, customers of SOR-linked packages will benefit even more.’

Source: The Straits Times 8 Mar 08

New rules ‘must keep sub-prime market open’

SPRINGFIELD (ILLINOIS) – LAWMAKERS must not be too heavy-handed as they react to the collapse of the United States sub-prime mortgage market and end up closing this source of credit forever, a senior Federal Reserve policymaker said yesterday.

St Louis Fed president William Poole said the sub-prime market was now basically shut and might never reopen if the regulatory backlash were too onerous.

‘The public policy problem is the danger that, with the sad record of so many mistakes and abuses in recent years, regulatory burdens to end the abuses will do so, but only at the cost of making sub-prime lending so costly and risky to lenders that they will have no interest in restoring this market,’ he said.

Mr Poole, who retires from the Fed at the end of this month, did not directly address the economic outlook, but stressed the housing market’s problems have been costly.

Source: REUTERS, BLOOMBERG NEWS (The Straits Times 8 Mar 08)

US household wealth falls for first time in five years

WASHINGTON – HOUSEHOLD wealth in the United States fell in the fourth quarter for the first time in five years, while borrowing slowed as home values plunged and lenders restricted credit, Federal Reserve figures have shown.

Net worth for households decreased by US$532.9 billion (S$739.5 billion) from the previous three months, the first decline since the third quarter of 2002, according to the Fed’s quarterly Flow of Funds report released on Thursday. Housing-related net worth dropped by US$176.4 billion.

Lower home and stock prices and reduced access to loans are prompting Americans to spend less, driving up foreclosures. A slowdown in consumer spending, which accounts for two-thirds of the economy, threatens to push the US into a recession.

‘Consumers are being squeezed from several directions,’ Fed governor Frederick Mishkin said in a speech this week.

Reduced household wealth, combined with a weakening job market and near-record fuel prices ‘are likely to restrain spending growth in the period ahead’, he said.

Owners’ equity as a share of their total real estate holdings fell to 47.9 per cent, the lowest since quarterly records began in 1951, from 48.9 per cent in the prior period.

The Fed based its calculations on a gauge of home prices published by the Office of Federal Housing Enterprise Oversight. Had the central bank used a measure of home prices developed by S&P/Case-Shiller instead, the loss in net worth would have been almost three times as much, according to JPMorgan Chase economist Michael Feroli in New York.

The drop in housing-related household net worth from October to December followed a decline of about US$600 million in the previous three months. Mortgage borrowing by households rose at a 5 per cent annual pace, the smallest gain since 1997.

Total borrowing by consumers, businesses and government agencies rose at an annual rate of 7.7 per cent last quarter compared with an 8.8 per cent gain the prior quarter, as borrowing by businesses climbed.

Total borrowing by households increased at a 5.6 per cent pace, and business borrowing rose at an annual pace of 12 per cent.

Borrowing by state and local governments climbed at a 7.6 per cent rate after rising 6.5 per cent the prior quarter, the Fed said.

Federal government borrowing rose at an annual pace of 5.1 per cent after increasing at an 8.8 per cent rate.

Source: BLOOMBERG NEWS (The Straits Times 8 Mar 08)

US reports surprise loss of 63,000 jobs

Biggest drop in five years another sign that economy is on the decline

WASHINGTON – THE United States unexpectedly lost jobs last month for the second consecutive month, adding to evidence that the economy is in a recession.

Payrolls fell by 63,000, the most in five years, after a revised decline of 22,000 in January, the Labour Department said yesterday in Washington.

The jobless rate declined to 4.8 per cent, reflecting a shrinking labour force as some people gave up looking for work.

‘All the lights are flashing red,’ said Mr Nariman Behravesh, the chief economist at Global Insight in Massachusetts, in an interview with Bloomberg Television. ‘We’re in a recession. I don’t think there is any doubt about it at this point.’

Treasury notes soared after the report on concern that the weakening labour market – combined with lower home prices, higher fuel bills and a global credit squeeze – will force consumers to cut spending further.

Minutes before the figures were released, the US Fed said it would expand two short-term auctions this month to US$100 billion (S$139 billion) to address ‘heightened liquidity pressures’ in markets.

Traders now expect Fed chairman Ben Bernanke and his team to cut their benchmark interest rate by at least three-quarters of a percentage point at or before their March 18 meeting.

Economists had projected that payrolls would rise by 23,000, following a previously reported 17,000 drop in January, according to the median of 76 forecasts in a Bloomberg News survey.

The jobless rate was forecast to rise to 5 per cent from January’s 4.9 per cent, with estimates ranging from 4.8 per cent to 5.2 per cent.

Revisions reduced by half the 82,000 increase in payrolls previously reported for December last year.

Service industries, which include banks, insurers, restaurants and retailers, added 26,000 workers last month. Retail payrolls fell by 34,100, the biggest drop in more than five years.

Payrolls at builders fell 39,000, the eighth consecutive month of cutbacks.

Home builders are trimming staff as the biggest housing slump in a quarter century deepens. Commercial building projects are also declining, indicating that firings at non-residential builders are likely to rise.

The real estate recession and financial market meltdown have led to growing dismissals at banks, mortgage and management firms.

‘There’s significant weakness in the job market because of construction declines,’ said Mr David Berson, the chief economist at California-based PMI Group, the second-largest US mortgage insurer. ‘For the next six months or so, we may get small negative numbers on payrolls.’

Manufacturing payrolls dropped by 52,000, the biggest decline since July 2003, after falling by 31,000 a month earlier. Economists had forecast a drop of 25,000.

Americans, whose spending accounts for more than two-thirds of the economy, are less upbeat about finding work, a Conference Board report showed last week. The share of consumers who said that jobs are plentiful fell and the proportion who said jobs are hard to get jumped, pushing consumer confidence down to a five- year low last month.

‘The economic situation has become distinctly less favourable,’ Mr Bernanke said in testimony to Congress last week.

The Fed chairman referred to ‘downside’ risks for the economy four times, including ‘the possibilities that the housing market or the labour market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further’.

Source: REUTERS (The Straits Times 8 Mar 08)

Casinos, other large projects push up cost of loans: OCBC

Casinos, other large projects push up cost of loans: OCBC

SINGAPORE’S two casinos and other large projects will add S$30 billion to loan demand this year, pushing up the cost of corporate loans in the city-state, said Oversea-Chinese Banking Corp on Wednesday.

Las Vegas Sands and Genting International have each borrowed about S$5 billion to build casinos, while developers will need billions to pay for residential sites purchased for redevelopment, OCBC’s head of group investment banking George Lee told Reuters.

‘The supply of Singapore dollars is going to get tighter while demand is exceptionally high… Credit spreads are going to rise and those used to borrowing at X must get used to borrowing at X plus something,’ said Mr Lee in an interview.

According to Monetary Authority of Singapore data, loans to businesses rose 27 per cent to S$130.5 billion in January from a year ago, spurred by a 46 per cent increase in building and construction loans to S$39.3 billion.

Other projects that require funding this year include an estimated S$2-2.5 billion to finance the purchase of electricity generator Tuas Power from government fund Temasek Holdings, and the refinancing of a loan to buy the building housing Singapore’s biggest bank DBS Group .

Turning to neighbouring Malaysia, which companies are looking to for lower-cost borrowings, Mr Lee said firms planning to tap the corporate bond market will see this as viable only if they have projects in Malaysia.

For companies hoping to take the borrowings overseas, any savings would be offset by the sharp rise in the cost of swapping ringgit into dollars or other foreign currencies.

While the cost of borrowing in ringgit remains extremely attractive, the swap premium has widened from 20-30 basis points late last year to about 100 basis points now, he said.

Malaysia opened its ringgit bond market to foreign corporate issuers in October, coinciding with the outbreak of the global credit crisis that has raised the cost of dollar-denominated debt.

On Monday, Export-Import Bank of Korea (KEXIM) became the first foreign firm to take advantage of the new rules by selling a total of RM1 billion (S$437.8 million) in five- and 10-year bonds.

The deal, which KEXIM said shaved 20-30 basis points off its borrowing cost, was handled by OCBC along with Malaysia’s RHB and CIMB.

OCBC, Singapore’s third largest bank, is also in the process of selling up to RM2.5 billion in lower Tier 2 bonds to augment its capital base.

Mr Lee said it made sense for OCBC to borrow in ringgit as it had operations in Malaysia and did not intend to exchange the proceeds from the bond issue to Singapore dollars .

‘For those with natural ringgit assets without the need to swap, it still makes sense,’ he said.

Source: Reuters (Business Times 7 Mar 08)

Citigroup to sell, close some US branches: WSJ

(NEW YORK) Citigroup has agreed to sell its network of retail banking branches in Amarillo, Texas, and plans to shutter other branches in the United States, the Wall Street Journal reported on its website on Wednesday.Citibank, its retail banking unit, has agreed to sell branches in Amarillo to local lender Happy State Bank for an undisclosed sum, according to an internal memo, the Journal reported on its website. The newspaper said the company confirmed the deal.Citibank also plans to close at least 11 other branches in May, including six in Florida, three in New Jersey, and one each in California and Maryland, the Journal reported citing people familiar with the matter. A Citigroup spokeswoman was not immediately available to comment.Meanwhile, Dubai International Capital LLC (DIC), the state-controlled buyout company, said it has not been approached by Citigroup for capital raising after mortgage losses wiped out half its market value.DIC has ‘not been privy to any non-public information about the company’, the company said. ‘Dubai International Capital has never expressed an opinion on the investment merits or financial condition of Citi,’ it added.Citigroup received US$7.5 billion in November from Dubai’s neighbour, Abu Dhabi, and theNew York-based company said in January it was getting another US$14.5 billion from investors, including the governments of Singapore and Kuwait.It will take a lot more money to rescue Citibank and other financial institutions from losses  stemming from the collapse of the sub-prime mortgage market, DIC chief executive officer Sameer al-Ansari said on March 4.Citigroup fell 4.3 per cent that day to its lowest in nine years after Mr al-Ansari’s comments  and analysts at Merrill Lynch and Goldman Sachs Group predicted a first-quarter loss on further writedowns.But, on Wednesday, investor Robert Olstein said Citigroup will not cut its dividend further or raise more capital and the shares may double over the next two years.Citigroup’s stock, which has tumbled 55 per cent in the past year, is attractive even if the biggest US bank by assets reports another US$60 billion of writedowns and loan-loss provisions over the next two years, Mr Olstein told Bloomberg Television.‘Even though there’s bad news still to come in Citibank, it’s discounted already,’ said Mr Olstein, who oversees about US$1.3 billion as chairman of Olstein Capital Management. ‘This stock in two years is going to be in the mid-40s. You’ve got to be forward looking.’ Source: Reuters, Bloomberg (Business Times 7 Mar 08)

Existing home sales stay at just short of record low

Home foreclosures and rate of homes entering the process at record highs in Q4

(WASHINGTON) Industry data released yesterday show January pending US home sales were below analysts’ expectations and remained at the second-lowest reading on record.

The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes held at 85.9, the same reading as December and just short of a revised record low of 85.8 in August, at the start of the worldwide credit squeeze. The reading was 19.6 per cent below year-ago levels.

Wall Street economists surveyed by Thomson/IFR had predicted the index would inch up to a reading of 86.2. Typically there is a month or two lag between when a buyer signs a home sales contract and the closing of the deal. Sales completed last month and into this month should be reflected in the January reading.

An index reading of 100 is equal to the average level of sales activity in 2001, when the index started.

Lawrence Yun, the trade group’s chief economist, said in a statement that the reading is a sign the housing market is stabilising.

‘Our members are telling us there’s been a pick-up in shopping activity,’ Mr Yun said. ‘Our hope is that the increased traffic of buyers looking at homes will translate soon into more contract offers.’

The Realtors group, which is more optimistic about the housing market than most economists, projects home sales will start to rise during the second half of the year.

It forecast yesterday that total existing home sales will fall 4.8 per cent to 5.4 million this year, then rise to 5.6 million in 2009.

The trade group projected median US home prices – the point at which half of the homes sell for less and half sell for more – will fall 1.2 per cent to US$216,300 before rising to as much as US$2 23,800 in 2009.

Meanwhile, US home foreclosures and the rate of homes entering the foreclosure process rose to record highs in the fourth quarter led by failing sub-prime loans, the Mortgage Bankers Association said yesterday.

The rate of failing loans swelled across most mortgage types but was led by a growing wave of subprime borrowers unable to make payments, the trade group said in its delinquency and foreclosure survey.

A record 0.83 per cent of US loans were entering the foreclosure process in the last three months of 2007 compared to 0.54 per cent in the same time a year earlier. The US mortgage delinquency rate of 5.82 per cent was the highest since 1985 and up from the 4.95 per cent seen in the fourth quarter of 2006.

In another development, Federal Reserve Bank of Boston president Eric Rosengren yesterday called for aggressive action on credit market problems and falling home prices that are posing a risk to the US economy.

‘There may be a significant cost to delaying needed actions that could restore confidence in the ratings process, the pricing of financial assets, and the impact of declining home prices,’ Mr Rosengren said.

Mr Rosengren said that problems that have roiled Wall Street since summer ‘are beginning to significantly affect Main Street’, with falling home prices a key element. ‘As long as housing prices continue to fall, the decline increases the risks to borrowers, lenders, markets and the economy,’ he said.

Hopes that the United States could refinance its way out of the sub-prime mortgage crisis are fading, Mr Rosengren said.

Source: AP, Reuters (Business Times 7 Mar 08)

Growth slows in 8 of 12 regions in US: survey

Beige Book cites weak retail sales, slow manufacturing and housing woes

(NEW YORK) The Federal Reserve says economic growth has slowed in eight of 12 US regions since the start of the year, hurt by faltering retail sales, manufacturing and a continued decline in housing.

‘Two-thirds of the districts cited softening or weakening in the pace of business activity, while the others referred to subdued, slow or modest growth,’ the central bank said in its regional business survey, known as the Beige Book, on Wednesday.

The report provided anecdotal evidence of a cooling economy that echoed reports this week that showed a contraction in manufacturing and services last month.

Fed chairman Ben Bernanke told lawmakers last week that the central bank is prepared to lower interest rates further as needed to avert a deeper downturn.

The report noted that retail activity in most districts was weak or softening. Manufacturing was sluggish or have slowed in about half the districts.

Traders expect the Federal Open Market Committee to lower the benchmark rate by 0.75 percentage point by its meeting on March 18. Policy makers have lowered the rate by 2.25 percentage points since September to 3 per cent.

The Fed report also said that almost all districts reported ‘upward pressure on prices’ from higher raw materials and energy costs, though companies reported ‘mixed success’ in passing along costs in higher prices.

The Beige Book said housing remained a drag on the US economy. ‘Residential real estate markets generally remained weak,’ the report said, citing ‘tight or tightening credit standards’ in most districts.

Scarce credit, bloated inventories and falling prices continue to depress housing markets. Sales of existing homes fell in January to the lowest level since records began nine years ago, the National Association of Realtors said last month.

‘Growth risks are much more severe in the near term’ for the Fed, Bruce Kasman, chief economist at JPMorgan Chase, said. ‘Growth is pretty much stagnant right now.’

Companies reduced workers last month, the first reductions in the US in almost five years, a private report based on payrolls from ADP Employer Services showed on Wednesday.

The economy expanded 0.6 per cent at an annualised pace last quarter. Fed officials lowered their projections for economic growth by half a percentage point this year, according to quarterly figures published last month.

‘I continue to expect a period of economic weakness in the near term,’ Fed governor Frederic Mishkin said on Monday. ‘With the economic outlook having deteriorated significantly and financial markets under considerable stress, the FOMC will face significant challenges.’

The Beige Book’s regional anecdotes are gathered through hundreds of telephone calls, news clippings and personal contact by the staff of the 12 Fed banks, whose districts cover all 50 US states. The anecdotes are designed to supplement quantitative forecasts of the Board of Governors staff.

The Beige Book was prepared by the Boston Fed based on information collected on or before Feb 25.

Source: Bloomberg (Business Times 7 Mar 08)

Speculators holding out for higher prices

Subsale activity slows but transacted prices remain resilient

(SINGAPORE) Property prices have been bolstered by speculators in the last year. But now that speculation is on the decline, could prices follow suit?

An analysis by Savills Singapore of properties subsold last year after being bought from developers in the same year has revealed that while subsale activity dropped significantly in the last quarter, subsale prices did not, suggesting that speculators are not ready to offload their investments yet.

The number of subsales fell by 66.7, 69.1 and 39.1 per cent in the high, mid and mass-market segments respectively in the fourth quarter of last year from a quarter earlier.

However, average gains made from subsales over the developers’ sale price remained relatively stable. They came to 34.2 per cent in the high-end segment in Q4, 14 percentage points higher than the full-year average gains. In the mid-tier segment, average gains fell marginally by 2.4 points to 21.1 per cent, while in the mass-market segment, they rose 1.6 points to 17.2 per cent.

Savills director (marketing and business development) Ku Swee Yong adds: ‘Speculators appear to be holding out for better prices.’

Interestingly, Savills’s analysis also shows that there have been several speculators that have subsold on very thin profit margins of 5 per cent or less, adding credence to market talk that some speculators may be looking to offload properties at bargain prices soon.

However, while Mr Ku believes that speculators that cannot manage the mortgage payments – especially after holding for a year or more on the deferred payment scheme – might be letting go at lower profits, he does not think they represent a majority.

By his estimation, there are about 6,000 residential units that will receive TOP (temporary occupation permit) this year. ‘While there may be some dumping from those who cannot afford to pay up at the point of TOP, we do not think that it will constitute more than one per cent of the 6,000 units,’ he adds.

The situation could change next year.

‘We expect around 10,000 units to receive TOP in 2009. Those who bought using the deferred payment scheme in the last couple of years might let go if they are really speculators and cannot afford to pay,’ says Mr Ku.

But he is optimistic that the low mortgage rates may mitigate the need to sell. ‘The buyers might go for rental yield instead.’

Subsales of major new launches in the high-end sector, which include developments such as Marina Bay Residences, Scotts Square and The Orchard Residences, fell to just four transactions in Q4, compared to 32 for the full year.

Two subsales were done at less than 10 per cent above the developer’s sale price.

The average gains from subsales over the developer’s sale price were highest in the high-end market, substantiating Mr Ku’s belief that this segment could prove more resilient if the global economic downturn is prolonged. ‘There is a large proportion of buyers in the high-end market that are so rich, they buy properties with cash.’

This segment is also largely supported by foreign buyers and Mr Ku says: ‘Foreigners are not speculators.’

Last year, the mid-tier segment saw 140 subsales of newly launched developments like Sky @ Eleven, The Rochester and One North Residences.

In Q4, one subsale was transacted at just 2.3 per cent above the developer’s sale price. In the mass market, there were 49 subsales of newly launched projects such as The Parc Condominium, Casa Merah and Clementiwoods for the year.

In Q4, there were 14 subsale transactions. Three were done at less than 10 per cent above the developer’s sale price.

The number of Sky @ Eleven subsales – over 60 – was among the highest in 2007. In July and August, four units were subsold for over 50 per cent of the developer’s sale price.

But the days of huge capital gains could be over.

Mr Ku says that, based on data for January so far, subsale gains could trend downwards slightly. But he adds that there is no evidence that speculators will find themselves in negative territory yet.

Source: Business Times 7 Mar 08

Aussie Q4 growth at lowest pace in a year

(SYDNEY) Australia’s economy grew at the slowest pace in more than a year in the fourth quarter as construction declined and bottlenecks at ports cut exports.

Gross domestic product rose 0.6 per cent from the third quarter, when it increased a revised 1.1 per cent, the Bureau of Statistics said yesterday. The gain matched the median estimate of economists. The US$1 trillion economy grew 3.9 per cent from a year earlier.

A slowdown in Australia’s economy, now in its 17th year of expansion, plus the potential fallout from the global credit crisis, gives the central bank scope to delay further interest rate increases after raising borrowing costs to a 12-year high on Tuesday to stem inflation.

Yesterday’s report showed imports surged as the lowest unemployment in more than three decades spurred spending.

‘It’s still a strong economy story,’ said David de Garis, senior markets economist at National Australia Bank. ‘The question is whether domestic demand will hold up in the face of rising interest rates.’

Rising borrowing costs, tighter lending standards, the local currency’s gain and the global slowdown are ’significant dampening forces’ that will cool Australia’s economic expansion, central bank assistant governor Malcolm Edey said yesterday.

Australia’s stock market was cut to ‘underweight’ by Merrill Lynch & Co yesterday on concern rising interest rates will ‘hit consumer and banking stocks’. The nation’s benchmark S&P/ASX 200 Index has declined 21 per cent since its Nov 1 peak, meeting the definition of a bear market.

Exports fell 0.6 per cent in the three months through December from the previous quarter as miners were hampered by port and rail constraints, yesterday’s report shows. By contrast, government spending rose 1.7 per cent and household consumption climbed 1.6 per cent.

Source: Bloomberg (Business Times 6 Mar 08)

Fed and Bush moving closer to mortgage rescue

Bernanke calls for more action by banks and the govt to help millions of home owners

(WASHINGTON) However much they might oppose it on ideological grounds, the Bush administration and the Federal Reserve are inching closer towards a government rescue of distressed home owners and mortgage lenders.

Fed chairman Ben Bernanke told a group of bankers in Florida on Tuesday that ‘more can and should be done’ to help millions of people with mortgages that are often bigger than the value of their homes.

Though Mr Bernanke stopped well short of calling for a government bailout, he used his bully pulpit to try to push the banking industry into forgiving portions of many mortgages and signalled his concern that market forces would not be enough to prevent a broader economic calamity.

He also suggested that the Federal Housing Administration expand its insurance programme to let more people switch from expensive sub-prime mortgages to federally insured loans.

And he urged the two government-sponsored mortgage companies, Fannie Mae and Freddie Mac, to raise more capital so they could buy more mortgages. The companies already guarantee or hold as investments about US$1.5 trillion in mortgages.

Similarly, the Bush administration, despite its public opposition to bailouts, has set the stage for a bigger government role.

One month ago, President George Bush signed an economic stimulus bill that greatly increased the size of loans the FHA can insure, while allowing Fannie Mae and Freddie Mac to purchase significantly larger mortgages from lenders and guarantee them against default by homeowners.

The move, which administration officials had previously opposed, increases the limits on FHA, Freddie Mac and Fannie Mae mortgages from US$417,000 to as much as US$729,750.

Historically, the FHA and the mortgage companies have focused on conservative mortgages for people borrowing relatively modest sums. But they are now being encouraged to finance much bigger mortgages, in some cases to people who put almost no money down.

Last week, the administration went further by removing limits on the volume of mortgages that Fannie Mae and Freddie Mac can hold in their own portfolios. That means the two companies could buy up billions of dollars in mortgages that other investors have been too frightened to touch.

In theory, the change should not cost taxpayers. But because the companies are chartered by Congress, investors have assumed that Congress would bail them out if needed.

The Fed has been offering its own resources to soften the credit squeeze. In addition to sharply cutting interest rates, the Fed has lent more than US$160 billion to banks since mid-December.

Source: NYT (Business Times 6 Mar 08)

Mixed landed housing site for sale

CHESTNUT VILLE (I and II), a mixed landed site at Dairy Farm Crescent, has been put up for collective sale and the indicative price for the combined plot is $90 million.

This represents a land price of $741 psf over the land area, inclusive of an estimated $1 million development charge.

The development currently comprises 11 townhouses and 34 walk-up maisonette units with a combined land area of about 122,677 sq ft.

Credo Real Estate, which is marketing the site, says that the site is zoned for three-storey mixed landed housing.

This means the site may yield a combination of conventional terrace houses, semi-detached and detached houses; or cluster landed housing with strata terrace houses, strata semi-detached houses and strata bungalows with communal facilities. Credo executive director Tan Hong Boon added that it commissioned a study by an architect and one of the possible schemes allows the site to be developed into 10 strata detached, 22 strata semi-detached and 27 strata terrace houses, together with another four conventional semi-detached houses and two bungalows.

Based on the indicative price of $90 million, the potential developer’s breakeven price for an intermediate strata terrace house and a conventional bungalow should be about $2.1 million and $3.8 million respectively, added Mr Tan.

Credo also pointed out that according to the Land Transport Authority, the planned Bukit Timah MRT Line is slated to include a Chestnut Station and a Hillview Station, both of which could be expected to be close to the site.

Mr Tan also expects good response for the mixed landed housing site as ‘they are not easily available in the market’.

Source: Business Times 6 Mar 08

Property valuations in focus amid Spanish angst

(LONDON) Spanish property developers, having enjoyed what once seemed an unstoppable boom, could face a severe mauling unless they bow to more realistic pricing as the economy slows and banks rein in lending.

The true value of real estate is a growing bone of contention as more debt-doped property firms get into trouble, leaving creditors and opportunistic buyers to squabble over assets, as in the on-off takeover saga engulfing property firm Colonial.

James Preston, who heads the Madrid office of European property funds firm Rockspring, sees international banks and investors losing confidence in the absence of an improvement in property market transparency in Spain.

‘It can only prolong the pain and result in a protracted, ‘U-shaped’ recovery,’ he said. ‘It is doing a disservice to this market which is at the aperitif stage of a very long, foul meal.’

‘I don’t believe valuers are marking to market, full stop,’ Mr Preston said. ‘And I don’t believe valuers are reflecting the reality for any property company, quoted or otherwise, in particular in relation to land banks.’ Such scepticism is shared by other real estate experts.

‘Spanish property values are lower than people think,’ said JPMorgan analyst Harm Meijer here.

Mr Preston sees a parallel, in terms of lack of transparency, with the US sub-prime crisis, which has so far led to banks writing off up to US$160 billion and resulted in a global debt logjam as confidence in the value of mortgage-related debt collapsed.

Spain’s relatively conservative banking industry bears few US sub-prime scars. It churned out 31.6 billion euros (S$66.9 billion) in residential mortgage-backed bonds in the second half of last year, as other markets seized up, according to Moody’s. But it could yet face more trouble as an unprecedented construction boom – accounting for almost a fifth of Spain’s economic growth – slows sharply.

Across Spain, unemployment is rising faster than anywhere else in Europe. Consumer confidence is at its lowest level since Spain’s last housing crisis, in the early 1990s, according to Eurostat and Bank of Spain data.

It is not just smaller-scale builders of coastal holiday homes or speculative owners of land banks with dubious planning rights that may be vulnerable, though these are seen by analysts as most overvalued in the current climate.

Several Spanish property developers have filed for creditor protection in the last few months, while Barcelona-based Habitat last week staved off bankruptcy at the eleventh hour by refinancing 1.6 billion euros of debt.

Some of Spain’s biggest property firms – including Colonial, Metrovacesa, Martinsa Fadesa, and Realia – have also bulked up on debt, which until recently was paid back with steady cash flow in a rising market.

Unlike in the United States and other parts of Europe – where there is a clearer demarcation between housebuilders and commercial property landlords – these firms have both housing and commercial property and so are exposed to any weakness.

The Bank of Spain has said Spanish homes may be up to 30 per cent overvalued. The government, which faces general elections on March 9, expects house price growth to ease to low single digits but not turn negative. But it is no longer just housing which could be a problem.

Commercial property – pricey by regional standards – could suffer too since a slower economy will undermine corporate demand for space and drag on rental growth.

Office rental yields – a valuation measure which moves inversely to price – are 4.5 per cent in Madrid and Barcelona, a percentage point less than in London’s City district, according to data from CB Richard Ellis (CBRE).

CBRE says yields in Spain’s top two cities have risen about a quarter percentage point since the third quarter of 2007. But the correction has been more acute in Britain, which like Spain is coming off one of Europe’s biggest, longest property booms.

Office, industrial, and retail property valuations in Britain have been cut by 13-14 per cent since the summer.

Source: Reuters (Business Times 6 Mar 08)

Punj Lloyd Singapore unit sees orders triple

(SINGAPORE) Sembawang Engineers & Constructors, a unit of India’s Punj Lloyd, said yesterday its orderbook has tripled from a year ago on a construction boom in Singapore.

The strong demand helped Singapore’s largest construction firm by sales raise its orderbook to $2.1 billion and boosted gross profit margins to 7-8 per cent from 1-1.5 per cent in 2006, said chief executive Alwyn Bowden.

‘We’re concentrating on infrastructure projects because these are bigger and more challenging, and are higher profile,’ Mr Bowden told Reuters in an interview.

He said that while demand for building homes and offices is expected to slow amidst an easing property market here, the impact is ‘negligible’, offset by major infrastructure investments in its key target markets of Singapore, India, and the Middle East.

These projects will not be derailed by fears of a global slowdown sparked by an ongoing credit crisis, due to strong economic growth in India and a spike in oil prices that are boosting Middle East coffers, he said.

