One man’s panic is another’s bargain…

Business Times – 15 Aug 2008

CDL chief points to some good buys as panic-sellers offload, but he’s not alarmed

(SINGAPORE) City Developments Ltd (CDL) executive chairman Kwek Leng Beng yesterday acknowledged that there have been some cases of high-end property buyers resorting to panicselling in the secondary market. These are people who’d bought their units during the early stages of the property boom ‘It is not as alarming as what some people think. Just bear in mind, because of a couple of transactions, these few swallows do not make a summer,’ he told analysts and journalists at a briefing to announce CDL’s second quarter results.
In some cases, these desperate sellers are offloading their units at prices that may be 20-30 per cent
below current market values, providing attractive bargains for astute property investors, Mr Kwek
said.

‘There are what I call bargains because some buyers, towards Temporary Occupation Permit or even
before TOP, just want to get out as long as they make $100 psf profit. ‘As an example, there were some projects launched at $2,200 psf. Then (the price) went up to $3,400-3,500 psf. Today there are some people who have gotten so frightened, they will sell off at $1,700 psf. That is the time, if you are smart enough, you can pick up (a bargain)! Buying property is not short term. Buying property is medium to longer term.’
High-end home prices are in a period of consolidation after a sharp escalation. ‘What has gone up in
a straight line will also come down,’ as Mr Kwek put it.
‘My key advice to you is as long as you can service your instalment and with the (current) cost of
construction so high, how can you be worse off than during the bad times in ‘96 and ‘97? If you are
smart enough to pick up (a property) when some people want to commit suicide, you just pick (it) up
cheap – keep it, rent it, stay – there’s your chance.’

Saying he was not too worried about the current consolidation, he added: ‘This is the time you should
buy. This is not the time you should get out, unless of course circumstances dictate that you should
get out.’

Regaling his audience with an anecdote, Mr Kwek said: ‘For example, The Sail @ Marina Bay, we
started selling at $900 psf, and the price went up to $3,000 psf-plus. The other day, somebody told
me that his friend, a broker, said there’s one unit, ninth floor, $1,800 psf. He asked me: ‘Do you want
to buy?’ I said: ‘Which unit? I want to check. I am going for a meeting. When I come back, we’ll talk
about it.’ By the time I came back, the whole thing was gone.’

The high-end residential sector will recover ‘when the sub-prime crisis is over and the integrated
resorts are in operation’, Mr Kwek said. ‘You’ll have a lot of high rollers coming in. They come in, they
like Singapore – very clean, things get done. We have a lot of (positive) attributes but we’re always
taking them for granted.’

Mr Kwek, who is also chairman and managing director of Hong Leong Finance, said that although ‘we
don’t have Freddie Mac and Frannie Mae’ here, Asia will be hit to some extent by the sub-prime crisis.
‘However, our banks are well capitalised. Monetary Authority of Singapore is monitoring closely.’
He also recalled Minister for National Development Mah Bow Tan’s comments that ‘they don’t want to
see property prices going (up) in a straight line nor do they want to see it going down in a straight line.
So I am confident they are monitoring the whole situation’.

Much of CDL’s land bank, even in the high-end, was acquired at relatively cheap cost. ‘As an
example, for the Lucky Tower site (at Grange Road), if I were to launch my project tomorrow at
$2,500-$2,600 psf, I can still make very healthy profit compared to Cliveden (nearby) which we sold at
$3,750 psf. It’s a question of whether I want to let go at $2,500 psf or whether I should keep it.

‘Don’t forget if you go ahead and construct, you incur two sets of interest costs – on land and
construction. By the time the market improves, the (unit) sizes and the design may be outdated, so
you cannot maximise the profit from that. It’s better to keep the land and wait for a better opportunity
before you sell.

‘I’m sure some (other) developers feel the same way. I will guarantee you many of these people will
not go ahead with construction,’ Mr Kwek said.

CDL, in its results statement, also cited other reasons why a feared oversupply of new private home
completions may not materialise. Tight bank financing is making developers more cautious in their
land purchases. The sharp hike in construction costs means developers who delay their launches
may hold back their construction plans as well. Given tight construction resources, contractors may
continue to find it hard to complete projects on schedule.

