Mapletree Logistics Trust

Source : The Business Times, September 27, 2007

OVERVIEW

MAPLETREE Logistics Trust (MapletreeLog) is a pan-Asia logistics Reit which invests in a diversified portfolio of income-producing real estate-related assets. It aims to harness the growth of the supply chain and logistics business in Asia.

Mapletree Logistics Trust Management is the manager of MapletreeLog. It aims to deliver stable total returns to MapletreeLog's unitholders through its 'Yield plus Growth' strategy by undertaking:

* Yield-accretive acquisitions of good-quality logistics properties in Asia

* Positive asset enhancement measures to improve the organic returns from MapletreeLog's property portfolio

* Optimisation of capital structure and effective risk management

The MapletreeLog portfolio has grown by more than four times since it was listed to 61 completed properties in China, Singapore, Hong Kong and Malaysia with a book value of more than $2.2 billion. When the trust was listed in July 2005, we had 15 properties in Singapore with a book value of $422 million.

This progress brings us closer to our goal of achieving a portfolio size of $5 billion for MapletreeLog by 2010.

We are confident of meeting our distribution per unit (DPU) forecast for FY07. In fact, by 1H 07 we achieved a distribution per unit (DPU) of 3.07 cents, which is more than half of our FY07 forecast of 5.69 cents.

We are exploring new markets in Vietnam, South Korea, Thailand, India and Taiwan. By diversifying, our unitholders enjoy more stable distributions as income streams are not significantly affected by the impact of fluctuations in single markets.

Our future looks optimistic. Asian economic growth is expected to remain strong, which bodes well for the logistics and logistics real estate sectors.

With the outsourcing trend gaining momentum worldwide, there is an increasing demand for the supply chain services provided by third party logistics (3PL) players. To support the growing volume of supply chain activities in Asia, more good quality logistics facilities are needed.

By having a pan-Asia portfolio of quality, high-specification logistics real estate which are either located close to major transportation hubs, ports or airports or in established industrial and distribution hubs, MapletreeLog aims to be a strategic real estate solution provider to these 3PLs as they expand in Asia.

Macquarie MEAG Prime Reit

Source : The Business Times, September 27, 2007

MACQUARIE MEAG Prime Reit (MMP REIT) is a Singapore-based real estate investment trust (Reit) investing primarily in real estate used for retail and office purposes, both in Singapore and overseas.

It is the only S-Reit to own two landmark properties on Singapore's prime shopping street Orchard Road with a 74.23 per cent strata title interest in Wisma Atria and a 27.23 per cent interest in Ngee Ann City.

Since listing in September 2005, MMP REIT has consistently outperformed IPO projections. Total absolute returns for unitholders who have held MMP REIT units since its listing stand at 35 per cent.

In May, the Reit acquired seven quality properties located in the prime areas of Tokyo, Japan for $182.5 million.

In August, MMP REIT completed the acquisition of a 100 per cent interest in a premier retail property in Chengdu, China for $70 million.

These recent acquisitions mark the first stage in delivering on its regional strategy to diversify income and the Reit's geographical footprint.

New acquisitions will be sourced through its network which includes existing partners, agents and Macquarie Bank, MMP REIT's financial sponsor. These acquisitions could be secured through direct and indirect acquisitions, joint ventures, co-investment with Macquarie Bank-linked funds and development. MMP REIT is managed by Macquarie Pacific Star Prime REIT Management Limited, a joint venture between Macquarie Bank Limited, MEAG MUNICH ERGO AssetManagement GmbH and Investmore Enterprises Ltd.

MacarthurCook

Source : The Business Times, September 27, 2007

HEADQUARTERED in Melbourne, Australia, and listed on the Australian Stock Exchange, MacarthurCook Limited (ASX Code: MCK) is an international real estate investment manager specialising in the investment management of direct property, real estate securities and mortgage assets.

In October 2006, MacarthurCook expanded into the Asian region with the establishment of its Asian headquarters, MacarthurCook Investment Managers (Asia) Limited, in Singapore. This was followed by the secondary listing of the MacarthurCook Property Securities Fund on the SGX-ST on December 22, 2006, which was listed on the Australian Stock Exchange since December 2004. On April 19, 2007, the MacarthurCook Industrial Reit was listed on the main board of the Singapore Exchange Securities Trading Limited (SGX-ST).