Currently Singapore makes up 80 per cent of the firm’s orderbook. But the company aims to reduce that share and split its sales three ways between South- east Asia, India, and the Middle East.

‘We only need to grab a relatively small share of that market, to already be headed towards the same sort of levels of revenues that we achieve here and in South-east Asia,’ he said.

Shares in Punj Lloyd, India’s fifth-biggest builder, slid 6 per cent yesterday to take losses for the year to 41 per cent, underperforming an 18 per cent fall since December in the broader Bombay market.

Sembawang is currently involved in a number of high-profile projects here, including casino resorts – the Marina Bay Sands and Resorts World at Sentosa – as well as a contract to build part of a new subway line.

Source: Reuters (Business Times 6 Mar 08)

Scams and schemes compound woes of US housing crisis

(CHICAGO) As the US housing meltdown forces hundreds of thousands of Americans from their homes, the extent to which fraud was a factor in the crisis is just coming to light.Products such as stated-income loans – known as ‘liar loans’ because no proof of income was needed – led to widespread misrepresentation by borrowers about their earnings.But far more sinister forms of fraud, including identity theft and ’straw buyers’ – those created using fake documents – are also coming into the open.Mike Reardon of nonprofit lender Neighborhood Housing Services of Chicago (NHS) points out two such properties, both boarded up, on South Rockwell Avenue in Chicago’s blue-collar South Side.The owner of one of the homes was traced to Texas, he said. ‘Turns out it was a case of identity theft,’ Mr Reardon said, shaking his head. ‘He had no idea he owned a home in Chicago.’ Across the street, he points to another boarded, slowly rotting home, which had last been sold to a woman named Susan Haas.‘I may be wrong, but I’ve been looking for months and months and I can’t find any proof Susan Haas exists,’ he said. Many fraud schemes kept running as long as cash kept flowing from Wall Street. Once the credit crunch turned off the supply of easy money, the perpetrators simply walked away. Estimates vary as to how prevalent fraud was during the boom.Arthur Prieston, chairman of the Prieston Group, which provides mortgage-fraud insurance and training to lenders, said that ‘at least 30 per cent of the loans out there contain some form of misrepresentation’. ‘But because lenders often have to sell off properties quickly to cut their losses, we will never know exactly how much mortgage fraud has been committed,’ he added.Mr Prieston estimates that mortgage-fraud losses were around US$4.2 billion for 2006, adding that figures for 2007 ‘will be much higher’. In a recent case in Chicago, he said the authorities prepared to file charges against a woman who had fraudulently bought five properties.‘When we turned up to serve papers on her, we found she was nine years old,’ he said. ‘Her uncle had stolen her identity.’ The mortgage scam known as identity theft is relatively simple – the perpetrator uses a stolen identity to buy property with no money down, then rents it to tenants until it goes into foreclosure, collecting rent but never making a mortgage payment.A far more lucrative scam, using what are known as straw buyers, was much more common, according to Boston-based real estate analyst John Anderson.‘The vast majority of the cases I’m aware of involved straw buyers,’ he said. ‘Thanks to products like stated-income loans, people walked away with a ton of free money.’All you needed was to buy a foreclosed property at a bargain price, have it falsely appraised with a grossly inflated value, then sell it to a straw buyer at a big profit. The straw buyer never makes a payment and the home goes into foreclosure. The process was often repeated over and over again.‘We’ve seen some properties that were sold like this dozens of times,’ NHS’ Mr Reardon said. ‘This artificially pushed up prices in some neighbourhoods and when those fake buyers walked away, the abandoned homes pushed prices down.’‘The real victims are the genuine borrowers who bought here at inflated prices and are stuck now with mortgages worth more than their homes,’ he added.False appraisals were also used to fool genuine borrowers. ‘We get a lot of cases involving fraud that we refer to the state attorney general,’ said Lori Gay, CEO of Los Angeles Neighborhood Housing Services, a nonprofit lender that also offers financial counselling services. ‘Some 15 to 20 per cent of the cases we see have some element of fraud.’The US Federal Bureau of Investigation saw Suspicious Activity Reports (SARs) related to mortgage fraud rise to 47,000 in 2007 from 7,000 in 2003, spokesman Stephen Kodak said.‘This year it looks like we’re on track for 60,000 SARs, which is a significant rise,’ he said. ‘This has required more allocation of manpower to mortgage fraud cases.’ Mr Prieston, the mortgage insurer, said that had major lenders been proactive in checking the identities of the people who were buying properties using stated-income loans and similar products, then a lot of fraud could have been avoided.‘A lot of lenders claim they were victimised by fraud but helped to constitute it by looking the other way,’ he said. ‘The sad fact is that the vast majority of mortgage fraud out there could have been prevented.’Mr Anderson, the Boston-based real estate analyst, is among those who were warning for years that easy credit created an easy climate for fraud. ‘The banks on Wall Street had to know there would be fraud. If they didn’t they’re morons.’  Source: Reuters (Business Times 6 Mar 08)

A growth engine for the economy

Spore’s aviation players have been riding the wave of growth in the sector, but there are challenges, and opportunities too

OVER the years, aviation has become the lifeblood for Singapore’s economic growth. This is despite the fact that the sector’s direct contribution to gross domestic product (GDP) is rather small – at around 5 per cent.

But the industry’s impact on the well-being of the republic was amply demonstrated in 2003, when economic activity was badly hit by the Severe Acute Respiratory Syndrome (Sars) pandemic which saw aviation grinding to almost a halt.

If anything, the sector’s importance has grown since.

Last year, Singapore Changi Airport recorded annual passenger throughput of 36.7 million – an all-time high, representing a 4.8 per cent growth over 2006. With Terminal 3 now in operation, Changi’s total capacity is now 64 million passengers.

But such traffic is only part of the picture.

Singapore is also a critical hub for air cargo, handling some 1.9 million tonnes of airfreight last year.

Despite a marginal slowdown of 0.9 per cent compared to 2006, mainly due to the softening demand for electronics in the United States, as well as the growing preference by manufacturers to ship their products by sea instead of by air, the republic’s dominance in air cargo remains well established.

Aerospace industry

Singapore is also one of Asia’s largest and most comprehensive aerospace repair and maintenance centres, controlling some 25 per cent of total Asia market share and employing some 19,000 technicians, engineers and specialists.

The Singapore aerospace industry grew by 10.4 per cent to a record $6.89 billion last year. Value added was up 8.5 per cent to $2.69 billion, while the number of people employed by the industry grew by 8.2 per cent to 19,000 in 2007.

The industry, which encompasses manufacturing and maintenance, repair and overhaul (MRO), remains one of the fastest growing sectors in Singapore, attracting almost $500 million in investment last year.

Indeed, Singapore’s MRO cluster is already globally competitive, and in no small measure due to the efforts of IE Singapore.

The agency responsible for trade and commerce has been moving aggressively to help Singapore’s aviation cluster improve its global market share by identifying new growth areas, by marketing efforts, direct introductions and government-to-government lobbying.

For example, IE helped Singapore Technologies Aerospace (STAe) to establish its key MRO presence in Panama by introducing the company to key decision makers like Panama’s Minister of Commerce and Industry Alejandro Ferrer.

Singapore’s dominance of the Asian aviation and aerospace has been due to a combination of lucky geography and sheer grit. Air traffic in the Asia-Pacific region has grown significantly in recent years. And this growth has accelerated with the emergence since 2001 of low-cost airlines in Asia.

Some industry experts call this the commodatisation of air travel. Essentially, this means that air travel has become a mass market, with people who never envisaged getting on board a plane 10 years ago actually seeing it as a natural mode of intercity travel across Asia. This has resulted in more growth for the region’s airlines, more aircraft orders, more routes being opened up, and more airport infrastructure development.

Singapore’s aviation players – Changi, the MRO industry, the suppliers and the air logistics specialists – have been successfully riding this wave. But success also brings with it challenges. One of these is the challenge from competition.

Oil-rich nations of the Middle East are aggressively expanding their aircraft fleets, and have been making headlines with large aircraft orders at international airshows. Some US$23.5 billion in new airports infrastructure is coming onstream by 2012, providing capacity for 316 million passengers annually and taking total airport capacity to 399 million.

Meanwhile, China and India, which are enjoying phenomenal growth in aviation, are collaborating with existing global players to gain a foothold in the fast-growing MRO sector.

Along with the challenges come opportunities. The demand for new aviation infrastructure means more business opportunities for well-placed players.

For example, China, India, Vietnam and countries in the Middle East will see frenzied building of new airports over the next five to 10 years. The Beijing government alone will spend S$28 billion over the next five years on 42 new airports, while in India the government has issued a mandate for upgrading infrastructure at four metro airports, seven greenfield airports and 35 nonmetro airports.

In the Middle East, 10 leading airports will spend some US$24 billion to build new facilities and expand existing ones.

Not surprisingly, Singapore has been cranking up its game in the face of such formidable challenges.

Critical role

IE Singapore helped form the 14-company strong Singapore Airport Consortium (SAC), which includes Changi Airport International and Singapore Airport Terminal Services.

Initiated in 2004 under IE Singapore’s iPartners Programme, this consortium combines the experiences and expertise of Singapore players to jointly offer complete suites of products, services and solutions to airports beyond Singapore. Services offered include airport investment, design, building, management and maintenance and training.

SAC has over the years made inroads into China, India and even the Middle East and has become an effective vehicle for marketing Singapore’s aviation capabilities and for lobbying for Singapore interests in airport projects.

In early 2007, IE Singapore introduced the SAC members to PAE, an American infrastructure company with significant presence in Vietnam that had worked on airport projects there. In recent years, SAC members have partnered PAE in new airport masterplanning for various airport projects in Danang and Ho Chi Minh City.

Going forward, agencies like IE, A-Star, the Economic Development Board and others expect to play even more critical roles in growing Singapore’s lead in Asia-Pacific aviation and aerospace.

And their roles will become increasingly critical as the industry faces new challenges from rising fuel price, a potential slowdown arising from the US credit crunch and an anticipated huge supply surge as planes ordered over the last two years are delivered.

Source: Business Times 6 Mar 08

S’pore ranked top Reit market in Asia-Pacific

Survey cites support from regulators to the industry as advantageous

SINGAPORE has been rated as the best location in Asia-Pacific for overall real estate investment trust (Reit) potential – for a second year.

According to the second annual Asia-Pacific Reit Survey – undertaken for financial services provider Trust Company and law firm Allens Arthur Robinson – one of Singapore’s significant advantages is the support that the industry receives from regulators such as the Monetary Authority of Singapore and the Singapore Exchange.

Senior property, finance and business experts across the Asia-Pacific are confident that the region’s Reit markets will remain strong, the survey said.

However, the findings also showed that low yields, poor regulatory processes, the effects of financial engineering and adverse taxation developments will continue to be the greatest threats to Reits in Asia-Pacific.

The experts believe that most of these threats will diminish significantly in the longer term.

The survey suggests that over the next one or two years, companies will increase the size of their existing Reits rather than launch new ones, but this trend will be reversed in the longer term of three to five years.

According to the survey’s findings, retail, commercial/office and industrial and retail property will continue to be the main focus for market growth, even though the retail, commercial and office markets have cooled in the last 12 months.

The hotel and hospital sectors are expected to heat up while industrial and infrastructure property is expected to experience slight growth. Residential property, however, will remain cold, the survey said.

The findings also showed that China, India and Vietnam are ranked as the top three hot property growth markets in Asia-Pacific for the next five years. Singapore, which ranked fourth, was the highest placed established Reit market. Good growth is also expected in Malaysia.

Vicki Allen, executive general manager of institutional services at Trust, acknowledged that since the survey was conducted, some caution has surfaced in global Reit markets. But she said that Asia-Pacific Reit markets have fared reasonably well compared with their North American and European counterparts.

Robert Clarke, a partner at Allens Arthur Robinson, suggested that regulatory flexibility is key to staying ahead. He cited Singapore as an example.

Source: Business Times 6 Mar 08

The slow unwinding of the US housing crisis

IT is becoming increasingly evident that the US housing crisis – the root cause of the US economic slowdown and the turmoil in the financial markets – is getting worse by the day. Any hopes for an economic recovery and a restoration of market stability will turn on how this crisis unfolds, and how it is dealt with.

Recent statements and actions by US policymakers provide some clues of what is to come. In a widely reported address to American community bankers on Tuesday, US Federal Reserve chairman Ben Bernanke drew attention to rising delinquency rates on mortgages (and not only the sub-prime variety) and the likely persistence of this trend. Foreclosures too will rise, he said, as house prices decline further and interest rate resets on mortgages take effect.

Suggesting that ‘this situation calls for a vigorous response’, Mr Bernanke stressed the urgency of reducing ‘preventable foreclosures’. And then he dropped what many view as a bombshell: he asked for banks to not only provide interest rate relief to borrowers, but also to write down principal in some cases – in other words, to forgive part of the mortgage loans. If not, there would be a stronger incentive to default among homeowners who are in negative equity on their mortgages. And that, in turn, would accelerate the decline in housing prices and make things even worse for already beleaguered mortgage lenders.

A day earlier, US Treasury Secretary Henry Paulson – who also acknowledged that housing ‘poses the biggest downside risk’ to the economy – urged homeowners (including those ‘underwater’ on their mortgages) to continue servicing their loans, if possible. While this might not be a wholly realistic suggestion, it underlines US officials’ anxiety to stave off foreclosures.

Whether such exhortations will succeed, however, is moot. Bankers are generally loath to take ‘haircuts’ on loans except as the very last resort; and one can hardly count on most homeowners in negative equity being content to continue servicing huge mortgages when they’re better off walking away and handing their house keys to the bank.

Absent such voluntary market-based solutions, there would appear to be a strong case for government intervention. Mr Paulson and other lawmakers have publicly maintained that they oppose any bailouts. However, at the same time, the scope and mandate given to US government agencies such as the Federal Housing Administration, Fannie Mae and Freddie Mac to guarantee or take over mortgages have been significantly expanded. US lawmakers are also examining bolder options. It is probably inevitable that some of these will involve an element of bailout, even if politicians are reluctant to admit as much.

However, whether bailouts are involved or not, US policymakers need to address the US housing market bust urgently, despite the distractions of an election year. For it is now obvious that there is a systemic risk facing the US financial system – and that market mechanisms alone cannot deal with it.

Source: Business Times 6 Mar 08

UK housebuilders face hard times

Fewer houses built as higher interest rates, credit crunch drive away buyers

(LONDON) Britain’s housebuilders are building fewer homes in the face of tighter mortgage lending and an uncertain price outlook, but slashing volumes and costs may not be enough to lure back investors to the battered sector.

Britain’s major builders completed fewer homes last year – about 76,000, down around 10 per cent on 2006 – as higher interest rates and the global credit crunch drove away buyers.

And things are set to get worse, with analysts predicting 10-16 per cent fewer new homes this year, a price fall of around 3 to 5 per cent and a drop of some 20 per cent in transactions.

Such worries have pushed shares of major housebuilders including Barratt and Taylor Wimpey down more than 50 per cent in the past six months.

The stocks have recouped some of the losses since mid-January, as value investors entered the market, but analysts warn of tougher times ahead and prolonged volatility, as data so far sends mixed signals on the market conditions.

‘Tighter credit is the major constraint, and this is unlikely to change for a while. So no one is expecting that a short, sharp shock will be followed by a swift, V-shaped recovery,’ Charles Stanley analyst Tom Gidley-Kitchin said.

Citigroup and KBC analysts agree the sector is cheap, but they caution that any revaluation is unlikely until late April and May when more solid data on the spring selling season is available.

‘A lot of this (macroeconomic and liquidity risk) is already in share prices . . . (but) our preference is to wait for another three months or so of data, as by then there will be much more evidence of either a stabilisation in the market or a clear drop in activity,’ Citigroup analysts said.

Housebuilders, in the midst of reporting 2007 results, are divided on whether the market is showing signs of recovery after its sharp downturn in the final few months of 2007.

Barratt chief executive Mark Clare, on the one hand, said last week the market was improving more quickly than he had expected.

He pointed to a 36 per cent rise in property viewings from the second half of 2007 and a return in the number of people cancelling reservations to the usual level of about 20 per cent.

These signs of hope were given a tentative boost last week by official figures. While reporting the smallest rise in mortgage lending for 21/2 years, the Bank of England also said that mortgage approvals – an indication of future lending – unexpectedly picked up in January.

But other builders such as Galliford and Redrow turned more cautious, as they prepare to spend more on incentives such as part-exchange deals and mortgage assistance to restore falling sales.

Persimmon reported a 19 per cent fall in presold homes last week versus a 14 per cent drop in January, while Barratt’s forward sales decline was 7 per cent versus 6 per cent in January.

A further weakening in house prices – which in January recorded their biggest quarterly fall in at least a decade – would be a big blow to builders, which are under additional pressure from high prices for raw materials.

Builders’ drive to cut costs, which has been so far centred on reducing labour costs, closing branches and renegotiating terms with subcontractors, will also have only limited impact on improving margins without house price rises, analysts say.

‘We see the new build sector having difficulties cutting costs as land within cost of sales is essentially fixed or rising, materials costs look likely to rise and the hoped for 5-10 per cent cut in labour costs looks hard to achieve,’ KBC analysts said.

Cazenove analysts estimate the impact of lower house prices on builders’ bottom line is four times bigger than a volume change, with a one per cent drop in prices cutting operating profits by 4 per cent.

They believe after a recent recovery, the shares of housebuilders no longer adequately price in the possibility of a recession.

UK housebuilders trade at 9.5 times forecast earnings, versus the overall market’s 11 times.

For longer-term investors, however, builders still appear a good bet, with tight supply of new stock set to continue and a massive discount to their asset values such as land.

The number of households in England is currently estimated to outgrow housing stock by 38,000 a year due to immigration and a growing number of single-member households, according to the government.

Britain already has one of the slowest rate of housing starts across Europe, ahead of only Slovakia, Poland and Germany – a fact which builders, and many industry analysts, blame on the government’s tight planning laws.

‘With an ongoing restrictive planning regime, it is unlikely that enough homes will be built to catch up demand. This is not a problem that will ease over the next few years,’ Panmure analysts said.

Source: Reuters (Business Times 6 Mar 08)

UK lenders lost £700m to mortgage fraud

(LONDON) UK mortgage lenders probably lost £700 million (S$1.9 billion) last year to organised fraud that inflated real estate prices, according Britain’s Association of Chief Police Officers.

Mortgage fraud for profit ranges from overvaluation of newly constructed homes to deliberate ramping of commercial real estate prices, often involving mortgage brokers, appraisers and attorneys, the association said in an e-mailed statement yesterday.

Fraud for profit differs from fraud for property, where individuals inflate salaries or savings to qualify for loans.

Concerns about mortgage fraud are mounting among banks as the UK housing market cools, ending a decade of gains during which property values tripled. Mortgage approvals fell to a nine-year low in January, after lenders granted £370 billion of mortgages last year.

Mortgage fraud ‘remains a significant element of the UK’s annual fraud losses’, said Mike Bowron, commissioner of the police department of the City of London district in the UK capital. His comments accompanied a release on the report’s findings.

In one instance an individual made a profit of more than £10 million through fraud, the police association said. The release didn’t provide details of frauds committed.

Lenders should make more identity checks and seek to establish a central database to flag areas where fraud is more prevalent, police recommended in the report.

Criminal gangs use mortgage fraud as a way of laundering money and making ’significant’ incomes, the report found, because of the ‘current low risk of detection and high profit opportunities’.

London, the UK’s most expensive property market, was the most active area for fraud, the report found, accounting for 46 per cent of cases.

‘Victims of mortgage fraud range from those who purchase a newly built property only to find that their home is worth considerably less than they paid for it through to those on low incomes who, through the actions of corrupt professionals, take on a debt they simply cannot afford,’ the association said in the report.

The report was based on evidence from 47 UK police forces, government departments, insurance companies, the Financial Services Authority, lending associations and 45 mortgage providers, who represent more than 75 per cent of the market.

Source: Bloomberg (Business Times 6 Mar 08)

UOL betting big on hospitality business

(SINGAPORE) The UOL Group has earmarked some $500 million – or a third of its available funds – to expand its hospitality business in Asia-Pacific over the next three years, the group’s president and chief executive Gwee Lian Kheng told BT in an interview.

The property company plans to add some 15-20 hotels and service apartment properties over the next three years, Mr Gwee said. ‘(Right now), if you ask me to put down money, I will put it into hospitality,’ he said.

For Singapore especially, the hospitality sector looks to be the brightest going forward – even as the overall property market takes a breather – Mr Gwee said.

Yesterday, UOL launched its new 126-unit service residence development called Pan Pacific Serviced Suites, which the company hopes will be the first of many service residences under the Pan Pacific brand name.

Five such properties could open in the next three years, Mr Gwee said. Next up is Pan Pacific-branded service residences in Bangkok, which will open in about a year.

In Singapore, Pan Pacific Serviced Suites is likely to be the only one of its kind, as rising property prices mean that such an offering will be ‘hard to replicate’, the company said.

‘Moving forward, our strategy is to look at high growth markets such as China, Vietnam, Thailand and Malaysia,’ Mr Gwee said.

The Singapore property, which is located right next to Somerset MRT station, cost the group $38.5 million to build. Guests can check in from early April, and pre-opening interest has been strong, UOL said.

The company explored building a small office, home office (Soho) development on the site, but decided to go with service residences in order to ride on the current international business expansion into Singapore and the corresponding growth in expatriates looking for short-term housing, as well as the chance to grow the Pan Pacific brand.

UOL bought the hotel brand last year in a bid to become a key player in hotel management in the Asia-Pacific region.

The deal brought the Pan Pacific group’s 12 hotels in the US, Canada and Asia into the UOL portfolio, adding some 3,800 rooms.

Now, UOL is looking to take the brand further with its first foray into service residences.

‘Moving into the extended serviced accommodation business is a logical extension of the brand as it is complementary to our current hotel accommodation offering,’ Mr Gwee said.

UOL itself, however, is not a newcomer to the service residences scene. It owns such a property under its Parkroyal brand, which it will maintain as a four-star property.

Pan Pacific Serviced Suites, on the other hand, is slated to be a five-star offering.

UOL also bought a hotel plot at Upper Pickering Street in a government tender in October last year. This ‘may, or may not’ be branded as a Pan Pacific hotel when it is completed by early-2011, Mr Gwee said.

For the overall property market, Mr Gwee said that UOL is ‘cautiously optimistic’ on the back of the sub- prime lending crisis in the US and the resultant credit crunch.

The developer plans to launch its ‘mid-range’ condo Breeze by the East on Upper East Coast Road as soon as it can.

Mr Gwee expects mid- level home prices to climb at least 10 per cent this year, pushed up by en-bloc sellers looking for replacement homes.

UOL shares closed four cents down at $3.65 yesterday.

Source: Business Times 6 Mar 08

US commercial property seen falling by 20%

But office properties should fare relatively well over the near term, say JPMorgan analysts

(NEW YORK) The US commercial real estate market could decline by as much as 20 per cent over the next five to eight years as tighter credit squeezes business property but with less ferocity than it choked the housing market.

‘We believe commercial real estate loan performance peaked in 2007 and will deteriorate on an accelerating trajectory through 2009,’ JPMorgan analysts said on a conference call on Tuesday.

They said they expect values to fall by 20 per cent from their peak last year, and losses to total about US$120 billion, or 4 per cent of the US$3.2 trillion outstanding commercial real estate loans.

Commercial Mortgage Backed Securities (CMBS) would account for about US$30 billion of the losses and collateralised debt obligations (CDOs) would account for about US$40 billion of the losses, they said.

CDOs are bonds based on pools of the riskiest CMBS bonds, leases, mezzanine loans and other real- estate related instruments.

CMBS, including CDOs, accounted for 23.6 per cent of lending at the end of the third quarter of 2007, JPMorgan said.

Problems in the CMBS market will become apparent between 2010 and 2012, as many five-year mortgages mature, the JPMorgan analysts said.

This would lead the commercial property market into a more gradual decline than the housing market, which has been slammed by losses related to sub-prime mortgages. Those losses are expected to reach US$200 billion, or 15 per cent of the US$1.25 trillion of outstanding loans, the JPMorgan analysts wrote in a report discussed on the call.

Many commercial properties have been financed with low-interest, five-year mortgages that will have to be refinanced or the properties will have to be sold.

Lenders who do not sell their loans but rather keep them on their balance sheets, such as insurance companies and commercial banks, are expected to loose US$50 billion over the five-to-eight year period, giving them enough time to adjust reserves, the JPMorgan analysts said.

‘The relatively conservative underwriting of banks and insurance companies is likely to insulate them from many of the problems that will plague loans securitised into fixed-rate CMBS,’ the JPMorgan report said.

Moody’s Investors Service recently said it expected commercial property values to decline 15-20 per cent over the next few years and the delinquency rate to increase into the 1-2 per cent range.

But Michael Pralle, former head of GE Real Estate and now president of JER Partners, a real estate private equity firm, said real estate values already have fallen by 10 per cent or 15 per cent. ‘It’s literally the arithmetic of the lending.’

He said many buyers have lowered offers as they factor in the higher costs of borrowing and lower amounts of cash available to borrow.

Office properties, the largest sector of the commercial real estate market ‘. . . should fare relatively well over the near term due to the longer-term nature of their underlying tenant leases’, the JPMorgan analysts wrote. But, they added, retail and hotel properties, which are very sensitive to changes in the overall economy, are expected to underperform.

Benjamin Lambert, chairman of commercial real estate brokerage Eastdil Secured, said values at the very top of the office market would slip slightly, but the overall market may see values decline 10 per cent or 15 per cent. Eastdil Secured is a subsidiary of Wells Fargo & Co.

JPMorgan analysts said they expected that the relatively restrained construction of offices, apartment buildings, warehouses, shopping centres and hotels that occurred between 2003 and 2007 would mitigate losses.

This compares to the residential market, which has suffered from a glut of houses for sale.

JPMorgan also said declines would not be limited to the United States, adding that UK commercial property prices are like to fall 23 per cent and commercial property prices in Europe and Australia are apt to decline by 5 per cent to 10 per cent.

Source: Reuters (Business Times 6 Mar 08)

US housing woes: It’s the affordability, stupid!

GLOOM. Doom. Calamity. Home prices are tumbling. We’re bombarded by sombre reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse. The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last. It’s elementary economics. Say, houses are apples. We have 1,000 apples, priced at US$1 each. They don’t sell. We can either keep the price at US$1 and watch the apples rot. Or we can cut the price until people buy. Housing is no different.

Even many economists – who should know better – describe the present situation as an oversupply of unsold homes. True, there is about 10 months’ supply of existing homes as opposed to four months a few years ago. But the real problem is insufficient demand. There aren’t more homes than there are Americans who want homes; that would be a true surplus.

There’s so much supply because many prospective customers can’t buy at today’s prices. By definition, the ‘housing bubble’ meant that home prices got too high. Easy credit, lax lending standards and panic buying raised them to foolish levels. Weak borrowers got loans. People with good credit borrowed too much. Speculators joined the circus.

Look at some numbers from the (US) National Association of Realtors. From 2000 to 2006, median family income rose almost 14 per cent to US$57,612. Over the same period, the median-priced existing home increased about 50 per cent to US$221,900. By other indicators, the increase was even greater. But home prices could not rise faster than incomes forever.

Inevitably, the bust arrived. Credit standards have now been tightened, and the (false) hope of perpetually rising home prices – along with the possibility of always selling at a profit – has evaporated. For many potential buyers, prices have to drop for housing to become affordable.

How much? No one really knows. There is no national housing market. Prices and family incomes vary by state, city and neighbourhood. Prices rose faster in some areas (Los Angeles, Miami, Phoenix) than in others (Dallas, Detroit, Minneapolis). Some economists now expect an average national decline of about 20 per cent. The Federal Reserve estimates that owner-occupied real estate is worth almost US$21 trillion. A 20 per cent reduction implies losses of about US$4 trillion.

The largest part would be paper losses for homeowners: values that rose spectacularly will now fall less spectacularly – back to roughly 2004 levels; that’s still 30 per cent or so higher than in 2000. But hundreds of billions of dollars of other losses are already being suffered by builders (from the lower value of land and home inventories), mortgage lenders (from defaulting loans), speculators and homeowners (from lost homes). Mark Zandi of Moody’s Economy.com estimates that mortgage defaults this year will exceed 2 million, up from 893,000 in 2006.

To be sure, all this weakens the economy. No one relishes evicting hundreds of thousands of families from their homes. Eroding real estate values make many consumers less willing to borrow and spend. Some economists fear a vicious downward spiral of home prices. More foreclosures depress prices, increasing foreclosures as people abandon houses where

the mortgage exceeds the value. Losses to banks and other lenders rise, and they curb lending further. Particularly vulnerable would be Fannie Mae and Freddie Mac, the two government-sponsored housing lenders.