Just one bid for Tampines condo site

Straits Times
Aug 13, 2008

THE property slowdown was clear for all to see yesterday when the tender for a condo site overlooking Bedok Reservoir closed with just one bid – and at a price well below expectations.

The Urban Redevelopment Authority (URA) will likely refuse to award the 3.2ha site, given the poor offer, consultants said.

Boon Keng Development bid $84.6 million, or $118 per sq ft (psf), for the 99-year leasehold site but consultants had expected anything from $150 to $230 psf.

Apartments on the site could sell for up to $700 psf, they said.

If Boon Keng does secure the site at the junction of Tampines Avenues 1 and 10, its break-even would be about $480 to $500 psf. It would then be able to sell the apartments for around $600 psf, said Knight Frank’s director of research and consultancy, Mr Nicholas Mak. But he does not expect the URA to sell the land at such a low price.
The increasingly cautious mood among developers explains why the site drew only one bid.

‘If this site was not on the confirmed list, it may not be triggered for tender,’ said Mr Mak.

Confirmed list sites are tendered out at pre-determined dates regardless of whether developers have shown interest.

‘If confirmed list sites were launched for tender in an increasingly uncertain market, they would attract opportunistic bids, such as the one we witnessed today,’ said Mr Mak.

Savills Singapore’s director of business development and marketing, Mr Ku Swee Yong, who had tipped bids of $150 to $180 psf for the site, said: ‘Most developers have ample land, so unless a choice plot is available, they won’t bid.’

Rising building costs are forcing developers to look for cheaper land. In such a climate, the Government has to decide whether to lower reserve prices to ensure a steady supply of mass-market private housing, or maintain the value of plots on the sales list as they form part of the nation’s reserve, said Mr Mak.

He does not expect any residential site on the government sales list to be triggered for tender unless reserve prices are lowered. If not, there could be a sharp drop in the sale of residential land from the Government this year.
Singapore tenders out land on the reserve list if developers indicate interest by committing to a minimum bid acceptable to them.

MTI expects a lingering slowdown, sluggish rebound

Business Times – 12 Aug 2008

Price fears ease but Q2 growth down to 2.1% on pharma swings and electronic weakness

(SINGAPORE) Concern here over price pressures will likely take a back seat to growth risks in the
months ahead, as global inflation looks to be peaking but no quick economic rebound is expected
anytime soon in the major economies.
A senior Ministry of Trade and Industry (MTI) official yesterday described the Singapore economy -
which grew just 2.1 per cent in the second quarter – as being in a ’stretched-U’ slowdown, with
sluggish growth and probably no pickup for a while.

The Q2 growth – slowest in five quarters – brings GDP growth in the first half to 4.5 per cent, which
also happens to be the midpoint of the newly-downgraded 2008 growth forecast of 4-5 per cent. This
has been narrowed from an earlier estimate of 4-6 per cent.

With weak external demand, the 2008 forecast for Singapore’s non-oil domestic exports (NODX) has
also been slashed – by six percentage points. From growing 2-4 per cent this year, NODX are now
expected to fall by that range. It would be the first contraction in the key trade indicator since 2001.
But ‘this is not looking like a very sharp slowdown’, MTI second permanent secretary Ravi Menon said
at a media conference on the Q2 economic results. ‘So you’re not looking at a V-shape kind of
situation where there’s a sharp plunge and a sharp rebound.’

In other words, there also isn’t ‘the kind of decisive turnaround that you see in previous business
cycles’, he added. ‘It’s probably going to take a bit of time this time around. It looks like this slowdown
will continue into 2009.’

The global economic dynamics will remain fluid over the next 12-18 months, Mr Menon reckons, with recovery hinging on the state of global credit and asset markets.

‘Credit remains tight; financial institutions have become more riskaverse, weighed down by weak balance sheets which will take some time to repair,’ he notes. ‘The (US) housing market has continued to decline and probably has some way to go.’ As a result, consumer sentiment and domestic demand in the industrial economies are dampened.

