Foreigners snap up homes as rents start to bite

Business Times – 12 Mar 2008Their purchases could account for half of 2007 transactions on the secondary market

 (SINGAPORE) A record number of foreigners here have opted to purchase homes instead of renting them at ever-climbing rates.

According to an analysis of transactions of private residential properties by DTZ Debenham Tie Leung, foreigners bought 6,536 non-landed homes from the secondary market in 2007 – the largest number since 1995.

They could account for more than 50 per cent of the secondary market transactions last year. That is because while more than 20,000 non-landed homes were sold on the secondary market last year, this number includes the units from more than 100 collective sales. DTZ’s analysis does not include en bloc units – though earlier reports had put this figure at around 6,000 for the first half of 2007 alone.

Purchases by foreigners on the secondary market represent a 105 per cent increase in volume compared to 2006.

DTZ research senior director Chua Chor Hoon said that while some buyers were investors, there were also those who ‘are not on company budget and find it more worthwhile to buy rather than face escalating rentals, especially if they are going to be in Singapore for more than a couple of years’.

DTZ’s figures for 2007 reveal that rents of prime apartments and condominiums increased 45 per cent year-on-year in 2007 to average $4.80 per square foot (psf). This was attributed to the influx of expatriates and a tight supply of prime apartments, as numerous prime developments were demolished or slated for redevelopment after being collectively sold.

The percentage of foreigners buying non-landed property from the primary market (developer sales) was lower at 25.4 per cent, or 2,314 transactions out of a total of 9,089, reinforcing the assertion that foreigners are more inclined to buy a home for immediate occupation.

Indonesians and Malaysians remain the biggest foreign buyers here, accounting for 23 and 17 per cent of all foreigners in 2007 respectively, but Indians (12 per cent), Britishers (8 per cent), Chinese (7 per cent) and Koreans (7 per cent) are also well represented.

While foreigners bought non-landed homes in record numbers last year, boosting demand in the process, their absence in the landed homes sector (because of restrictions imposed by the government) did not stop a record number of landed homes being sold in the secondary market.

DTZ’s analysis reveals that of the total 5,211 landed homes sold in 2007, 4,823 were from the secondary market.

Apart from the bullish sentiment which ’spilled over’ from the non-landed sector last year, the landed sector also saw demand rise as it was still considered comparatively good value.

DTZ’s figures show that average capital values for non-landed freehold homes in the prime districts increased by 55 per cent

year-on-year to $1,480 psf.

For freehold landed homes in the prime districts, average capital values of detached homes increased 31 per cent year- onyear, while average capital values of semi-detached and terrace homes rose 29 and 27 per cent respectively.

The situation was also exacerbated by the tight supply of new launches of landed homes in the year, estimated at around 650 units.

DTZ’s Ms Chua also believes that with speculation less rampant in the landed housing sector – ‘most buyers are owneroccupiers’ – prices are expected to be more stable and could even prove ‘more resilient’ if the downturn in the global economy is protracted.

However, DTZ expects future supply of landed homes to be relatively low at just 3,100 units over the next few years, so this could push up demand and prices for both primary and secondary market landed homes.

Speculation, defined by the number of subsales, was rampant among developer sales of non-landed homes last year, hitting an all-time high of 4,631 transactions – a 312 per cent year-on-year increase over 2006.

Interestingly, while subsale transaction volume in 2007 was just 27 per cent higher than during the previous peak of 1996, the value of subsales was almost twice as high, hitting $7.9 billion.

The fourth quarter, however, marked a shift in sentiment in the property market. Only 3,947 non-landed homes were transacted in the quarter, of which just 846 were sold by developers, reflecting a 64 per cent quarter-on-quarter drop. This was one of the worst performing quarters in the last three years.

Guocoland dives on options lapse

Business Times – 12 Mar 2008

Shares hit as Kuwaiti-linked fund pulls out of $815m property purchase

SHARES of Guocoland fell victim yesterday to news that a fund company managed by Kuwait Finance House (Malaysia) Berhad (KFHMB) did not exercise options to buy $814.8 million worth of  apartments in Guocoland’s upmarket project here.

Following analysts’ downgrade, the stock dived as much as 19 cents or 5 per cent to an intra-day low of $3.64 before closing at $3.70, down 13 cents or 3.4 per cent. More than 420,000 shares changed hands.

But the reaction from property counters was mixed, with Ho Bee falling two cents to 95 cents and SC Global dipping four cents to $1.50. Keppel Land edged up five cents to $5.35 and CapitaLand gained 18 cents to $5.89.

The fund company managed by KFHMB had purchased options in December last year to buy 97 units at the premier freehold development Goodwood Residence. There are only 210 exclusive units on this 24,845-sq-m estate fronting the expansive Goodwood Hill. KFHMB is the Malaysian unit of Kuwait Finance House (KFH).

Guocoland said on Monday that although the options have lapsed, the parties are still in discussions, with a view to granting fresh options for units in the development.

It is not known why the fund did not exercise the options, but Guocoland said in its Monday announcement that ‘the current private residential property market appears to be cautious in Singapore’. This could have prompted its decision to market Goodwood Residence units selectively at a later date.

But in the stock market yesterday, speculation was rife over reasons for the lapse. Some cited the cautious market sentiment while others cited over-pricing of the units. There was even talk of an unsuccessful marketing campaign for these units by KFH in Dubai. The median price of $3,200 per square feet that the KFHMB fund agreed was earlier seen by some as a possible benchmark pricing for the area.

DBS Vickers yesterday cut its rating on Guocoland to ‘hold’ from ‘buy’ and lowered its target price to $4.14 from $5.60 after revising downwards its average selling price estimates for Guocoland’s high-end and mid-tier projects and ascribing a 15 per cent discount to Guocoland’s revalued net asset value.

‘We believe that the decision by KFHMB to allow these options to lapse is a sign of the weak sentiment in the physical property market currently, particularly in the high-end segment,’ the brokerage said.

But Westcomb Financial Group said it believes that this lapse of options ’should not be taken as a signal that the Singapore private residential property market has fallen drastically.

‘In fact, the buyer has overpaid their purchases in December 2007, maybe with the view that the market would continue its uptrend in 2008.’

 

Landed housing plot draws top bid of just $77.80 psf

Business Times – 12 Mar 2008

Only one other offer made; poor show seen as sign of uncertain market

IN what is seen as a sign of an uncertain property market, a landed housing parcel in Jurong West drew only two bids, and a low top bid of $11.8 million – or just $77.80 per square foot (psf) – at the close of a government land tender yesterday.

The higher bid, put in by Boon Keng Development, was significantly below what analysts had said the site could fetch.

Cushman & Wakefield managing director Donald Han, for example, reckoned that the plot would fetch $200-$250 psf of land area.

‘The price is really below expectation,’ said Mr Han yesterday. ‘But with the market sentiment being so weak, you can expect wild swings in prices. Developers will be sitting on the sidelines or might not want to bid their best prices.’

The other bid was put in by Sunway Concrete Products, a unit of Malaysian- listed Sunway Holdings. It offered $10.3 million, or $68.1 psf of land area.

Li Hiaw Ho, executive director for research at CB Richard Ellis, said that both bids were ‘relatively conservative’ and reflected the current cautious sentiment in the market.

The 99-year leasehold site on Westwood Avenue has a land area of 151,759 sq ft. Property analysts estimate that some 50-60 landed homes can be built on the site.

‘Nevertheless, based on the highest bid of $78 psf, terrace houses on this site could still be sold for $900,000 to $1 million each,’ Mr Li said. This is slightly higher than recent transactions of intermediate terrace houses in nearby Westwood Park and Westville, which were between $820,000 and $990,000 each.

Potential buyers, Mr Li added, could comprise locals working in the manufacturing firms in Jurong and Tuas, as well as academics at nearby Nanyang Technological University.