Up to a point, there’s a case for providing relief to some mortgage borrowers. In many cases, everyone would gain if lenders and borrowers renegotiated loan terms to reduce monthly payments. Losses to both would be less than if their homes went into foreclosure and were sold. The Treasury has organised voluntary efforts. Some measures being considered by Congress (for example, overhauling the Federal Housing Administration) might help. But other proposals – particularly empowering bankruptcy judges to reduce mortgages unilaterally – would perversely hurt the housing market by raising the cost of mortgage credit. Lenders would increase interest rates or downpayments to compensate for the risk that a court might modify or nullify their loans.

The understandable impulse to minimise foreclosures should not serve as a pretext to prop up the housing market by rescuing too many strapped homeowners. Though cruel, foreclosures and falling home values have the virtue of bringing prices to a level where housing can escape its present stagnation. Helping today’s homeowners makes little sense if it penalises tomorrow’s homeowners. An unstoppable free fall of prices seems unlikely.

Slumping home construction and sales have left much pent-up demand. What will release that demand are affordable prices.

Source: The Washington Post Writers Group(Business Times 6 Mar 08)

US regulators eye next trouble spots

(WASHINGTON) US regulators are watching credit cards and commercial construction loans for signs they may be the next trouble spots as strained financial markets constrain credit.

The housing downturn, with its epicentre in the sub-prime mortgage market, remained atop the list of concerns. But banking regulators and Federal Reserve officials expressed concerns on Tuesday that credit risks may extend beyond mortgages.

Federal Reserve chairman Ben Bernanke warned in a speech that mortgage delinquencies and foreclosures would likely rise and more house price declines could be expected.

Mr Bernanke’s second-in-command, Donald Kohn, said at a Senate Banking Committee hearing that the Fed was also keeping a close eye on credit card, home equity and commercial real estate loans as banks cope with a widening range of credit risks.

‘Federal Reserve supervisors are monitoring these consumer loan segments for signs of spillover from residential mortgage problems, particularly in regions showing homeowner distress, and are paying particular attention to the securitisation market for credit card loans,’ he revealed. Mr Kohn added that commercial real estate is ‘another area that requires close supervisory attention’.

Source: Reuters (Business Times 6 Mar 08)

Big US banks poised to fall further, says investment guru

Fed ‘making same errors’ Japan made trying to bail out everyone in 1990s

FINANCIAL guru Jim Rogers painted a doom-and-gloom picture of the United States economy yesterday and predicted that Singapore’s two investment companies would lose money on their recent investments in beleaguered banking giants.

Singapore-based Mr Rogers said investing billions of dollars in banks at this time, with the US financial sector in dire straits, was the wrong move.

He believes ‘banks will fall further’, hence his strategy of ’shorting investment banks on Wall Street’, including Citigroup and mortgage lender Fannie Mae. ‘Shorting’ means investing on the assumption that the shares will fall further.

Mr Rogers, who co-founded the Quantum Fund with billionaire George Soros in the 1970s and predicted the start of the commodities rally in 1999, said he was concerned by the recent bank deals made by Temasek Holdings and the Government of Singapore Investment Corporation (GIC).

‘It grieves me that Singapore is buying into these things,’ said Mr Rogers.

GIC pumped in 11 billion Swiss francs (S$14.7 billion) for a 9 per cent stake in Swiss bank UBS in December and invested US$6.88 billion (S$9.58 billion) in Citigroup a month later. In December, Temasek bought a US$4.4 billion stake in Merrill Lynch.

UBS shares have fallen by more than 30 per cent this year. Citigroup is down over 20 per cent, while Merrill Lynch is off about 5 per cent.

Mr Rogers told reporters at an ABN Amro product launch that he remained bullish on commodities but extremely bearish on equities, bonds and the greenback.

‘The only bull market I know of in the world right now is the commodities market,’ he said. ‘We’re only one-third of the way through the bull market.’

He also warned that inflation was going to get worse: ‘Demand is going higher at a time when there are supply constraints. Food inventories are at their lowest in 40 years.’

Oil prices also have the potential to go much higher, he said, adding that the US Federal Reserve was making the same mistake Japan did in the 1990s when it wanted to bail out everyone.

The US should have bitten the bullet instead of trying to put on ‘band-aids’, he added, referring to the Fed’s move of cutting interest rates to stave off a recession yet risking stoking the inflation fire.

‘The central bank is making disastrous mistakes,’ said Mr Rogers, adding that he was also ‘extremely pessimistic’ on the US dollar. The currency traded near record lows to the yen and Swiss franc yesterday.

Mr Rogers further forecast that the US sub-prime crisis would continue to haunt the world for a year or two. Even after it has ceased, he said, there will still arise other kinds of loan problems, such as with credit cards and cars.

Source: The Straits Times 6 Mar 08

UOL unit unveils luxury serviced suites in Somerset

IT HAS been 28 years since Singapore’s listed UOL Group launched its last serviced apartment property, the Parkroyal Residences at Beach Road.

Now, it is entering the luxury extended-stay business with the launch of its new property, Pan Pacific Serviced Suites, at 96 Somerset Road.

The new property is similar to serviced apartments but has additional luxury features such as round-the-clock personal assistants who can provide guests with local connections to business and social events.

The property is the first of five planned serviced suites that UOL is also planning in China, Vietnam, Malaysia and Thailand over the next three years, said Mr Gwee Lian Kheng, group president and chief executive of UOL yesterday.

UOL’s wholly-owned unit Pan Pacific Hospitality, which owns the Pan Pacific Hotels and Resorts group of hotels, yesterday unveiled the luxury serviced suites.

The 16-storey building next to the Somerset MRT Station houses 120 one- or two-bedroom suites and six penthouses, ranging from 527 sq ft to 1,689 sq ft in size.

UOL believes demand for luxury serviced suites will rise as the number of international visitors to the region increases.

According to the Pacific Asia Travel Association, the Asia-Pacific region saw 361.7 million visitors last year, a jump of 7.9 per cent from the year before.

Mr Gwee expects another 6 to 7 per cent rise this year.

He also said some demand should be generated from a spillover effect of the current shortage of hotel rooms in Singapore.

There are at least 26 serviced residences in Singapore with about 3,500 units in all, compared with more than 37,000 hotel rooms.

According to CB Richard Ellis, the occupancy rate for serviced apartments in Singapore was 91.2 per cent in the fourth quarter of last year, an increase of 7.5 per cent from the same period in 2006.

Mr Gwee hopes the suites, constructed at a cost of $150 million, will see an occupancy rate of at least 90 per cent after the first six months.

The suites will launch early next month, and rates will range from $10,000 to $25,000 per month, or from $420 to $1,070 per day for a minimum stay of one week.

This is at a premium of 20 to 25 per cent over the market rate, said Mr Kam Tin Seah, UOL’s senior general manager of investment and strategic development.

Pan Pacific Hospitality plans to launch its second serviced suite in Bangkok a year from now. As a group, UOL also plans to roll out between 15 and 20 new hotels and serviced suites over the next three years.

Source: The Straits Times 6 Mar 08

US regulators look for signs of credit crisis spreading

They are keeping a keen eye on credit card, home equity and building loans

WASHINGTON – UNITED States regulators are watching credit card and commercial construction loans for signs that they may be the next trouble spots as strained financial markets constrain credit.

The housing downturn, with its epicentre in the sub- prime mortgage market, stayed atop the list of concerns. But regulators and Federal Reserve officials expressed concerns on Tuesday that credit risks may extend beyond mortgages.

Fed chairman Ben Bernanke said on Tuesday that credit-weary banks may be better off accepting lower home loan principal amounts rather than the bigger losses that would come from foreclosures.

He warned that mortgage delinquencies and foreclosures would likely rise as house prices fall further.

Mr Bernanke’s second-in- command, Mr Donald Kohn, said at a Senate Banking Committee hearing on the same day that the Fed was also keeping a close eye on credit card, home equity and commercial real estate loans as banks cope with a widening range of credit risks.

‘Federal Reserve supervisors are monitoring these consumer loan segments for signs of spillover from residential mortgage problems, particularly in regions showing home owner distress.

‘And they are paying particular attention to the securitisation market for credit card loans,’ he said. Mr Kohn added that commercial real estate is ‘another area that requires close supervisory attention’.

He noted that while personal bankruptcy rates remained below levels prior to bankruptcy law changes implemented in 2005, they ticked higher over the first nine months of last year and ‘could be a harbinger of increasing delinquency rates on other consumer loans’.

Despite those strains, Mr Kohn said the banking sector remained sound and he saw no threat to banks’ viability.

The credit mess that began with failing US sub- prime mortgage loans has left banks saddled with tens of billions of dollars in bad debts, prompting them to tighten lending standards. That has slowed the flow of cash to firms and consumers who power the US economy.

US Comptroller of the Currency John Dugan echoed concerns that the credit troubles may spread beyond mortgage loans.

‘Although credit card earnings have been fairly robust and portfolios are currently strong, we have a heightened level of concern in this area, even before the numbers confirm any significant deterioration,’ he said.

‘We expect losses from home equity loans to continue to escalate as, unlike first mortgages, these assets are largely held on banks’ balance sheets,’ he added.

But in a sign of how the Fed is conflicted in combating the competing threats of slowing growth and rising prices, another Fed official stressed that inflation was his top concern. ‘Containing inflation is the purpose of the ship I crew for,’ said Dallas Federal Reserve president Richard Fisher.

‘If a temporary economic slowdown is what we must endure while we achieve that purpose, then it is, in my opinion, a burden we must bear, however politically inconvenient,’ he said.

Source: REUTERS (The Straits Times 6 Mar 08)

Analysts paint bleak earnings outlook

Earnings per share growth of S’pore listed companies may not even make 6% this year

(SINGAPORE) Faced with a small domestic market and a very open economy, Singapore companies are highly susceptible to any global slowdown and are therefore expected to chalk up one of the slowest corporate earnings growths in Asia in 2008. This is the conclusion drawn from an aggregate of all analysts’ forecasts by StarMine Professional.

Overall, companies in Singapore may see earnings per share (EPS) improve by a mere 5.9 per cent in 2008, making it the market with the third worst outlook in Asia. Hong Kong fares even worse, with its companies expected to register a 2.5 per cent decline in EPS this year. Malaysia, too, has a negative 0.9 per cent earnings outlook.

StarMine, which compiles analysts’ estimates and provides equity research performance ratings, aggregated analysts’ forecasts of listed companies’ earnings in the coming 12 months and compared them to the trailing 12 months’ estimates.

It gives greater weight to forecasts by analysts which have proved to be the most accurate in the past, and to more recent estimates.

According to this data – called Smart Estimates – Thailand is poised to have the region’s highest growth in EPS – 50.9 per cent in the coming 12 months.

Second is China with an expected growth of 33.6 per cent. Listed companies in India, Indonesia and Korea are expected to boost their EPS by about 17 to 18 per cent each.

Some broking firms’ reports seem to conform with the big picture view presented by StarMine.

In a recent report, Merrill Lynch said that it had done a bottom-up stress test to assess the earnings risks and valuation contraction for the top 30 stocks in the Hang Seng Index (HSI).

‘In aggregate, we see potential 9 per cent downside to 2008E earnings. In this case, we would not see any earnings growth in the HSI this year,’ Merrill Lynch said.

The US investment bank, however, added that it believed the market outlook was unlikely to do worse than its assumptions. ‘The result shows that airlines, consumers, Chinese banks and insurance companies are most sensitive to either macro slowdown or poor A-share market sentiment. HK banks, utilities, oil and telecoms are the most defensive with respectable dividend yield,’ it said.

Citigroup, however, thinks that analysts and investors may still be a little over-optimistic.

‘Region-wide, a 41.5 per cent decline in earnings should not come as a surprise given that it has happened before (when the United States fell into recession),’ said its regional equity strategist Markus Rosgen. ‘A 41.5 per cent decline in 2008 earnings would leave the region on a P/E of 26.2 times, well above most investors’ comfort zone.’

And on the basis of price-to-book ratio, assuming that any upcoming recession is no better or worse than the last two, stock prices in Asia excluding Japan as a region could fall by 47 per cent from current levels, he warned.

Indeed, in the last 30 days or so, StarMine’s data showed that there have been continuous downward revisions of earnings for the region by analysts.

Sri Lanka has had the largest downgrades of earnings, by 5.3 per cent. Corporate Taiwan’s EPS estimates were also cut by 3.5 per cent compared with a month ago, while Japan’s and Singapore’s were trimmed by 2.9 and 2.5 per cent respectively.

The markets whose earnings estimates were upgraded in the last 30 days were Indonesia and India.

In aggregate, analysts bumped up their estimates of Indonesian companies by 1.7 per cent, and Indian companies by a marginal 0.4 per cent.

Generally, market prices are pegged to the growth outlook for the various markets. For example, China – with an expected earnings growth of 34 per cent – is trading at 24.7 times forward earnings and six times the book value of the companies’ assets.

In contrast, Singapore is trading at just 10.9 times its forward earnings and 2.5 times its book value.

Given that certain markets are valued richly based on the very high earnings expectations, any disappointments will have severe consequences on stock prices.

Meanwhile, there are also markets with high growth expectations but low valuation. Thailand and Korea are trading at just over 11 times their forward earnings, despite their pretty robust earnings growth expectations.

Timothy Wong, head of regional equity research with DBS Vickers Securities, explained that Thailand companies’ earnings are coming off from a low base. This accounts for the high EPS growth rates.

But the market’s overall valuation is low because it is perceived as a higher-risk emerging market.

‘On the political front, there remain a number of uncertainties, although things are moving in the right direction. And corporate earnings will come through only if the country progresses on the right course,’ he said.

As for Korea, the market has historically traded at a discount to other markets. This is due to the structure of the market where there are a lot of chaebols or conglomerates. Also, there are questions on corporate governance, said Mr Wong.

Calculations by Citigroup’s Mr Rosgen also showed investors to have very low expectations of Korea, Taiwan and Thailand, making them the three cheapest markets in Asia. ‘Given the risks in the global economy at the moment, we’d rather buy low expectations than high expectations,’ he said.

Source: Business Times 5 Mar 08

Banks hit by sub-prime may need more cash

Dubai fund chief says much more is needed to rescue Citigroup, others

(DUBAI) Banks and securities firms led by Citigroup may need more money from Arab states as losses stemming from the collapse of the US sub-prime mortgage market increase, the head of Dubai International Capital said.

Citigroup, the biggest US bank by assets, received a US$7.5 billion cash infusion from Dubai’s neighbour, Abu Dhabi, on Nov 27 to replenish capital after record mortgage losses destroyed almost half its market value, leading to the departure of chief executive Charles Prince. Citigroup has since received cash from Singapore and Kuwait.

‘In my view it will take a lot more than that to rescue Citi and other financial institutions,’ Sameer al-Ansari told a private equity conference in Dubai yesterday.

Gulf states including Qatar, Kuwait and the United Arab Emirates have bought into US financial institutions such as Merrill Lynch & Co, Morgan Stanley and UBS, after they lost more than US$163 billion betting on securities backed by sub-prime mortgages.

Banks and securities firms have raised US$105 billion from selling stakes to cover sub-prime losses.

Qatari Prime Minister Sheikh Hamad bin Jasim bin Jaber al-Thani said on Feb 18 that the emirate is buying shares in Credit Suisse Group and plans to spend as much as US$15 billion on European and US bank stocks over the next year.

Abu Dhabi is Citigroup’s largest shareholder, ahead of Los Angeles-based Capital Group Cos and Saudi billionaire Prince Alwaleed bin Talal, according to Bloomberg data.

State-managed funds in countries including Kuwait, Abu Dhabi and South Korea have ballooned to US$3.2 trillion in assets.

Fuelled by record oil prices and rising currency reserves, sovereign fund assets may gain four-fold to US$12 trillion by 2015, equal to the capitalisation of the Standard & Poor’s 500 Index, according to Morgan Stanley estimates.

Merrill Lynch & Co analyst Guy Moszkowski said that Citigroup will likely post a loss for the first quarter because the largest US bank by assets may take further ‘big writedowns’.

The analyst slashed his first-quarter estimate for Citigroup to a loss of US$1.66 per share from a profit of 55 cents a share. Mr Moszkowski cut his 2008 forecast to a profit of 24 cents a share from US$2.74.

The first-quarter estimate is based on an expected US$15 billion writedown related to sub-prime mortgages and so-called collateralised debt obligations, along with a US$3 billion writedown for other investments, Merrill said.

‘We remain concerned about loss provision potential, the direction of long-term strategy, and weak markets for the capital markets business,’ Mr Moszkowski wrote.

Citigroup posted a US$9.8 billion loss for the fourth quarter, the widest in its 196-year history, and wrote down CDOs linked to sub-prime mortgages by US$20 billion. The bank’s shares have tumbled 53 per cent in the past year.

Analysts surveyed by Bloomberg on average estimate that Citigroup will post a profit of 34 cents a share this quarter, excluding some items.

Merrill also cut its first-quarter profit estimate for Bank of America Corp, the second-biggest US bank by assets, to 58 cents a share from 94 cents. The brokerage trimmed its 2008 estimate for Wachovia Corp, the country’s fourth-largest lender, to US$2.50 a share from US$3.20.

Source: Bloomberg (Business Times 5 Mar 08)

Buy-and-hold strategy looks as good as it ever will

WHAT a difference a year makes. Each year, Jim Reid and his colleagues at Deutsche Bank AG publish an influential analysis of credit markets that puts current yields and fundamentals in historical perspective.

If you buy a bond from a company that might go bankrupt, then you expect to receive a higher interest rate. In an efficient and well-functioning market, the higher yield in a diversified portfolio of such bonds should offset the losses you would incur over time because of defaults. If a 10-year Treasury is yielding 4 per cent, then you should only buy a 10-year bond from a company with a good chance of defaulting if the yield is significantly higher than 4 per cent.

How much higher? That is exactly the question addressed with impressive analytical precision by the Deutsche Bank report. It provides a great thermometer reading of the bond market. The report calculates how large the default probabilities must be to command the current yields on different classes of bonds.

A comparison of this year’s report with last year’s provides a striking and even startling view of how rough the credit crisis has become.

‘Last year, spreads on high-yield bonds were so low that you could have expected to lose money if you purchased them, even if they defaulted at the lowest rate in history,’ Mr Reid, head of fundamental credit research at Deutsche Bank in London, said in an interview last week. ‘This year, spreads are so high that you can expect to make money even if they default at the highest rate in history.’

Default rate

That’s one way to say that corporate bonds look like a good buy right now. If you think about it in terms of implied default probabilities, the analysis gets downright shocking.

Looking at the iBoxx Dollar Liquid Investment Grade Index, Mr Reid and his colleagues estimated that current spreads imply that 19 per cent of five-year bonds in the index will default during the next five years. This is an unbelievably high rate.

The highest default rate for these bonds was just 2.4 per cent, and the average rate since 1970 was 0.8 per cent. From Citigroup Inc to JPMorgan Chase & Co, financial firms have been particularly hard hit in this crisis. This is apparent in Mr Reid’s numbers as well. Current prices suggest that 21 per cent of five-year bonds in the financial industry are expected to default during the next five years. This places financial bonds – the debt of some of the bluest of blue-chip firms – smack dab between single A- rated bonds (which have an implied expected default rate of 20 per cent) and BBB-rated bonds (which have an implied expected default rate of 22 per cent).

Historical record

Those implied default rates are also way outside of historical experience. The highest five-year default rate for A- rated bonds was 2.5 per cent. The most for BBB-rated bonds was 5.8

per cent. The mayhem, of course, hasn’t just affected five-year bonds. Longer maturities have even more extreme default scenarios priced in. Current prices suggest that 29 per cent of corporate bonds will default over the next 10 years. That rate is six times higher than any 10-year period since 1970.

It is worth noting that these default probabilities are probably somewhat inflated, as default risk isn’t the sole consideration when looking at bond prices. Even so, the market is pricing in a bond-market catastrophe that’s far worse than anything that has ever happened.

What should one make of these numbers? Even an optimist should be startled by what bond markets are saying. The market isn’t just expecting a downturn; it’s expecting a calamity. A University of Chicago-style believer in the absolute wisdom of markets should be loading up on canned goods and checking the fortification of his underground bunker.

A more rational response to this report might be to recognise that markets, while they are right on average, tend to overreact in both directions. A person with this sentiment would have looked at last year’s prices and concluded that they were irrationally low. Now, panic has set in and spreads are way too high, pricing in something close to the end of civilisation. The world economy has survived wars, oil embargoes and even a depression. That suggests that it can survive this, too, even if things get worse before they get better. If you believe that, then a buy-and-hold strategy on bonds looks about as good as it ever will. If enough investors see that, then this credit crunch might finally begin to ease.

Kevin Hassett is a Bloomberg News columnist. The opinions expressed are his own

Source: Bloomberg (Business Times 5 Mar 08)

China losing competitive edge in some industries: survey

(SHANGHAI) China is fast losing its manufacturing competitiveness in some industries, and companies need to upgrade their operations there to stay profitable, according to a survey released yesterday.

The study comes amid reports that thousands of manufacturers, both Chinese and foreign, are shifting operations away from coastal regions, where labour and other costs are eroding their profitability, to inland areas or other countries. The ‘China Manufacturing Competitiveness’ survey by the Shanghai Chamber of Commerce found that more than half of the 66 foreign invested companies responding believe China is losing its competitive advantage over other ‘low cost’ countries, such as Vietnam and India.

‘The days of easy China manufacturing are at an end,’ said Ted Hornbein, chairman of the American Chamber of Commerce in Shanghai’s Manufacturers Business Council. ‘You can’t just view it as a workshop anymore.’

The companies surveyed, most of which were based in eastern China near Shanghai, said wages are rising an average 9 per cent to 10 per cent a year, with costs for raw materials up more than 7 per cent, the report said.

But companies can do more to improve their own operations to counter those trends, said Ronald Haddock, vice-president of consulting firm Booz Allen Hamilton, which conducted the study.

‘China’s competitiveness is at risk,’ Mr Haddock said. ‘The question is, is there something we can do about it?’ While many low-cost makers of cheaper products such as shoes, clothing and toys are shifting production to inland regions of China where wages and other costs can be lower, or to other developing countries. Mr Haddock said the survey results showed that many manufacturers could boost profitability by improving how they operate.

If companies don’t improve their management approach, ‘we think it is going to get pretty ugly for some of them,’ he said.

A crucial strategy used by the most profitable companies surveyed was to ensure China operations fit into their global supply chains – how the companies source, make and distribute products.

‘Starting with the right mind-set is the beginning,’ Mr Haddock said.

Source: AP (Business Times 5 Mar 08)

Bernanke urges more action to fix housing slump

Vigorous response needed to reduce rising foreclosures, says Fed chief

(WASHINGTON) Federal Reserve chairman Ben Bernanke called yesterday for additional action to prevent more distressed US homeowners from falling into foreclosure.

‘This situation calls for a vigorous response,’ Mr Bernanke said in a speech to a banking group in Florida.

Even with some relief efforts under way by industry and government, foreclosures and late payments on home mortgages are likely to rise ‘for a while longer’, Mr Bernanke warned.

Rising foreclosures threaten to worsen the problems in the housing market and for the US economy, which many fear is on the verge of a recession or in one already.

‘Reducing the rate of preventable foreclosures would promote economic stability for households, neighbourhoods and the nation as a whole,’ Mr Bernanke said. ‘Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done,’ the Fed chief noted.

One of the suggestions Mr Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. ‘Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure,’ Mr Bernanke explained.

With low or negative equity in their home, a stressed borrower has less ability – because there is no home equity to tap – and less financial incentive to try to remain in the home, he said.

Mr Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he noted, are reluctant to write down principal. ‘They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again,’ Mr Bernanke pointed out.

Still, Mr Bernanke suggested such longer-term permanent solutions may work better than shorter term and temporary ones, where the distressed homeowner could find himself in trouble again. ‘When the mortgage is ‘under water’, a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure,’ he said.

To date, permanent home mortgage modifications that have occurred have typically involved a reduction in the interest rate, while reductions of the principal balance of the loan have been quite rare, he said.

‘Measures that lead to a sustainable outcome are to be preferred to temporary palliatives, which may only put off foreclosure and perhaps increase its ultimate costs,’ Mr Bernanke said.

Lenders last year were on pace to initiate roughly 1.5 million home foreclosure proceedings, up from an average of fewer than one million new foreclosures in the preceding two years, the Fed chief said.

More than one half of the foreclosures started in 2007 were on sub-prime loans given to borrowers with blemished credit histories or low incomes.

Source: AP (Business Times 5 Mar 08)

For sale: 18th floor of Peninsula Plaza at $17.5m

NOVELTY Department Store Pte Ltd, part of the Novelty Group, has put the entire 18^th floor of Peninsula Plaza up for sale, with a price tag of about $17.5 million or about $2,050 per square foot (psf) of strata area.

Peninsula Plaza is a 999-year leasehold building near Raffles City. DTZ is marketing the property.

The 18th floor comprises six strata units adding up to 8,514 sq ft – all of which are leased. Tenancies for five units are up for renewal/expiry later this year, while the lease on the sixth unit runs out in mid-2009.

The $17.5 million price tag reflects a passing net yield – that is based on existing contracted rents – of about 2 per cent.

However, DTZ notes that current monthly asking rents for offices in the building range from $7 psf to $8 psf.

Assuming an average rental of $7.50 psf, the $2,050 psf asking price reflects a net yield of about 3.5 per cent.

‘The potential buyer may also further capitalise on this investment opportunity and subsequently offer to resell the six strata units individually to take advantage of rising capital values of smaller strata office space,’ said DTZ senior director (investment advisory services and auction) Shaun Poh.

The property provides an opportunity to invest in ‘good quality and well maintained office space’, he said. ‘Strong demand and rising rental rates for office space in the Central business

District are expected to continue, providing income growth from the asset.’

DTZ is marketing the property through an expression of interest exercise that closes on April 1.

In December, a first-storey freehold office unit at United House, behind Le Meridien Singapore Hotel at Orchard Road, fetched $2,497 psf of strata area at an auction.

Far East Organization is said to have sold an entire office floor last year at The Central, a 99-year leasehold development above Clarke Quay MRT Station, for $3,050 psf.

Novelty Group is involved in the property and department store businesses. Its upcoming residential developments include i Residences, a freehold development with 70 apartments in the Irrawaddy Road area, and the 35-unit Evania at Upper Paya Lebar Road.

Source: Business Times 5 Mar 08

KepLand to launch US$206m Vietnam project in Q4

AFTER announcing eight new development projects in Vietnam last year, Keppel Land plans to launch one of these in the fourth quarter of this year.

In a statement released yesterday, Keppel Land said that it has been awarded the investment certificate by the Ho Chi Minh City People’s Committee for its new waterfront residential development in Vietnam.

The joint-venture project, to be developed in phases, is a 2,400-unit condominium development in District 7 fronting the Ca Cam River in Ho Chi Minh City. The first phase, comprising 700 units, is expected to be launched in the fourth quarter.

The total investment capital for the project is estimated to be US$206 million. Riviera Point, the joint-venture company undertaking the project, will have a registered capital of US$62 million. Keppel Land, through a wholly owned subsidiary, Elaenia Pte Ltd, will take a 75 per cent or US$46.5 million stake in Riviera, with Tan Truong Co Ltd taking the remaining 25 per cent.

Keppel Land International executive director and CEO Ang Wee Gee said that its earlier projects in Vietnam, like the fully sold Villa Riviera and Phase One of the 1,500-unit The Estella, have been well received.

‘With rising affluence and exposure afforded by travel overseas, Vietnamese home-buyers have become more discerning about quality and the lifestyle associated with their homes,’ he added.

The luxury condominium to be developed will sit on an 8.5-ha site. It will have recreational facilities including a clubhouse, a swimming pool and tennis courts and 24-hour security.

The news of the launch of this development comes after Keppel Land recently revealed plans for its Saigon Centre, a retail and financial complex of three towers, with its tallest tower of 88 storeys expected to be among the world’s tallest.

Keppel Land also has a pipeline of over 25,000 homes in the Vietnamese cities of Ho Chi Minh City, Hanoi and Dong Nai.

Source: Business Times 5 Mar 08

Key S’pore economic indicator takes another dip

PMI now just above threshold between expansion and contraction

(SINGAPORE) The purchasing managers’ index (PMI) slid for a third straight month in February, with declines in export orders and output. But the electronics index edged up, even though orders were also weak.

With its latest 0.2-point drop, the PMI – a barometer of the manufacturing economy – is now down to 50.3, just above the 50-point threshold between expansion and contraction.

The electronics PMI, which had fallen in the preceding three months, surprisingly added 0.4-point to 51.2 – despite declines in key indicators such as new orders and output.