Against the preceding Q1, Singapore’s GDP fell 6 per cent in Q2 in adjusted, annualised terms. A negative Q3 would spell a technical recession. While MTI does not expect one, Mr Menon said it cannot be ruled out.
‘All you need is an industry or sector to swing wildly and that could happen,’ he said. As it is, the Q2 slowdown is due largely to a sharp fall in biomedical manufacturing as the pharmaceutical companies here switched to products with lower value in the quarter.
If pharma output were excluded, GDP growth in Q2, instead of 2.1 per cent, would possibly have
been almost twice as high. DBS Bank economist Irvin Seah has estimated it at 3.6 per cent.

Electronics output was also virtually flat in Q2 in the face of weak global demand. As a result, the manufacturing sector contracted 5.2 per cent in the quarter. If the downturn persists, there would ‘probably’ be some job losses in manufacturing, Mr Menon said.

MTI expects the electronics industry to remain soft in the second half of 2008. And pharma output is
expected to be hit by competition from generic drugs and delays in new product approvals, even if the
industry’s medium-term outlook is bright. But wholesale trade and the services are ‘likely’ to remain
robust and help shore up economic growth.

And while inflationary pressures have eased, Mr Menon warned that ‘we’re not yet out of the woods’.
So ‘we’re in for a rough ride but we should stay above the water’, he said, adding that GDP growth in
the second half of the year should be ‘broadly similar’ to the first half. Full-year growth will likely come
in within the lower half of the revised forecast, he added.

Most economists here have largely ‘priced in’ the poor outlook in their forecasts, though a few – such
as the United Overseas Bank team – cut their GDP growth forecasts yesterday following the Q2
release.

Even more bearish, Standard Chartered Bank’s economists believe a technical recession here is on
the cards, and see the Singapore economy growing only 3.5 per cent in 2008. They also expect the
Monetary Authority of Singapore to start shifting – from its appreciation stance over the past 10
months – to a neutral bias on the Sing dollar.

State property at Changi on offer

Business Times – 12 Aug 2008

The parcel has a land area of 104,044 sq ft and GFA of 54,864 sq ft

HOTEL operators can look forward to another state property to develop – this time at Changi.
The Singapore Land Authority (SLA) yesterday launched the plot – part of a former military camp – for
public tender.

The tenancy, for an initial three years, is renewable up to 2018. The guide rental is $28,500 a month.
The parcel has a land area of 104,044 sq ft and a gross floor area (GFA) of 54,864 sq ft. It comprises
two three-storey buildings and a shed.

‘SLA is offering a number of vacant state properties for adaptive re- use, such as hotels and lifestyle
attractions, in line with the government’s vision for Changi Point as a seaview hotel, resort and
recreational destination,’ said Teo Cher Hian, SLA’s director for land operations (private).

Since last year, SLA has awarded four state properties in the Changi area for adaptive commercial reuse. Two are now restaurants, while the former Changi General Hospital is being turned into a spa resort.

Groundbreaking takes place next month and the resort is expected to be ready by next year.
The Singapore Tourism Board (STB) says leading hoteliers have expressed keen interest in the latest
property.

According to STB, mid- tier and economy hotels enjoyed average room occupancy rates of 85 and 87
per cent respectively in the first half of 2008.

Nicholas Mak, director of research and consultancy at Knight Frank, said the successful tenderer for
the Changi plot will have to come up with a unique concept.

He said the hotel needs to play on Changi’s laid- back character and is likely to be mid-tier.
The first state property to be converted for hotel use, at Chin Swee Road, is a boutique establishment
with 140 rooms. It officially opened in mid-May, with an initial occupancy rate of about 50 per cent.

S’pore Q2 GDP up 2%

Business Times – 11 Aug 2008

SINGAPORE – Singapore’s economy grew at the slowest pace in five years. The gross domestic product expanded 2.1 per cent in the second quarter, after growing 6.9 per cent in the first quarter.

The Ministry of trade and Industry said on Monday the economy was hurt by a plunge in drugs output and stagnant growth in the electronics industry.