Worldwide, MacarthurCook currently manages a total of 13 funds investing in real estate and real estate-related securities, with total funds under management in excess of A$1.5 billion, on behalf of over 25,000 investors.

Frasers Centrepoint Trust

Source : The Business Times, September 27, 2007

FRASERS Centrepoint Trust (FCT) is a leading developer-sponsored retail real estate investment trust (Reit) focused on growing shareholder value for its unitholders through growing its investments in retail malls and active asset management. The sponsor of FCT is Frasers Centrepoint Limited, a leading Singapore-based property company and the property arm of Fraser & Neave, Limited.

(Picture : Causeway Point in JB)

FCT's primary focus is to be a leading retail mall owner and manager, and it looks to deliver sustainable distribution per unit (DPU) growth to its unitholders. Over the past 12 months, FCT has grown its DPU through four strategic growth thrusts: building up of pipeline assets for future injection into the Reit; growing through increasing its rental reversions; growth through asset enhancement initiatives, and growth through overseas expansion. There is certainty of growth as FCT gains further traction in these strategic growth thrusts over the next 24 months.

FCT's initial portfolio consists of three well-established quality suburban malls: Causeway Point, Northpoint and Anchorpoint, located in densely populated and growing residential areas with excellent connectivity to MRT and public transport. These malls enjoy high occupancy rates and dominant positions in their respective trading areas.

In the past four quarters, FCT has grown its acquisition pipeline to four identified assets: Northpoint 2, YewTee Point, a greenfield development at Bedok Town Centre, and The Centrepoint, providing a high degree of growth certainty for investors. These identified assets are set to double FCT's net lettable area from 638,786 sq ft to more than 1.2 million sq ft upon injection.

Anchorpoint's asset enhancement is the first in a series of three mall asset enhancement initiatives. At a cost of more than $12 million, the asset enhancement initiative to reposition Anchorpoint with a village-mall concept commenced in May 2007 and is on schedule for completion at the end of November 2007. Visitors will enjoy a new shopping and F&B experience at the new Anchorpoint. The repositioned mall will have a strong F&B offering with a wider range of retail concepts in cozy village mall setting.

Further, Anchorpoint will feature a unique cluster of factory outlet concepts currently not found in any other Singapore mall with initial signings that include Charles & Keith, FOS, G2000 and Club Marc.


















FCT seeded a Malaysian growth platform in May 2007 through a strategic investment in Hektar Real Estate Investment Trust (Hektar), Malaysia's only pure retail Reit. The investment of a 27 per cent stake in Hektar provides FCT with a yield-accretive investment in an underlying portfolio of prominent and high quality suburban regional malls in Malaysia - namely Subang Parade in Selangor and Mahkota Parade in Melaka. These retail malls have a total net lettable area of about 944,500 sq ft, house more than 230 major international and domestic retailers, and enjoy high transient traffic.

In the span of 12 months since going public in July 2006, FCT's investment portfolio net lettable area, which includes pipeline assets under development, has more than tripled to 2.2 million sq ft and its market capitalisation almost doubled to $1.1 billion under the management of Frasers Centrepoint Asset Management Ltd, the real estate and fund management division of Frasers Centrepoint Limited.

FCT won the 'Most Transparent Company Award (New Issues category)' at the 7th Investors Choice Awards organised by the Securities Investors Association of Singapore (SIAS).

'Our aspiration is to be the Malls of Choice to our shoppers, investors, and tenants as we establish Frasers Centrepoint Trust as a strong and leading contender in the Asian retail markets over the next five years. The team's commitment and passion for retail, backed by extensive industry experience and proven capabilities, will ensure that Frasers Centrepoint Trust continues to deliver on its stated goals in this robust retail environment.'

- Christopher Tang,
CEO, Frasers Centrepoint Asset Management Ltd


MILESTONES

* July 2006 - Frasers Centrepoint Trust (FCT) listed on the SGX with a portfolio of three quality suburban malls: Causeway Point, Northpoint and Anchorpoint with net lettable area (NLA) of 638,486 sq ft.