The overall PMI covers 12 manufacturing industries, including electronics.

The Singapore Institute of Purchasing & Materials Management (SIPMM) polls purchasing executives from some 150 companies every month to produce the index.

While a fall in the readings usually spells decline, February’s lower figures might also be due partly to the shorter month (rather than totally reflecting weaker demand) as the comparisons are with the preceding month, rather than year-on-year.

Still, past readings show that not every February PMI is down, and March – a much ‘bigger’ month – has also yielded lower readings.

Lau Geok Theng, associate professor at the National University of Singapore Business School and vice-chairman of the SIPMM council, reckons the slight dip in the February PMI reflects some uncertainty as markets react ’suspiciously’ to official measures taken to keep the US economy from falling into recession.

These include the proposed US$145 billion economic stimulus package and the recent 0.75-point cut in US interest rates to 3.5 per cent.

There is also a ‘wait and see’ attitude as businesses deliberate over the outcome of the upcoming election in the United States and other countries such as Malaysia, as well as in Pakistan where elections were held last month, so as to assess long-term directions and plans, he said.

According to SIPMM executive director Janice Ong, citing anecdotal evidence, local manufacturers remained cautious last month but were still expecting a surge in demand.

The PMI readings show big increases in the raw material inventory sub-indices, but marked decreases in the finished goods figures. But the latter remains above 50 points, indicating an accumulation of unsold goods.

Source: Business Times 5 Mar 08

Time to plan for the recovery that’s lying around the corner

(NEW YORK) Say the economy has fallen into recession, as so many people on and off Wall Street think. Is it time to bail out of stocks?

Selling may be the reflexive response by shareholders who have watched the value of their assets decline in step with economic indicators, but investment advisers contend that they should consider buying instead. Recessions tend to be short, and by the time one is widely acknowledged, they say, investors have often sold just in time to miss the recovery that lies around the corner.

‘People should be preparing for the next upswing because the downturn is already priced in,’ advised Ron Muhlenkamp, manager of the Muhlenkamp Fund.

Brendt Stallings, a fund manager for the TCW Group who specialises in shares of medium-size companies, suggests that investors may not be fearing the worst but that they certainly have it on their minds. And that has already registered in stock prices.

Portfolio managers who foresee a rebound concentrate their buying on segments of the economy that tend to outperform as a new growth cycle gathers momentum. They are not allocating all of their resources to such recovery plays, though, and are making allowances  for conditions that seem to be different from those of other recessions.

‘The normal rotation that occurs is a move into financials and consumer cyclicals,’ Mr Muhlenkamp noted before conceding that ‘normal’ does not quite describe the financial sector and such cyclical industries as housing these days. He likes some financial stocks, notably the mortgage buyer and seller Fannie Mae, but he prefers consumer-oriented companies like appliance maker Whirlpool and two transportation companies: Harley-Davidson and Winnebago.

Continuing with his eclectic list of companies that get people from here to there, he expects the stocks of Boeing and Caterpillar to rise with, or ahead of, the economy. A point in their favour, he said, is the level of the US dollar; it is far weaker than it was during the 2001 recession, giving American exporters a competitive edge.

Barbara Walchli, manager of the Aquila Rocky Mountain Equity fund, is another advocate of transportation stocks. The sector, she said, is ‘usually one of the groups that moves fastest coming off the bottom’.

One of the fastest of the fast may be Knight Transportation, a midsize trucking concern. Ms Walchli lauded Knight’s management for keeping the company’s books free of debt, unlike rival Swift Transportation, which she said had borrowed heavily to take itself private. She also likes Avnet, a distributor of electronic components to businesses. It fits well with her expectation that businesses will open their wallets before consumers as the economy emerges from its torpor.

Mr Stallings also foresees business spending picking up sooner, and he prefers potential beneficiaries of the trend that have a global reach.

Examples include Spirit AeroSystems, a supplier of commercial airline assemblies and components, and two companies, Cognizant Technology Solutions and Resources Connection, that provide outsourced labour to fulfil administrative or technical services for other businesses.

He also expects consumers to do their fair share in helping the economy bounce back. Among his favourite recovery plays here are three chains of different sorts: P F Chang’s China Bistro, which operates restaurants; pet supply company PetSmart; and Dick’s Sporting Goods.

‘It’s an interesting time to be a bottom-up fundamental growth manager,’ Mr Stallings said. ‘Everything is on sale across the board.’

Before buying stocks to anticipate a blast-off out of recession, investors must buy the premise that a recession is here. Many do not, including John Lynch, chief market analyst at Evergreen Investments.

‘The classic ingredients for a recession have been tight monetary policy and runaway inflation, especially wage inflation, and neither of those exists today,’ Mr Lynch said, despite some signs that inflation has been increasing.

He acknowledges that a third sign of recession – fear – is here, and then some, but he still describes the economy as being in ‘the late stages of expansion’ or possibly ‘knocking on the door of a recession’. That is only likely to postpone the reckoning until next year, he said.

In his view, the best companies in which to invest between now and then are in defensive areas like health care and basic consumer items, or in segments of technology that derive much of their revenue from businesses. Despite his less positive economic outlook, he, too, anticipates strong capital spending.

Defensive selections include Procter & Gamble, Pfizer and Johnson & Johnson. Among tech stocks that he mentioned are Intel, Microsoft and Oracle.

Even investment advisers who say the economy is approaching a trough prefer to hedge against the possibility that they are wrong.

David Fording, co-manager of the William Blair Growth fund, prefers consumer businesses that derive much of their sales abroad, where economic conditions appear less fragile. Mr Fording said he recently bought shares of the retailer Coach for that reason.

‘There are a number of growth drivers for Coach in the US and, more important, it’s a global brand,’ he said. His more conventional recovery choices include Fastenal, a supplier of construction and industrial supplies, and McCormick & Schmick’s Seafood Restaurants.

Such domestically focused companies are worth owning ‘if you feel that there’s a decent probability that we’ll make it through this rough patch’, Mr Fording said.

How rough will it be? He cautioned investors to expect conditions over the short term that are uncomfortable, but not necessarily unprofitable.

‘Regardless of whether we see really negative headlines for the next three to six months,’ he said, ‘it might very well be the case that the market climbs the wall of worry and looks past

the bad news to a recovery in 2009′.

Source: NYT (Business Times 5 Mar 08)

Singapore tops among Asian expats: survey

The Republic is the best place for them to live worldwide; Baghdad ranks last

(SINGAPORE) The Republic ranks as the best place for Asian expatriates to live worldwide, according to the latest survey by human resources consultancy firm ECA International.

Singapore surpasses cosmopolitan cities such as Sydney, Melbourne and Copenhagen in Asian expatriates’ view, the survey showed. These cities are ranked second, third and fifth respectively in the top 15 locations for Asian expatriate living.

Meanwhile, Kobe (joint third with Melbourne), Yokohama (eighth), Tokyo and Hong Kong (both 15th) are the only other Asian destinations that made it to the top 15 list.

Conducted annually, the Location Ranking Survey compares living standards in 254 locations globally, taking into account climate, air quality, health services, housing and utilities, isolation, social network and leisure facilities, infrastructure, personal safety and political tensions.

‘High quality infrastructure and health facilities, combined with low health risks, air pollution, crime rates and a cosmopolitan population, make Singapore a very appealing location for Asians to live in,’ said Lee Quane, general manager of ECA International.

‘Although we did see a small deterioration in some factors, such as air quality and accommodation in 2007, it still retains its status as being the location with the best quality of living for assignees in this region.’

He explained that Singapore ‘was much more affected by haze in 2007′ compared with the preceding year, causing it to lose points in the air quality category. Meanwhile, ‘recent market developments in en bloc (property sales) had an impact on the supply of standard accommodation’.

Nevertheless, Singapore has consistently been ranked the best location for Asian expats to live for a decade, said Mr Quane, who believes that it will retain that spot despite ‘Hong Kong moving up our rankings’ this year after sliding for several years, due to improved personal security scores and the movements of locations around it.

‘We now see the narrowing in quality of living between Singapore and Hong Kong, but it is unlikely that Hong Kong will match Singapore. The main reason is (Hong Kong’s) air pollution, which is unlikely to go away any time soon,’ he explained.

At the other extreme, Baghdad is the least favourable place for Asian expats to live in, followed by Kabul (Afghanistan), Karachi (Pakistan) and Port-au-Prince (Haiti), due to the locations’ risk to personal security and their lack of suitable facilities, according to the survey.

Source: Business Times 5 Mar 08

US economy already in recession: Buffett

He sees slowdown across the board; withdraws offer to guarantee bonds

NEW YORK – BILLIONAIRE investor Warren Buffett said the United States economy is in a recession and that stocks are ‘not cheap’ despite recent declines.

He also said he is no longer offering to guarantee US$800 billion (S$1.12 trillion) of municipal bonds backed by MBIA, Ambac Financial Group and FGIC, three bond insurers that ran into trouble from backing riskier debt.

Speaking on CNBC television on Monday, Mr Buffett said the economy is heading south even though gross domestic product (GDP) has not yet fallen for two straight quarters, a definition that many economists use to identify a recession.

He also said the slowing economy and the housing slump are hurting his insurance and investment company Berkshire Hathaway, whose 76 operating units sell things such as bricks, real estate brokerage services and underwear.

‘By any common sense definition, we are in a recession,’ Mr Buffett said. ‘Business is slowing down. We have retail stores in candy, home furnishings and jewellery. Across the board, I’m seeing a significant slowdown.’

Last week, the Commerce Department said America’s GDP rose at an annual rate of just 0.6 per cent in the fourth quarter.

Mr Buffett, 77, is one of the world’s richest people and is regarded by many as America’s greatest investor. Forbes magazine last September estimated his net worth at US$52 billion.

He said economic conditions have not deteriorated to the levels of 1973 and 1974, when there was a deep recession also marked by rising oil prices and falling stocks.

On Feb 12, Mr Buffett offered to reinsure US$800 billion of relatively safe municipal bonds, which are typically used to finance things such as hospitals, roads and schools. But he offered to back the bonds only at a steep premium. His offer also excluded risky debt, including securities tied to US sub-prime mortgages.

Bond insurers rejected the offer and have been seeking new sources of capital. Some have also been considering separating their municipal bond business from riskier businesses.

Mr Buffett on Monday said his earlier offer is now ‘not on the table’, and added that ‘we tossed our hat in the ring and they tossed the hat back’.

Source: REUTERS (The Straits Times 5 Mar 08)

Bernanke urges banks to forgive part of mortgages

ORLANDO – FEDERAL Reserve chairman Ben Bernanke, battling the worst United States housing recession in a quarter century, has urged lenders to forgive portions of mortgages for more borrowers whose home values have declined.

‘Efforts by both government and private sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,’ he said in a speech yesterday. ‘Principal reductions that restore some equity for the home owner may be a relatively more effective means of avoiding delinquency and foreclosure.’

Mr Bernanke’s call goes beyond the stance of the Bush administration and previous Fed comments.

By comparison, the central bank’s Feb 27 report to Congress called for lenders to ‘pursue prudent loan workouts’ through means such as modifying mortgage terms and deferring payments.

‘Delinquencies and foreclosures likely will continue to rise for a while longer,’ Mr Bernanke said in his comments to the Independent Community Bankers of America.

‘Declines in short-term interest rates and initiatives involving rate freezes will reduce the impact somewhat, but interest rate resets will, nevertheless, impose stress on many households.’

In the past, home owners could refinance, though that option is now ‘largely’ gone because sales of bonds backed by sub-prime mortgages ‘have virtually halted’, Mr Bernanke said. ‘This situation calls for a vigorous response.’

He acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal.

‘They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again.’

Mr Bernanke said by cutting the amount of the loan, this ‘may increase the expected payoff by reducing the risk of default and foreclosure’.

Source: BLOOMBERG NEWS, ASSOCIATED PRESS (The Straits Times 5 Mar 08)

‘Magic dollars’ scam lets HDB flat sellers pocket cash

They declare a lower price, thus keeping the difference instead of returning funds to CPF

A NEW scam involving HDB flats has surfaced, this time allowing flat sellers to pocket extra cash by craftily getting around the rules.

The so-called ‘magic dollars’ scam involves reporting a falsely low sale price to the HDB – an offence which is punishable by a jail term and/or a fine.

Agents say they are seeing these cases pop up on a more regular basis, but it is not rampant yet.

This is how it works.

The seller is typically a flat owner who bought his HDB flat at the peak of the last property boom, so he has made significant paper losses despite the recent run-up in prices.

If he sells the flat, the proceeds may be barely enough to cover the balance of his mortgage and any leftover will probably have to go back into his CPF account. So he ends up not getting his hands on any ready cash at all.

To pocket some cash or what is sometimes known as ‘magic dollars’, he strikes a deal with the buyer of his flat.

He gets the buyer to agree to declare to the HDB that the flat was sold for a much lower price. The buyer then pays the difference between the actual and declared price to the seller in cash.

To sweeten the deal, the seller usually gives the buyer a discount on the market value of the flat.

The scam is crafty because, on paper, these transactions can look flawless and are hard to detect.

Privately, the agent drafts a ‘letter of undertaking’, binding the buyer to pay the seller cash – sometimes under the pretext of paying for furniture and fixtures.

When the buyer pays up and the deal is done, the agent destroys the document and any paper trail. Neither the HDB, property agencies or lawyers will ever see it.

Everyone is a winner. The buyer gets a good deal and the seller gets some cash. But the catch is: The scam carries a jail term and/or a fine.

The deal is illegal because the seller is indirectly siphoning off money in advance from his CPF.

The HDB told The Straits Times that it was a ’serious offence’ to declare false resale prices, adding that if there was sufficient evidence, the case would be referred to the police.

Conviction could bring fines of up to $5,000 or jail of up to three years.

Such scams are not new to the market and HDB flat owners sometimes resort to them when they want to unlock cash.

In 2001, a ‘cash-back’ scheme was exposed, which involved over-declaring the agreed selling price.

It allowed the buyer to get a higher loan either from a bank or the HDB, with the ‘extra’ cash divided out among those involved.

Agency bosses told The Straits Times that they strictly discourage agents from handling these sales.

But despite the risk of getting caught, agents say such deals are popular in estates such as Simei, Pasir Ris and Bishan, which commanded high prices in the previous boom.

Some say the deals started surfacing as early as last April, when the HDB market started to pick up.

Resale prices rose 17.5 per cent last year after years in the doldrums, prompting more flat owners to think about selling their flats.

An agency boss, who declined to be named, has heard of up to 30 such cases.

PropNex chief executive Mohamed Ismail said it was hard to determine exactly how many such deals are being done, but he estimated that about 80,000 – or 10 per cent – of HDB homes are still in negative equity.

Negative equity means a flat owner’s mortgage is worth more than the home’s value now. Owners of these flats are more likely to take part in such deals.

Another agent said he is approached at least once a month to take part in such deals but he turns them down. ‘This is my rice bowl.

Why would I want to risk going to jail for just a sale?’ he said.

Source: The Straits Times 5 Mar 08

Buffett retracts US$800b bond guarantee offer

Separately, he says US economy is in recession, stocks are not cheap

(NEW YORK) Billionaire investor Warren Buffett said yesterday that the US economy is in recession and that stocks are not cheap, despite recent declines.

Speaking on CNBC television, Mr Buffett also said that he is no longer offering to guarantee US$800 billion of municipal bonds backed by MBIA Inc, Ambac Financial Group Inc and FGIC Corp, three large bond insurers.

He said that ‘from a common-sense standpoint right now, we’re in a recession’, though the US economy has not yet recorded two straight quarters of declining gross domestic product, a traditional indicator of recession.

He said that the environment is ‘nothing like ‘73 or ‘74 yet’, referring to a deep economic downturn also marked by rising oil prices, higher inflation and falling stocks. Still, he said that investors should not rule out a significant economic downturn, and that Federal Reserve chairman Ben Bernanke has a ‘very tough balancing act’ in trying to boost economic growth without kindling inflation.

Mr Buffett said that there is a fair chance that inflation may ignite in a ’serious way’.

On Friday, his insurance and investment company Berkshire Hathaway Inc reported an 18 per cent decline in fourth-quarter profit. This stemmed in part from weakness in businesses linked to housing, including units that make bricks and carpet, and that offer real estate brokerage services.

Mr Buffett said that he was finding more buying opportunities in stocks following a 16 per cent decline in the Standard & Poor’s 500 stock index from its recent high in October. ‘I find more things to look at now than I did six months or a year ago.’

But he acknowledged that conditions have changed ‘more dramatically’ in the bond market. Berkshire last year spent US$19.11 billion on stocks and US$13.39 billion on bonds.

Falling security values and liquidity have pummelled bond insurers, which normally insure relatively safe municipal bonds but also guaranteed billions of dollars of riskier debt, often tied to sub-prime mortgages.

On Feb 12, Mr Buffett offered to reinsure US$800 billion of municipal bonds, but only at a steep premium. The offer did not include the riskier debt. Bond insurers rejected the offer and have been seeking new sources of capital or possibly breaking themselves up.

Mr Buffett yesterday said that his earlier offer was ‘not on the table’. In December, he started his own bond insurer, Berkshire Hathaway Assurance Corp.

Since 1965, Mr Buffett has transformed Berkshire Hathaway Inc into a US$216 billion conglomerate by acquiring out-of-favour companies with strong earnings and management, and investing in stocks.

Berkshire’s Class A shares closed on Friday at US$140,000. Through Friday, they had risen 32 per cent in the last year.

Source: Reuters (Business Times 4 Mar 08)

China property shares cut to ‘underweight’

BNP slashes 2008 earnings growth for industry to 31%

(HONG KONG) Investors should cut their holdings in Chinese property because of a slowdown in housing starts and home prices that will crimp earnings growth, BNP Paribas said.

The bank downgraded China real estate shares to ‘underweight’ from ‘overweight’, and slashed the 2008 earnings growth forecast for the industry to 31 per cent from 47 per cent, Hong Kong-based BNP analyst Andy So wrote in a research report published today.

‘Housing starts, bank loans and prices all showed signs of slowing down,’ Mr So said in his report. He named Hong Kong-listed Shimao Property Ltd as his top pick in the sector.

Home prices in some of China’s biggest cities including Shanghai and Shenzhen fell in the first two months of 2008 as government efforts to curb the soaring property market started to bite. The government sought to restrain the industry after home prices in 70 major cities surged 10.5 per cent in November and December from a year earlier, the most since the index began in July 2005.

Mr So reduced his price estimates for companies including Beijing Capital Land Ltd, China Overseas Land & Investment Ltd and Guangzhou R&F Properties Co.

Some smaller developers may struggle to maintain profit growth and be forced out of business as banks continue to tighten lending, Standard & Poor’s said in a Feb 28 report.

Source: Bloomberg (Business Times 4 Mar 08)

Far East’s Leong Horn Kee calling it a day after 15 yrs

PROPERTY giant Far East Organization announced yesterday that executive director Leong Horn Kee would be leaving the company on June 30 after more than 15 years of service.Mr Leong, who served as Member of Parliament for 32 years until he retired in 2006, said that he was venturing out to work on his own ‘projects’.

‘I’m 56 years old now and I’ve had a good run in government service, GLCs, the financial sector and the private sector. It’s time to move on and I have some private business ventures in mind. Far East is in great shape and will continue to do well.’

A Colombo Plan scholar, Mr Leong started out in the Administrative Service at the Ministry of Trade in 1977. In 1984, he joined NatSteel, where he remained until 1989. Following that, he joined investment banking group NM Rothschild & Sons (S) Ltd for four years before moving on to Far East.

He was managing director of its Orchard Parade Holdings Ltd from 1993 to 2000, and managing director and CEO of Yeo Hiap Seng from mid-1999 to 2002. In recent years, he handled many of the group’s investment ventures and oversaw its internal audit operations.

‘He has been instrumental in completing our Novena Medical Centre agreement with Tan Tock Seng Hospital, and has assisted several departments in resolving various problems encountered with external agencies,’ Far East said in a statement yesterday.

Mr Leong, who has four children, is Singapore’s Non-Resident Ambassador to Mexico. He became a member of the Securities Industry Council in January.

Source: Business Times 4 Mar 08

SHK results may not reflect HK property frenzy

Company holding back most project launches, analysts say

(HONG KONG) An upswing in Hong Kong home sales and prices is boosting big developers but will hardly register in earnings to be reported by Sun Hung Kai Properties this week, as the firm held back on project launches.

With rising wages and falling interest rates sparking one of the city’s legendary frenzies for property, analysts are mostly upbeat about the likes of top developer Sun Hung Kai and rival Cheung Kong (Holdings).

A correction has made stock valuations more attractive after a share price surge last year inspired by the US Federal Reserve’s aggressive rate cuts. Sun Hung Kai is trading at a 20 per cent discount to forecast end-2008 net asset value (NAV), compared to an average historical discount of about 10 per cent.

However, analyst forecasts for underlying earnings for the six months to Dec 2007 are spread widely and evenly between HK$4.7 billion (S$841 million) – which would be down 11 per cent on a year ago – and HK$6.1 billion.

‘They had no new launches except for Harbour Place,’ said Eva Lee, whose forecast for the interim half-year earnings was at the low end of the range. ‘So probably we can expect second-half sales to pick up.’

The 1,000 apartments put up for sale at the Harbour Place project, in the city’s Kowloon district, were quickly snapped up, but the profits will be booked in the second half of Sun Hung Kai’s financial year, which starts in July.

Sun Hung Kai’s earnings announcement, due on Thursday, will be the first time executives will have faced the media since the company’s chairman stepped down temporarily early this month.

Analysts have said Walter Kwok’s decision is unlikely to affect the company’s future performance.

Sun Hung Kai’s share price soared 76 per cent in the second half of calendar 2007, as Hong Kong’s currency peg led authorities to follow US interest rate cuts despite rising inflation and a local economy spurred by booming China.

But the stock has fallen 20 per cent this year and was trading at HK$133.60 at the close yesterday.

JPMorgan analyst Raymond Ngai, who expects an interim profit of HK$6.1 billion, has an overweight rating on the stock with a year-end price target of HK$159.

He expects full-year net profit to rise 35.7 per cent to HK$15.16 billion as apartment sales rise.

But Goldman Sachs analysts Anthony Wu is much more cautious, and has a neutral

recommendation, believing that apartment prices may have already peaked, having gained 10 per cent in the first two months of this year.

‘The rising risk of a prolonged global economic slowdown leads us to believe that the property market up-cycle has probably ended,’ Mr Wu wrote in a recent note.

‘Negative ripple effects will likely hurt Hong Kong’s wage growth, which is far more important than interest rates in driving property demand.’

Hong Kong apartment sales have picked up in the last few months as owning is almost as cheap as renting, and people expect tight supply to lift prices.

According to CLSA analysts, only about 14,000 new apartments will hit the market in each of the next three years, compared to an annual take-up of 20,000 when the economy was in a downturn between 1998 and 2003.

Affordability is back to 2005 levels because of interest rate cuts. So someone who rents a flat worth HK$5 million would pay on average HK$16,700, while a mortgage on 70 per cent of the value would typically mean a monthly repayment of HK$19,000.

Source: Reuters (Business Times 4 Mar 08)

Hong Leong Bank eyes 10% home loans growth

It is confident of hitting target for cash-back product

(KUALA LUMPUR) Hong Leong Bank is aiming for 10 per cent growth this year in its housing loans segment, which currently has about 130,000 clients.

As part of its efforts, the bank yesterday introduced a cash-back home loan product which it said enables customers to save more on interest payment.

Chief operating officer for personal financial services, Moey Tan, said the bank was confident of achieving the target of RM1 billion (S$436 million) receivables for the new product by year-end as it was the only one in the local market to give cash rebates to home loan customers.

‘The 10 per cent cash-back will automatically be credited into the customer’s savings or current account annually from year six onwards,’ she said. Ms Tan said for a RM200,000 loan, the first payment is RM1,000 and each year the customer will receive a percentage of the cash-back amount until the end of loan tenure.

The cash-back home loan features include a repayment option and up to 90 per cent margin of financing, applicable for completed properties with a minimum loan amount of RM200,000.

Hong Leong Bank’s group managing director Yvonne Chia said housing loans today accounted for 58 per cent of total household debt and the commitment was long term, averaging from 20 to 30 years.

‘The cash-back concept was tested and validated through independent research. . .’ she said.

Source: Bernama (Business Times 4 Mar 08)

Sub-prime, debt still top US economic threat: poll

Inflation jitters a distant 3rd; terrorism fears down the list

(WASHINGTON) The combined punch of sub-prime mortgage defaults and heavy debt remains the biggest risk to the health of the US economy, a panel of business economists said yesterday.

‘NABE members are increasingly concerned over the short-term risks associated with sub-prime mortgages and other forms of indebtedness, while they continue to cast a wary eye on inflation,’ said Ellen Hughes-Cromwick, president of the National Association for Business Economists.

The conclusion was based on a survey of 259 members conducted between Feb 1 and 15 and updates a poll conducted in August.

Of the members polled for the NABE semi-annual Economic Policy Survey, 52 per cent said that the combined threat of sub-prime mortgage defaults and heavy debt was their No 1 concern, up from 32 per cent in August. Inflation was a distant third at 10 per cent in March, up from 6 per cent, the survey showed.

Only 9 per cent of the members polled said terrorism was now their top concern, compared with 20 per cent in August. ‘Fewer respondents support monetary and fiscal policies being implemented to address the credit situation, with more than one-third saying current monetary policy is too stimulative,’ said Ms Hughes-Cromwick.

Just 48 per cent judged monetary policy to be ‘about right’, a drop from 72 per cent in August and 81 per cent in March 2007.

Two-thirds of those surveyed expect short-term interest rates to decline over the next six months, with about half of those respondents expecting a cut between 25 basis points and 50 basis points, NABE said.

The Federal Reserve has aggressively cut the benchmark federal funds interest rate, bringing it down to 3 per cent from 5.25 per cent in mid-September to bolster the economy against the housing downturn and credit squeeze.

The most frequently cited concerns about lower interest rates are the threat of inflation and the sense that lower rates might ‘bail out investors who should have known better’, NABE said.

Source: Reuters (Business Times 4 Mar 08)

UBS drops on writedowns warning

(LONDON) UBS AG, Europe’s biggest bank by assets, declined to the lowest level in almost five years in Swiss trading after Credit Suisse Group said the company faces further writedowns from ‘troubled’ assets.

‘Further writedowns appear likely and could be large,’ analyst Daniel Davies said yesterday in a research note. ‘Taking more pessimistic assumptions in order to estimate what losses could be incurred in actually selling this portfolio,’ writedowns from UBS’s ‘problem portfolio,’ including sub-prime investments, may total 15.5 billion francs (S$20.8 billion), Mr Davies said.

UBS lost as much as 5.1 per cent to 32.64 francs, the lowest price since May 2003.

The bank was down 4.2 per cent to 32.92 francs at 9:41am Swiss time, extending its 2008 decline to 37 per cent.

Last week, UBS chairman Marcel Ospel, facing calls for his resignation, won support at a shareholders meeting for the Zurich-based bank’s plan to replenish capital by selling convertible bonds to shareholders in Singapore and the Middle East.

Since the beginning of 2007, more than 45 of the world’s biggest banks and securities firms have taken about US$181 billion in asset writedowns and credit losses, including reserves set aside for bad loans.

Source: Bloomberg (Business Times 4 Mar 08)

US housing crisis deters first-time buyers

US housing crisis deters first-time buyers

Greater security seen in renting as home prices fall and foreclosures surge

(BOSTON) For decades, buying a home was a key step on the path to financial security for the American middle class.

Home owners could count on a fixed mortgage payment rather than rising rent, take advantage of tax breaks, and build equity as their houses increased in value over time.

But with home prices falling and families losing their homes to foreclosure, some people who under other circumstances would be looking to buy their first home now see greater security in renting.

One such person is Lisa Chesnut, who lives in Tucson, Arizona, and works as an information systems coordinator. With a good job and two young sons, 29-year-old Chesnut and her husband, Bryan, look like classic first-time buyers.

They had considered it, until the market started to slide a year ago.

‘At first we thought, prices are falling, that’s good,’ she said in a phone interview. ‘Then we started reading about the foreclosures and the ARM (adjustable-rate mortgages) rates and people losing their homes,’ she said. ‘We thought, what if something happened where we could lose our house?’

Her big fear is falling behind on a mortgage. Having read about people who face higher payments on their adjustable-rate mortgages, she realises that being approved for a loan does not guarantee it will be affordable.

One sign that more people are choosing to remain in rental apartments while they wait out the slump comes from Equity Residential, one of the largest US apartment owners.

Fewer people have been moving out of its apartments – last year 63.3 per cent of its units changed hands, down from 64.9 per cent in 2006.