‘The lower growth in the second quarter was mainly the result of a sharp contraction in biomedical manufacturing value-added, reflecting a switch in product mix to pharmaceutical ingredients with lower values compared to a year ago,’ MTI said in a press release.

It also said the economy shrank at a annualised rate of 6 per cent in the three months to June, the second contraction in three quarters.

The latest GDP figure was better than an advance official estimate of 1.9 per cent growth. Manufacturing shrank 5.2 per cent in the second quarter from a year earlier, while construction increased 17.4 per cent.

The service sector continued to grow at a healthy pace, thought slightly slower than in the first quarter. The financial services sector expanded 10.2 per cent while the business services was up 7.5 per cent.

The Ministry said the full-year growth target for 2008 has been cut to 4.0-5.0 per cent from 4.0-6.0 per cent, a downward revision first announced by Prime Minister Lee Hsien Loong in his National Day message on Friday.
It said the revised growth target ‘is consistent with the moderation in economic growth seen in the second quarter.’

It said the outlook for the second half of the year was not expected to improve much with major economies seeing a slowdown that would in turn affect exports from Asia, including Singapore.

MTI said it expected the ‘electronics industry to remain soft in the second half of 2008, reflecting weak demand for semiconductors.
On the short-term outlook of biomedical manufacturing, it said the sector ‘will be weighed down by global trends such as strong competion from generic drugs and delays in approvals for new pharmaceuticals.’

All eyes on IRs now

Business Times – 09 Aug 2008

Apart from a surge in tourism, jobs and tax receipts, Singapore’s two integrated resorts could bring in new investors

WITH expectations of a big boost to the economy, more buzz and the promise of thousands of jobs, it
is no wonder we are all a little anxious to see Singapore’s two integrated resorts (IRs) completed.

Citi analyst Chua Hak Bin believes that the biggest challenge facing the IRs now is ‘probably to
contain costs given the run-up in building material prices and completing the resorts on schedule’.
‘Getting the resorts up and ready by late 2009 or early 2010 would be regarded as a big success,’
added Dr Chua. ‘The greenlight for the integrated resorts was an important turning point for the
economy and property market. Investors could see the potential upside given the stunning growth
seen in Macau and Las Vegas,’ notes Dr Chua.

Will the IRs deliver?
Dr Chua believes that the impact from the IRs will come in two phases. ‘The first phase comes from
construction spending and improved sentiment, particularly from enhanced property values,’ he says.
‘The gains in the second phase comes from the surge in tourism, jobs and tax receipts,’ he adds.
Many have already benefited from ‘enhanced property values’ especially those who bought property
around Marina Bay and Sentosa in 2005 and 2006. But as investors now know, this ’sentiment’ driven
boost has not really been sustainable.

Dr Chua also notes that recent tourism figures suggest that visitor arrivals are being hit by a global
slowdown, stronger Singapore dollar, and higher travel costs. ‘Annual visitor arrivals could rise
sharply from the current 10.4 million, but may fall short of the government’s target of 17 million by
2015,’ he adds.

In 2006, before the sub-prime crisis set in, it was estimated that Marina Bay Sands (MBS) and
Resorts World at Sentosa (RWS) could each generate about $2.7 billion of value-add – about 0.8 per
cent of Singapore’s GDP – by 2015.

Dr Chua believes the IRs will still be a stimulus and expects GDP growth of about 0.3-0.5 percentage
points in 2010-2015. In this light, the casinos will have to perform.

The casino licence was very much the sweetener for both IR operators to pump in over $10 billion to
build the resorts. But now, even the outlook for gaming is not so certain with gaming revenues in Las
Vegas expected to fall this year.

Jonathan Galaviz of Globalysis, a Las Vegas-based boutique travel and leisure sector strategy
consultancy, says that while the casino gaming industry has been traditionally recession resistant, ‘it
is not recession proof’.

‘This is especially the case when an industry, such as airlines, indirectly inhibits the ability of tourists
to visit a destination like Las Vegas due to higher airfares,’ he adds.