Market watchers, however, said that it is possible that the government might not award the site because of the low price.

The price looks especially low when considering other recent government sales of landed housing plots, Mr Han pointed out.

In October, the Urban Redevelopment Authority (URA) auctioned off 12 sub-divided landed housing plots near Sembawang Beach which can be developed into a total of 57 landed homes. The auction fetched a total of $37.09 million, which worked out to about $285 psf of land area on average.

And in January, the government decided not to sell a short-term office site in Aljunied because the sole bid offered too low a price. The decision followed a recent string of lower-than-expected offers for state land.

Wild swing reflects fears of US slowdown

Business Times – 12 Mar 2008

SHORT-COVERING and a late afternoon rebound on Nasdaq futures saw the Singapore market’s benchmark index chalking a remarkable 80-point turnaround in intra-day trading, first plunging to a new 16-month low, then rebounding to close in positive territory. Also boosting the market are expectations that the Federal Reserve may intervene more aggressively to address the impact of the tightening credit crunch.

Nevertheless the wild gyration characterised investor nervousness amid intensifying fears of a US recession and concern that tightening money market conditions could trigger a third wave of the global credit crisis.

After initially opening at a low of 2,794.62 points, the Straits Times Index dribbled sideways for much of the morning session before a late afternoon recovery by index movers like Singapore Telecom, DBS Bank, CapitaLand, Singapore Exchange and OCBC helped the index climb to its late afternoon high at 2871.60 points. It closed at 2,860.85 points, for a net 24.26-point gain.

However, the day started with a jolt for property stocks after Kuwait Finance House pulled out of a $818.4 million deal to buy 97 of GuocoLand’s apartments in its Singapore Goodwood Residence. GuocoLand – controlled by Malaysian property tycoon Quek Leng Chan – plunged to a low at $3.64, before recovering to close with a net 13-cent loss at $3.70.

Although other leading property plays like City Developments, controlled by Mr Quek’s cousin Kwek Leng Beng, and CapitaLand recovered to end the session in positive territory, the pullout by the Kuwaiti bank is nevertheless seen as an ominous sign for the residential property market here. Analysts said the move raises fears that the property sector may be heading for a serious downturn after a sharp run-up which started in late 2006.

Meanwhile, the larger concern for many investors is not so much whether the US is already in a recession, but how long the slowdown will last. Last week, the US employment report showed the economy lost 63,000 jobs in February, bringing job losses in the first two months of 2008 to 85,000. And US consumer confidence fell sharply in March, according to the latest reading of the RBC Cash Index, which at 33.1, is the lowest reading since data tracking began in 2002.

Traders say that while many Singapore listed stocks have retraced to attractive valuation levels, fears of a potential major capitulation on Wall Street and concerns over the direction and sustainability of the Chinese market  and economy is keeping investors sidelined.

In an online research report yesterday, Kim Eng said the Singapore index had a 22 per cent downside from current levels.

‘Since 1964, the five major bear markets in Singapore lasted an average of two years,’ Kim Eng’s Kelive noted. ‘The shortest one ran for 14 months (Jun ‘81 to Aug ‘82) while the longest down cycle extended 3¼ years (Dec ‘99 – Apr ‘03), albeit Sars had extended the crisis by an additional 1½ years. Within bear trends, there can be sharp rebounds as seen during Oct ‘81 – Jan ‘82 (+26 per cent), Jan-Mar ‘98 (+29 per cent) and Sept ‘01 – Mar ‘02 (+37 per cent). Assuming the current downturn lasts 14 months, the earliest that the market can expect to recover is end 2008.’

The research house sees DBS, UOB, CapitaLand, City Developments and SembCorp Industries as having the greatest downside risk among bluechips. Keppel Corp is the safest bet, it added.

Space crunch in Orchard pushes docs to Novena

March 12, 2008

The area could turn into medical hub as more private doctors set up clinics there

PRIVATE doctors are flocking to the Novena area as the squeeze on clinic space in the Orchard Road belt tightens.

The migration could turn the area into Singapore’s newest centre for private health services, some believe.

In the space of two years, developer Far East Organization has already sold or leased 92 per cent of the 145 medical suites at its new Novena Medical Centre (NMC).

Private doctors at the centre, which opened last October, are allowed to use some X-ray machines and labs in Tan Tock Seng Hospital (TTSH), which is just across the street.

Developers in the area are also setting space aside for private doctors, as well as accommodation for patients and their families.

The spill-over of demand has prompted Far East to house another 64 clinics in its 28-storey hotel in nearby Sinaran Drive. The group plans to either sell or lease the suites when ready, which is likely to be by 2010.

In Newton Road, SC Global Developments will also save space for medical suites in its upcoming office building, Newton 200.

Private specialists can also look to the Parkway Group’s new hospital in Irrawaddy Road, which is scheduled to open in July 2011. The group is setting aside 30 per cent of its space for them.

Medical suites in Novena occupy about one-third of the space that clinics in Orchard do. At about 24,154 sq m in total, they cover about the same area as Clarke Quay.

This spate of activity is fuelled by the Government’s plan to attract one million foreign patients a year by 2012.

Mr G.L. Yap, executive director for Far East Organization’s property services, said: ‘The infrastructure has to keep pace with expectations of growth.’

Foreign patients number more than 400,000 a year and come mainly from Indonesia and Malaysia, with increasing numbers from China, the Middle East and developed countries. They come for a range of treatments, including day surgery and routine health checks.

Spending on so-called medical tourism averaged about $1.3 billion in 2006 and is expected to double by 2012, according to Dr Jason Yap, director of health-care services at the Singapore Tourism Board.

The space crunch is already being felt by medical centres at Mount Elizabeth, Gleneagles, Paragon and Camden.

Company officials say that, save for three units, the buildings have been totally sold or leased out. While Paragon declined to say how many units it has, the three other centres have more than 540 suites.

The demand for medical suites has been pushing rents up, said property analysts. In the Mount Elizabeth Medical Centre, a suite was last sold for $5,000 psf, up from $4,017 last March.

Colorectal surgeon Francis Seow-Choen bought a unit at Novena two years ago because of high rents. For the past four years, he has also been renting a unit at the Mount Elizabeth Medical Centre, where rents have risen to about $18 psf, from about $8 psf four years ago.

‘The rents here have risen astronomically,’ said Dr Seow-Choen. ‘Instead of being subjected to market forces, I’ve decided to buy a unit in Novena, which as an area has a lot of potential.’

The Singapore Medical Group moved its Sports Medicine Centre from Paragon to the NMC this year, because of the space crunch and the area’s attraction as a sports and medical hub.

Dr Jimmy Lim, a cardiologist who crossed over from TTSH to set up his own clinic at the NMC, said the new clinic allows his previous patients to visit him.

‘Having a restructured hospital and now a private hospital nearby is basically going to give my  patients a wider choice when they use the in-patient facility,’ he said.

Source: The Straits Times

All eyes on govt land tenders this month

Business Times – 11 Mar 2008

$500m site above Serangoon MRT, 3 suburban housing plots on offer

AMID the current quiet market, all eyes will be on four 99-year leasehold suburban Government Land Sale site tenders that close this month.

They comprise three private residential sites including one for landed housing, and a ‘white’ site above the Serangoon Circle Line MRT station that could potentially be worth more than $500 million.

The action kicks off today, with the closing of a tender for a landed housing parcel in Westwood Avenue, Jurong West, big enough for about 50-60 landed homes.

Cushman & Wakefield managing director Donald Han reckons the 151,759 sq ft plot could fetch about $200-250 psf of land area. The plot is next to the landed housing area at Westville. Those looking for clues on how developers read the suburban mass-market residential sector will have to train their eyes on tender closings for two plots this month, both boasting scenic locations.