* August 2006 - Northpoint2 added to FCT's acquisition pipeline. Northpoint2 is located adjacent to Northpoint and will be fully integrated with the main building.

* November 2006 - A greenfield development at Bedok Town Centre was added to FCT's acquisition pipeline. To be developed as a lifestyle mall, located in the largest HDB township after the three regional centres: Jurong West, Woodlands and Tampines.

* January 2007 - Acquisition pipeline increased to four identified assets with the addition of YewTee Point. FCT's Singapore portfolio NLA exceeds 1.2 million sq ft with the addition of pipeline assets.

* March 2007 - Assigned a first-time corporate 'A3' rating by Moody's Investors Services, providing FCT with greater flexibility in executing future strategies and programmes.

* May 2007 - FCT acquired a 27 per cent stake in Hektar Reit, giving FCT interest in two quality suburban malls in Malaysia and setting the platform for FCT's overseas growth expansion. This increased FCT's investment portfolio NLA, which includes pipeline assets under development, by 74 per cent to more than 2.2 million sq ft.

* May 2007 - Anchorpoint asset enhancement commenced as the first in a series of three mall asset enhancement initiatives.

K-Reit Asia

Source : The Business Times, September 27, 2007

K-REIT Asia aims to generate stable returns to Unitholders by owning and investing in a portfolio of quality income-producing commercial real estate and real estate-related assets.

It has a pan-Asian mandate that enables it to invest in quality commercial properties in Asian growth cities

Allco Commercial Real Estate Investment Trust

Source : The Business Times, September 27, 2007

Bright Outlook For S-Reit Market

Source : The Business Times, September 27, 2007

With more overseas players seeking to list here and strong backing from the government to strengthen governance and the operation structure of the market, Singapore is fast developing into a regional Reit hub, writes JEREMY LAKE

SINGAPORE has established itself as one of the most developed markets in Asia for real estate investment trusts (Reits), supported by new listings and active acquisitions by existing Reits.

Reits have been the bright spot in the Singapore capital market and a major driver in the growth of market capitalisation on the Singapore Exchange (SGX). Currently, there are 17 Singapore Reits (S-Reits) listed on the SGX with a total market capitalisation of more than $25 billion as at end-August.

S-Reits have come a long way since the first retail Reit, CapitaMall Trust (CMT), was listed in 2002. The subsequent raising of the gearing cap from 25 per cent to 35 per cent contributed to the burgeoning market.

The investment trust framework allows an attractive level of tax-efficiency. S-Reits are granted tax transparency status, waiver of stamp duty and exemption from capital gains tax. Individual investors are given tax exemptions on Reit payouts. For these reasons, Reits have spurred considerable interest among investors and are now widely accepted as a high-quality investment option.























S-Reits themselves have been growing through acquistions. A total of $6.14 billion worth of properties was acquired by S-Reits in 2006, representing 20 per cent of the year's total investment sales. This was also 39 per cent higher than the $4.41 billion of total assets acquired by S-Reits in 2005. So far this year, S-Reits have acquired properties of more than $3.7 billion. (See Table 1)

Commercial Reits contributed the bulk of investment sales made by S-Reits in 2006 by acquiring a total of $3.84 billion worth of assets or 63 per cent of the total acquisition costs ($6.14 billion). The most significant transaction made by commercial Reits last year was the joint acquisition of Raffles City by CapitaCommercial Trust and CapitaMall Trust for a total of $2.17 billion, representing the highest price paid for any investment transaction in 2006.

So far this year, commercial Reits continue to account for the largest proportion of investment sales made by S-Reits, contributing $2.16 billion in transacted value or 58 per cent of the $3.71 billion in total investment sales. It was announced recently that both K-Reit and Suntec Reit have each acquired a one-third stake in One Raffles Quay for $1.88 billion. In addition, CapitaLand divested its interest in Wilkie Edge, a commercial-cum-serviced residence development, to CapitaCommerical Trust for $182.7 million.