And this does not bode well for other gaming capitals. ‘If East Asia were to experience a significant
economic downturn, then Macau would surely be affected, the question would only be by how much,’
says Mr Galaviz.

Singapore’s IRs are also very much modelled after the mega resorts of Las Vegas and the new
developments in Cotai, Macau. And the success of this model is still pending. ‘It will take a long period
of at least 5-10 more years to see whether the integrated resort model of entertainment in Macau has
been a successful strategic endeavour,’ Mr Galaviz says.

In the mean time, work on the IRs here continues. With barely a year to go, MBS says that, ‘a great
majority of construction works have been awarded’.

RWS said it has given out more than $2 billion worth of contracts. It added that rides and attractions
for Universal Studios Singapore are currently being designed and pre-fabricated off-site in places
such as the US and Europe.

When the IRs are up, the much anticipated ’second phase’ economic euphoria can begin. Savills
Singapore has analysed the impact of new gaming resorts on property markets and concluded that
while Singapore has undergone major structural changes, with new concepts such as waterfront
housing, integrated hotels and new retail formats, some of the impact has already been priced in.
Still, Savills director (marketing and business development) Ku Swee Yong says: ‘The publicity and
attention from tourists and high rollers could bring in new investors and many more jobs. With
Singaporeans almost fully employed, the foreign talents needed to fill these jobs add to demand for
residential units and office space.’

But Mr Ku adds: ‘The period and degree of sustainability will depend on the money spent by the
tourists, MICE groups and the spin-off they create for the economy and the financial services and
tourism sectors.’

The good news is that both are scheduled to open on time. MBS maintains that it will be completed by
December 2009 and RWS confirms it will open in early 2010. ‘As our resort is massive at 49 ha with
varied offerings, we are indeed opening in progression, starting with Universal Studios Singapore,
Hotel Michael, Maxims Residences, Hard Rock Hotel, Festive Hotel, FestiveWalk, as well as the
casino in early 2010. The rest will open progressively,’ adds RWS assistant vice president,
(communications) Robin Goh.

One of the bigger challenges at the IRs is labour. Mr Goh says: ‘Finding talent, training them, and
then retaining them – is no walk in the park.’

MBS managing director George Tanasijevich adds: ‘We are working closely with the Singapore
government and relevant government agencies to ensure there is a proper balance in the labour pool
in order to maintain a stable and competitive labour market overall. Priority will be given to
Singaporeans for all roles.’

That the IRs are projects on a national scale is not lost on the operators either.
RWS’s CEO says: ‘Singapore’s founding fathers built this country into what it is today, with very little
and within a very short time. Resorts World at Sentosa strives to replicate her success, and make
Singapore proud with a destination that will rank as Asia’s No 1 leisure spot when it opens in 2010.’

Challenges for property sector

New engines drive Singapore’s property market but pitfalls remain

THE Singapore property market has weathered the storm from the US sub-prime crisis, soaring oil
prices and overall inflation, pretty well.

Runaway increases in property values in the high-end residential and prime office sectors seen in the
past couple of years, for instance, have started to ease. But they have not dived, and panic has not
set in, at least not so far.

Knight Frank managing director Tan Tiong Cheng says: ‘To some, this is a welcome breather from the
breakneck pace of increases recorded in the last 24 months.’

CB Richard Ellis chairman (Asia) Willy Shee too observes: ‘The overall market has displayed some
resilience. In the office market, there’s still demand for office space with occupiers still looking to precommit office space in yet-to-be completed buildings.’ While the private housing market is not as
buoyant as last year, transaction volumes have picked up in second quarter this year with
encouraging sales from mid and mass-market projects, he adds.

Market watchers feel that in the short-term, property values could head south, driven by near-term
fundamentals. However, the mid-term prospects for Singapore’s real estate sector are generally
considered sound. As a major developer puts it: ‘Population growth, global and regional wealth
creation, sustained government investment in infrastructure, the perennial sharpening of Singapore’s
competitive edge, limited land, security and political stability, internationalisation of the property
market – all these must be good for Singapore real estate prices in the long run.’