‘Turnover is slowing and the rate of moving out for home purchase we also saw slow throughout 2007,’ said Fred Tuomi, president of property management at the Chicago-based company, who oversees about 150,000 apartments nationwide.

And population projections by the National Association of Realtors (NAR) suggest hundreds of thousands of young Americans are sitting out the housing market entirely – neither buying nor renting.

‘There’s probably 700,000, maybe 800,000 people out there that are not getting into the market either as a renter or as a homebuyer,’ said Walter Molony, spokesman for the NAR. ‘Where are these folks? They’re out there, they’ve got jobs. Some of them are moving back with their parents, never left the house, they’re doubling up with roommates.’

There’s no scarcity of data to worry potential homebuyers.

Recent reports show that the average price of an existing single-family home in US metropolitan areas fell 6 per cent in the fourth quarter, while foreclosure rates in the top 100 metropolitan areas soared 78 per cent last year.

‘They’re the most nervous people I’ve ever met in my life,’ said Bob Moulton, president of Americana Mortgage Group, referring to the potential first-time buyers he speaks with.

‘They’ve seen what can go wrong in the mortgage market,’ said Mr Moulton, whose company brokers US$300 million of mortgages a year, mainly in suburban New York. ‘Everybody’s advising them, from the mother, to the father, to the uncle, their co-workers, telling them, ‘Don’t buy. Prices are coming down.’

Indeed, home ownership rates have fallen to 67.8 per cent of households at the end of last year from 69.2 per cent in 2004. That is below a 69.8 per cent rate in Britain, but still much higher than European countries such as France and Germany.

For young people who are unsure about whether to buy instead of renting, experts said the key thing to consider is how long one plans to live in a house.

During the boom years, from the late ’90s through the first half of this decade, rapidly rising house prices meant that in many parts of the country a buyer could turn an easy profit after owning a house for just a year or two.

Now young buyers should plan to stay in their homes longer than that, said Jim Gaines, a research economist at the Real Estate Center of Texas A&M University, in College Station, Texas. Even his own son, who recently married, has come to him with fears about buying real estate.

‘I told my son this, ‘Look, if you buy a home today, you better be prepared to stay in it for a minimum of five years. Don’t worry if it goes up or goes down (in value) a little bit in the next six months,’ Mr Gaines said.

That knowledge is another factor keeping some young Americans in their rental apartments.

‘A lot of people I know are in that position, where their home isn’t going to sell for what they paid for it right now,’ said Josh Stenger, a 37-year-old professor of film studies who lives in a rental apartment in Pawtucket, Rhode Island.

Prof Stenger said he has toyed with buying a house or condominium, but has held off until he was sure he would be staying put for several years.

‘I don’t foresee buying anything without planning to stay in it at least five years,’ he said. ‘If the economy was different and it looked like prices were going to start going up again, I might feel more pressure.’

Source: Reuters (Business Times 4 Mar 08)

JTC will still provide affordable industrial space: Hng Kiang

THE JTC Corp is not deviating from its role to provide affordable factory space, said Minister for Trade and Industry Lim Hng Kiang yesterday in response to a question on whether JTC is shifting its focus with its recent plans to divest its industrial properties into a real estate investment trust (Reit).

This concern was triggered by the recent appointment of Mapletree Investments Pte Ltd (Mapletree) to establish and manage a proposed Reit which will acquire some $1.4-1.6 billion worth of JTC’s high-rise ready-built properties.

Member of Parliament Inderjit Singh raised the concern that this move will further raise the costs of industrial space here. He questioned the role of JTC, saying the earlier spinning off of Ascendas Reit has led to an increase in prices for industrial space. A-Reit, Singapore’s second Reit, was set up by JTC unit Ascendas five years ago and has since expanded by acquiring industrial buildings.

‘If we allow market forces to determine our industrial land prices, then businesses engaged in certain strategic sectors may no longer be able to compete with companies in competing economies which may not be at our stage of development and may offer companies more attractive land costs,’ Mr Singh said. He gave the example of China, where industrial land is more attractively priced.

In response, Mr Lim said: ‘JTC’s role remains the same. You must look at JTC’s role in two key areas – land and prepared industrial estates like flatted factories.’

For the flatted factories space, JTC is a small player in the market with a market share of around 20 per cent and hence takes its pricing cue from the market.

‘It is this sector that we are divesting because we believe that industrial space in Singapore is fairly competitive market,’ Mr Lim added. ‘So JTC need not stay in this area. JTC will concentrate on land.’

While the pricing of JTC’s industrial factory space is determined by the market, the pricing for land is benchmarked against competitive locations.

Mr Lim said the JTC is very careful ‘to make sure that we do not price ourselves out of the market.’

Source: Business Times 4 Mar 08

If the US goes into a recession…

How will a US slowdown or recession affect your organisation and industry, and the Singapore economy in general? What can businesses do in the event of a slowdown?

THE US recession had already started since December 2007. I predict that the federal funds rate will drop to one per cent by September 2008. After that, we will most likely witness a rebound and rally in the market.

If the recession is more prolonged, it would at most extend by another six months to March 2009.

Investors must remember that our present recessionary cycle is very different from the US recession between July 1981 and November 1982. In one way, it is similar to the 1981-82 one because the recession hit financial institutions such as banks and savings and loans particularly hard.

The significant difference lies in the fact that we now have the sovereign wealth funds stepping in to prevent these financial institutions from closing down. In addition, we have wealth distributed from oilrich countries in the Middle East.

Singapore is positioned to ride through the stormy weather in style! In these unique circumstances,

Singapore has invested in three of the world’s most exciting banks, namely UBS, Citigroup and Merrill Lynch. We have also lined up world-class activities to ensure a continuous influx of tourist arrivals to boost domestic consumption:

• Q1 2008 – Singapore Flyer
• Q3 2008 – Singapore Grand Prix
• Q3 2009 – Las Vegas Sands Marina
• Q3 2010 – Singapore 2010 Youth Olympic Games
• Q4 2010 – Resorts World Sentosa.

These activities will allow us to meet the challenges ahead. In the event of a slowdown, Singapore businesses should take advantage of this period to upgrade themselves through higher education, visiting other countries for opportunities and consolidating.

- Clemen Chiang

CEO

Freely Business School

Singapore can weather storm

SINGAPORE had been largely dependent on the US for its export market. However, in recent years, Singapore has successfully diversified its export markets to include China and India. In addition, its ongoing projects such as the integrated resorts, the hosting of the first Formula One night race and, most recently, the hosting of the 2010 Youth Olympics, would provide plenty of opportunities for the local market especially in the construction and services industries.

Hopefully, the ongoing IR projects and the tourism dollars being projected for the F1 race in

September would be sufficient to tide us over the US slowdown.

The only other economic factor that will pose a challenge is high inflation due to the double whammy of higher prices for both petroleum and food.

As an IT security company with headquarters in the US, with Singapore as its Asean and India headquarters, we will be able to sustain our growth by tapping the current ongoing projects in Singapore, as well as growing revenues in countries such as India and Vietnam.

While striving to increase our business revenues, we have to strive even harder to keep  overheads such as travel, entertainment cost, rental and even remuneration packages to a bare minimal.

Therefore, Singapore is likely to be spared the economic meltdown in spite of the slowing US economy, as we have been taking steps to minimise our dependency on the US market. This is one giant leap of faith by the Singapore government in the right direction. In the words of Prime Minister Lee Hsien Loong: ‘We have dared to bring our dreams into reality.’

- Benjamin Low

Managing Director, South-east Asia and India

Secure Computing

I THINK a lot will depend on how protracted the US recession will be. If the US slowdown lasts for two quarters, as some economists believe, then I think the Singapore economy might not be significantly affected. Singapore is now less dependent on the US than before and is quite well plugged to the Asian twin growth engines of China and India. The Singapore economy has growth momentum on its side, with many projects like the IR, F1 and now the Youth Olympics, to stay resilient. However, if the US recession turns out to be severe, then not just Singapore but the global economy will be affected.

The steel industry, on the other hand, is going through interesting times. While 2007 was a good year for the industry, 2008 is beginning to look like an equally good if not better year. Demand for steel is going from strength to strength, not just domestically but globally.

In Singapore, demand for steel will see a further boost with more public projects in addition to the existing residential and office projects. Singapore is expected to construct a new University Town to host the Youth Olympics and there are planned expenditures to further expand our rail and road infrastructure in the coming years.

Globally, besides China and India which are consuming a lot of steel, the other two BRIC countries – Russia and Brazil – which used to be net exporters of steel are now instead buying steel. Russia – which benefited from the buoyant oil market – and Brazil – which benefited from the rise of both hard and soft commodities like iron ore and wheat – are undergoing an infrastructure boom.

With the rise of commodities, there is also strong demand for steel in the shipbuilding sectors to build vessels to carry the commodities.

- Wee Piew

CEO

HG Metal Manufacturing Ltd

A SLOWDOWN in the US economy will undoubtedly have an impact on the logistics sector and UPS, but we are confident that we will continue to grow by generating greater synergy between our businesses. Being an open economy, Singapore is naturally more susceptible to external shocks.

However, the Singapore government has been successful in attracting investments, which will provide some buffer from an external slowdown. This, complemented by growth in other regions, particularly the Asia Pacific, will provide impetus for the economy.

Asia was a key growth area for UPS in 2007, and looks set to continue this year. Growing intra-Asia trade and strong demand from China and India will continue to drive trade in the region. By aligning our supply chain and parcel delivery businesses, UPS will ensure greater synergy and more competitive offerings for our clients across Asia.

Despite the challenges and a moderated economic growth forecast, UPS is positive that the

Singapore economy is resilient and diversified enough to withstand the effect of a US slowdown.

- Mary Yeo

Managing Director

UPS

EXPERTS agree that the US economy is closer to the bottom than the top. Given this, we all must brace for ways of coping in the event of a full-blown US recession. As experience has shown us, a downtrend does not mean we are in for a crash. I would say that those of us in the direct selling industry can be resilient to an economic crunch for as long as we are able to grow and expand distributorship.

Still, it remains critical to re-think business decisions having to do with the proper marshaling of resources, especially for small and medium-sized businesses which will be the hardest hit. The basics, of course – stick to budget, monitor business closely, keep collection coming in, and tighten financial control.

Others would be wrongly cutting costs by way of reducing employee incentives. I believe, on the contrary, that we must encourage pay for performance incentives.

At Best World, our strategy is two-pronged: to continue to grow company sales and to optimise employee productivity. I believe that even in bad times, we must reward people as long as they are clearly able to contribute better performance to grow the company bottom line.

This year, we have restructured our company bonus system by basing it on company profit instead of gross sales. I see this as a win-win situation, a mutually beneficial manner of giving everyone a stake in the growth and viability of the business during these critical times.

- Dora Hoan

Group CEO

Best World International Ltd

VISIONARY business leaders are already using technology to enhance sales growth, drive incremental efficiencies and deliver excellent customer service. In challenging economic times, companies must keep their eyes on the horizon while smartly managing short-term turbulence.

For example, EMC is helping companies of various sizes invest in IT infrastructure solutions that squeeze more value from flat IT budgets. Reducing the physical space needed for IT infrastructure, as well as lowering the power and cooling costs to support the infrastructure, becomes even more important in tightening economic times.

In a slowdown, it is also important – although not easy – to remain focused on product and service innovation. As a company, EMC will spend more on R&D than ever before to ensure we bring new innovation to our customers globally.

Having seen Singapore’s economic indicators, and the recent Budget, I am confident that the country as a whole, and the local and multinational companies based here, are well positioned to deal with any changes to the world economy.

- Steve Leonard

Senior Vice-President, EMC Corporation; and President, EMC Asia Pacific/Japan

EMC Corporation

THE US is in recession and I suspect this one will be protracted and will impact the rest of the world. Emerio is an IT outsourcing company with an emphasis on support and consequently, we expect our business to grow faster as US companies will need to do even more with less!

As far as the Singapore economy is concerned, there would be a short-term impact but I am confident that with Singapore’s ability to re-invent itself, we will be able to counter it and emerge stronger. A focus on Asia – not just China and India but also the rest of Asia – should see us sailing through this period.

- Harish Nim

CEO

Emerio Corporation Pte Ltd

See downturn as opportunity

THERE is too much attention paid to whether ‘an economy’ is in recession. My view is that different sectors have remarkably different dynamics which argue against a generalised view. For example, it is fairly clear that financial services, construction and probably the durable goods sector in the US are ‘in recession’.

However, agriculture, aerospace and international tourism are booming. I have been surprised at the strength of the recent retail numbers. At any point, some sectors are likely to be in recession and others booming. Asia is no different.

A lot of attention has been paid to whether or not the Asian economies and the US economy are decoupled. I’ve seen little high-quality data associated with this debate; analysts seem to quote data showing the declining percentage of exports from Asia going to the US. This is a fairly shallow understanding of decoupling.

Second, the level of coupling will, of course, vary significantly by sector. For example, I have been surprised by the extent that Chinese and Singapore-based banks have taken write-offs on the US sub-prime products – which just goes to show that ‘coupling’ can occur in mysterious ways.

I believe a number of key sectors in the US will go through a fairly deep recession. The US is a more flexible and responsive economy than most OECD economies, and will therefore restructure and recover more quickly then other countries such as Japan, Germany and France. This is one of the great strengths of the country.

The nature of most Asian companies is that they would rather lose money then downsize, though this is a generalisation. If Asian companies find markets in the US are being crimped, they will aggressively pursue other markets. A Chinese toy manufacturer will not undertake layoffs because of a US slowdown. They will ask: Where else can I sell these toys?

As a result, whether Asia is currently decoupled from the US, at the end of this down-cycle Asia will be more decoupled from it than before. But it won’t happen automatically or smoothly; Korea and India are simply not going to accept Chinese toys as easily as the US. The optimistic case is that these frictions result in new resolve for the World Trade Organization and consistent global trading rules. Of course, there are pessimistic cases.

For companies, there is the classic advice: Cut costs and find new sources of revenues. I’m a consultant – of course I would say this! Just as important is to have a clear sense of history – who were the winners and losers in your sector in the last downturn? What did they do to gain share and maintain their financial performance?

The worst thing you can do is just hunker down and wait for the next upturn. Get your management together and figure out how to convert the downturn into an opportunity. If you don’t have some great ideas – hire a consultant!

- Charles M Ormiston

Director

Bain & Company

IT IS widely misunderstood that a slowdown or a recession will affect every company that is doing business with the US. This may not be the case as there are some recession-proof industries. I consider the aftermarket tyre industry to be such an industry. A slowdown in the auto industry affects the sales of new vehicles – but existing vehicles still need tyres to ply on. Within the tyre industry, the major brands may feel more heat than the budget brands. There is a tendency to shift from an expensive branded product to a non-branded economical product in such an environment.

I have seen a surge in business recently which strengthens my belief that the market is shifting its purchasing pattern. As such, I do not think that the companies operating in the ‘budget brand’ category in the after-market auto industry will be affected. In fact, this is the time to go after business which was not accessible in the past. Now is the time that customers are actually looking for value.

As a precaution, however, it is imperative that businesses start spreading their chips into other markets and protect their existing business by investing in business/credit insurance, which will cover them adequately in case of any default.

- GS Sareen

President and CEO

Omni United (S) Pte Ltd

MY ASSESSMENT is that a US slowdown will have a material impact on Singapore only if it is prolonged and severe. This is due to our sound economic fundamentals, diversification of our economy away from manufacturing and electronics, as well as our location in a high-growth region with a large middle-class market and educated workforce.

In times of market volatility, we foresee growth opportunities over the next few years given large foreign investment flows into the region, booming regional economies that contribute to rising mass affluence, as well as higher demand for wealth planning from fast-ageing societies.

As an Asian specialist, the DBS Group is well-placed to seize these opportunities because of our experience and sound understanding of the regional markets.

Businesses caught in the slowdown can look into ways to better manage their costs, explore other potential avenues for growth, possibly in new untapped markets, consider flexible work arrangements and raising staff productivity.

- Deborah Ho

CEO

DBS Asset Management

AS THE world’s third-largest IT services provider, Fujitsu Asia provides solutions for customers in the Asean markets of Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam – but not the US. Therefore, as long as the IT demand in our target markets remains healthy, we needn’t fear that a US slowdown or recession will impact us negatively.

The Singapore economy in general should also continue to do well because we are not as dependent on the US economy as compared to, say, five years ago.

Most indicators suggest that the IT demand will remain very strong this year. For example, a recent Gartner survey of about 1,500 chief information officers (CIOs) worldwide revealed that IT expenditure is expected to surge by about 8.3 per cent in Asia this year – far outstripping the 3.3 per cent rise in the global average.

The report also identified that in 2008, the focus areas among Asian CIOs include IT infrastructure, application rollouts and other areas. The implication here is that, despite the possibility of a US slowdown or recession, Asian companies are still prepared to invest in technology to prepare themselves for future business growth.

This makes sense because it can take months or even years for an IT investment to progress from conceptualisation to rollout.

Hence, companies that delay making vital investments during a downturn could be unknowingly disadvantaging themselves when things are back on the upswing. After all, without added headroom – which IT investments can provide – for scaled-up operations, companies might be unable to capitalise on the business opportunities that an economic recovery presents.

I always believe that adversity and opportunity exist togther. A slowdown in the US may pose some challenges, but it indirectly provides an impetus for companies to prepare themselves for future growth, which is merely a matter of time. And leading IT companies like Fujitsu Asia can help companies with such preparation efforts.

- Noboru Oi

Group CEO

Fujitsu Asia Pte Ltd

WITH the US being the world’s largest economy, economists and analysts have said that any signs of slowdown could impact everyone, especially those economies or industries highly dependent on the US. Some have warned that the effects of a drop in consumer spending could impact the Asian electronics manufacturers.

That said, we see resilience in the global economies. Where there are challenges, we also see some opportunities. All the more, businesses need to focus on creating value for their customers to maintain their competitive edge and strengthen their position in the industry.

For Excelpoint, we believe that it is critical to focus on executing well to strategy, maintain a strong cash position to capture opportunities, and be prepared to make adjustments where necessary to mitigate any risks. We will continue to invest in emerging markets where our customers have ventured into, and collaborate with them and our global partners to capitalise on opportunities in those markets.

Important, too, is the continued emphasis on innovation. We want to be able to research and develop new applications and technologies with the aim to offer our customers a wider range of solutions. This will help us emerge as winners in the industry in the long run.

- Albert Phuay

Chairman and Group CEO

Excelpoint Technology Ltd

WHILE we believe that a potentially bearish US economy will have a global impact on  Organisations and markets, this is an opportunity for many companies to take a hard look at how their operations can be optimised for efficiencies and how new businesses can be gained by looking beyond traditional means of getting to their customers and the marketplace.

There is a growing trend where deploying innovative technologies such as virtualisation and open source are helping businesses achieve these goals by optimising how information technology is supporting their existing business. Increasingly, businesses are also looking at more cost-effective and efficient channels to get to the business partners, customers and the marketplace by making information technology supplement their existing route to market.

We are confident that this is one way that businesses can save money and grow their businesses and give them a better chance of weathering not just this slowdown but any slowdown.

- Ong Chee Beng

Managing Director, Singapore

Sun Microsystems

IT IS still premature at this point to predict the extent of the US slowdown and to project how it will affect the Asia Pacific, and Singapore. However, with globalisation and lessons learnt from the Asian crisis, countries like Singapore are now more hedged against fluctuations from the US economy with greater investments in fast-growing markets like China and India.

I believe when one door closes, another window opens. In times of cyclical downturns, it is the onus of business leaders to proactively seek new opportunities (perhaps investing in emerging markets in the Asean region) to diversify risks and chart future growth. Many companies like us would have laid the groundwork in recent years, coupled with a long-term strategy, enabling us to ride out cyclical downturns, resulting in business continuity and growth prospects for the future.

- Bryan Low

Vice-President and Managing Director

AMD South Asia

A US downturn will almost certainly have a negative impact on Singapore’s economy, and it is unlikely that the childcare industry will be spared. At Cherie Hearts, for instance, we expect that a number of parents could look to alternative childcare options, such as home-based care by grandparents.

The best course of action that businesses can take in the face of an economic slowdown is to invest in training and development, as well as R&D. This will be our best bet in preparing ourselves to ride the economic growth once the dark clouds blow by. Cherie Hearts, for one, will be stepping up efforts on staff training, as well as curriculum research and development.

- Sam Yap SG

Group Executive Chairman

Cherie Hearts Group Int’l Pte Ltd

S’pore will be insulated by Asia

A RECENT study by technology research house Gartner shows that despite the US slowdown, Asian firms still plan to increase their annual IT budgets by about 8.3 per cent in 2008.

I believe that companies’ priority this year will be on technologies that directly improve their business performance. CA will continue to create and refine software that can help firms simplify and unify their IT operations, and which deliver tangible business value.

With regard to Singapore, the projected growth in Asia’s emerging economies should insulate us somewhat from the US slowdown, although many firms will still come under pressure to control costs.

This means that organisations should work on better tapping into their current resources. Besides using technology to streamline their operations, they should look harder at integrating technology with their people and processes. Best practices and consultancy services to achieve this are readily available, and businesses should proactively check them out.

- Brenton Smith

Managing Director and Area Manager, Asia South

CA

THE slowdown in the US may dampen business confidence and hurt our export-led economy but we will more likely be impacted by rising inflation and rapidly increasing business costs.

Many businesses are linked to regional and global customers, thus removing our reliance on just one country for trade. We are moving into Middle Eastern economies. We already have strong business links with the Chinese and Indian markets and these should help cushion the impact of the US slowdown. However, what seems to be at the forefront of many companies’ concerns is the more pressing problem of rising wages and a shortage of talent.

- Dhirendra Shantilal

Senior Vice-President, Asia Pacific

Kelly Services

FROM a geographical perspective, companies need to anticipate an economic slowdown in the US and switch activities and priorities towards growth regions like Asia. In Asia, because of the integration of global markets, developing countries will also be impacted, but this will be overshadowed by the domestic drive that we are seeing in countries such as China, India, and Southeast Asia.

Regarding the IT industry, there is no doubt that it will be impacted too. According to a recent IDC report, global technology spending will experience slower growth next year because of the current uncertain economic climate. Therefore, IT vendors and service providers must also stay ahead of the game by being flexible and making sure they adapt to these changes.

Last year, Serena Software moved to a software-as-a-service model and this is paying dividends for us now. In this environment of economic uncertainty, it is natural for companies to hold back on their capital investments to mitigate their risks. Therefore, the ability to adopt on-demand services on a pay-as-you-go basis is a perfect sourcing strategy for businesses seeking greater cost controls and flexibility during tough times.

- KC Yee

Vice-President, Asia Pacific

Serena Software

WHEN the world’s largest economy goes into a recession, most industries will be affected one way or another. Businesses need to understand that and start taking steps to balance the risks of a slowdown in the US. Businesses should look beyond the US market to cushion the downturn, if any.

Asia presents itself as an excellent opportunity for business growth.

Businesses can start by diversifying their clientele to reduce the risk of relying on a particular industry.

Riverstone, for example, is maintaining its lead in Asia for high-tech cleanroom gloves by expanding our clientele beyond the major players of hard disk drives and semiconductors.

For now, the demand for the high-tech clean-room consumables continues to grow and Riverstone intends to ride this trend.

- Wong Teek Son

Executive Chairman and CEO

Riverstone Holdings Ltd

AT AT&T, we are focusing on the strong growth engines in Asia Pacific – like China and India, but also the emerging markets in South-east Asia – and plan to continue investing in our business here to mitigate effects of a possible slowdown of the US economy.

Macro-economic data, ranging from the UN to the World Bank, shows that growth in Asia Pacific should be expected to continue, though maybe at a slightly lower rate than in the previous extraordinary years. Asia-Pacific economies are considered to be quite well-prepared to manage the continued uncertainty in the external environment coming from the US and, for example, the oil markets.

With our region continuing to be the fastest-growing region globally, a focus on such overseas opportunities can help minimise a potential dip in the US economic growth. Therefore, I would expect a continuous commitment to this region from global MNCs like AT&T. Most likely, we will see the further creation of high level jobs, continuous investments and more and more products and services being developed and managed in and out of the Asia Pacific – for a growing number of customers in this region.

- Collis Loh

Country General Manager

AT&T Business, Singapore

A US slowdown or recession will have some, but not catastrophic impact on the Singapore economy, as a growing driver of Asia’s growth has been fuelled intra-region. Thus, while the US curtails its consumption demand, this will be counter-balanced by the continued rise of Asian consumption – whether in China, India, or even Vietnam.

Having said that, in the event of a slowdown, having the right people to work and manage your business is critical to weathering a tough economic environment. The companies who emerge winners will be those that are focused on measuring and improving productivity, including that of their workforce.

- Su-Yen Wong

Managing Director, Asean

Mercer (Singapore) Pte Ltd

Be ready for tough times

TECHNOLOGY spending is normally a lagging indicator of an up or down-market. Our order book and sales pipeline currently look very strong. If we are to see slowing tech spending it will most likely hit Asia three to four months from now. So far, US multinationals, even in the financial services sector, are keeping up their spending with projects still being executed. Only one major client that I have met recently has talked of deferring a project. Companies obviously need to have a Plan B ready for any slowdown in spending. It’s important to be ready with scenarios so that we can adjust our model as any changes unfold.

- Bill Padfield

CEO

Datacraft Asia

THE US will continue to be the leading global economy for many more years. However, the print, publishing and media-related industry as a whole, my organisation included, has also diversified, doing a substantial amount of business with Britain, the Middle East and the EU countries.

On a national basis, the US is one of our main trading partners. Consequently, a US slowdown or recession would, together with many other Asian countries, definitely affect us negatively. Gloomy markets, recovery and growth are all part of the economic system.

Singapore businesses can reduce this looming negative impact by aggressively diversifying investments and export makets – which we have already done to a considerable extent.

With prudence and foresight, our businessmen could further move into Russia, the Middle East, the Korean peninsula and other Asian countries, Latin America and Africa.

Singapore businesses – especially our cash-rich investors and exporters, be they in mindshare leadership, providing services or manufactured products – should reduce over-dependence on the US.

- R Theyvendran

Chairman / Managing Director

Stamford Media International Group

A US slowdown or recession will have a negative impact on the global economy. US consumption has been instrumental in helping to boost world economies for several years. The growth of China and India is not going to be able to make up for the shortfall in US consumption in the event of a major cutback in spending in the US.

In a similar vein, manufacturers in Singapore will be negatively affected by the US slowdown as their products are mostly exported overseas. CEOs need to understand that it is no longer business as usual. Fortunately for my company, we will be able to comfortably ride out the tough times as we are a multinational company that has recognised the need to change much earlier.

For those businesses which are financially weak, it is important to restructure quickly to face the new harsh realities. They have to review their cost structure to ensure that they remain cost-competitive.

Companies need to penetrate markets such as the Middle East, China and India, whose economies are still booming. However, for weak companies, it is better to be healthy before expanding overseas, or their limited resources will be further dissipated. They should get their act together in Singapore first, such as putting in place a strong and competent management team and getting a positive cash flow. There are opportunities in the recession too as many weaker competitors will be knocked out of the race.

- Teng Yeow Heng Michael

Managing Director

TR Formac Pte Ltd

A US recession will cause uncertainties and undulations across the globe, but economic giants like China and India can cushion some of that ripple effect. As expounded by Minister Mentor Lee Kuan Yew, increased domestic consumption and investments in infrastructure, which serve to sustain a robust financial core, can also help weather the economic storm.

Local businesses, particularly SMEs, must be ever-ready for unforeseen events and have contingency plans in place during a period of decline. These include cost-cutting measures like downsizing and reducing overheads as well as increasing savings and investing in short-term assets that can be liquidated in times of need.

- T Chandroo

Chairman and CEO

Modern Montessori International

Singapore may be hit

THERE is no doubt that any slowdown or recession in the US economy will have a direct impact on the Singapore economy. Although Minister Mentor Lee Kuan Yew has stated that Singapore will not be too badly affected should the US catch a cold, prevention is better than cure.

As electronics is an important sector that exports to the US market, any contraction in the US will have immediate effect on this major industry which contributes a large percentage of the manufacturing exports. To mitigate any drastic drop in exports, IE Singapore should support our manufacturers in aggressively sourcing new emerging markets in the Middle East, South Asia and North-east Asia. A better option would be to shift the bases of production closer to the markets.

Pakistan has been identified as a pivotal centre for electronics serving the Middle East and South Asia, while North Korea is also a focal centre serving Greater China and East Asia.

It is timely for the Singapore Business Federation to organise missions to these key centres to explore, exploit and extract the opportunities for exports, investments and R&D, etc. I am confident that the electronics sector would be nimble enough to ride out any economic setback in the US. Let’s pull ahead.