One is at West Coast Crescent next to Blue Horizon condo and faces West Coast Park and overlooks the sea. The other is in Yishun, fronting Lower Seletar Reservoir and close to Singapore Orchid Country Club/Golf Course. It is also near Khatib MRT station.

Property consultants polled by BT in January, when the tenders for the two sites were launched, indicated bids of about $200-300 psf per plot ratio (ppr) for the Yishun plot.

Mr Han reckons the winning bid will be closer to $300 psf ppr, reflecting a breakeven cost of about $550-600 psf and a possible average selling price of $700-800 psf for the new condo.

As for the West Coast plot, consultants earlier indicated a wide range of bids – $260-400 psf ppr. Mr Han estimates the plot’s value at the higher end of that range, around $380-400 psf ppr as ‘it is near parks, recreational facilities and the sea’, translating to selling prices of about $850-950 psf for a new condo on the site, on a project-average basis.

He expects the Yishun and West Coast condo sites to attract at least five bids each, while the landed housing plot at Westwood Avenue could draw more bids, about five to eight.

‘Developers may be willing to look at smaller profit margins because these are sure-sell markets, given pent-up demand in the mass market. However, buyers are still price-sensitive,’ he said.

While some analysts and consultants still feel the mass-market will be relatively resilient this year, City Developments executive chairman Kwek Leng Beng recently offered a different perspective.

‘The mass market will do well, but selectively. It’s not going to be what you’ve seen before. . . people queuing up,’ he said, noting that the Housing & Development Board provides a credible alternative to mass- market private housing.

The Serangoon Central site was quietly launched in December by the Land Transport Authority. The 269,180 sq ft plot can be developed into an estimated maximum potential gross floor area (GFA) of about 850,000 sq ft excluding a bus interchange that the successful bidder will have to build. The developer will be reimbursed the cost of building the interchange.

The site can be developed into any combination of commercial, hotel, residential, and sports and recreational use.

Cushman’s Mr Han said that assuming 30-40 per cent of the GFA is for retail use and the rest for residential, the plot could be worth about $400-450 psf ppr, or a total of around $340-380 million.

‘So the breakeven cost would be about $700 psf for the residential component and the developer might be able to achieve selling prices of say $900-1,000 psf on average. The retail component will break even at about $1,200-1,400 psf,’ he reckons.

However, other property insiders say that assuming an all-retail development, which would be the ‘highest and best use’ of the site, land bids could come in closer to the $600-700 psf ppr mark (about $500 million to $600 million in total).

Suburban malls are generally valued at about $1,800-2,000 psf of net lettable area currently,’ one player pointed out.

However, another major player countered that sentiment today is subdued, and said the challenge of securing bank finance for such a big project with a likely total investment of about $1 billion or more will put a dampener on bullish bidding for this site.

The action and market watching continues next month, with at least two interesting offerings at state land tenders – a private condo site at Toa Payoh Lorong2/3, and a 1.56-hectare site in Choa Chu Kang for residential development that comes with the existing Ten Mile Junction mall.

China’s growth story due for reality check

Business Times – 11 Mar 2008

Country may face headwinds of a US recession as its stock market, property sector cool

THE beginning of Wen Jiabao’s second term seems remarkably similar to his first. In 2003, when Hu Jintao and Wen Jiabao, first took the helm as president and prime minister respectively, they were tested by the Sars crisis.

The pessimism of those like Gordon Chang in The Coming Collapse of China was at its peak. But Mr Hu and Mr Wen weathered that crisis and turned in the best five-year term performance in recent memory.

In 2007, China’s GDP reached RMB24.66 trillion (S$4.8 trillion), an average 10.6 per cent annual real growth from 2002 to 2007. In 2007, Germany defended its position as the world’s third largest economy only by a 2 per cent margin (higher than China) measured by daily-weighted exchange rate.

Also in 2007, China replaced the United States, becoming the world’s second largest goods exporter, next only to Germany. By the end of 2007, China’s foreign currency reserves ballooned to US$1.53 trillion, ranking it first in the world, 5.3 times more than at the end of 2002.

This time, when Mr Hu and Mr Wen are about to start their second term in January, China was plagued by a massive snowstorm and they weathered that too.

While many have doubts about China’s infrastructure quality and crisis control system, I simply cannot think of any other country that could have done a better job at a time when the worst snowstorm in half a century coincided with the Chinese New Year and millions of people were trying to get back home for family reunions and then go back to their places of work within the space of a few weeks.

According to Ma Kai, director of National Development and Reform Commission, China’s planning agency, from Jan 23 to March 2 – a span of 40 days – 196 million people travelled by railways and many millions by road, while the snowstorm almost paralysed the entire transportation network in many parts of China.

The 2003 Sars crisis and the 2008 snowstorms demonstrated China’s ability to overcome any shortlived crisis.

But for Mr Wen, there are much tougher challenges ahead in the first year of his second term. On March 5, at the first session of the 11th National People’s Congress (NPC), Mr Wen set China’s 2008 growth target at 8 per cent. Mr Wen’s 8 per cent target surprised none as this figure has been the regular target in the past few years. It basically comes from the 7-8 per cent long-term growth target which will quadruple China’s 2000 GDP by 2020.

In 2007, when the official target was set at 8 per cent, the real outcome was 11.4 per cent, a 13-year high. But in 2008, China could be nearer to the 8 per cent target.

The first challenge is obviously the US, one of China’s major export markets. In 2007, according to the US official figures, China replaced Canada to become the largest source of imports to the US valued at US$321.5 billion.

But the American economy may be in recession. And many economists wonder how serious it will be and how long the recession will last.

The US has a savings rate of virtually zero; its consumption was supported by an illusion of wealth.

But now more and more Americans owe more in mortgages than the real (current market) value of their homes. Worse, these people are about to pay more on their mortgages, as preferential rates come to an end. Delinquency and foreclosures can be expected and property prices will further drop, thus triggering a vicious cycle.

Some might argue that so far macro economic data only shows signs of a slowdown, not a recession. But you can really get a sense of economic fear from one person – Ben Bernanke, the Fed chairman.

In January, after having said that the sub-prime crisis was ‘containable’ for months, the Fed cut benchmark interest rate by 75 basis points (the biggest move in 23 years) just eight days ahead of a scheduled meeting. And on March 4, Mr Bernanke further urged banks to forgive a portion of mortgage principals.

As many pointed out, unlike the 2000-2001 US recession which was corporate dominated, this recession will be consumption led and therefore will have a much bigger impact on China. At the same time, the prospects for European Union, another important exports market for Chin a, will certainly not be as bright as it was. Facing domestic difficulties, the western world is very likely to practice protectionism and China may become its biggest target.

I project the contribution of net export to China’s GDP growth will be substantially lower this year than 2007.

As well, we are also witnessing the bursting of China’s own asset bubbles. On March 7, Shanghai Composite Index, covering both A and B shares listed on Shanghai Stock Exchange, closed at 4300.5, 30 per cent lower than the 6,124 historic high on Oct 16, 2007. At the same time, property, another bubble no smaller than the stock market, by and large remains intact.

Housing bubble set to burst

You might think that with improving living standard and fast urbanisation, the demand for property is huge in China. But the price is still be the biggest problem. People always see the booming  economy as the reason for a bull stock market, yet it is valuation that you have to look at the end of the day.

For a young couple with a combined monthly salary RMB 15,000 (the salary for fresh graduate is only about RMB 2000-3000), the price of a 70-year tenure apartment with a gross floor area of 120 square metres in a relatively good location in Beijing is equivalent to their 10-year combined salary. While the prices in second tier cities are lower, so are people’s wages.