The Remaking of Singapore has helped create sound fundamentals for the local property market. The
government’s decision to break from the past and go ahead with developing two integrated resorts
with casinos as well as its efforts to position Singapore as a leading contender in the race among
global cities to attract wealth and talent have boosted the island’s prominence on the radars of
international property investors.

New engines for growing the Singapore economy have also been put in place and this to some extent
may also help shield the island and its property market from the full impact of what’s happening in the
US.

Investments and job creation from the IRs, Sports Hub, expansion plans for rail network and other
infrastructure projects, Singapore’s policy of welcoming foreign talent to its shores, and the strategy of
positioning Singapore as a hub for various industries – financial industry/wealth management, tourism,
education and healthcare – are expected to provide momentum for Singapore’s economy.

‘The IRs, F1, Sports Hub and Youth Olympic Games surprised observers who think that Singapore is
only a clean and safe place to do business but never a place where you can let your hair down,’
observes Knight Frank’s Mr Tan.

‘What do these initiatives mean to savvy investors? They mean that we are perceptive in discerning
changes in the global world, have the will to question old assumptions and have the courage to move
a population to accept initiatives that can be potentially divisive.

‘That the government and its people can move together to tackle challenges ahead demonstrates the
inherent strength of the country as a global city to do business and a place to live,’ Mr Tan added.
DTZ executive director Ong Choon Fah said: ‘Wealth management industry is still a very big thing
here. Wealth from high networths in Asia – China, India – is flowing into Singapore. With IRs and the

F1 race, Singapore is being marketed as a playground for the rich and famous. Family offices and
philanthropy are fast being added to the suite of services offered by private bankers.
‘The removal of estate duty has been a major boost to Singapore’s ambitions to be a wealth
management hub.’

New challenges
But the road ahead for the local property market is paved with challenges. Colliers International
director of research and advisory Tay Huey Ying argues that the ‘mid-term optimism for the Singapore
property market is underpinned by the IRs and the Marina Bay Financial Centre (MBFC). ‘If these
projects do not deliver, confidence may be shaken,’ she warns.

To be considered successful, the IRs will have to be able to continuously attract visitors year after
year and not fizzle out after the initial novelty wears off. Similarly, the MBFC can be truly considered
an achievement for Singapore’s aspirations to be a leading financial centre if the movement of tenants
into MBFC does not create a vacuum in existing office buildings that can’t be filled within a short span
of time; otherwise, it may just show there’s not that much depth in Singapore’s financial industry, Ms
Tay reckons.

In the residential property market, a short-term challenge that could materialise is if substantial
numbers of home buyers who’ve purchased private homes on deferred payment schemes in the past
few years begin to panic and dump their properties as the projects’ completion dates loom closer.
That would be the time when these buyers have to pay the bulk of the purchase price to developers,
and if some of them think they may have difficulty finding home loans, especially if they are still
holding on to several such units, they may panic and dump their properties at lower than current
market prices.

Such a scenario would be a house hunter’s dream, but could destroy wealth for the majority of
Singaporeans who already own their own homes.

‘Instead of subjecting themselves to panic selling, these property owners may wish to bear in mind
Singapore’s mid-term prospects and should try to hold their properties by securing a financing
package or a tenancy for their property,’ Ms Tay suggests.

Escalating construction costs
Escalating construction costs are another big concern going ahead. ‘The high construction costs
could translate into high purchase cost for buyers and investors of private property assets as well as
contribute to inflationary pressure for end-users of public infrastructure,’ says CBRE’s Mr Shee.
‘The high construction costs would also eat into developers’ profit margins and hence reduce the
incentive for developers to undertake new projects or acquire sites from the Government Land Sales
programme,’ he adds.

On the macro political front, Knight Frank’s Mr Tan says an immediate challenge is the confluence of
unstable political situations in three neighbouring countries – Malaysia, Thailand and Indonesia (which
will have a election next year). ‘Put simply, we’re a good property in a bad neighbourhood,’ he said.
CBRE predicts that office rentals are approaching a peak. The average monthly Grade A rental value
rose to $18.80 per square foot in Q2 this year, an increase of 43.5 per cent from the same period last
year. With completions of major office projects from 2010, including MBFC Phase 1 and 50 Collyer
Quay, the property consultancy group predicts the average Grade A office rental will ease to $12-15
psf post-2010.