The potential for further growth in the S-Reit market is substantial. The development of the S-Reit sector is largely supported by the proactive initiatives of the Monetary Authority of Singapore (MAS) to enhance their competitiveness in the region. In a move aimed at making Singapore a major Reit hub, the MAS released a consultation paper on proposed amendments to the Reit regulations in March. Key proposals include improving disclosure on short-term yield enhancing arrangements and their impact, allowing Reits to pay dividends in excess of current income, removing the aggregation rule for transactions with the same interested party and prohibiting discounts to institutional investors during IPOs.

An increasing variety of asset classes is expected to be listed as Reit vehicles in the medium term, beyond office buildings, shopping malls and industrial properties. Following the launch of the first healthcare S-Reit, First Reit, Lippo Group announced its plans to list two more S-Reits in the near term, 12 of which are shopping malls located in Jarkata with a total lettable area of 500,000 sq ft. The initial portfolio of the group's third Reit will comprise commercial properties outside Indonesia, such as office buildings in Singapore, China and Hong Kong, worth about $2 billion in total.

JTC, the largest industrial developer in Singapore, announced its plan to list an industrial S-Reit in the near term. Its initial portfolio, estimated at $1.4 billion to $1.6 billion, will include flatted factories, ramp-up and stack-up factories, three multi-tenanted business park buildings and a warehouse.

Pramerica Asia was reported to be looking to divest its retail property portfolio via a Reit. Shopping malls to be injected into its $1-billion initial portfolio include Century Square, Hougang Plaza, Tiong Bahru Plaza and White Sands. Mapletree Investments was also reported to be planning to launch a commercial trust with VivoCity as the anchor asset, valued at an estimated $1.6 billion to $2 billion. Other properties likely to be included in this Reit are St James Power Station, HarbourFront Centre, a 60 per cent stake in HarbourFront Towers One & Two, a 30 per cent stake in Keppel Bay Tower, PSA Building and PSA Vista. The total value of the entire portfolio, including VivoCity, is estimated to be $3 billion.

While the Singapore government continues to strengthen governance and the operation structure of S-Reits, it is also striving to turn Singapore into a regional Reit hub, which will give Reits direct and ready access to capital.

















More incentives are being provided for local and foreign companies to establish cross-border Reits, to hold overseas properties on other bourses as a strategy to expand their portfolios. Geographically, more than $20 billion or 81 per cent of the total asset portfolio held by S-Reits are local properties and the remaining 19 per cent or $4.77 billion worth of portfolio are overseas assets. (See Table 2)

The outlook for the S-Reit market remains positive as more Reit issuers divest their overseas assets into Reits here. More sophisticated Reit products will be developed over time. An Indian-based developer, Embassy Group, was also reported to be looking at launching a Reit in Singapore with a portfolio comprising some of the group's business parks in India.

Indonesian property developer, Gapura Prima Group, will be teaming up with Malaysian developer (Amanah Raya Bhd) to launch a Reit on the SGX in the near term. Its initial portfolio will comprise five malls in Indonesia and another two in Malaysia worth $400 million in total.

Tokyo-based Asia Pacific Land Group plans to list a Reit in Singapore, with an initial portfolio comprising some of its retail and office properties in Japan worth $2.3 billion in total. Another Tokyo-based real estate fund manager, Re-plus, plans to launch an S-Reit in early 2008, with a portfolio comprising two China office buildings worth at least US$400 million.

Saudi Arabia-based property developer, Tanmiyat Investment Group, was reported to be looking to launch an S-Reit with an initial portfolio of developments in Saudi Arabia, the United Arab of Emirates, Turkey, Jordan and Sudan, worth a total of $13.6 billion.

As Reit portfolios become more diversified, more so than in the mature US and Australian Reit markets, Reit managers in Singapore are challenged to find ways to increase yields of the various asset types to make it more attractive for investors.

Certainly, Reits have added a dimension to the real estate investment and capital markets that appeals to both investors and property companies. The expected growth in Reits would have a positive impact on the broader market as it adds depth to the market and gives investors here wider investment choices.

The writer is executive director, investment properties, CB Richard Ellis

Enjoying The Sponsorship Edge In Acquisitions

Source : The Business Times, September 27, 2007

Strong developer sponsorship allows Reits to trade at lower yield levels while boosting the former's risk management portfolio, says LESLIE YEE









SINGAPORE commercial Reits have been enjoying rising office rents in 2007 but are facing fierce competition to acquire prime office assets amid competition from private equity funds and yield compression.