At the same time, property has been playing a very important role in boosting the economy. In 2007, Chinese invested RMB 2854.3 billion in property, 32.2 per cent higher than 2006, accounting for about 25 per cent of China’s fixed asset investment in urban centres. It is also a hot spot for foreign investment. In 2007, utilised foreign direct investment (FDI) in real estate reached US$17.1 billion, more than double the figure the year earlier. It accounted for 22.7 per cent of China’s total utilised  FDI (excluding the financial sector).

But there are signs that the bubble is beginning to burst. Property brokers felt the pain first. Several high profile brokers have collapsed due to being overstretched and, more importantly, the reduced number of transactions.

Wang Shi, chairman of Vanke, the biggest listed property company in China, said earlier this year China’s property market had reached a turning point. Indeed, Vanke has started to offer price discounts for its housing projects in Guangdong, Chengdu, Shanghai and Beijing.

The world has witnessed a property boom in the past decade, and the collapse of the US housing bubble could trigger the falling of dominoes worldwide. The psychological impact of the collapse of the US property market on China cannot be underestimated. And measured by the relative values (and, in some cases, in absolute value), China’s property prices are even higher than in the US market.

Those who proclaimed ‘We are different’ as far as the stock market was concerned, have finally seen the law of gravity take hold. The property market is very likely to follow suit at some point.

When the bubble does burst, China’s investment growth will slow down greatly as it will influence not only property, but also the steel and the construction materials sector as well. Consequently, the country’s GDP growth will be further reduced.

Probably, China’s GDP growth will fall below 9 per cent this year, for the first time in seven years. But it is still a decent figure compared with the rest of the world.

The slowdown in the country’s exports growth should be a good reminder for China to attach more importance to how to improve product quality and add more value to its products. For instance, in 2007, China exported US$44.1 billion worth of steel products, which was the fourth most important export item by value. For a country facing growing resource shortages and environmental problems, to export steel products rather than more cars is stupid.

And more affordable housing generally will certainly better fit into Mr Hu’s ‘harmonious society’ concept.

Economists trim S’pore Q1 growth forecast to 5.7%

Business Times – 11 Mar 2008

Q2 may see another dip before rebound kicks in; inflation likely to rise

 (SINGAPORE) Private sector economists have pared their forecasts of Singapore’s first quarter GDP growth to a median 5.7 per cent, from 7 per cent three months earlier.

Economic growth is then expected to dip below 5 per cent in Q2 and Q3 before rebounding in the final quarter for a year-round median of 5.6 per cent, according to forecasters polled by the Monetary Authority of Singapore.

The 19 economists who took part in the survey last month – soon after the 2007 economic results were released – trimmed their forecasts following slower than expected Q4 and 2007 figures.

The economy grew 5.4 per cent in Q4 – well below median forecasts of 7.7 per cent in the December 2007 poll. Year-round GDP growth was 7.7 per cent – also below market forecasts of about 8 per cent.

According to the latest poll findings, Singapore’s 2008 economic growth will ‘most likely’ come in between 5 and 5.9 per cent – a full point below the range most expected in the previous poll.

But apparently, not everyone is too bearish. Forecasts for Q1 growth actually hit 8.8 per cent at the top end and average 5.8 per cent, only one point above the lowest estimate.

The second quarter is expected to see the year’s lowest growth of around 4.4 per cent, before a pickup to 4.8 per cent in Q3 and 6.8 per cent in Q4, according to the median estimates.

Meanwhile, the 2008 consumer inflation rate is projected to rise to 5 per cent on average. Some economists see it hitting 7 per cent in Q1, with the median forecast a bit lower at 6.3 per cent.

As for the exchange rate, the forecasts see the Singapore dollar strengthening to 1.32 per US dollar by year-end, though the estimates centre around 1.38, close to the current rate.

Goldman Sachs’ view on the Singapore economy is probably fairly typical of the market’s at this point.

The investment bank’s regional economists recently cut their forecasts of Singapore’s 2008 GDP growth to 5.5 per cent, from 6.4 per cent, ‘on the back of increased external risks’, chiefly a global slowdown led by a US recession.

But they expect the domestic growth engine to keep ‘chugging along’, supported by easier monetary conditions and an expansionary fiscal stance.

THE BOTTOM LINE: Fed slap in market face won’t work this time

Business Times – 11 Mar 2008LAST Friday’s employment report – which was so weak that it had many economists declaring that the US is already in a recession – was bad news.

But it was actually less disturbing than what’s going on in the financial markets. The scariest thing I’ve read recently is a speech given last week by Tim Geithner, the president of the Federal Reserve Bank of New York. Mr Geithner came as close as a Fed official can to saying that the US is in the midst of a financial meltdown.

To understand the gravity of the situation, you have to know what the Fed did last summer, and again last fall. As late as August, the favourite buzzword of financial officials was ‘contained’: problems in sub-prime mortgages, we were assured, wouldn’t spread to other financial markets or to the economy as a whole. Soon afterwards, however, a full-fledged financial panic began.

Investors pulled hundreds of billions of dollars out of asset-backed commercial paper, a littleknown but important market that has taken over a lot of the work banks used to do. This de facto bank run sent shock waves through the financial system. The Fed responded by rushing money to banks, and markets partially calmed down, for a little while. But by December the panic was back.

Again, the Fed responded by rushing money to banks, this time via a new arrangement called the Term Auction Facility. Again, the markets calmed down, for a while. But again, the respite was only temporary. Last month, another market you’ve never heard of, the US$300 billion market for auction-rate securities (don’t ask), suffered the equivalent of a bank run.

Last week, two big financial companies announced that they had been unable to raise the cash demanded by their lenders. Even Fannie Mae and Freddie Mac, the giant US government-sponsored mortgage agencies long regarded as safe places to put your money, are now having trouble attracting funds.

One consequence of the crisis is that while the Fed has been cutting the interest rate it controls – the so-called Fed funds rate – the rates that matter most directly to the economy, including rates on mortgages and corporate bonds, have been rising. And that’s sure to worsen the economic downturn.

What’s going on? Mr Geithner described a vicious circle in which banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing ’significant collateral damage to market functioning’. A report released last Friday by JPMorgan Chase was even more blunt. It described what’s happening as a ’systemic margin call’, in which the whole financial system is facing demands to come up with cash it doesn’t have. The Fed’s latest plan to break this vicious circle is – as the financial website interfluidity.com cruelly but accurately describes it – to turn itself into Wall Street’s pawnbroker.

Banks that might have raised cash by selling assets will be encouraged, instead, to borrow money from the Fed, using the assets as collateral. In a worst-case scenario, the Federal Reserve would find itself owning around US$200 billion worth of mortgage-backed securities. Some observers worry that the Fed is taking over the banks’ financial risk. But what worries me more is that the move seems trivial compared with the size of the problem: US$200 billion may sound like a lot of money, but when you compare it with the size of the markets that are melting down – there are US$11 trillion in US mortgages outstanding – it’s a drop in the bucket.

The only way the Fed’s action could work is through the slap-in-the-face effect: by creating a pause in the selling frenzy, the Fed could give hysterical markets a chance to regain their sense of perspective. And to be fair, that has worked in the past. But slap-in-the-face only works if the market’s problems are mainly a matter of psychology. And given that the Fed has already slapped the market in the face twice, only to see the financial crisis come roaring back, that’s hard to believe.

The third time could be the charm. But I doubt it. Soon, we’ll probably have to do something real about reducing the risks investors face.

A plan to restore the credibility of municipal bond insurance would be a start (how crazy is it that New York State, rather than the federal government, is taking the lead here?). I also suspect that the feds will have to get explicit about guaranteeing the debt of Fannie and Freddie, which really are too big to fail.