- Derek Goh

Executive Chairman / Group CEO

Serial System Ltd

I BELIEVE the signs indicate that the US is in a recession or on the verge of one – with consumption going down, interest rates being reduced, and the implementation of a US$152 billion package to stimulate the economy.

In such a scenario, I would suggest that Singapore businesses take a conservative approach by containing costs, ensuring that forecasts are conservative and watch inventories. When there are opportunities to monetise assets, I would proceed, as cash is king in this situation.

Until India and China dominate the world economy, I believe that whatever happens in the US will have an adverse impact on Asia and Singapore, although this will be less than before. Singapore has taken enough precautions to fend off any cold the US might suffer, but again it depends on how badly the US will be affected, as the financial crisis continues to unfold.

- Lim Soon Hock

Managing Director

Plan-B Icag Pte Ltd

THE sub-prime mortgage crisis has now ballooned into a deepening credit crunch, leading to less liquidity for a host of financial assets and structures. Although the US Federal Reserve has reduced interest rates in recent months, there is still a crisis of confidence in the US which mirrors the experience in Asia during the 1997 financial turmoil.

Clearly, the US is already in recession. Its extent and duration will depend on how long it takes for confidence to be restored. And the signs are not good because it seems that investors, banks and markets are getting more – and not less – jittery with each passing week. The impact of the US recession on Asia may be limited if it lasts six to nine months. However, Asian economies – even Japan, China or India – are probably not strong enough to weather a prolonged economic depression in the US.

As a privately-owned bank, Rabobank is taking steps to strike a balance between supporting our long-term customers, and preparing for a possible slowdown in this part of the world. On the one hand, as a financial cooperative, we must do our best to ensure that the funding needs of our customers are met. On the other hand, as a bank with a Triple A credit rating, we must maintain prudent lending policies, exercise due diligence and read market warning signs early and accurately.

Every cloud has a silver lining, so a widespread recession could perhaps moderate the worldwide trend of rising inflation, which is caused by escalating prices of commodities, labour and land.

If Singapore enters a recession, hopefully workers will realise that wage increases cannot outpace productivity gains indefinitely without companies losing competitiveness – which may ultimately lead to employees losing their jobs.

- Goh Chong Theng

General Manager, Singapore

Rabobank International

ANY US slowdown will impact businesses here. Everyone’s hope is that it will not be a contagion with business confidence being dragged down. The flipside is that the costs of US goods and services will be lower with a weaker dollar for those who do business with the US. This sliver of opportunity should enable us to offer more attractive and competitive goods and services.

On the other hand, people are hoping that the boom in China, the Middle East and elsewhere will provide a counter-balance. Like many Singapore companies, we stand our business on many legs in different countries. We hope to re-adjust our balance even as one part of the business is down.

Indeed, it may ironically be the balance we need with the current inflation and a resource crunch.

But more worrying is the way events might turn out. The great uncertainty and turbulence might catch many businesses wrong-footed. We all need to be vigilant.

- Liu Chunlin

CEO

K&C Protective Technologies Pte Ltd

A RISING tide lifts all boats, but unfortunately, the inverse is true as well when it comes to a US recession. Asia is not decoupled from the US or any other world economy and this should come as no surprise. Access and dependency go in lock-step and capital markets are extremely efficient at providing access to virtually any market segment in any economy – the sub-prime market, for example.

Diversification is the key and where countries are not efficient at achieving balance our firms must be.

An organisation’s best hedge is a global revenue stream, a balanced product set, and access to a wide range of market sectors.

- Mark Bashrum

Regional Vice-President, Asia

ESI International

DESPITE the slowdown in the US, Singapore’s financial and construction services clearly remain the bright spots, fuelling a soft-decoupling story for Singapore from the US economy. Still, with rising inflation and a negative real interest rate environment, private banking, like other businesses, cannot completely ignore the US downturn.

Investors, regardless of their wealth bracket, behave differently in this climate. Private banking clients tend to lower their risk appetite, gravitating towards conservative products with lower yields and margins. However, my private bankers must also be able to give clients the confidence to look beyond the downturn, instead of focusing on the storm clouds. It’s essential that we take a fresh look at our clients’ changing situation or new environment. Then we make sure our products and services adapt to help clients navigate the storm and come out on top.

- Barend Janssens

Head

ABN Amro Private Banking, Asia

THE US is a major consumer of goods and services which are manufactured all over the world. In the case of electronic goods, consumer demand will fall. Singapore, as a manufacturing site for such products, will be affected. Both facility and equipment utilisation will consequently be impacted.

Following from this, there is likely to be a reduction in labour and overhead costs by businesses to keep costs low and ride through the storm.

There is no miracle solution to overcoming recession as it is part of the business cycle. During a recession, businesses have to be prudent and keep a tight control over costs. We also have to explore other markets such as China and India to sell our goods but this does not happen overnight.

The government can provide support in terms of incentives, rental reductions, property tax adjustments, energy rate cuts and other such measures which will help companies through the turbulent period.

- EH Lim

CEO

Avi-Tech Electronics

IN MY view, the US will definitely suffer a recession this year due to the sub-prime problems and this will cause a global economic meltdown. Stock markets worldwide will decline by not less than US$7 trillion. The US consumes 25 per cent of the world’s products so a recession there will affect the world’s economies. Even Singapore’s growth this year is likely to be less than 4 per cent because of it.

The travel and tour industry will also slow down. Luckily, Singapore is a debt-free country; its dollar may well be equal to the greenback at some point.

SA Tours will promote travel to the US, for enjoyment as well as to build relationships to do business there. Singapore is a marketing hub and Singaporeans can market products produced in the US throughout Asean. A recession in the US may well be an opportunity for Singaporean businessmen to do business with Americans.

- Ng Kong Yeam

Group Executive Chairman

Sino-America Tours Corporation Pte Ltd

Others

A US recession would have varying degrees of impact on multinational organisations in Singapore, as well as the local economy, given that Singapore is a major trading partner of the US. However, as for the IT industry, we don’t foresee a huge negative impact in our region as economies like Singapore are still experiencing buoyant growth and companies are investing in technology solutions to provide them competitive advantages.

In fact, we believe that a critical aspect to managing such potential risks for organisations is to have access to accurate and timely information and business intelligence tools that facilitate quick and effective decision-making.

- VR Srivatsan

Vice-President, South Asia

Business Objects

CREDIT crunch, downturn, or recession, the coming year is going to be a challenge for the global economy – and the IT industry will face the same pressures. While there’s no doubt that tighter belts will mean IT departments paying close attention to IT vendors and service providers performance, it will not be simply the case of the thumb-screws coming out.

In our case, even amid economic uncertainty last year, Interwoven’s fourth quarter and full-year performance was the highest we have ever recorded. During an economic slowdown, we can see an increase in online marketing budgets – more cost effective than traditional marketing methods. So while the spend from IT may reduce in a slowdown, we expect to have access to a larger portion of the marketing budget. The tougher times are, the more important it is for companies to measure and make the most value out of their budgets.

We anticipate that other IT vendors and service providers will also find a niche to prosper during these times of economic uncertainty. Companies are realising that business efficiency can be improved by innovating aspects of their business using IT.

- Sanjay Aurora

Vice-President of Asia Pacific

Interwoven

Source: Business Times 3 Mar 08

ECB expected to lower growth forecasts, not rates

It faces dilemma as a rate cut could aggravate euro zone’s high inflation

FRANKFURT – THE European Central Bank (ECB) will make a cut of sorts this week – but with euro zone inflation stubbornly high, the cut will be in its growth estimates, not interest rates, said economists.

‘The ECB council will cut on Thursday its forecasts for growth in the euro zone, but not its main interest rate,’ said WestLB economist Holger Sandte, making a prediction widely shared by other experts.

The United States Federal Reserve has cut rates in recent weeks in an effort to stave off a recession, and increasing signs of a slowdown in the euro zone are adding to pressure on the ECB to follow suit.

More pessimism was generated last Friday by a sharper- than-feared fall in the European Commission’s euro zone economic sentiment indicator to its lowest level in two years.

‘What is a worry is the sharp collapse in euro zone economic confidence over the last year. This is consistent with euro zone growth dropping well below 2 per cent this year, possibly to around 1.5 per cent,’ said Bear Stearns economist David Brown.

‘The ECB is now under huge moral pressure to cut rates, especially with the euro on a surge towards US$1.55,’ he added.

But another data release last Friday showed the dilemma that ECB head Jean-Claude Trichet faces – that of stubbornly high inflation, something which a cut in rates could exacerbate.

Euro zone inflation clocked in at 3.2 per cent in January, the highest level since the launch of the euro single currency in 1999. The number was worse than expected and was well above the ECB’s preferred level of inflation of close to but less than 2 per cent.

But slowing growth is expected to dilute inflationary pressures, which in turn should allow the ECB to cut rates later this year, economists believe.

‘Under these conditions, the ECB could start cutting interest rates in spring’ and gradually lower its main lending rate to 3 per cent by the end of the year from 4 per cent currently, said BNP Paribas economist Clemente De Lucia.

Source: AGENCE FRANCE-PRESSE (The Straits Times 3 Mar 08)

Bernanke doesn’t utter R-word but he means it

His replies confirm economy is in recession: analysts

(NEW YORK) US Federal Reserve chairman Ben Bernanke didn’t utter the word, but analysts reading between the lines of his testimony to the US Congress this week say that he came as close as a central bank chief can to acknowledging the chances of recession.

Since the start of the global credit squeeze in mid-2007, the Fed has been cautious about suggesting US economic and financial conditions could get worse, in part for fear that markets might overreact.

Yet speaking before Congress on Thursday, the Fed chairman held true to his vow for greater transparency, predicting that economic growth, which slowed sharply in the fourth quarter of 2007, would not return to normal levels until at least 2010.

‘While the National Bureau of Economic Research (NBER) has yet to decide whether the US economy is in recession, Mr Bernanke’s replies have all but confirmed the economy is already in recession,’ said Ashraf Laidi, chief foreign exchange strategist at CMC Markets US in New York.

The NBER is considered the official arbiter of US recessions, but their calls tend to lag the actual start of a contractionary period by about three to six months.

Not only did Mr Bernanke offer a glum outlook for growth complicated by rising inflation, he also indicated that even his already depressed forecasts might be overly optimistic.

‘The risks to this outlook remain to the downside,’ Mr Bernanke said. ‘The risks include the possibilities that the housing market or labour market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.’

It is not difficult to see how some observers might interpret strong words as these from a measured man like Mr Bernanke as a sign of real concern.

‘If you acknowledge a recession it’s your fault, so that’s one reason not to be the first to do it,’ said Alan Skrainka, chief market strategist at Edward Jones, in St Louis, Missouri.

The threat of a prolonged recession is not negligible. What started as a US housing market slump has since spread through the financial system like a wildfire, beginning with assets directly linked to sub-prime mortgages and then extending to bonds formerly deemed safe as mistrust in the banking sector soared to new heights.

Mr Bernanke also attempted to rein in inflation expectations by saying the central bank would remain vigilant on price pressures which have become more apparent after both producer and consumer inflation jumped in data released this month.

These developments not only complicated the Fed’s task of regulating the monetary lever, but could also paradoxically worsen the economic situation. Since any possible recession is expected to be driven by a retrenchment in consumer spending, further damage to purchasing power from rising costs could force a downward spiral.

The economy is not close to a 1970s-style mix of stagnant growth and high inflation, Mr Bernanke told the Senate banking committee, but he painted a generally dour outlook and cautioned that the downturn is likely to cause some small banks to go under.

‘I don’t anticipate stagflation,’ he said.

Some analysts have become increasingly worried about that possibility after recent high readings on inflation and weak readings on growth.

‘I don’t think we’re anywhere near the situation that prevailed in the 1970s,’ he said.

Source: Reuters, LAT-WP (Business Times 1 Mar 08)

More landed housing sites up for auction

THE Urban Redevelopment Authority (URA) has launched the second phase of Sembawang Greenvale after auctioning all parcels in Phase One last October.

In the first phase, 12 sub-divided landed housing plots near Sembawang Beach were auctioned for a total of $37.09 million, which works out to about $285 per square foot (psf) of land on average.

Phase Two comprises 11 land parcels for a total of 90 dwellings. Most of these will be terrace houses.

Knight Frank director (research and consultancy) Nicholas Mak says new terrace houses in the area are now selling for $1.7 million to $2 million.

The median unit price for landed housing in District 27, where Sembawang is located, increased 12 per cent quarter-onquarter in Q4 2007, he said. ‘Therefore, in terms of bidding price, we expect the average land price of Greenvale Phase Two will be higher than that of Phase One.’

Mr Mak expects that terrace plots will fetch about $320-380 psf of land, and semi-detached plots about $300-350 psf of land.

Cushman and Wakefield managing director Donald Han believes demand for landed property will stay sound this year. But he also reckons current sentiment – hurt by the US sub-prime crisis – could see potential bidders for Sembawang Greenvale Phase Two discount their offers in the light of rising risks.

As such, he thinks bids could be 5-10 per cent below those received for Phase One.

Mr Han still believes there will be interest in the parcels, especially those that can yield more units, as developers will be able to ‘average down’ construction costs and increase profit margins.

Separately, URA said yesterday it has launched an industrial land parcel at Ubi Avenue 4/Ubi Road 2 for sale by public tender, after a developer committed to bid at least $14 million in early February.

Colliers International managing director Dennis Yeo estimated earlier that bids for the site could come in at $70-80 psf per plot ratio, translating to a breakeven cost of about $230-250 psf.

Source: Business Times 1 Mar 08

DC rate hike lower than expected

Average industrial rates up 16.8%, muted increases for most other uses

THE government yesterday announced modest, lower-than-expected increases in development charge (DC) rates for most use groups, except industrial.

‘Limited transactions in the past six months, amidst cautionary sentiment set about the US sub-prime debacle, were probably an important factor for the moderate gains this round,’ said Jones Lang LaSalle regional director and head of investments Lui Seng Fatt.

Knight Frank director Nicholas Mak said: ‘The government may feel that there has been no significant appreciation in land prices in the last few months.

‘And DC rates for most use groups – such as commercial, non-landed residential and hotel/hospital – were already at a higher base because of substantial hikes in the last revision.

‘Industrial DC rates, on the other hand, had seen only a marginal rise the previous round and hence saw the sharpest increase this time.’

DC rates, which are payable for enhancing the use of some sites or putting bigger developments on them, are revised twice yearly, on March 1 and Sept 1, and are listed according to use groups and 118 locations across Singapore.

From today, the average DC rate for commercial use has gone up 1.5 per cent – after the 42 per cent increase in the last round on Sept 1, 2007. The average rate for non-landed residential use has been raised 2.6 per cent, again much smaller than the 58 per cent hike previously, while the average rate for landed residential use has been left unchanged.

For hotel and hospital use, the latest DC rates are up 3.3 per cent on average, compared with a 23 per cent hike previously.

Industrial DC rates have jumped 16.8 per cent on average, against a 2 per cent rise previously.

JLL’s Mr Lui said that the big hike in industrial DC rates is in tandem with growing demand for backoffice space as more firms relocate out of the CBD due to high rents.

For industrial DC rates, the biggest hike of 33.3 per cent was in the Jurong/Lim Chu Kang/Kranji location, which analysts attributed to JTC Corp’s sale of two industrial sites at Jalan Tepong and Pioneer Road/Tuas Avenue 11 at about double the land values implied by the previous September 2007 industrial DC rate for the area.

Similarly, the sale of an industrial plot at Commonwealth Drive/Lane at about four times the September 2007 DC rate-implied land value was probably behind a 32 per cent hike yesterday in the industrial DC rate for the area.

Industrial DC rates were raised by 22.2 per cent each in the Kallang  Way /MacPherson /Aljunied, and Braddell/ Potong Pasir/ Woodleigh areas, based on JLL’s analysis. The rate for West Coast Road/ Jurong East was upped 20.7 per cent.

Increases of 20 per cent were seen in locations such as Havelock Road, Telok Blangah, Tiong Bahru, Bukit Merah, Redhill, Alexandra and Henderson.

Commercial DC rates stayed put in Raffles Place, Marina Bay, Cecil Street and Robinson Road. Instead, the hikes were mostly outside the central business district, ‘reflecting the trend of office demand being pushed out of the CBD’, Savills Singapore director Ku Swee Yong said.

The biggest increases, of 25 and 23.3 per cent, were in the Toa Payoh/Potong Pasir and Paya Lebar/Eunos areas respectively.

The sale price of a 99-year commercial plot next to the HDB Hub in Toa Payoh in October and rising rents at SingPost Centre in Paya Lebar were likely reasons for the increases.

The Marine Parade and Tampines locations each saw a 19 per cent appreciation in commercial DC rates, apparently supported by the sale price of an office unit at Parkway Parade, and rental evidence at Tampines Mall and buildings in the Tampines Finance Park.

For non-landed residential DC rates, the biggest gain of 28.6 per cent was in Ang Mo Kio/Yio Chu Kang as well as an adjoining sector that covers Upper Thomson and Sembawang Hills. Far East Organization’s $601 psf per plot ratio top bid for a condo site next to Ang Mo Kio Hub in September last year – a record for 99-year suburban condo land – was the likely reason for the rate hikes.

The Telok Blangah and Tiong Bahru/Ayer Rajah locations each saw hikes of 22.2 per cent in non-landed residential DC rate.

CB Richard Ellis executive director Li Hiaw Ho said that the increases were probably supported by the $639 psf ppr fetched for a 99-year condo site on Alexandra Road last year. Mr Li also pointed to the sale of a freehold site on Margate Road as the likely reason for a 21.4 per cent rate hike in the Mountbatten/Meyer/Broadrick area.

For hotel use, gains of around 9-10 per cent were seen in DC rates for the traditional hotel belts in the Orchard Road, Marina Centre and Singapore River locations, as well as places like Marina Bay, Bayfront and Fullerton Road.

‘The tourism boom is expected to continue as the Singapore government drives towards the 17 million visitors goal by 2015.

Orchard Road remains Singapore’s main shopping belt, while upcoming developments in the Marina area such as the Marina Bay Sands integrated resort and the F1 race will further generate demand for hotels in the area,’ Mr Lui said.

The DC use group for hotels also includes hospitals and interestingly, the government did not raise the DC rate for the Irrawaddy Road location where a hospital site last month fetched a record price of $1,600 psf ppr from Parkway group.

A spokeswoman for the Chief Valuer said: ‘Parkway’s record bid was an isolated case. In general, there’s no compelling evidence that market values for hotel/hospital use in the area have moved up so much.’

Source: Business Times 1 Mar 08

DC rate hike lower than expected

Average industrial rates up 16.8%, muted increases for most other uses

THE government yesterday announced modest, lower-than-expected increases in development charge (DC) rates for most use groups, except industrial.

‘Limited transactions in the past six months, amidst cautionary sentiment set about the US sub-prime debacle, were probably an important factor for the moderate gains this round,’ said Jones Lang LaSalle regional director and head of investments Lui Seng Fatt.

Knight Frank director Nicholas Mak said: ‘The government may feel that there has been no significant appreciation in land prices in the last few months.

‘And DC rates for most use groups – such as commercial, non-landed residential and hotel/hospital – were already at a higher base because of substantial hikes in the last revision.

‘Industrial DC rates, on the other hand, had seen only a marginal rise the previous round and hence saw the sharpest increase this time.’

DC rates, which are payable for enhancing the use of some sites or putting bigger developments on them, are revised twice yearly, on March 1 and Sept 1, and are listed according to use groups and 118 locations across Singapore.

From today, the average DC rate for commercial use has gone up 1.5 per cent – after the 42 per cent increase in the last round on Sept 1, 2007. The average rate for non-landed residential use has been raised 2.6 per cent, again much smaller than the 58 per cent hike previously, while the average rate for landed residential use has been left unchanged.

For hotel and hospital use, the latest DC rates are up 3.3 per cent on average, compared with a 23 per cent hike previously.

Industrial DC rates have jumped 16.8 per cent on average, against a 2 per cent rise previously.

JLL’s Mr Lui said that the big hike in industrial DC rates is in tandem with growing demand for backoffice space as more firms relocate out of the CBD due to high rents.

For industrial DC rates, the biggest hike of 33.3 per cent was in the Jurong/Lim Chu Kang/Kranji location, which analysts attributed to JTC Corp’s sale of two industrial sites at Jalan Tepong and Pioneer Road/Tuas Avenue 11 at about double the land values implied by the previous September 2007 industrial DC rate for the area.

Similarly, the sale of an industrial plot at Commonwealth Drive/Lane at about four times the September 2007 DC rate-implied land value was probably behind a 32 per cent hike yesterday in the industrial DC rate for the area.

Industrial DC rates were raised by 22.2 per cent each in the Kallang  Way /MacPherson /Aljunied, and Braddell/ Potong Pasir/ Woodleigh areas, based on JLL’s analysis. The rate for West Coast Road/ Jurong East was upped 20.7 per cent.

Increases of 20 per cent were seen in locations such as Havelock Road, Telok Blangah, Tiong Bahru, Bukit Merah, Redhill, Alexandra and Henderson.

Commercial DC rates stayed put in Raffles Place, Marina Bay, Cecil Street and Robinson Road. Instead, the hikes were mostly outside the central business district, ‘reflecting the trend of office demand being pushed out of the CBD’, Savills Singapore director Ku Swee Yong said.

The biggest increases, of 25 and 23.3 per cent, were in the Toa Payoh/Potong Pasir and Paya Lebar/Eunos areas respectively.

The sale price of a 99-year commercial plot next to the HDB Hub in Toa Payoh in October and rising rents at SingPost Centre in Paya Lebar were likely reasons for the increases.

The Marine Parade and Tampines locations each saw a 19 per cent appreciation in commercial DC rates, apparently supported by the sale price of an office unit at Parkway Parade, and rental evidence at Tampines Mall and buildings in the Tampines Finance Park.

For non-landed residential DC rates, the biggest gain of 28.6 per cent was in Ang Mo Kio/Yio Chu Kang as well as an adjoining sector that covers Upper Thomson and Sembawang Hills. Far East Organization’s $601 psf per plot ratio top bid for a condo site next to Ang Mo Kio Hub in September last year – a record for 99-year suburban condo land – was the likely reason for the rate hikes.

The Telok Blangah and Tiong Bahru/Ayer Rajah locations each saw hikes of 22.2 per cent in non-landed residential DC rate.

CB Richard Ellis executive director Li Hiaw Ho said that the increases were probably supported by the $639 psf ppr fetched for a 99-year condo site on Alexandra Road last year. Mr Li also pointed to the sale of a freehold site on Margate Road as the likely reason for a 21.4 per cent rate hike in the Mountbatten/Meyer/Broadrick area.

For hotel use, gains of around 9-10 per cent were seen in DC rates for the traditional hotel belts in the Orchard Road, Marina Centre and Singapore River locations, as well as places like Marina Bay, Bayfront and Fullerton Road.

‘The tourism boom is expected to continue as the Singapore government drives towards the 17 million visitors goal by 2015.

Orchard Road remains Singapore’s main shopping belt, while upcoming developments in the Marina area such as the Marina Bay Sands integrated resort and the F1 race will further generate demand for hotels in the area,’ Mr Lui said.

The DC use group for hotels also includes hospitals and interestingly, the government did not raise the DC rate for the Irrawaddy Road location where a hospital site last month fetched a record price of $1,600 psf ppr from Parkway group.

A spokeswoman for the Chief Valuer said: ‘Parkway’s record bid was an isolated case. In general, there’s no compelling evidence that market values for hotel/hospital use in the area have moved up so much.’

Source: Business Times 1 Mar 08

Property development charges barely budge

Small revision of fees points to dwindling deals, slow price growth

IT’S official: the property market has gone deathly quiet.

The Government barely tweaked development charges in its semi-annual revision of fees yesterday, reflecting the property sector’s subdued state over the last six months.

Development charges, which can run in the millions of dollars, are what a developer has to pay to buy and redevelop an existing site.

Average islandwide charges for office, hospital, hotel and non-landed housing sites merely inched up, while landed residential sites saw no change in the fee at all.

This marks a big reversal from last year, when the frantic pace of land acquisition led to record hikes in development charges for many sectors.

In super-hot locations, the fees were even doubled.

This time, the only major change was in the industrial sector, where charges jumped 16.8 per cent – compared to 2 per cent in the last round.

This was due to a previous low base, as well as rising demand for back-office space, which led to recent land sales at benchmark prices in areas such as Commonwealth and Ubi, said experts.

Development charges are set by the chief valuer based on recent land and property values, and are adjusted every six months, so their growth rate can be used to indicate market activity.

Property watchers said yesterday’s small rises show what the market has known for some time: Property deals are dwindling and the pace of price growth has slowed.

‘The rates have been moderated as a result of the limited transactions over the last six months, attributed in part to the more cautionary sentiment,’ said Mr Lui Seng Fatt, the regional director and head of investments at Jones Lang LaSalle.

But fees rose for areas on the city fringe, showing that activity is spilling out from prime spots, said Savills Singapore’s Mr Ku Swee Yong.

Development charges rose for non-landed residential sites in Upper Thomson, Tiong Bahru, Balestier and Chancery, among others.

This was probably due to some collective sales late last year, said Mr Nicholas Mak of Knight Frank.

These include the sale of Toho Gardens in Yio Chu Kang and 15 terrace houses in Balestier.

Mr Mak said the fee rises in these areas could further affect the already cautious sentiment in the market.

The overall impact, however, is ‘not as major’ as that from the last round of hikes in charges, he added.

Still, developers looking for new land will probably start relying more on government sales – which do not involve development charges – than on collective sales, said Mr Li Hiaw Ho, the executive director of CB Richard Ellis Research.

In the office and shops sector, the recent sales of transitional office land helped boost development charges in Tampines and Scotts Road.

Thomson and Paya Lebar also saw bigger hikes than the rest.

Hotel sites had increases mainly in central areas, while the fees for industrial sites rose across the board.

Source: The Straits Times 1 Mar 08

Bernanke’s signal for rate cut stokes fears of inflation

Investors worry that stagflation could hit the US but Fed chief rejects the notion

WASHINGTON – UNITED States Federal Reserve chairman Ben Bernanke’s readiness to cut interest rates to avert a recession is stoking concerns that prices will get out of hand.

‘Mr Bernanke has really overweighted the economic risks relative to inflation,’ said Mr John Silvia, chief economist at Wachovia, following the Fed chief’s second and final day of testimony to Congress on Thursday.

‘He may get some disagreement’ among colleagues on the Federal Open Market Committee, Mr Silvia said.

Investors’ expectations for inflation over the next 10 years jumped to the highest since last June after Mr Bernanke said the US central bank will act in a ‘timely manner’ to combat ‘downside risks’ to growth – a signal to investors that the Fed will again cut interest rates.

The hope is that lower interest rates will encourage consumers and businesses to spend more, while the risk is that the weaker US dollar that will result from lower rates will cause prices of goods and services to be adjusted upwards. A falling US dollar has also seen investors put more of their money into commodities, driving up the prices of oil, metals and food.

Fears have grown that the US could come under the grip of stagflation, when stagnant growth is combined with rising inflation, for the first time in decades.

Mr Bernanke rejected the notion.

‘I don’t anticipate stagflation,’ he told lawmakers. ‘I don’t think we’re anywhere near the situation that prevailed in the 1970s.’

Mr Bernanke added that he expects inflation to calm down, in part because of sluggish economic growth and rising unemployment.

For now, he said, the biggest risk is the weakening economy.

Traders now see a 100 per cent chance that the Fed will lower its target rate for overnight loans between banks by at least a halfpoint, to 2.5 per cent at its next meeting on March 18.

Mr Bernanke acknowledged that with oil prices hitting all- time highs and food prices rising, the Fed was ‘in a difficult situation’.

‘While we can’t do much about oil prices or food prices in the short run, we do have to be careful to make sure that those prices do not either feed substantially into other types of prices,’ he said, adding that the Fed must ensure that the public stays ‘confident’ that it will control inflation.

Consumer prices last year surged 4.1 per cent, the most in 17 years, while wholesale prices were up 7.1 per cent, the biggest 12-month increase since 1981.

And consumers are expecting prices to keep on rising. Households’ estimate of price increases one year ahead reached 3.7 per cent last month, the highest since August 2006, according to a poll by the University of Michigan.

Source: BLOOMBERG NEWS, ASSOCIATED PRESS (The Straits Times 1 Mar 08)

CDL able to weather uncertainty for next 3 yrs

It posts full-year profit of $725m; bottom line would be $2.8b if fair value gains included

THE top brass at City Developments Ltd (CDL) yesterday said the property group has ‘the financial muscle to weather the current period of uncertainty even for the next three years’, after announcing a record full-year net profit of $725 million.

The group sold about $6.2 billion of residential projects in 2006 and 2007, which means it has locked in, to a very large extent, handsome profits which have yet to be booked.