Three events stand out (See Table 1):

(i) CapitaLand sold its 90 per cent-owned Temasek Towers to a private fund and not to CapitaCommercial Trust (CCT);

(ii) CapitaLand sold its mixed development project Wilkie Edge to CCT; and

(iii) Keppel Land and Cheung Kong announced plans to sell their respective stakes in One Raffles Quay to K-Reit and Suntec Reit.













Questions from investors we spoke to include:

Why is CapitaLand exiting a development project instead of waiting to reap maximum benefit from completing the project and selling out post income stabilisation?

Why are Keppel Land and Cheung Kong entering interested person transactions involving payment of income support when perhaps better deals could be struck by selling to third parties?

Does CapitaLand's sale of Temasek Towers to a bidder who could pay more than CCT set the standard for good governance and maximise value for CapitaLand's shareholders?

Singapore's five-year-old Reit market has been driven by developers divesting assets into Reits where they continue to hold a substantial stake and also own the fund management entity.

We believe investors prefer such sponsored Reits for their strong acquisition pipelines and trade them at lower yields. Still, conflict issues can arise when Reits buy assets from developer sponsors. Although regulations adequately protect Reits from over-paying for acquisitions, in the current Singapore market where asset prices are rising, the converse of developers under-pricing when selling to Reits may become more of a concern.

Over time, we spot a silver lining for Reits amid the global credit crunch in that private equity funds may become relatively less competitive than Reits in asset acquisitions due to possible increase in debt cost and pricing of risk.

In the medium to longer term, we look for reversal in yield compression for physical property in Singapore and a narrowing in distribution yield spread for Reits, which will help Reits grow via accretive acquisitions.

In selling an asset to its sponsored Reit, a developer can realise proceeds, yet ride any upside should it have a stake in the Reit. We see this model as providing a middle ground between being asset light and asset heavy as per the traditional Asian developer who holds investment properties for capital gains. Also, a developer who owns the Reit's manager can earn management fees. The fund management business itself is potentially valuable given the recurrent stream of fee income.

Our analysis on the sale of a completed asset shows the net benefit to a developer is roughly the same from selling to a Reit or from selling to a third party at a price that is nearly 20 per cent more. Here, we ignore the potential for recycling the additional proceeds realised from a third-party sale into new development projects and the relative difficulty of selling a minority stake in a building compared with selling an entire building.

Looking at the Singapore Reit universe, we note that Reits which we think have strong sponsorship from developers, trade at current yields of around 100 basis points lower than other Reits in a similar asset class (See Table 2). We attribute this premium to the inside track the developer sponsor provides to the Reit in asset acquisitions.

Best practice

Essentially, a Reit's chances of acquiring an asset from its sponsor are higher than that of a third party. Should a developer sponsor fail to help its Reit acquire assets, we expect the market will stop ascribing the developer premium to the said Reit, which in turn results in a loss in market capitalisation and higher cost of capital for future acquisitions.

We believe that the best practice for a developer sponsoring a Reit involves using its resources and expertise to help grow the Reit and not leave it static. We see value from a risk management perspective for a developer to build up a Reit platform, as having a Reit that is able to buy a development project on completion which allows a developer to be more confident and aggressive in taking on large-scale developments.

We think this matters as periodic bouts of financial market turbulence could lead to times when there may be a dearth of buyers for chunky real estate assets.

The writer is executive director, Asia-Pacific investment research, Goldman Sachs

Industrial Space Gets Snapped Up

Source : The Business Times, September 27, 2007

Vacancy rates are the lowest in eight years, as Reit players push up demand for warehouse and factory space, say DOMINIC PETERS and YONG YUNG SHIN

Full house: The Comtech (above) and Alexandra Technopark are enjoying near 100 per cent occupancy. Comtech has seen a rapid dwindling in its vacancy rate even as asking rentals surge to $4 psf for upper floors.

IN TANDEM with the growth in residential and office space, average rents for the less glamorous but nonetheless expanding industrial space sector increased by 7.7 per cent in the second quarter this year.