Nobody wants to put taxpayers on the hook for the financial industry’s follies; we can all hope that, in the end, a bailout won’t be necessary. But hope is not a plan. — NYT

Investments push S’pore growth again

Business Times – 11 Mar 2008

But the biggest problem facing policy-makers is inflation; if it doesn’t stabilise, we may see more drastic steps

SINGAPORE has enjoyed exceptionally strong and stable gross domestic product (GDP) growth in the last few years. For many years after 1997, Singapore’s economy had suffered volatile growth even as it was buffeted by a series of shocks – the Asian crisis, the bursting of the information technology (IT) bubble and then the Sars episode.

None of them was of Singapore’s making but the city-state suffered sharp downturns in each case. It may seem that a small, open economy like Singapore’s cannot avoid being hurt by external shocks.

However, Singapore had enjoyed prolonged periods of high-growth prior to 1997 and had seemed immune to these shocks. What changed after the Asian crisis?

In our view, the big change was in the role of domestic investment activity. Prior to 1997, Singapore relied heavily on high rates of investment that were sustained over decades. This was key to the  citystate’s strategy of continuously moving up the value chain – from a British naval base to a low-end manufacturing and shipping hub, and then to a major electronics producer.

The last model broke down in the late 1990s. For many years after the Asian crisis, the city-state floundered for a new strategy and investment activity became erratic. Consumption demand was in no position to compensate, with consumers worried about falling asset values and an uncertain environment.

The lack of a domestic demand dynamic meant that exports became the mainstay and, as shown in the chart opposite (see Chart 1), the economy became susceptible to external shocks.

All this has now changed as Singapore’s government and business leaders have set themselves to the task of transforming it into Asia’s ‘Global City’.

As a result, we are now seeing enormous investment projects that include the two integrated resorts, the Formula One circuit, the Gardens by the Bay, the new business district, additional MRT lines, the Orchard Road upgrade and so on.

Residential investment too has picked up as the city prepares for an accelerated pace of immigration.

Thus, in 2007, we saw fixed investment rise by 20.2 per cent which in turn drove the 7.7 per cent increase in GDP even as net exports slowed.

Note that private consumption plays a passive role with its share continuing to fall (38 per cent of GDP in 2007 compared to 45 per cent in 2001). Thus domestic demand is driven largely by swings in fixed investment.

So what does Singapore invest in? In 2007, residential construction rose 26 per cent, non-residential construction went up by 44 per cent, investment in transportation jumped 30 per cent and machinery rose 10 per cent.

In other words, Singapore is still investing in manufacturing but the focus has shifted towards  creating a 21st century commercial/intellectual hub for Asia.

Looking ahead, most of the projects mentioned above are likely to run for at least another two years.

Most of them are fully funded and are likely to continue, irrespective of external events.

There have been press reports that Singapore is facing a credit squeeze that may jeopardise some projects. We see no sign of this with bank credit expanding at over 20 per cent year on year (see Chart 2).

It is possible that some people have not been able to access money but, given the explosive growth in loans, it can hardly be due to the reluctance of banks to expand.

It probably just reflects the strong demand for funds rather than the lack of supply. Thus, we feel that investment momentum will remain strong in 2008.

However, as we also expect exports to weaken due to the faltering US economy, we forecast that GDP growth will slow to 5.8 per cent this year; still a very strong level.

Despite our expectation that growth will slow in 2008, the biggest problem facing policy-makers is inflation. Consumer price inflation jumped to 6.6 per cent year on year in January. As shown in the chart above ( see Chart 3), this is an unprecedented level for this traditionally low-inflation country.

Housing-related costs have jumped especially high, but most other categories are also seeing large increases. This is now a major political issue and is being hotly debated in the media. So, will inflation naturally decline as growth slows?

In our view, slower growth in Singapore and in the world may take off some of the inflationary edge by the middle of 2008, but there is a more fundamental domestic problem. The economy is currently running at full capacity. The unemployment rate is down to 1.6 per cent (see Chart 4) which is the lowest since the Asian crisis.

Similarly, the office occupancy rate has jumped from 82 per cent in December 2003 (see Chart 5) to 93 per cent in December 2007, again levels not seen since 1997.

Thus, a GDP growth rate of 5.8 per cent is good enough to keep inflation on the boil. In a sense, this is the flip side of the investment boom that we are witnessing now.

Singapore’s government is well known for its ’supply-side’ approach to policy-making.

Characteristically, much of the response to the inflation pressure has been in terms of allowing faster population growth through immigration, encouraging more construction and so on.

Eventually these will expand capacity to keep up with growth. However, there is a more immediate need for a cyclical policy response. This has come in two ways.

First, the postponement of some large long-term public projects. Second and more importantly, the willingness to allow the Singapore dollar to appreciate at a faster pace. At the time of writing, the Singapore dollar stood at 1.39 to the US dollar. We expect it to hit 1.35 in less than six months.

If inflation still does not stabilise, we feel that we may see more drastic steps that may include a lowering of the Goods and Services Tax (GST), which has been hiked to 7 per cent.

The writer is chief economist for Deutsche Bank AG in Hong Kong

Investors eye real estate after tough 2007

Business Times – 11 Mar 2008

Asian property and niche sectors are attracting assets

(LONDON) Many investors in alternative assets plan to invest more in real estate after poor returns from the sector in 2007, a PricewaterhouseCoopers (PwC) survey showed yesterday.

John Forbes, UK real estate leader at PwC, said some investors had been lured back to UK property after prices fell sharply.

Growth areas such as Asian property and niche sectors such as student housing were also attracting assets, he said.

PwC’s global survey, which polled 226 institutional investors and alternative investment providers in the fourth quarter of 2007, showed a gross 41 per cent of investors plan to increase real estate allocations over the next three years.

That compares with 40 per cent for private equity, 35 per cent for commodities and 33 per cent for hedge funds.

However, 21 per cent of investors planned to reduce their allocations to real estate, compared with  6 per cent for hedge funds, 15 per cent for commodities and 11 per cent for private equity.

Forbes said: ‘UK real estate capital values are down perhaps 20 to 25 per cent from the top of the market. For some types of investors that will discourage them.

‘But for opportunistic investors, who have been out of the UK market for the past two to three years, the UK is starting to look cheap so they are coming back.’

UK commercial property delivered a total return, which combines rental income and capital growth, of -3.4 per cent in 2007, as the credit crisis bit and investor sentiment soured.

The survey also showed less than half of respondents were satisfied with the performance of hedge funds, while nearly a fifth were dissatisfied.

That compares with private equity, where two- thirds were satisfied and only 7 per cent dissatisfied, or real estate, where 57 per cent were happy with performance and 11 per cent unhappy.

The survey follows a strong year for hedge funds. According to Credit Suisse/Tremont they returned 12.56 per cent in 2007.

Rob Mellor, UK financial services tax leader at PwC, said hedge funds had to become better at managing investor expectations and explaining how they achieved returns, especially when conditions turn.

Some may have feared the credit crisis would hit hedge fund returns harder than it eventually did, he said\. \– Reuters

Ophir-Rochor corridor site to be marketed in France

Business Times – 11 Mar 2008

THE Urban Redevelopment Authority (URA) will market the first site in the new Ophir-Rochor corridor at the ‘Marche International des Professionals de L’Immobilier’ (MIPIM), a premier international property event in Cannes, France.

The site will be launched for sale under the Confirmed List of the Government Land Sales Programme in June.

In a statement yesterday, URA said the 2.74-hectare parcel is at Rochor Road/Ophir Road, adjacent to Parkview Square.

It also said the developer will have to include a minimum amount of office and hotel space to cater to the growth of Singapore’s financial and business services sector and tourism.

Depending on market demand, URA will release more redevelopment sites in the Ophir-Rochor area over the next five to 10 years. URA will be exhibiting plans for development of the Ophir-Rochor corridor at MIPIM Cannes.

A team led by URA, and comprising public sector agencies and private companies, will showcase investment opportunities, including key recent and upcoming developments, at the Singapore Pavilion.