On a more optimistic note, it highlights that with all the new office developments coming up, a
significant amount of future office stock will constitute world-class modern Grade A buildings. ‘Around
64 per cent of the office completions in the next five years will be Grade A quality,’ Mr Shee says.
For the private residential sector, CBRE has said a correction of residential prices to the tune of 5 to
10 per cent in the second half of this year is likely as the global economy suffers the continued
onslaught from the sub-prime mortgage meltdown and inflation.

Riding the turbulence
Colliers’ Ms Tay highlights the importance of a sound government land supply policy – ‘not just shortterm reactions’ – will help the local property market to ride out the challenges ahead.

‘For individual home buyers and sellers, they should arm themselves with the right information instead
of succumbing to herd instinct or following their emotions,’ she adds.

Knight Frank’s Mr Tan says: ‘Demand for real estate is dependent on economic prospects. With
strong economic fundamentals, I have no doubt that interest in real estate in Singapore by local and
foreign institutional investors will return once the current market turmoil blows over.

In similar vein, CBRE’s Mr Shee says: ‘Fundamentally, the long-term development of the office, retail,
residential and hospitality sectors will not change in spite of the present global financial worries.

‘It was all these government initiatives that attracted a fresh wave of foreign investment into
Singapore in the last 24 months, and it will be these developmental drivers that will continue to attract
investment from various parts of the world to Singapore.’

From exuberance to caution

In just 12 months, Singapore has swung from Boom Town to seeing its slowest quarter in five
years.

ONE year ago, economic and business sentiment in Singapore was probably at an all-time high: The
property market was on a roll, banks and finance houses went on a hiring spree, and the economy,
flush with liquidity, looked headed for a fourth year of 7-9 per cent growth.

The signs spelt Boom Town everywhere you looked, and economists predicted that Singapore, restructured and reinvented, would trail only China and India among Asia’s fastest-growing economies for years to come. Whiffs of (near-irrational) exuberance were much in the air. Then, bang! Just days before National Day 2007, a global financial market meltdown threatened the party mood. The balloons popped, but as it turned out, the Singapore economy’s strong first-half momentum was enough to see it through the year. Gross domestic product (GDP) growth for 2007 still turned in at a robust 7.7 per cent.

Twelve months on, the mood is decidedly more sombre. Overnight, it seems, the property bubble (of
‘exuberance’, not so much ‘excess’ this time) burst, the buzz in the finance sector has all but fizzled,
hot hiring has cooled (with even talk of selective retrenchment in some segments), and the economy
has now seen its slowest quarter in five years.

Has there been a crack in the domestic underpinnings somewhere, or is – as is widely assumed – the
small open economy just taking hits from external headwinds?
The much-heralded US economic slowdown has finally come to pass, compounded by a sub-prime
mortgage crisis that continues to wreak havoc through not only the American economy but pretty
much globally, in second or third-round hits.
Slower growth has also set in elsewhere in the developed world, following several years of robust
performance. Not least, a surge in global energy and food prices has pushed inflation to the fore of
policy concerns in just about every part of the world.

And latest analyses by economists list more than several major economies ‘navigating towards (or
through) recession’ – including the US, Canada, Spain, Ireland, Italy, the UK and New Zealand.
Germany, France and Japan are also seen to be teetering on the brink of recession. In other words,
as RGE Monitor notes, a full-fledged G-7 recession in the making.

With this outlook, coupled with ever-present risks of yet another bout of global financial turbulence, it
is interesting to see some fairly upbeat forecasts of East Asian resilience, like the Asia Development
Bank’s (ADB) that expects the region to weather the global economic turmoil ‘relatively well’ and grow
7.6 per cent this year and next.