This is all the more significant considering that the industrial space sector is still trying to clear the supply glut that has been stagnating in the market. In spite of this, vacancy rates are at the lowest in the past eight years. Besides a promising 8.3 per cent growth in the manufacturing industry, higher demand for business parks also accounts for the expansion in this property sector. Industrial space is made up of warehouse and factory space. The latter itself contains three sub-categories - single-user factories, multi-user factories and business parks.

In the first half of this year, factory and warehouse space saw an increase of 3.7 million and 1.6 million square feet in stock respectively. This has brought the total stock to 299 million sq ft for the former category and 65.7 million sq ft for the latter.

As at end Q2 this year, supply in the pipeline will channel a further 45.2 million sq ft into the market over the next five years.

Additionally, nine industrial sites have been released for the second half of 2007 under the government's industrial land sales programme, which will provide an additional 3.74 million sq ft of space once completed.

















On the demand side, the past half year recorded a healthy take-up of about 330.5 million sq ft of industrial space, contributed by 271.9 million sq ft of factory space and 58.6 million sq ft of warehouse space respectively. This resulted in a decline of vacancy rates to 9.1 per cent for factories and 10.9 per cent for warehouses.

The biggest demand in the industrial space market came from aggressive acquisitions by major Reits players like Mapletree, A-Reit, Cambridge and the recently listed MacarthurCook Industrial Reit.

In the first half of this year, more than 15 acquisitions have taken place, bringing the total value of transactions to almost $900 million, upping last year's tally during the same period by 1.6 per cent.

Steadily increasing rents no doubt account for the active acquisition rates. According to URA statistics, rental and price indices for warehouses increased by 20.4 and 13.9 per cent in the first half of 2007 compared to the same period last year, while those of factories rose by 14.2 and 18.1 per cent year-on-year respectively. (See Table 1)

During the first half of the year, average monthly rents for factory space increased by 3.8 per cent quarter-on-quarter, standing at $1.60-$1.80 psf for ground floor units and $1.20- $1.40 psf for upper floor units. Average capital values for freehold factory space appreciated by about 5 per cent to $366 psf and $298 psf for ground floor units and upper floor units respectively (See Table 2). UE Print Media Hub, located at Tai Seng Drive, a project by United Engineers, catering mainly for the print and media industry, saw occupancy rates hit 88 per cent in one month.

















High-tech space posted the largest rental growth of almost 12 per cent quarter-on-quarter, benefiting from the spillover of high demand for office space. With rents substantially lower than that of office space, yet providing similar functionality, it is no wonder that developments like The Comtech and Alexandra Technopark are enjoying near 100 per cent occupancy.

The Comtech, especially, has seen a rapid dwindling in its vacancy rate even as asking rentals surge to $4 psf for upper floors. Currently, average rents for high-tech space stand at $2.80 psf, up from $2.10 psf in the first quarter of the year. With a limited stock of high-quality warehouse space in the island, demand is fast catching up with supply, with an occupancy rate of 90 per cent. This is especially so in the east where a high concentration of logistics companies are located due to its close proximity to Changi Airport.

In addition to building specifications such as high floor loads, large floor plates and good cargo lift facilities, location remains important, with developments located near major transportation nodes seeing higher take-up rates than those in the outskirts. Warehouse space is now asking an average rental of $1.45 psf per month with higher floors asking $1.15 psf, a rise of 11.5 per cent quarter-on-quarter. Average capital values for freehold warehouses/factories are also on the uptrend, coming in at $450 psf for ground floor units and $352 psf for higher floor units.

In light of the growing manufacturing sector, strong demand for industrial space will continue to support rents and capital values, despite a substantial amount of new stock entering the market during the second half of the year. Rents of factories and warehouses are likely to rise another 10 per cent by the end of the year. Also, as industrial Reits continue to expand their portfolio, the sector may well see an overhaul for much of the existing stock, especially older sites that are centrally located.

Dominic Peters is director, industrial business space, Savills Singapore; Yong Yung Shin is analyst, research & consultancy, Savills Singapore

Real Estate Derivatives Next For Singapore?

Source : The Business Times, September 27, 2007

Despite their complexity, ONG CHOON FAH points out the distinct advantages this financial product can offer

THE management of risks is central to all investments, including real estate.