‘With some of the most prominent upcoming developments and strategic sale sites that Singapore has to offer in Marina Bay and Ophir-Rochor, I am confident we will continue to attract international investors,’ said URA’s director of land administration Choy Chan Pong.

Besides plans for the Ophir-Rochor corridor, URA will exhibit plans for the extension of the existing financial district at Marina Bay.

As part of the plan to rejuvenate and grow the existing Central Business District, URA has released more plans for the Ophir-Rochor corridor to complement the Marina Bay area, featuring mixed-use developments with offices, hotels, residential and other complementary facilities in a park-like environment.

It is expected to be developed over the next 10 to 15 years.

Opportunistic investors recoil from Asia property

Business Times – 11 Mar 2008

They see more scope for picking up cheaper properties in US, Europe; loans in Japan tougher

(HONG KONG) Opportunistic investors are pulling back from Asian property because they see more scope for picking up distressed assets in the United States and Europe, and loans are harder to get in Japan, one of their favourite markets.

Hedge funds have stopped dabbling in property in the region, fund managers say. And although private equity players will continue to develop property in India and China, they are more likely to buy buildings on the cheap in the West than in Asia.

‘Six months ago, it was quite straightforward. We didn’t have to answer questions about why to invest in Asia,’ Guy Cawthra, Asia fund strategist at Morley Fund Managers, told a recent conference in Hong Kong. ‘Now investors say ‘we might not want to invest in Asia; we want to invest in Europe, the UK and the US’.’

In the wake of the 1997-98 economic crisis, Asia – in particular, Japan and South Korea – drew a raft of investment from funds run by the likes of Morgan Stanley, General Electric and private equity firms such as Carlyle Group .

Many made fat profits on a revival by Asian property markets, which are now mostly strong because of a shortage of new supply and still buoyant economies.

Researchers at consultants Jones Lang LaSalle forecast Tokyo office prices will steady this year after a 28 per cent jump in 2007, while Seoul, Hong Kong, Singapore and Shanghai are still on the up.

Better opportunities now lie elsewhere for investors who think they can spot a market trough and  ride a recovery.

Because of tight credit and a worsening economy, US commercial real estate values could fall by 20 per cent in the next five years from their 2007 peak, JPMorgan analysts forecast, causing losses of about US$120 billion, including on commercial mortgage-backed securities.

London office values have dropped 12 per cent from a peak in the middle of last year, and they will be pressured further by forecasts of a 10 per cent decline in rental values through 2009.

‘I think a lot of investors will return to home markets,’ said Bart Coenraads, head of real estate at Fortis Investments. ‘Some will try to buy distressed core and refinance it. They could make good returns.’

Last year, total direct investment in the Asia-Pacific region jumped 27 per cent to US$121 billion – a sixth of the global total – with about half invested in Japan, which has been popular for its rock- bottom interest rates.

However, Japanese banks are getting cold feet on property, analysts say, giving loans worth only 60- 70 per cent of a building’s value, compared to 80-90 per cent a couple of years ago.

Lower debt gearing is likely to crimp returns for equity investors. But having spent years setting up teams, private equity funds are unlikely to withdraw completely from Asia, said Tim Bellman, global head of strategy for ING Real Estate.

Many, such as Morgan Stanley Real Estate Funds, no longer see themselves as ‘opportunistic’, and are in Asia for the long haul.

‘Funds have been raised and platforms are set up, and they don’t want to unwind them overnight,’ Mr Bellman said. ‘But at the margin, opportunistic investors who looked at Asia are finding those opportunities back home.’

Morgan Stanley is building housing in China and taking stakes in Indian developers in a high-risk, high-return strategy. But the US investment bank also bought the Tokyo headquarters of Citigroup last month, indicating it is still interested in ‘core’ assets that are low risk but give modest returns\. \–Reuters

Rising market pressures may trigger third wave of credit crisis

Business Times – 11 Mar 2008

Nervous investors hanging on to pronouncements of central bankers

(LONDON) Tight money markets and tumbling stocks and the US dollar are expected to increase worries for investors this week as pressure mounts on central banks facing what looks like the third wave of a global credit crisis.

Last week, money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.

In response, the Federal Reserve unveiled new measures to ease liquidity strains on Friday – injecting US$200 billion into the banking system – and said that it was in close consultation with central bank counterparts.

However, the Fed failed to lift the mood much. Investors, keen to see if any further plan is in the works to prevent a financial market seizure, will scrutinise words from key central bankers including Fed officials this week.

‘It’s another round of the credit crisis. Some markets are getting worse than January this time,’ said Jesper Fischer-Nielsen, interest rate strategist at Danske Bank in Copenhagen. ‘There is fear that something dramatic will happen and that fear is feeding itself. Central banks have shown great resolve to try to solve the problems (on money markets) and I’m sure they will do again.’

Philipp Hildebrand, vice-chairman of the Swiss National Bank, warned last week that the world might be in a new, more dangerous phase of the crisis.

If that is the case, the latest wave is the third one.

The first round began in August when interbank lending dried up as banks realised they did not know which was dangerously exposed to the meltdown in the US sub-prime mortgage market.

Then, late last year, pressure intensified again in the money markets – after some of the world’s biggest banks began writing off colossal sums of money – prompting top central banks to inject billions of dollars into the system.

Renewed problems in the credit market – including fears that US mortgage lender Thornburg might go bankrupt and acute cash flow problems at a Dutch fund – and concerns over slowing world growth led to a sell-off in stocks last week.

World stocks, as measured by MSCI, fell more than 3 per cent on the week while the dollar lost more than one per cent to hit record lows against a basket of six major currencies at one point last week.

Also reflecting investor jitters, two-year US Treasury yields hit a four-year low below 1.5 per cent as investors flocked to government bonds.

The cost of corporate bond insurance hit record high levels on Friday and parts of the debt market are also getting hit.

‘A funding freeze by lenders, that appears already in progress, could cause first-round casualties in Spain, Italy, Ireland, Portugal, Greece and Austria, countries collectively identified as the euro zone liability group,’ a UBS note said.

The G-10 policymakers came up with a cash injection plan late last year, with the top five central banks injecting liquidity into banks.

However, after weeks of calm, stress is building up again in money markets.

‘The level of financial stress is . . . likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut,’ Goldman Sachs said in a note to clients\. \– Reuters

URA sets aside more land for offices

Business Times – 11 Mar 2008

(SINGAPORE) Singapore will provide more land for offices as part of a strategy to strengthen its position as an Asian financial centre, the government’s real estate planning agency said yesterday.

‘The new growth area set aside for the seamless extension of the existing financial district … will be more than twice the size of London’s Canary Wharf,’ the city-state’s Urban Redevelopment Authority (URA) said in a statement.

‘Over a span of more than 15 years, the development of the 85-hectare site identified for extension of the existing financial district will see the addition of around 2.82 million square metres of office space,’ it added.

Demand for office space in Singapore has grown strongly in the past three years, spurred by the growth in financial services, in particular private banking.

According to URA data, office rents soared 56 per cent last year as demand for office space rose by an average of 260,000 square metres per annum over the last three years – a 60 per cent increase from the historical average of 160,000 square metres a year.

Foreign direct investment in Singapore’s real estate was S$14.4 billion in 2007, compared to S$6.7 billion in 2006, the agency said.

Singapore is currently developing the Marina Bay Financial Centre on reclaimed land south of the existing central business district. It has also offered sites to the east and west of the business district.

The city-state, with a population of 4.6 million, has expanded its land area by more than 10 per cent since independence in 1965 through reclamation from the sea.