These substantial and better-than-expected profits will continue to be recognised progressively based on construction progress.

‘Some will come in 2008, 2009, perhaps also into 2010,’ CDL managing director Kwek Leng Joo said at the group’s results briefing yesterday.

‘Even if the market recovery should take place a little bit later than expected, I think we’ll be OK,’ he added.

In short, the group can afford to delay launches of new residential projects if necessary to ride out the current weak sentiment.

As a major office landlord, CDL will also benefit from the office crunch as many of its key tenant leases are up for renewal between now and 2011 – a period when office supply is expected to be limited.

In the hospitality sector, CDL’s hotel arm Millennium & Copthorne Hotels has a string of hotels with a wide geographical spread – which should act as ‘an insurance against a downturn in any particular geographical area’, CDL executive chairman Kwek Leng Beng said.

The group also has many other attractive assets such as City Square Mall and St Regis Hotel in Singapore which it could potentially sell, boosting its bottom line.

As well, CDL has a healthy balance sheet, with relatively low net gearing of 48 per cent.

CDL posted a 106 per cent jump in group net profit for the year ended Dec 31, to a record $725 million. However, had it adopted the revaluation policy of its peers, its bottom line would have surged to $2.84 billion after factoring in about $2.1 billion of fair value gains on investment properties.

The $2.84 billion net earnings for the year ended Dec 31 would pip the $2.76 billion net profit posted by fellow property giant CapitaLand for the same period.

CDL’s fourth-quarter net profit rose about 71 per cent year-on-year to $235 million, with revenue inching up 3.7 per cent to $765.7 million.

The group has also yet to recognise any profits for One Shenton, The Solitaire, Cliveden at Grange and Wilkie Studio, as these residential projects are still in the initial stage of construction. These projects alone account for $1.7 billion in sales value.

Even if the group defers or paces its launches, it will proceed with the construction of its projects where construction cost had been favourably secured earlier, CDL said.

It may also consider building selected projects when the construction cost stabilises at a reasonable level. It expects that when sentiment improves and the market begins to recover, there will be pent-up demand which the group will be in a position to meet.

The group is planning to launch in the first half of this year some 427 private homes in four Singapore projects – Shelford Suites, a condo on the former Lock Cho Apartments site at Thomson Road, The Quayside Isle @ Sentosa Cove and a condo at Pasir Ris.

In its results statement, CDL also said that it has an investment commitment in the private fund Real Estate Capital Asia Partners, which acquired Jungceylon complex at Phuket’s Patong Beach. This is a 1.5 million sq ft mall which opened for business recently and is next to the Millennium Resort Patong Phuket.

CDL also reckons it has ‘ample time’ to review its strategy for its office portfolio, given improving office rental yields.

Its options include retaining its office properties at a low cost base, monetising the portfolio and/or extracting maximum value by selling its assets wholesale or individually. Another option would be to spin off an office real estate investment trust.

The group has all along been following its conservative policy of stating investment properties at cost less accumulated depreciation and impairment losses. On adoption of Financial Reporting Standard FRS 40, the group continues to state these assets at cost less accumulated depreciation and impairment losses.

Most other Singapore- listed property groups state investment properties at fair value, as permitted by FRS 40.

CDL’s full-year revenue for the year ended Dec 31, 2007, rose 22 per cent to $3.1 billion, also a record for the group.

The group also gave a segmental breakdown of profit before tax, including share of after-tax profit of associates and jointly controlled entities, which showed that pre-tax from property development more than doubled from $225.8 million in 2006 to $506.3 million in 2007.

Pre-tax profit from hotel operations fell from $396.6 million in 2006 to $285.4 million in 2007, mainly because the 2006 figure had included a $150.9 million one-off gain from the sale of long leasehold interests in four Singapore hotels to CDL Hospitality Trusts.

Profit before tax from rental properties more than quadrupled from $30 million in 2006 to $133.6 million in 2007.

CDL is proposing a final dividend of 7.5 cents per share as well as a special final dividend of 12.5 cents per share. Both payouts are tax exempt.

Source: Business Times 29 Feb 08

CDL boss punctures popular wisdom

Mid-market may not shine and high-end is unlikely to collapse, he says

(SINGAPORE) City Developments Ltd (CDL) executive chairman Kwek Leng Beng yesterday turned a popular market view of the Singapore residential sector on its head.

Many have whispered that the high-end residential segment is in danger of being hardest hit by the sub-prime crisis while the mid-tier and mass-market segments will be better shielded. Not true, says Mr Kwek.

‘The high-end is not going to collapse like what some (in the market) are saying. The mid-end is not going to be fantastic, like what is commonly believed, because of the subprime situation and Singaporeans’ wait-and-see attitude.

‘The mass market will do well, but selectively. It’s not going to be what you’ve seen before…people queuing up,’ Mr Kwek said.

The Housing & Development Board also provides a credible alternative to mass-market private housing, Mr Kwek said at a media and analysts’ briefing to announce CDL’s results for the year ended Dec 31, 2007. The group’s full-year net profit doubled to $725 million – a record.

Mr Kwek also acknowledged that the current market environment was not conducive to setting up real estate investment trusts (Reits). He would look into opportunities to buy into existing Reits, but only if they were being offered for sale together with their respective Reit management companies, which earn handsome fees.

On the high-end residential sector, Mr Kwek noted that it is supported not only by wealthy local investors with holding power, but also by well-heeled foreigners. ‘Super-rich investors from Russia, Middle East and even hedge-fund managers have yet to come into Singapore in a big way.

‘With Singapore developing into a global city and placed into the limelight, it can be a very attractive place to invest for these well-heeled clienteles, as seen in London,’ CDL said in its results statement.

The next big wave for the Singapore property market will come when the two integrated resorts are operating successfully. ‘It will be a different Singapore altogether. Singapore is a hub. I’ve been harping on this. Nobody believed me until last year,’ said Mr Kwek.

He also sought to debunk another popular view, that the deferred payment scheme which was removed by the authorities in October last year, had only served to fuel property speculation. ‘Deferred payment is not only an instrument for speculation. It is an instrument to enable buyers of new (residential) units to dispose of their existing units at a gradual pace, instead of being forced to sell their existing homes,’ he said.

Noting that sentiment in the local property market has become subdued because of the sub-prime issue, Mr Kwek said: ‘Sentiment is more important than supply and demand. The higher the prices, the more people buy.’

He also recommended buying real estate as a hedge against inflation, especially given the current low housing loan rate environment, adding in the same breath that he was not trying to talk up the market – drawing laughter from the audience.

But Mr Kwek also had some advice on affordability. ‘You must be able to pay your instalment, that is most important. If you can’t pay the instalment, and you hope (the property value) will go up tomorrow, then you are speculating.’

Referring to the squabbles among owners in estates with en bloc sales, Mr Kwek said: ‘People are fighting, because they are jealous somebody sold higher. Who can say this is the peak? You should be happy if you have a good gain, don’t fight. That’s my advice.’

He estimates that about 50 per cent of those who’ve sold their homes through en bloc sales have not yet bought replacement homes, even if they may want to downgrade.

Source: Business Times 29 Feb 08

HDB will cater to buyers with different income levels: Mah

THE Housing & Development Board (HDB) will continue to provide a range of housing options to cater to buyers of differing income levels and aspirations, Minister for National Development Mah Bow Tan told Parliament yesterday.

He was responding to concerns that the price gain in the HDB market is putting flats out of the reach of many. HDB resale prices rose by about 17 per cent last year. In addition, reports said that buyers forked out up to $727,000 for a five-room flat in a private-developer built, condo-style project offered under the Design, Build and Sell Scheme (DBSS).

The price gain for resale homes should slow this year. Mr Mah said: ‘The HDB resale price index grew by only one per cent in January, and I expect prices to grow at a more moderate pace in 2008.’

The HDB plans to release three more DBSS sites to build up a ‘reasonable stock’ of DBSS flats, Mr Mah said. Together with the four sites already released, the new sites will yield about 4,000 flats.

He said HDB will continue to cater to buyers with different aspirations and means by providing a range of housing options.

However, Mr Mah said that flats built by HDB will continue to be the mainstay of new supply.

‘Similar to executive condominiums, DBSS flats serve a small niche market of buyers that can afford to pay higher prices for public housing with different designs and features,’ he said.

Mr Mah also unveiled details of HDB’s new Lease Buyback Scheme, which aims to help low-income and elderly households.

Under the scheme, which will be implemented next year, the HDB will purchase the tail-end of the flat lease from an elderly household. The occupants will continue to stay in the flat, which will be left with a 30-year lease. On top of the housing equity unlocked, it will provide an additional $10,000 subsidy.

Of the total amount, $5,000 will be given to the household as an upfront lump sum, while the remainder will be used to purchase a CPF Life Plan to provide the owner with a monthly stream of income for life. If the flat is jointly owned by an elderly couple, they will get individual CPF Life Plans.

Source: Business Times 29 Feb 08

Marina Bay to provide 1.1m sq m of office space

It will become a seamless extension of Raffles Place, says Mah

THE upcoming financial district at Marina Bay will be twice the size of London’s Canary Wharf and will provide as much Grade A office space as Hong Kong’s Central.

Revealing more plans for Singapore’s new financial hub, National Development Minister Mah Bow Tan told Parliament yesterday that Marina Bay remains the centrepiece of the government’s efforts to provide more office space.

‘URA (the Urban Redevelopment Authority) will make available more sites for development in this area over the next five to six years, in line with market demand,’ he said. ‘When completed, these new developments will provide more than 1.1 million sqm of office space, to match the total amount of office space at Raffles Place today.’

The area will become a seamless extension of Raffles Place, Mr Mah said. It is expected to take more than 15 years to materialise, depending on market demand.

The existing central business district will not be neglected, he said. URA will release land around the Tanjong Pagar precinct as well as redevelop the Ophir/Rochor corridor into an office cluster.

Mr Mah also touched on plans for Orchard Road, saying that URA plans to work with the private sector to build a pedestrian network with underground links, walkways at street level and second-storey links between buildings.

The Ministry of National Development will set out its land use plans for the next 10-15 years in the next few months in its Master Plan 2008. The plans have been developed with three key objectives in mind – to ensure that Singapore has sufficient land to support economic growth; to reduce commuting by bringing jobs closer to home; and to provide greater greenery and leisure options.

Addressing a now-hot topic, Mr Mah said that sustainable development will continue to be a priority.

To encourage environmentally friendly practices, the government will look at a range of measures including public education, research and development, and possibly legislation, he said.

Source: Business Times 29 Feb 08

Newton area growing as a hub for hybrid offices

NEWTON is shaping up as a centre for hybrid offices, with another company, The Ascott Group, moving to the neighbourhood.

The Urban Redevelopment Authority (URA) also said yesterday that it would release not one, but two, transitional office sites between Scotts Road and Anthony Road for sale.

Ascott, which is officed at the former Temasek Tower, could not say how much space has been decanted in the move but did say that its new offices in Newton will accommodate some 50 to 80 employees, including trainers, trainees and staff who will support the training activities at its Ascott Centre for Excellence there.

A spokesman for Ascott said that it leased the former Anthony Road Girls’ School in mid-2007 on a 3+3+3 year lease from the Singapore Land Authority, and started moving in from the end of last year after refurbishing it.

URA offered its first transitional office site in Newton in August 2007 too. This was sold to Hwa Hong Corporation and KOP Capital for $37 million – $219 per square foot per plot ratio (psf ppr).

While the two new sites now being offered are equally well located, Knight Frank director (research and consultancy) Nicholas Mak believes bidding ‘will be more cautious this time’.

Both parcels are to be sold on short-term leases of 15 years, and Knight Frank estimates the first of the new sites, Parcel A,

which can yield a maximum gross floor area (GFA) of 140,189 sq ft, could see bids of between $14 million and $18.2 million, or a unit land price of $100-$130 psf ppr.

Parcel B, which can yield a maximum GFA of 145,915.4 sq ft, could see bids of between $14.6 million and $19 million, representing the same unit price range of $100-$130 psf ppr.

Mr Mak noted that current monthly gross rents for the Scotts Road area are comparatively low at between $6 and $8 psf.

He also highlighted that the proposed transitional office developments are expected to be completed by the middle of next year – and about 2.6 million sq ft of new office space is expected to be supplied to the market in 2009.

Savills Singapore director of commercial services June Chua believes that there could still be an attractive profit margin for any developer, but adds that the developer, or possibly even contractor, would have to secure a tenant first, so that there is a minimal ‘void period’, during which the landlord has to secure a tenant.

She also said that the target rental would have to be around $7 psf per month.

Source: Business Times 29 Feb 08

Property players sweat over lending squeeze

Banks batten down hatches amid global turmoil and as big deals suck liquidity

(SINGAPORE) The squeeze is on. Banks have tightened financing for property investment deals, which include big transactions like sales of office blocks and development sites. This, in turn, may keep some buyers from participating in the market, industry players have told BT.

It’s also taking longer to wrap up property sales deals these days as securing funding becomes more of an issue – and this could be a drag on investment sales.

Bankers cite two main causes for the tightening. The turmoil in the global financial market has led to increased awareness of risks all round, and several mega transactions in the past 12 months here have left less liquidity available for others.

Says Tan Teck Long, DBS Bank managing director, corporate and investment banking: ‘There are a couple of large deals such as the integrated resorts (IRs) which have soaked up a fair bit of liquidity.’

Yesterday, Las Vegas Sands Corp announced the completion of its $5.25 billion loan syndication for the Marina Bay Sands IR, the largest deal of its kind here.

Brad Nelson, global head of commercial real estate, Standard Chartered Bank, agrees that the big deals had been sucking liquidity out of the market. ‘Banks only have a certain amount of capital base,’ he points out.

Banks’ exposure to property-related loans is capped by law at 35 per cent of their total loans, to keep risks from the industry in check. This does not include mortgages for owner-occupied properties.

Meanwhile, banks have become more cautious and are giving smaller loans relative to a property’s valuation than, say, 12 months ago. This serves to provide them with a greater buffer in the event of a fall in property values given the weaker sentiment in the Singapore property market today.

Jones Lang LaSalle regional director and head of investments Lui Seng Fatt says that about a year ago, banks may have given loans of up to 75 per cent of valuation for income-producing assets like office blocks. Today, the figure may be closer to 60-65 per cent.

Things are even harder for relatively unseasoned, smaller players buying residential development sites. They face greater scrutiny these days before banks give them loans, BT understands.

‘Financing for real estate projects has definitely tightened, especially since last quarter. This is essentially because of tighter liquidity brought about by limited appetite in the capital markets, due to current market developments,’ says Paul Kwee,

Citigroup Singapore corporate bank director and head of real estate.

Lending amounts are more conservative now and covenants tighter, he says.

And despite the decline in Singapore dollar interest rates, the margins that are added to the floating interest rate reference are wider today, observes Mr Kwee. Margins are wider by 50-100 basis points now compared to last year, say bankers. Property sources say that while big established developers can still secure financing for purchases of development sites with relative ease, things are less rosy for smaller players.

Maybank head of business banking Lee Hong Khim acknowledges that his bank hesitates to finance new players whose core business is not in property development.

Mr Lee adds that Maybank is ‘more selective in the projects we finance; the location of the project is an important consideration as well’.

Giving his take, Citi’s Mr Kwee says: ‘Smaller players may find it harder because they have fewer financing options available to them as compared to the big boys who may also be able to tap the convertible bond or Sing-dollar bond market, for instance.’

But Mr Nelson of Stanchart says that ‘when liquidity is tight, lenders will normally take the position of supporting their existing relationships . . . regardless of whether they are SME (small and medium enterprise) or wholesale customers’.

Another outcome of banks becoming more cautious in evaluating loan applications is that it’s taking longer to complete property investment sales deals, says JLL’s Mr Lui.

The investment head of another major property consultancy group feels that the tighter financing environment could change the profile of institutional property buyers. ‘We may see greater participation from core funds, which assume lower risk, lower returns, and lower debt, and less participation from opportunity funds, which assume higher risks, higher returns and higher debt.’

Market watchers point to an extreme recent example, when UK-based New Star International Property Fund made a pure-cash (zero debt) acquisition of One Phillip Street, an office block in the Raffles Place area, for $99.02 million.

Funds that need to assume higher leverage to achieve their investment returns may find it difficult to buy property assets in Singapore – and their numbers may dwindle.

Source: Business Times 29 Feb 08

Greenback sinks further, nears new low against euro

LOS ANGELES – IN THE Federal Reserve’s battle to keep the United States economy from a severe downturn, the beleaguered US dollar is getting walloped anew.

That is going to worsen the sticker shock for Americans headed overseas or buying some of their favourite imported goods.

But it also will underpin the current boom in US exports, which has helped offset some of the economic pain of the housing bust – at the expense of Asian and European exporters.

The dollar hovered near a record low against the euro at US$1.511 in Tokyo trading yesterday, just off a record of US$1.5144 struck on Wednesday.

Six years ago, one euro could fetch less than 87 US cents.

The dollar also fell to its lowest level in years against the Singapore dollar, Australian dollar, Swiss franc, Brazilian real, Russian rouble and a number of other currencies.

The latest plunge in the greenback’s value followed Fed chairman Ben Bernanke’s testimony on Capitol Hill on Wednesday, where he described the economy as ‘distinctly less favourable’.

He also made it clear that the US central bank was more worried about risks to growth than inflation.

He all but assured Congress that the central bank would continue to cut short- term interest rates.

To currency traders worldwide, that was a signal to dump the dollar again, deepening what has been a losing trend for the greenback since 2001.

Generally, the weaker a country’s economy is and the lower its interest rates, the weaker its currency gets as some global investors opt to take their money elsewhere – in the process selling one currency to buy another.

Wall Street is now convinced that the Fed will slash its benchmark rate by 50 basis points to 2.5 per cent from 3 per cent – a bigger cut than previously expected – when the central bank’s policymakers meet on March 18.

By contrast, the European Central Bank has held its key rate at 4 per cent since last June and shows no sign of wanting to join the Fed in easing credit. Higher European rates support the euro’s value at the dollar’s expense.

Source: LOS ANGELES TIMES (The Straits Times 29 Feb 08)

CDL boss prepared to delay launches in subdued market

Some projects can be held off till 2009, he says, as full-year gain swells to $725m

THE property market may have stalled for now, but City Developments (CDL) executive chairman Kwek Leng Beng is not too worried.

He said that if necessary, he can hold off launches of new developments until next year.

‘Rather than launch today when the market is subdued, I would rather start construction on some projects first’ and launch them when demand picks up, Mr Kwek said yesterday.

‘If today there are not many buyers, this means that pent-up demand is building up, which can be very powerful.’

CDL plans to launch more than 400 units in four projects by June, assuming market conditions do not worsen.

It will release the 77 units at Shelford Suites in Bukit Timah, which is said to have been ready for launch for some time.

The group also intends to launch 100 units of the 228-unit Quayside Isle @ Sentosa Cove, and another 100 at a new development on the former Lock Cho Apartments in Thomson Road, which will have 336 units.

The fourth project is a joint venture at Pasir Ris Drive 1. About 150 of its 724 units are targeted for release by June.

Even if the launches end up delayed, CDL may first start construction on Shelford Suites and the Thomson Road project, said Mr Kwek.

This could also bring in more upfront cash for the group when it does sell the homes. Buyers have to pay 30 per cent in cash after foundation work is done, compared with only 20 per cent if no construction has started.

Mr Kwek’s comments yesterday came on the back of a sterling year for CDL last year.

The developer, Singapore’s second-largest, said full-year net profit more than doubled to a record $725 million. Revenue rose 22 per cent to $3.11 billion.

Earnings per share more than doubled to 78.3 cents for the year. Net asset value per share rose to $5.72 as at Dec 31, from $5.21 a year ago.

Last year, CDL booked profits from projects such as St Regis Residences, Tribeca and The Sail @ Marina Bay.

But it has yet to recognise any profits from One Shenton, The Solitaire, Cliveden at Grange and Wilkie Studio – which account for about $1.7 billion of sales. In all, the group sold 1,655 homes last year for a record $3.4 billion.

CDL’s hotel and office properties are also enjoying high occupancy rates in the buoyant market. Its offices are almost 96 per cent occupied, compared with a market average of 92 per cent.

The group has also not adopted the same approach to revaluing its properties as some of its competitors, which have reported huge revaluation gains. With these gains, its profit would have surged to $2.8 billion, it said.

The group is recommending a final cash dividend, tax-exempt, of 20 cents a share in total.

Source: The Straits Times 29 Feb 08

HDB unveils ‘income for life’ scheme for the elderly

It will buy back tail-end of flat lease at market rate, with money going to CPF Life

FOR 68-year-old retiree Teng Kiat Hwa, who owns a three-room HDB flat in Toa Payoh, his home is his only asset.

Since he fell ill and stopped driving a taxi, he has had no income and his CPF money has been dried up by medical bills.

But come next year, Mr Teng will be able to sell part of his flat’s remaining lease to HDB, and receive a cash payment of $5,000 and an annuity payout of about $500 monthly from CPF Life.

Details of the long-awaited ‘Lease Buyback Scheme’, which helps the elderly sell their HDB flats to the Government for cash – while still being able to stay in them – were unveiled yesterday by National Development Minister Mah Bow Tan.

This is how it works: HDB will buy back the tail-end of a flat lease at market valuation, leaving a 30-year lease for the household. So, for example, if a flat has a remaining lease of 70 years, HDB buys 40 years of the lease from the flat owner. It pays market rate for the lease it buys and this money goes to the new CPF Life annuity in the flat owner’s name.

According to Mr Mah, the cash is enough to give a typical flat owner about $500 monthly for life. At the end of 30 years, the flat’s ownership is then transferred to HDB.

If the flat owner dies before the 30 years is up, his family gets a pro-rated refund from the HDB. If he outlives the 30-year lease, HDB may extend the lease or relocate the flat owner to rental housing.

To encourage people to opt for the scheme, HDB is also providing a $10,000 ‘bonus’ for anyone eligible for the scheme who signs up.

Half of this – $5,000 – will be paid immediately in cash. The other $5,000 goes into the CPF Life annuity.

One catch: the scheme will be available only to 25,000 low-income households in Singapore. That’s because the eligibility criteria restricts the scheme to those aged 62 and above and who own two- or three-room HDB flats.

Among other things, they must also have fully paid up for their flats, or else have a loan amount outstanding of less than $5,000.

Mr Mah said in Parliament yesterday that this is consistent with the objectives of the scheme, which was first announced by Prime Minister Lee Hsien Loong at last year’s National Day Rally.

He said the scheme is meant to supplement the recently announced CPF Life annuity by providing a stream of retirement income for poor households who may not have the minimum sum needed to sign up for CPF Life, but still need steady income in old age.

He added that the 25,000 households that qualify for the scheme represent about 70 per cent of elderly households in two- and threeroom flats.

Asked for his reaction, Mr Teng said in Mandarin that it was ‘an interesting option’.

‘But we must consider it thoroughly before taking it up. My wife and I wanted to leave this flat to our kids,’ he added.

Meanwhile, industry players yesterday welcomed the scheme, but expressed concern that the criteria were too strict.

This was also brought up in Parliament by Madam Ho Geok Choo (West Coast GRC), who asked if owners of larger HDB flat can qualify for the scheme.

Mr Mah replied that this can be examined after the scheme was implemented and feedback given.

Mr Eugene Lim, the assistant vice-president of ERA Realty Network said renting out the flat may give better yield or payouts than the annuity.

Source: The Straits Times 29 Feb 08

URA launches 2 more temp office sites in Newton

Analysts see good demand just like for a nearby plot launched earlier

TWO more transitional office sites have been launched by the Urban Redevelopment Authority (URA) in a move to help ease some of the pressure on space.

The adjacent sites – parcel A is 8,682.8 sq m in size and parcel B is 9,037.9 sq m – are near the Newton MRT station, between Scotts Road and Anthony Road.

The sites can accommodate developments of up to four storeys that can be built within a year.

Transitional office sites, a relatively new concept, were introduced as a quick fix to the lack of space in the Central Business District (CBD).

They have 15-year leases, significantly less than the usual 99-year leases for commercial buildings.

The response has been mixed. A plot launched by the URA in Aljunied recently flopped, with all bids rejected as being too low.

The URA believes the Newton sites will fare better.

‘Based on market feedback, there is still demand for transitional office sites in the city centre,’ it said.

Property experts also expect a more enthusiastic response.

Mr Nicholas Mak, Knight Frank’s head of research and consultancy, said the prime location near the CBD and Newton MRT would draw bidders.

And the sites being adjacent means a developer could combine the land.

‘There is a potential for amalgamation to create bigger floor space,’ added Mr Mak, who estimated that the sites could sell for around $100 to $130 per sq ft (psf).

This values the parcels from $14 million to $19 million each.

Mr Mak felt the Aljunied site was ‘too close to the red-light district of Geylang’.

For the two latest plots, the industry experts interviewed expect a level of response similar to the Scotts Spazio site, which is across the road and was eagerly received by developers.

KOP Capital is developing the site, which cost $37 million, with partners Hwa Hong Group and Dubai Investment Group.

Insurer Prudential will lease the four-storey building for 14 years, paying $6.50 psf a month. The company should move in by September.

However, some experts believe that transitional office sites will not be commercially viable given their brief tenure. Tenders for the two Newton sites close on April 24 for parcel A and April 30 for parcel B.

Source: The Straits Times 29 Feb 08

HK Reits get a new lease of life

Major acquisition, hotel trust listing may help revive investor interest

(HONG KONG) Hong Kong’s neglected real estate investment trust (Reit) market is stirring to life and may finally do what it’s supposed to – give investors stability, a decent yield and, possibly, clear prospects for growth.

A high-profile acquisition by office landlord Champion Reit, and the imminent listing of a hotel Reit by developer Far East Consortium, may help revive investor interest.

The reputation of Hong Kong’s Reits has been sullied by investor perceptions that they were used by wily developers to offload second-rate assets at inflated prices, and marred by the byzantine financial engineering that accompanied their deals.

As new Reit markets emerged across Asia, with investors enjoying fat dividends from rental income and capital gains from rising property prices, Hong Kong Reits were given the cold shoulder.

‘It seems like a lot of Reits are like a second concubine – it’s whatever leftover product you have,’ said Far East Consortium chief executive David Chiu.

‘But we’re saying to the market that we’re putting all the hotels we have in,’ he said about the group’s latest offering, a listing of its hotel Reit. ‘You either like it or not, but it’s all of them.’

After a year’s lull in new Reit listings, Far East has lined up an initial public offering (IPO), packaging all seven of its hotels in the city into the Hong Kong Hotel Trust, and moving away from complex financial engineering.

Earlier this month, Champion Reit said it would dismantle the complicated financial structure linked with its IPO, and also bought a 56-storey block in Hong Kong’s Kowloon district.

Hong Kong’s biggest developer, Sun Hung Kai Properties, is also considering resurrecting a planned office trust, while Swire Pacific wants to spin off its Festival Walk shop and office complex, bankers say.

Hong Kong’s Reit market made an explosive start in late 2005 when investors flocked to a US$2.4 billion IPO by Link Reit, drawn by pledges to revamp and squeeze more profit from 151 government-owned malls.

But the city’s six other Reits, including two with mainland Chinese assets, have fared worse on the secondary market, with their yields pushed up to between 8 and 10 per cent now from 5 to 6 per cent at their IPOs.

However, their share prices stabilised despite turbulent markets in the last six months, while Japanese and Singapore trusts slumped, and they now offer big and steady spreads over the 3.1 per cent yield given by 10-year bonds.

Comparable spreads for Reits in Japan and Singapore are much lower, at around 3.5 percentage points.

But high yields and cost of capital mean Hong Kong Reits often struggle to find acquisitions that are ‘yield accretive’ – or lift investor returns.

However, by using loans, a convertible bond issue, and new equity raising, Champion’s Reit has managed to buy Langham Place from the Reit’s sponsor, Great Eagle (Holdings), for US$1.6 billion.

The deal is getting a belated thumbs-up from analysts after initial suspicions the trust was paying too much.

‘Don’t overreact, this is a positive deal,’ wrote BNP Paribas analyst Andy So, when Champion’s share price slumped 5 per cent a day after the deal was announced.

He said the purchase would lift distribution per unit, despite dilution from the share sale, and praised the unwinding of financial engineering that had been unpopular with investors.

The trust had employed interest rate swaps and a dividend waiver by Great Eagle, that artificially lifted yields at the time of the IPO.

It now wants to unwind and simplify that structure.

With Champion embarking on a global roadshow to raise equity for the deal, a banker who worked on the transaction predicted it would herald a new beginning for Hong Kong Reits.