The financial markets have, since the 1970s, managed risks in the form of derivatives - financial instruments where the return is based on the return of another underlying asset eg, equity or bond. Often used by sophisticated investors such as investment banks and hedge funds, derivatives have a chequered history.

While some view them as a form of speculation, others view them as a way of hedging risk exposure.

With increasing sophistication and integration of the financial and real estate markets, underpinned by the globalisation of real estate investments, property derivatives are now available in many markets, including the UK, US, Germany, France, Australia, Japan and Hong Kong. Real estate derivatives usually have tenures of between one and five years and operate similarly as trades on the stock exchange.

Typically, one party bets that the total returns from the real estate, which includes rental income and capital appreciation, will exceed a stipulated figure while the other bets it will not. Like all derivatives, real estate derivatives serve some very important functions:

* They provide valuable information on the underlying real estate assets on which futures contracts are based and in so doing, facilitate price discovery which is currently lacking due to the absence of a central exchange for real estate. Pricing of real estate derivatives also indicates prospects of the real estate market

* They facilitate risk management through hedging, especially given the illiquid nature of real estate. Portfolio managers will then have the flexibility in terms of asset allocation and moving from one real estate market to another

* They lower transaction costs, reduce lead time and hence increase market efficiency.

In addition, investors can get market exposure without issues relating to owning the physical real estate eg, management.

In the case of a Property Total Return Swap (PTRS), it enables real estate owners to sell their exposure in the real estate market without disposing the physical assets.

Unlike in the sale of real estate, where the vendor will need to build up his portfolio of assets all over again, in the case of PTRS, the vendor returns to his original market position upon maturity. Another advantage of PTRS is that it is liquid and can be traded in the secondary market before maturity.

There are many other forms of real estate derivatives. In a cash-backed contract, a single payment at the commencement of the contract is swapped for future payments in line with the performance of the underlying real estate asset. In other arrangements, cash flows are swapped periodically with payments, either pre-determined or dependent on the performance of the underlying real estate.

In the case of Property Index Forwards, it allows investors to gain exposure to the real estate market, without investing in the physical assets, where the return is equivalent to the capital performance of the real estate asset with consideration paid either at the start or upon maturity.

Yet another form is the Property Index Certificate (PIC), a total return instrument where payment is pegged to the rental income and capital return equivalent to the capital performance of an agreed real estate index. As the index reflects the appraisal of the underlying real estate asset, consideration payable for a PIC is equivalent to the level of the index at the time.

Being a financial instrument, there is no real estate agency fees payable with significantly lower legal costs and stamp duty compared with real estate transactions. The purchase price is also established at the onset, removing price uncertainty which is often clouded in a physical real estate transaction. With a fixed term contract, parties involved can establish an exit strategy based on the real estate index upon maturity.

In the UK, where real estate derivatives debut, derivatives for commercial properties are based on the All Property Annual Index by Investment Property Databank Ltd (IPD) which is widely accepted as an independent and good measure of real estate performance. The IPD represents over 40 per cent of the commercial market in the UK. Derivatives remain highly controversial as they are complicated and potentially less transparent.

Being complex financial instruments, there is a need to understand them well in order to use them effectively and responsibly, to manage risks. They allow investors exposure to a particular real estate market without acquiring the underlying physical asset. They can also be traded in smaller denominations and allows retail investors an additional investment instrument.

Growth of the real estate derivative markets in the UK and US have been driven mainly by institutional investors as they increase their asset allocation to real estate. Real estate swaps are also being established for sub-sectors of the market, together with capital-only and income-only swaps.

In Asia, the first real estate derivative was created in early 2007 between ABN Amro and Sun Hung Kai Financial based on a residential index - The University of Hong Kong's Hong Kong Island Residential Price Index Series (HKU-HRPI). In the arrangement, ABN Amro gets exposure to the Hong Kong residential property market through receiving the change in the residential price index from Sung Hung Kai Financial. In turn, Sung Hung Kai Financial receives a payment based on an interest spread fixed on HIBOR. In so doing, ABN Amro is effectively buying an exposure in the Hong Kong residential market with Sun Hug Kai Financial virtually (as opposed to directly) selling the property.

The Reit market in Singapore has developed successfully since its debut in 2001. Today, there are 17 Reits listed on the Singapore Exchange, comprising both real estate assets in Singapore and the region.