Developers involved in the Marina Bay project include Hong Kong developers Cheung Kong and Hongkong Land, as well as Singapore-based Keppel Land.-Reuters

Source: Business Times

Kuwait fund pulls out of bulk purchase of high-end homes

March 11, 2008

It allows options for 97 condo units at Goodwood Residence to lapse

A KUWAIT bank fund that agreed in December to buy 97 units at posh Goodwood Residence for $818.4 million has let the purchase option lapse.

Kuwait Finance House has given no reason for the move, which could result in the firm having to pay developer GuocoLand multimillion-dollar penalties.

It could also be the first time a foreign institutional investor in Singapore has pulled out of such a deal, raising concerns that the property market, already hit by weaker sentiment, may be heading into a downturn.

‘While the current market is cautiously optimistic, news of such a pullout might cause it to turn more cautious,’ said Cushman and Wakefield managing director Donald Han.

GuocoLand did not provide a direct reason for the lapse but said in a statement yesterday that the private residential market in Singapore appears cautious.

The developer also said it is in talks with Kuwait Finance House, an Islamic investment bank, with ‘a view to a grant of fresh options for units in the development’.

The firm declined to comment further, citing ongoing talks. Kuwait Finance House also declined comment for the same reason.

Kuwait Finance House’s huge deal was for 97 four-bedders ranging from 2,500 sq ft to 3,900 sq ft at the former Casa Rosita site in Bukit Timah Road, near Newton Circus.

The condo has 210 freehold units on a large 24,845 sq m site fronting Goodwood Hill. The Kuwait fund’s purchase would have been the single-largest purchase of residential units under construction in Singapore.

Kuwait Finance House had agreed to buy the units at a median price of $3,200 per sq ft (psf), which would have set price benchmarks for the area. Industry sources said the price was way too high, considering that bulk purchases typically come with a discount.

‘If it were to have bought at an average of, say, $2,700 psf last December, it would still be a record for the Newton Circus area,’ said an industry source who declined to be named.

‘If it had held on for 15 to 20 years and leased the units for up to a 5 per cent yield, it may have been able to justify the deal. But if it had wanted to buy and sell, why didn’t it bargain for a rock-bottom price as the property had not been launched?’

It is believed that Kuwait Finance House was keen on flipping the units as they were marketed in Dubai recently, but the sale campaign was unsuccessful.

Another industry source, who declined to be named, said: ‘The pullout may be due to the terms of the deal. The buyer could have realised that it had bought at a higher-than-expected price, had problems flipping the units and wanted to cut its losses. ‘It could also reflect the current market and the possibility that the property market may stagnate in the next two to three years.’

The stale market appeared to have led GuocoLand to put off the launch of Goodwood Residence, scheduled initially for the first quarter.

Many developers are following suit, delaying launches until keen interest returns to the sector, which is in the doldrums with buyers and sellers staying on the sidelines.

A GuocoLand spokesman said: ‘We would be tapping selected overseas markets when we decide to launch Goodwood Residence at a later date.’

It added in its statement that the expiry of the options will not have any material financial effect on its net tangible assets per share or earnings per share for the financial year ending June 30.

Source: The Straits Times

Property investors set sights on market trough in US, Europe

March 11, 2008

HONG KONG – OPPORTUNISTIC investors are pulling back from Asian property because they see more scope for picking up distressed assets in the United States and Europe.

Hedge funds have stopped dabbling in property in the region, fund managers say.

Although private equity firms will continue to develop property in India and China, they are more likely to buy buildings on the cheap in the West than in Asia.

In the wake of the economic crisis from 1997- 1998, Asia, in particular Japan and South Korea, drew a raft of investment from funds run by the likes of Morgan Stanley, General Electric and private equity firms such as the Carlyle Group.

Many have made fat profits on a revival by Asian property markets, which are now mostly strong.

Researchers at Jones Lang LaSalle forecast Tokyo office prices will steady this year after a 28 per cent jump last year, while Seoul, Hong Kong, Singapore and Shanghai are still on the up.

Better opportunities, however, now lie elsewhere for investors who think they can spot a market trough.

Because of tight credit and a worsening economy, US commercial real estate values could fall by 20 per cent in the next five years from their peak last year.

London office values have dropped 12 per cent from a peak in the middle of last year, and they will be pressured further by forecasts of a 10 per cent decline in rental values through next year.

‘I think a lot of investors will return to home markets,’ said Mr Bart Coenraads, head of real estate at Fortis Investments.

‘Some will try to buy distressed core and refinance it. They could make good returns.’

Last year, total direct investment in the Asia-Pacific region jumped 27 per cent to US$121 billion (S$167.8 billion) – a sixth of the global total – with about half invested in Japan, which has been popular for its rock-bottom interest rates.

However, Japanese banks are getting cold feet on property, only giving loans worth 60 per cent to 70 per cent of a building’s value, compared to 80 per cent to 90 per cent years earlier.

But having spent years setting up teams, private equity funds are unlikely to withdraw completely from Asia.

‘Funds have been raised and platforms are set up, and they don’t want to unwind them overnight,’ said Mr Tim Bellman, global head of strategy for ING Real Estate.

‘But at the margin, opportunistic investors who looked at Asia are finding those opportunities back home.’

REUTERS

Source: The Straits Times

China faces ‘very severe’ unemployment

20m new jobseekers expected every year: labour minister

(BEIJING) China’s labour minister yesterday admitted that the booming economy faced a ‘very severe’ unemployment situation as millions of new jobseekers join the market every year.

The flood of new entrants in both urban and rural areas will continue for a long time, labour and social security minister Tian Chengping told a briefing here.

‘The employment situation that we’re currently facing is very severe,’ he told journalists. ‘The main reason is that 20 million new jobseekers emerge every year in the countryside and in the cities. This will continue for a very long time.’

Mr Tian said that measures to deal with the problem included encouraging more start-ups and providing retraining for workers with outdated skills.

Earlier last week, Premier Wen Jiabao called for more measures to boost employment, saying that the urban jobless rate should be kept below 4.5 per cent in 2008, compared with a 4.6 per cent target last year.

‘We must redouble our efforts to increase employment, a matter that is crucial to people’s well-being,’ Mr Wen told Parliament in his annual work report, the Chinese equivalent to the US president’s State of the Union address.

Unemployment and inflation are the two top priorities for Chinese policy makers, because they affect, or threaten to affect, a large proportion of the population.

The main reason the government is targeting at least 8 per cent growth every year is to ensure that enough new jobs will be created to avoid social unrest.

Compounding the problem, there is no clear picture of the extent of the jobless issue, as Chinese unemployment statistics are notoriously unreliable, and probably higher than the 4 per cent reported for the end of 2007.

They tend to understate the true scale of the problem by, for instance, not counting rural unemployment or workers laid off from state-owned enterprises. – AFP

Source: Business Times 10 Mar 08

Inflation likely to have hit 8.3% in Feb: Bank of China

Reports of bank’s estimate trigger speculation of interest rate hike

(BEIJING) China’s inflation likely hit a new 11-year high of 8.3 per cent last month on the back of rising food prices, state media reported yesterday, triggering speculation of a modest hike in interest rates.

Severe winter weather which crippled transport networks, and the Chinese New Year festival which traditionally brings a surge in demand, were also seen as helping to drive up the price of food and other basic commodities.

The estimate of 8.3 per cent was given by the Bank of China, the country’s second largest lender, and reported by the state news agency Xinhua.

It came ahead of tomorrow’s publication of official inflation data from the National Bureau of statistics, which is used by authorities to decide whether to tighten monetary policy.

The consumer price index (CPI) had already risen 7.1 per cent in January from a year earlier, the highest since September 1996.

‘Everybody knows it’s going to be more than 8 per cent in February. Logically, February’s CPI must be higher than January’s,’ said Chen Xingdong, Beijing-based chief economist with BNP Paribas Asia.