Source: Reuters (Business Times 28 Feb 08)

Keppel Land unveils Viet project plans

KEPPEL Land, one of the largest property developers in Vietnam, on Tuesday presented the concept plans for its Saigon Centre in Ho Chi Minh City to a group of delegates led by Singapore President SR Nathan and Vietnam Deputy Prime Minister Hoang Trung Hai.

Located in the central business district of Ho Chi Minh City, Saigon Centre is a mixed-use development on a two-hectare site fronting Le Loi Boulevard, the city’s main thoroughfare.

Phase One, completed in 1996, is a 25-storey building that includes a three-storey retail podium and 89 units of service apartments. KepLand said that it and local partners Sowatco and Resco would develop an iconic landmark integrating subsequent phases of Saigon Centre.

Source: Business Times 28 Feb 08

Malaysian economy grows 6.3% in 2007

Strong domestic demand boosted fourth-quarter growth to 7.3%

THE Malaysian economy expanded 6.3 per cent in 2007, with strong domestic demand propelling fourth-quarter growth to 7.3 per cent.

According to figures released by the central bank yesterday, growth was broad-based in all economic sectors. The services sector continued to be a key driver, expanding 9.1 per cent in Q4. Manufacturing’s 5.6 per cent pace was supported by an improvement in export-oriented industries including the electrical and electronic sector, particularly computers and parts. The construction sector, closely watched because of its huge multiplier effect, registered 4.7 per cent expansion.

The agriculture and mining sectors also turned in robust performances, underpinned by bullish commodity prices. Output rose 6.9 per cent and 7.2 per cent respectively.

Ahead of a general election on March 8, analysts expected the figures to be used by the incumbent National Front coalition to argue why voters should stick with it.

In its election manifesto this week, the Front released a slew of figures on its management of the economy since Prime Minister Abdullah Badawi won a landslide victory in 2004 – though he is expected to come up against much tougher opposition this time.

CIMB Research economist Lee Heng Guie stuck by his gross domestic product (GDP) forecast for the current year of 5.8 per cent, which he said will be led by domestic demand driven by strong private consumption spending.

Domestic demand in Q4 was an impressive 9.8 per cent but softer than 12.6 per cent in Q3.

Gross exports expanded a sharp 7.5 per cent in Q4 compared with less than one per cent in Q3, mainly due to higher commodity exports and a turnaround in manufacturing exports. The latter grew almost 3 per cent – a reversal of a 2 per cent contraction in Q3.

Given the ‘intensification of the global slowdown’, CIMB’s Mr Lee said that it remains to be seen whether the pick-up in exports can be sustained. ‘It’s too early to confirm export recovery,’ he said, adding that the local economy could be vulnerable in a prolonged US slowdown or recession. Inflation was a mere 2.2 per cent in Q4 – mainly because fuel, gas to generate power, and many basic food supplies are heavily subsidised. Once the general election is over, it is expected that subsidies – particularly for fuel and gas – will be slashed.

‘Invariably, higher inflation will constrain consumer spending, but there would be off-setting gains in improved incomes because of stronger commodity prices,’ Mr Lee said. The Employees Provident Fund (EPF) withdrawal scheme for mortgage payments,

which attracted 14,600 applications amounting to RM220 million (S$96.2 million) as at mid-February, will also help, be believed.

Still, he pointed out that the middle-class would be far less cushioned in an inflationary squeeze.

Source: Business Times 28 Feb 08

Orders for big-ticket US-made goods plunge 5.3% in Jan

(WASHINGTON) Signs of sluggish growth continue to beset the US economy with orders to US factories for big-ticket manufactured goods plunging in January by the largest amount in five months, even as Federal Reserve chairman Ben Bernanke sent a fresh signal that the central bank will again lower interest rates.

The Commerce Department reported yesterday that new orders dropped by 5.3 per cent last month, reflecting declines across a wide swath of industry from commercial aircraft and cars to heavy machinery and computers as manufacturers got caught in the weakness engulfing the rest of the economy.

The worse-than-expected decline was the latest in a string of reports indicating that the economy, battered by a prolonged slump in housing, a serious credit squeeze and soaring energy prices, is in danger of toppling into a recession.

‘The economic situation has become distinctly less favourable’ since the summer, the Fed chief told the House Financial Services Committee in his semiannual economic report to Congress.

Since Mr Bernanke’s last such assessment last summer, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Mr Bernanke said that the confluence of these factors has turned people and businesses alike to adopt a more cautious attitude towards spending and investment. This, he said, has further weakened the economy.

Incoming barometers continue to ’suggest sluggish economic activity in the near term’, Mr Bernanke told the House Financial Services Committee. At the same time, he added, the Fed must keep a close eye on inflation given the recent runup in energy and other prices paid by consumers and businesses.

For now, though, the No. 1 battle is shoring up the economy.

Mr Bernanke pledged anew to slice a key interest rate to help the wobbly economy, which many fear is on the verge of a recession – or possibly has already toppled into one.

The Fed ‘will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks’, Mr Bernanke said, hewing closely to assurances he offered earlier this month A growing number of analysts believe the economy will slip into a recession this quarter although they expect the downturn to be short and mild, thanks to aggressive interest rate cuts from the Federal Reserve and a US$168 billion economic stimulus package passed by Congress earlier this month.

Source: AP, AFP, Reuters (Business Times 28 Feb 08)

Room for growth in M’sian market: govt

(KUALA LUMPUR) Prospects remain good for the country’s property market with room for further growth, the directorgeneral of the Finance Ministry’s Valuation and Property Services Department, Abdullah Thalith Md Thani, said yesterday.

The market is, however, currently in a cautious mode in view of rising crude oil prices and the slowing down of the US economy, he said in a presentation at the Malaysian Property Summit here.

Mr Abdullah said higher prices would result in people concentrating on more important needs like food and transportation, with an impact on demand in the property market.

He called on developers to keep abreast with changes that influence market performance in order to avoid a mismatch between supply and demand.

He also said that the residential property sector has received a boost from the government’s move to allow Employees Provident Fund (EPF) contributors to make monthly withdrawals for the financing of their houses.

Source: Bernama (Business Times 28 Feb 08)

Two more hotel sites put up for tender

TWO more hotel sites have been put on the market – a 99-year leasehold plot in Race Course Road, offered by the Urban Redevelopment Authority, and a freehold plot in Bencoolen Street now occupied by Peony Mansion.

Peony Mansion’s owners want $50 million, which works out to about $850 per square foot of potential gross floor area including an estimated $2.65 million payable to the state for two smallish plots – one is a road ingress and the other houses an electrical substation – behind Peony Mansion.

The two plots total 2,760 square feet, while Peony Mansion runs to 11,964 sq ft. Peony Mansion comprises 33 apartments and two shop units.

Approval for a collective sale has been secured from owners controlling at least 80 per cent of share values – under the old en bloc rules.

Under Master Plan 2003, Peony Mansion is zoned for hotel use with a 4.2 plot ratio – the ratio of maximum potential gross floor area to land area.

Peony Mansion and the adjoining state sites can be redeveloped into a boutique hotel with about 200 rooms, assuming there are no food and beverage outlets. Peony Mansion will be marketed through a tender that closes on April 4.

Over in the Little India area, URA has launched the tender for a 0.9 hectare plot above Little India MRT station.

Jones Lang LaSalle regional director and head of investments Lui Seng Fatt says that assuming the plot is developed into a hotel of up to four-star standard and with about 500 rooms, the completed property would be worth about $600,000 a room or a total of $300 million.

Assuming construction costs of about $500 psf of gross floor area, the site’s land value works out to about $135 million or $400 psf per plot ratio (psf ppr).

However, CB Richard Ellis executive director Li Hiaw Ho reckons that top bids for the site will come in higher – around $600-700 psf ppr – given the plot’s location above an MRT station.

‘The plot can be developed into a four-star property. Bidders are also likely to include some retail/food & beverage facilities.’

The plot has a 3.5 plot ratio, resulting in a maximum gross floor area of 338,417 sq ft.

The tender for the confirmed list site closes on May 21.

Source: Business Times 28 Feb 08

Govt uses ‘realistic’ assumptions instead of ‘optimistic’ ones

GST introduced while revenue position was still strong: Tharman

IN explaining the background to the way the government has turned out to have gathered far more money than was predicted in last year’s Budget, Finance Minister Tharman Shanmugaratnam told Parliament yesterday that the basic approach is to use the best information available at the time, with ‘realistic’ assumptions rather than ‘optimistic’ ones.

At the time of the Budget last year, the finance ministry estimated 2006 stamp duties to be $1.5 billion and hence projected the same level for 2007, Mr Tharman said.

‘This was because 2006 was itself already an exceptional year,’ he said. ‘In fact the subsequent data for FY2006 based on actual collections for January and March – the data comes out later, after our Budget – showed a significant increase in stamp duties and took total stamp duty collections to $2 billion, not $1.5 billion which we estimated at the time of the Budget.’

Eventually, the property market accounted for more than $3.5 billion in extra revenues, lifting the budget surplus for FY2007 to $6.4 billion.

Although policymakers had assumed further price increases in the property market then, they did not expect the surge in the volume of transactions.

There was also uncertainty on whether the buoyancy in luxury projects would filter through to the rest of the property market.

Mr Tharman assured the House that soft targets were not set just so they could be exceeded.

In the past 10 years, there had been six instances of over-projection in the Budget positions.

But he conceded that accurate forecasting will remain difficult, ‘especially because we are a city economy that is fully exposed to the swings in global markets and to the vagaries of our own asset markets’.

He added: ‘We cannot expect too much prescience in the budget planning process.’

On the timing of last year’s GST increase, Mr Tharman explained it was necessary to introduce it while the revenue position was still strong, so that the government would be able to fully offset the impact on cost of living for most Singaporeans.

In fact, the $1.4 billion collected from the increase in GST was equal to the GST offset package and the Workfare Income Scheme paid out.

Data collected showed that the bottom 60 per cent of Singaporeans actually received more in offsets than the additional tax paid.

Mr Tharman also rebutted the argument that the government’s ‘grow at all costs’ policy had led to rising business costs and to lower-income Singaporeans being worse off.

‘It is precisely the rapid growth that we have seen in the last few years that has turned things around for our low income households and allowed them to enjoy positive growth in real incomes after the very difficult period they went through earlier in this decade,’ he said.

He stressed that the way to assure long-term growth for Singapore is to take advantage of opportunities when external conditions are favourable.

Small businesses, for instance, have been better off because Singapore has grown well in the last few years.

Even those that are heavily reliant on the domestic market have seen their businesses pick up because of the strong growth of Singaporeans’ incomes.

‘Costs are higher, but so are overall volumes and demand for their goods and services,’ Mr Tharman said.

He went on to say that the government is studying the individual learning account scheme as a tool to encourage participation in adult learning.

In the meantime, there are already incentives and subsidies of up to 80 per cent of fees to drive re-training of workers.

Although this year’s Budget is seen to provide for more significant benefits for households than businesses, Mr Tharman urged for it be seen as a balance between short-term relief measures for rising costs and long-term initiatives to build up capabilities.

While global uncertainties exist, the economy is not in a crisis, unemployment is at a record low, and the Singapore economy is expected to grow 4-6 per cent this year.

Source: Business Times 28 Feb 08

Ho Bee Q4 net falls 24%

HO Bee Investment, the biggest developer on Sentosa Cove, has posted a 24.2 per cent year-on-year drop in net earnings.

For the fourth quarter ended Dec 31 it made $38.8 million, a reduction attributed to lower property development revenue and profit.

The comparable period Q4 2006 saw the group’s top and bottom lines helped by the physical completion of The Berth condo.

Ho Bee did manage to achieve a record full-year net profit of $272.2 million, up 176.1 per cent from 2006, due to a sharp rise in revenue from property development, mostly from progressive recognition of revenue from the group’s projects on Sentosa Cove.

Also boosting the full-year bottom line was an $83.3 million gain in fair value of investment properties, mainly from office space that Ho Bee owns at Samsung Hub and Suntec City, and the group’s industrial properties.

Ho Bee acknowledged that demand for high-end residential property has dropped as foreign and local investors have become more cautious.

However, for Ho Bee, the substantial progressive recognition of income from the sale of residential projects and the expected launch of new residential projects will be a significant contributor to the group’s revenue and earnings for the current year ending December 2008 as well as the next two years.

Ho Bee is likely to launch this year the 150-unit Trilights on the Elmira Heights site at Newton Road, the 348-unit Dakota Residence (a joint development with ChoiceHomes Investments) and the 151-unit Seascape on the Seaview Collection plot at Sentosa Cove.

Ho Bee is also expected to launch a 72-unit condo, The Orange Grove, this year.

The group may also release a 184-unit condo on the Holland Hill Mansions site in the second half of this year in a joint venture with MCL Land.

The group’s joint-venture condo on the Pinnacle Collection parcel at Sentosa Cove could be launched in the first six months of next year.

Ho Bee shareholders will receive a two-cent per share (one-tier) final dividend.

Revenue for Q4 eased 63 per cent to $60.7 million while full-year revenue rose 51.7 per cent to $596.1 million. Most of the increase came from a 51 per cent jump in revenue from property development.

The improved showing was chiefly due to the progressive recognition of revenue from Ho Bee’s three Sentosa Cove projects, the Coral Island development, The Coast and Paradise Island, as well as Orange Grove Residences, Montview at Mount Sinai Road and Quinterra at Holland Road.

Ho Bee has yet to book revenue for Turquoise condo at Sentosa Cove as construction has yet to begin.

Source:  Business Times 28 Feb 08

CapitaLand plans US$300m Vietnam fund

It has also formed a partnership with a Vietnamese investment company

CAPITALAND, South-east Asia’s largest property developer, plans to set up a US$300 million property fund in Vietnam.

The company also said yesterday it has forged a partnership with Vietnamese firm Nam Thang Long Investment Joint-Stock Company to seek investment opportunities in Vietnam.

With the new business initiatives, the developer aims to strengthen its presence in Vietnam, which it has identified as one of its key Asian markets.

The news sent CapitaLand’s shares up as much as 27 cents – or 4.2 per cent – yesterday. The stock closed the day 16 cents up at $6.56.

In its filing to the Singapore Exchange, CapitaLand said it will leverage on its real estate and fund management capabilities to set up its first property fund to invest in Vietnam. It intends to take a 30 per cent stake in the fund, which has a target size of US$300 million.

To secure other investors in the fund, CapitaLand has signed a memorandum of understanding with Citi Private Bank, one of the world’s largest wealth managers which serves high net worth individuals with more than US$10 million in net worth each.

The partnership with Nam Thang Long Investment Joint-Stock Company, on the other hand, will allow CapitaLand to seek further business opportunities in Vietnam with a real estate focus. The two companies hope to develop residential properties and commercial and residential mixed developments together.

CapitaLand already has a significant presence in Vietnam, mainly in the residential and service residences sectors in Hanoi and Ho Chi Minh City.

‘Our aim is to deepen CapitaLand’s presence in Vietnam to become a significant long term real estate player here,’ said CapitaLand chief executive Liew Mun Leong.

‘We’re confident of doubling our residential pipeline in Vietnam from the present 2,800 homes to about 6,000 in the next three years and we’re also looking for opportunities in the office, retail, and integrated leisure, entertainment and conventions sectors.’

Source: Business Times 28 Feb 08

SC Global posts 67% rise in FY07 profit to $28.3m

SC GLOBAL has reported a profit after tax and minority interests of $28.3 million for FY2007 – an increase of 67 per cent from 2006.

In a statement yesterday, it attributed its performance to sales of residential units at The Ladyhill, The Lincoln Modern, The Boulevard Residences and The Tomlinson.

Higher contribution from its Australian associate AV Jennings and a write-back of provision for diminution in value of development property also contributed.

SC Global has proposed a final dividend of two cents a share, after a special interim dividend of 3.5 cents a share paid during the year.

FY2007 turnover fell 32 per cent to $129.2 million, from $190.8 million in FY2006.

In particular, sales in the second half of 2007 fell 61 per cent to $41.2 million.

SC Global said this was mainly due to the timing of revenue recognition. It added that it also had a low number of completed units for sale.

It said its first development project in China made its maiden contribution to the group’s revenue.

While gross profit fell 16 per cent to $45.2 million for the year, gross margin was higher at 35 per cent compared to 28 per cent the previous year, as higher prices were achieved.

SC Global said the launch of its new residential project at Martin Road can be expected in Q2/Q3 this year.

In China it is also expected to launch the next phase of units at Kairong International Gardens in Q2/Q3 this year.

It added that it has secured a land bank of more than 1.1 million sq ft in Orchard Road and on Sentosa.

Source: Business Times 28 Feb 08

Foreclosure rate of US homes up by 57%

Situation worsens despite efforts to help borrowers manage payments

LOS ANGELES – THE number of United States homes facing foreclosure jumped 57 per cent last month compared to a year ago, with lenders increasingly forced to take possession of homes they could not unload at auctions, a mortgage research company said.

Across the US, 233,001 homes received at least one notice from lenders last month related to overdue payments, compared with 148,425 a year earlier, RealtyTrac said on Monday.

Nearly half of the total involved first-time default notices.

The worsening situation came despite ongoing efforts by lenders to help borrowers manage their payments by modifying loan terms, working out long-term repayment plans and other actions.

‘You have more people going into default and a higher percentage of the properties going back to the banks,’ said Mr Rick Sharga, RealtyTrac’s vice-president for marketing.

The US foreclosure rate last month was one filing for every 534 homes. The tally represented an 8 per cent hike from December.

Lenders typically consider borrowers delinquent after they fall three months behind on mortgage payments.

Attempts to help struggling home owners have fallen short.

‘The loan workout modification programmes aren’t having a significant material effect on keeping properties from going back to the banks,’ Mr Sharga said.

One dramatic trend last month was a 90 per cent spike in the number of properties that were repossessed by banks, compared to January last year.

‘It suggests that there’s little or no equity in a lot of these homes, because they are not even being sold to investors at auctions, and it suggests a continuing weakness in a lot of markets in terms of real estate sales,’ Mr Sharga said.

Falling home values and tighter lending standards have extended the housing slump, making it tougher for home owners unable to sell their homes or refinance when they face mortgage payments they cannot afford.

A wave of adjustable rate mortgage resets expected in May and June threatens to push many other home owners into default.

During the past year, 30 states saw an increase in the number of homes that had received at least one filing.

ASSOCIATED PRESS (Source: The Straits Times 27 Feb 08)

HDB launches 494-unit Punggol project

Four-room flats in BTO project meant to meet high demand; 278 applications so far

THE Housing Board has released another new build-to-order (BTO) project in Punggol to meet surging demand from house hunters.

It is offering 494 flats, all four-room units, at Punggol Spring – the first batch of 4,500 BTO flats planned for the first half of this year.

Already, 278 applications have come in for the flats, following their launch yesterday. They are priced at between $204,000 and $259,000 – about two-thirds the current price of resale flats in Punggol.

Industry players expect demand to continue to be strong, given the overwhelming response to recent HDB flat releases. Earlier this month, almost 10,000 hopeful buyers applied for just 278 surplus flats in Toa Payoh and Tampines.

By the time the BTO exercise for Punggol Spring closes on March 17, the flats could be four times oversubscribed, predicted Mr Mohamed Ismail, chief executive of property agency PropNex.

To address the shortage of flats – estimates show only 2,000 surplus units in stock – the HDB has recommended that would-be buyers consider resale flats and BTO projects.

It will release another 4,000 BTO flats between now and June, mainly in Punggol and Sengkang. The HDB also said it still has 711 flats available from recent BTO launches in Punggol and Sengkang, including more than 200 each in Punggol Vista, Fernvale Vista and Coral Spring.

But the HDB’s last four BTO projects have all seen at least twice the number of applicants than flats available.

The most recent were Damai Grove in Punggol and Jade Spring @ Yishun, which were released late last year. There were 1,888 applications for the 738 flats in Damai Grove and 1,908 applications for Jade Spring’s 384 flats.

PropNex’s Mr Ismail said that for many first-time buyers with relatively low income, BTO flats have become their only housing option as home prices soar.

But Mr Eugene Lim, the assistant vice-president of ERA Realty Network, pointed out that more BTO projects will not address the immediate housing shortage, as they take a few years to be constructed.

‘BTO is a longer-term solution,’ he said. ‘The segment of buyers that go through BTO may not be the same as the 10,000 applicants looking for leftover flats that are available sooner.’

Punggol Spring is expected to be completed by 2011. It is located within walking distance of the Damai LRT station, next to Punggol Secondary School and near the future town centre where the MRT station and bus interchange are located.

Source: The Straits Times 27 Feb 08

6.6% – Housing, transport, food prices fuel Jan inflation

INFLATION accelerated last month to a 26-year high of 6.6 per cent with housing, food and transport costs registering steep increases over the past year.

The January figure picks up pace from December’s 4.4 per cent jump – itself the biggest rise since April 1982 – as external and local factors added further upward momentum to consumer prices.

The big surge was largely anticipated by economists, who said inflation rates in the coming months are unlikely to rise much more from the current levels.

Still, the spike seems to have prompted an unprecedented move by the Ministry of Trade and Industry (MTI), which issued a statement on the inflation data as it was published yesterday by the Department of Statistics.

Seemingly looking to quell fears of spiralling living costs, the MTI said that while the jump in consumer prices last month was high,

this was consistent with the official full-year inflation forecast of 4.5 to 5.5 per cent.

It said the spike was bumped up by several one-off factors, adding that price pressures should subside later in the year.

The surge in last month’s consumer price index (CPI) was driven largely by an 11.1 per cent jump in housing costs.

Much of this came from the Government’s one-off revision of the annual values of public flats. The annual value is the theoretical rental income that a house could fetch in a year.

‘As has been explained in Parliament, this does not actually affect expenditures of most Singaporeans, who own the homes they live in,’ said the MTI statement.

The ministry also pointed out that price levels were especially low in January last year, due in part to service and conservancy rebates given out that month. Such rebates were not given last month as they were already doled out in December.

Less theoretical were the hikes in food and transport costs, the two biggest components of the CPI.

Driven by global prices, costs of raw food such as dairy products, cooking oil and meat surged, which in turn made dining out more expensive, said the Department of Statistics in its monthly statement.

High oil prices made driving more costly, while car prices and taxi fares rose, it added.

Some of the increase would have been the result of last July’s goods and services tax hike, which continues to inflate year-on-year CPI figures even though it is no longer raising price levels from one month to the next.

The MTI said looking at price rises between consecutive months would indicate inflation momentum better. Taking three-month averages to smooth out monthly volatility, it said inflation momentum picked up last July but has stayed constant since then.

Still, if headline inflation figures, which use year- on-year comparisons, remain high, inflation expectations may rise, warned Citigroup economist Kit Wei Zheng. This may prompt workers to demand higher wages to compensate for rising living costs.

Experts also said the CPI probably underestimates the pace at which living costs for foreign workers are rising, and hence the rate at which Singapore’s edge in the global competition for international talent is being eroded.

CIMB-GK economist Song Seng Wun noted that expatriates are likely to face much higher hikes in private home rentals and international school fees than what the CPI indicates.

Source: The Straits Times 26 Feb 08

Stimulus will leave US even more vulnerable, experts warn

Stimulus will leave US even more vulnerable, experts warn

WASHINGTON – EVEN if Federal Reserve chairman Ben Bernanke, United States President George W. Bush and the US Congress win the battle to avert a recession in the US this year, they risk losing the war to strengthen the economy for the long term.

US economic growth will get a boost in the second half of this year, as consumers spend some of the US$107 billion (S$150.6 billion) in tax rebates passed by Congress and signed by Mr Bush this month.

The US may suffer a letdown afterward, as the kick from the stimulus wears off, leaving the economy vulnerable to its underlying weaknesses: a retrenching financial industry, indebted consumers and slowing productivity growth.

‘This is not a one- or two-quarter phenomenon,’ says economist Neal Soss of Credit Suisse. ‘This is not a V-shaped event. It’s a slowgrowth scenario.’

Fed officials see growth picking up to more than 2 per cent next year, as inflation ebbs to 2 per cent or below.

Mr Bernanke is slated to discuss the central bank’s forecast in a testimony to Congress tomorrow and on Thursday.

So far, the Fed’s deepest interest rate cuts since 2001 have not helped the financial markets or the economy. What they have caused is an increase in inflation expectations, with the price of gold soaring to a record US$958.40 an ounce last week.

What is more, say economists Soss and Ethan Harris of Lehman Brothers, policymakers face structural changes in the economy that are not so susceptible to the traditional tools of interest-rate and tax cuts.

As a result, Mr Soss sees the economy expanding just 1.3 per cent this year and about 1.5 per cent next year.

Mr Harris is even more pessimistic. He sees growth easing to 0.9 per cent next year from 1.1 per cent this year and 2.5 per cent last year.

Fed officials acknowledged in the minutes of their last meeting on Jan 29 and 30 that they were having trouble getting ahead of the credit squeeze in financial markets.

The financial industry is curtailing credit and conserving capital after a decade-long boom in profits went bust in the third quarter.

Following mounting losses on past loans, banks have already taken write-offs of US$163 billion since the beginning of last year.

A Fed survey released on Feb 4 found that banks had become stingier in granting credit during the previous three months.

Fed officials say they expect that to continue, making it harder for the central bank to stimulate the economy through lower borrowing costs.

‘The Fed can give liquidity to the markets, but the Fed cannot do much if the markets are afraid of solvency risks,’ said Mr Robert McTeer, a former Dallas Fed president.

Consumers, until now the driving force behind the expansion, are feeling the squeeze. While households will get a short-term boost from the coming tax rebates, their longer-run finances look shakier.

Households reduced their savings rate to virtually nil in December from close to 10 per cent of disposable income 15 years earlier.

That trend may reverse as credit becomes scarcer and home prices fall.

Mr Allen Sinai, chief economist at Decision Economics, calls the pullback by consumers ‘a seismic shift’.

‘For several years, the growth of consumer spending is going to be significantly below its long-run average of 3.5 per cent,’ he said.

Consumers have also been pinched by the rising cost of food, fuel and other necessities.

Inflation, as measured by the personal consumption price index, clocked in at a 3.5 per cent year- over-year rate in December, the highest for that month since 1990.

Behind the heightened inflation concerns: slowing productivity growth, making it harder for companies to recoup higher costs through increased efficiency.

Professor Robert Gordon, of Northwestern University, says the surge in productivity that began around 1995 was a one-time event sparked by the advent of the Internet.

Nobel laureate Edmund Phelps says there is little the Fed can do when faced with such a structural change.

‘We’ve had a series of booms, and it seems to me they are now over,’ says Mr Phelps, an economics professor at Columbia University.

‘As a result, we’re going to see a period of slower growth than in the past.’

BLOOMBERG NEWS (Source: The Straits Times 26 Mar 08)

US existing home sales fall to lowest in a decade

US existing home sales fall to lowest in a decade

Weakness in housing market continues as median prices drop 4.6% year-on-year

WASHINGTON – SALES of existing United States homes fell to the lowest level in nearly a decade last month, while the median price for a home dropped for the fifth straight month.

The National Association of Realtors (NAR) said yesterday that sales of single-family homes and condominiums dropped by 0.4 per cent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on record going back to 1999.

The median price of a home sold in January slid to US$201,100 (S$283,070), a drop of 4.6 per cent from a year ago. The fall in sales and the fifth consecutive decline in prices underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.

Sales were weak in all parts of the US except the Midwest, where sales posted an increase of 3.4 per cent. Sales dropped by 3.6 per cent in the North-east, 2.1 per cent in the West and 0.5 per cent in the West.

Sales of both existing homes and new homes tumbled for a second straight year in 2007, as the housing industry was battered by a severe credit crunch that hit in August.

This was around the same time that major financial institutions began reporting multibillion-dollar losses on their investments in risky sub-prime mortgages – loans made to home owners with weak credit.

The market for sub-prime mortgages has essentially dried up and other types of loans have become harder to obtain as lenders have tightened their standards.

Mr Lawrence Yun, chief economist for the NAR, said he believed that the housing market may be on the verge of bottoming out, with a rebound expected to start towards the end of this year.

‘Sub-prime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales,’ he said.

He said he expected demand to be bolstered in the coming months by the actions of Congress in the economic stimulus Bill to raise the caps on the size of loans that can be backed by Fannie Mae and Freddie Mac and the Federal Housing Administration.

Not everyone agrees.

Housing is ‘a long-term negative that’s going to continue’, Mr Joshua Shapiro, chief US economist at Maria Fiorini Ramirez in New York, said before the report.

‘The trends are still weak. Prices haven’t come down enough.’

Mounting foreclosures are adding to a glut of unsold homes that is driving down property values. Would-be homebuyers may be waiting for even lower prices, keeping the housing market depressed for a third year and dragging the economy close to a recession.

ASSOCIATED PRESS, BLOOMBERG NEWS (Source: The Straits Times 26 Feb 08)