ADB has the Singapore economy growing 4.9 per cent in 2008 and 5.8 per cent in 2009 – probably a
little more bullish than the consensus here at this point – on the back of strong domestic demand
(driven by business investment) and buoyant exports. It’s not apparent that Singapore’s exports will
be too ‘buoyant’ this year – the official forecasts of 2008 export growth were pared a few months ago,
and still the May and June trade figures proved unexpectedly bad. Economists also generally see
Singapore – given its size, structure and exposure – as the region’s most vulnerable to a global
downturn.

Has the slowdown exposed, or widened, Singapore’s fault lines? Sure, inflation surged through the
economy, price pressures piled up. But apart from ever greater external uncertainties and a fall in
sentiment, fundamentally what has changed in the six months or so between Boom Town exuberance
in 2007 and sombre caution in 2008? Problems such as structural joblessness in older Singaporeans
and a growing income disparity have not and cannot be swept away overnight.

That said, none other than Minister Mentor Lee Kuan Yew has declared that the next five to 10 years
will be Singapore’s most promising yet as it stakes its place among the world’s top cosmopolitan
global cities.

‘We are moving to a new plateau, a new platform. You can see it visibly before your eyes,’ Mr Lee
said last month.

It’s surely a vision to inspire all Singaporeans. But, for all the spin around Singapore’s restructuring
and transformation, enhanced by a huge influx of foreign skills, some believe that its fortunes – and
Asia’s – will, for the foreseeable future, still largely be tied to the global economy. Which also means
that Singapore can and will ride on the next upturn, when – or if – it comes.

Business Times – 09 Aug 2008

Growth in office occupancy costs tapers off in Q2

Prime Raffles Place space up only 1.1% quarter on quarter: DTZ report

GROWTH in office occupancy costs in Singapore has started to taper off after the meteoric rise last year, reflecting the increased resistance to higher occupancy costs, according to a new report.

‘Apart from Raffles Place, Shenton Way/ Robinson Road/Cecil Street and decentralised areas, growth in occupancy costs in other areas like Marina Centre and Orchard Road was flat in 2Q 2008,’ said DTZ in its second-quarter office market brief.

Average occupancy cost of prime office space in Raffles Place grew only 1.1 per cent quarter on quarter to $19 per square foot per month (psf pm) in the second quarter of 2008. In the Shenton Way/Robinson Road/Cecil Street area, the average office occupancy cost rose by 2.6 per cent quarter on quarter to $11.80 psf pm, while office buildings in HarbourFront enjoyed a higher growth of 5.3 per cent to $10 psf pm.

By contrast, in the first quarter of 2008, occupancy costs continued to rise amid a dearth of supply. Prime occupancy cost in Raffles Place gained 13.9 per cent quarter on quarter to $18.80 psf pm in the first quarter of 2008, for example.

‘As more new supply come on stream, office occupancy is likely to ease and limit growth in occupancy costs in the CBD for the rest of 2008,’ said DTZ, referring to the Central Business District.

However, the report also said that the cautious business outlook and companies gravitating towards cheaper premises like decentralised office buildings, industrial properties, business parks and disused state properties are putting a downward pressure on office occupancies.

Islandwide, average occupancy eased by 0.2 percentage point quarter on quarter to 96.9 per cent in Q2 2008. As a result of occupiers moving out to cheaper locations after lease expiration, office occupancies in
Raffles Place and Marina Centre dropped by 0.3 percentage point to 97.4 per cent and 1.2 percentage points to 98.6 per cent respectively.

But over in decentralised areas like Novena and HarbourFront, occupancy levels rose by 0.4 percentage point to 99.0 per cent and 1.1 percentage points to 98.7 per cent respectively, supported by lower occupancy costs.

DTZ also released its Q2 2008 office report for Kuala Lumpur yesterday. Gross occupancy costs for prime buildings in the Malaysian city rose 3.9 per cent quarter on quarter to RM6.32 (S$2.65) psf pm in the second quarter of this year, the property firm said.

But despite this, financial institutions with presence in Singapore are considering locating call centres
in Kuala Lumpur because of cost differential and special tax breaks, DTZ said in response to a query
from BT.

Source: Business Times 5 Aug 08