In its report, the Bank of China said that February’s increase in the CPI was fuelled mainly by food, which rose more than 22 per cent from a year earlier, according to Xinhua.

‘It is making things worse . . . when people expect prices to keep rising, they will spend more to avoid those future rises, which in turn will push prices up,’ it reported, quoting the bank.

The effect of the freezing weather across much of China was first felt in January, but the main impact was in February, BNP Paribas Asia’s Mr Chen argued.

Chinese New Year, the biggest consumption festival of the Chinese calendar, also came in February, adding upward pressure on the price of everything from firecrackers to plane tickets. China’s inflation is seen as triggered mainly by the relative scarcity of basic products, such as pork and other staple food items.

According to observers, this leaves economic policymakers with a dilemma when opting for the right response, even though the central bank governor said last week that there was ‘definitely room’ for more interest rate hikes.

If he does raise interest rates – the classic response to rising inflation – he could deter producers of these basic commodities, so making the problem worse.

Another problem is that since early 2007, China has hiked its interest rates six times, while the US Federal Reserve has steadily lowered them. As a result, the spread between the two has widened dramatically, with the benchmark US federal funds rate now at 3 per cent compared with 7.47 per cent for China’s one-year lending rate.

Chinese policymakers fear that a big gap between Chinese and US rates will attract more speculative funds into the economy. – AFP

Source: Business Times 10 Mar 08

India losing its status as world’s top outsourcing hub

China, Morocco and EEurope among new locations for global IT services providers

INDIA’S position as the No. 1 low-cost outsourcing destination is under threat, with China, Morocco and eastern European nations such as Hungary emerging as the sought-after locations by nformation technology (IT) services providers, a recent study has shown.

The study by Pierre Audoin Consultants has highlighted these new locations of choice to set up offshore sourcing centres. PAC is a European market research and strategic consulting firm.

According to the study, since January 2007, Britain’s 20 largest IT services suppliers have launched 21 new global delivery centres. However, only two of them are situated in India.

Four facilities were set up in China, while eastern Europe and Morocco had three each, the study added. The aim is to broad-base operations and not rely on one geographical location.

Although China has been slow to emerge as a global sourcing hub due to language barriers, the report found that BT Global Services, EDS, IBM and Tata Consultancy Services (TCS) have set up sourcing facilities in the country in the past 18 months.

‘India’s position as the premier low-cost IT sourcing centre is not under serious threat in the near term.

But what we are seeing is vendors (are) looking to reduce their reliability on India’s heated labour market,’ Nick Mayes, a senior consultant at Pierre Audoin Consultants, said.

In India itself, there is a movement away from the traditional IT hot spots of Bangalore and Mumbai, the study said, with this perhaps due to rising costs of operations.

IBM has set up its new centre in Delhi suburb Noida, while TCS’ expansion site has come up in Hyderabad.

While rising wages, a shrinking manpower pool and the appreciating rupee are some of the problem areas that outsourcing firms have to face in India, it is also true that the country’s position as the world’s top tech destination for outsourcing will take some beating.

Software body the National Association of Software and Service Companies has estimated that total software and services revenues should rise more than 33 per cent to reach US$64 billion in financial year 2007-2008. Software exports have been estimated to rise 28 per cent to cross US$40 billion.

Indian IT firms are looking at newer income streams from Europe and Japan to move away from dependence on the US, given the depreciating dollar.

Source: Business Times 10 Mar 08

When will market slide reach bottom?

Dow, S&P still remain above bear market threshold despite plunge

(NEW YORK) Recession may well be here, given the dismal February employment report last Friday. But on Wall Street, many investors still are having a hard time deciding how worried they should be.

The Dow Jones industrial average slid 146.70 points, or 1.2 per cent, to 11,893.69 for the day, falling through the low of 11,971 it set on Jan 22 and finishing at its weakest point in 17 months.

Yet, by the classic measure of a bear market – a drop of at least 20 per cent in share prices – the Dow is a holdout: It is down 16 per cent from its record high reached in October.

The broader Standard & Poor’s 500 index also remains above the bear- market threshold, despite mounting evidence of recession. It has lost 17.4 per cent from its October peak.

These numbers are handy enough for gauging the damage done. But what every investor would like to know is: How much worse will it get? If you figure that a 17.4 per cent drop in the S&P 500 is just a prelude to a loss of 40 per cent by the time the market’s sell-off has run its course, you might well opt to take some money off the table and wait it out.

You know what you’re going to hear from much of Wall Street at a time like this.

Brenton Luce, a portfolio manager at hedge fund Lakefront Partners in Cleveland, writes on his blog that investment pros’ usual advice to clients in down markets is to ’stay long-term focused’. That, he notes, ‘is code for ‘Yes, we have lost you a bunch of money lately. But we hope that the market turns positive soon and we hope that you stick with us until this happens’.’

It wouldn’t be surprising if the blue-chip stocks in the Dow and the S&P 500 were the last refuge for investors who have given up on other sectors of the market. Smaller stocks, for example, now are in bear-market territory, with the Russell 2,000 index of small-company issues off 22.9 per cent from its all-time high set in July.

Still, you might have expected a lot worse, given the trauma in the financial system from the housing bust and its collateral damage.

The credit crunch stemming from banks’ massive losses on delinquent home loans is showing few signs of un-crunching. Money remains very tight, and money is what financial markets need to move up.

The stock market’s slide last week was fuelled in part by worries about Fannie Mae and Freddie Mac, the two government- sponsored mortgage- finance giants that are supposed to help stabilise the housing market by stepping up their purchases of home loans. The companies’ stocks fell last week to their lowest levels in 12 years, and some investors became reluctant to buy their mortgage-backed bonds, which – in theory – are of the highest-quality.

That might have been too much for the Federal Reserve to brook. Last Friday, the central bank announced a major expansion of its emergency lending programme for banks, aiming to ease the credit squeeze.

Some market pros said that investors’ mood might actually improve if Fed officials and the White House would stop talking as if recession were avoidable.

Despite the credit markets’ continued deterioration, some money managers are betting that the stock market won’t get much worse.

A bottom ‘isn’t that far away’, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He figured that the S&P 500 could fall another 5 per cent or so, which would take it modestly over the 20 per cent loss mark.

Source: LAT-WP (Business Times 10 Mar 08)

Punggol River set for big change

Work starts on $7.13m project to create reservoir park with man-made island by 2010

WORK to transform the Punggol River into a scenic reservoir park, complete with a man-made island, got off the ground yesterday.

Prime Minister Lee Hsien Loong, who was at the official opening of the adjoining Anchorvale Community Club in Sengkang, symbolically released the first piece of the floating island – a clump of soil and grass – into the water.

For its design, the $7.13 million project will draw inspiration from a nearby fruit park being developed by the National Parks Board. Its pavilions will be shaped like mangosteens and its benches, like limes.

Work will be completed by 2010.

Punggol River is the first of five sites to be improved this year under the Active, Beautiful, Clean (ABC) Waters programme.

Launched by national water agency PUB in 2006, the $200 million programme is an ambitious island-wide revamp of 28 waterways.

The aim is to rejuvenate Singapore’s drainage and water-supply infrastructure, including the canals and reservoirs, and turn it into a scenic network of streams, rivers and lakes where people can enjoy water activities and even commute.

Giving a preview of the projects during the Budget debate a fortnight ago, Minister for the Environment and Water Resources Yaacob Ibrahim said, for example, that the Lower Seletar Reservoir would sport a heritage bridge, featuring story panels which will tell of the area’s kampung history.

Work on the pilot projects of Kolam Ayer and the Bedok and MacRitchie reservoirs is in its final phases and will be unveiled this year.

‘With these projects, we hope to bring waterfront living to the heartland, improve the quality of our living environment and enhance property values,’ said Dr Yaacob.

Source: The Straits Times 10 Mar 08