For the next lap, it is timely that Singapore develops a real estate derivative market. This will further grow and enhance its role as a financial hub.

However, infrastructure must be developed in terms of industry standards for appraising the real estate assets, regulations and trading platforms.

Critical to this is the need for a robust and widely accepted real estate index/sub-indices on which to base the trade. These indices will need to be published as regular as on a monthly basis to underpin secondary market trades.

There is also a need for real estate forecasting capabilities to facilitate the market. As it is, various market participants are exploring the development of a real estate derivative market in Singapore and it is a matter of time before these instruments make their way to main street.

The writer is executive director, consulting & research, DTZ Debenham Tie Leung (SEA) Pte Ltd

Costello Says Sub-Prime Woes Have Way To Go

Source : The Business Times, September 27, 2007

MELBOURNE - Australian Treasurer Peter Costello said on Thursday that he saw further fallout from problems in the US sub-prime mortgage sector and some spillover into the wider US economy.

But he also told reporters that even if the US economy slipped into recession, the Australian economy could remain strong with careful management.

'I think the fallout from the US sub-prime market still has a considerable way to go,' Mr Costello said, speaking after a book launch.

'It is not yet entirely clear who is holding all the risk from these defaults. There will be different financial institutions around the world which will identify losses.'

Recent data has pointed to slower growth in the US economy, although analysts are divided on whether it might deteriorate into a more serious downturn. Figures have shown that the housing industry remains under pressure.

Any slowing in the world's largest economy could hurt Australian exporters by dampening demand for their products.

Mr Costello also said that real wage growth in Australia is solid but sustainable.

Australia's central bank has been closely watching wages, looking for signs that unemployment at a 32-year low would mean higher wages and increased inflation.

However, recent indicators have shown wage rises have remained subdued, with analysts citing a rising labour force due to immigration as a possible reason. -- REUTERS

Fallout Fears As Sub-Prime Crisis Seems Far From Over

Source : The Business Times, September 27, 2007

REALITY intruded amid the 'dreaming spires' of Oxford last week when university dons came together with business, leaders, government officials and others to debate the state of the world. The inter-disciplinary discussion produced a sobering assessment of prospects for the global economy in the wake of the meltdown of the US sub-prime mortgage market and its spreading consequences.

The consensus view among those attending the annual Oxford Analytica international conference held in Christ Church College was that the crisis is far from having run its course.

There are many channels through which the sub-prime market problems will continue to make their effects felt throughout the US economy and on into the global economy, it was argued.

Most people are too preoccupied with the immediate consequences of the crisis, in the shape of financial system stress, to give very much thought to the longer term fall-out on the global real economy. But the tranquil setting of the centuries-old Christ Church College encouraged those gathered there to take a longer term perspective.

The sub-prime crisis will be a drawn-out affair whose ultimate outcome is hard to predict, it was felt, given that it is happening within a different context to previous crises. Emerging market crises in Asia and elsewhere 10 years ago had only a limited impact upon developed economies, but this one has originated in America, the heartland of capitalism.

The US is also the locus of consumption that has powered a remarkable expansion of the global economy in recent times, enabling China and India as well as Brazil, Russia and other emerging economies to join up.

This suggests strongly that while we are looking at a financial 'event' now, the crisis is destined to spread with an awful inevitability into the real economy.

This chain of causation will begin with a slowdown in US consumer spending, one former economic adviser to ex-president Bill Clinton said in Oxford. US house prices are falling for the first time in postwar memory and mortgage withdrawal to finance spending is dropping sharply along with those prices. Housing sector employment is dropping too and all this means that the chances of a US recession are rising sharply.

That would naturally impact the consumption that has allowed Asia and other parts of the world to achieve huge trade surpluses and to accumulate vast foreign exchange reserves in the process.

There is a more insidious threat, however, than an autonomous slowdown in consumption and that is protectionism. As one former administration official remarked in Oxford, if Democrats take control of the White House in the presidential election 'you can count on some sort of anti-China legislation'.

This, he suggested, could cause 'real stresses in world trade' and especially as the world can expect, at best, a 'long period of reduced growth in the US'. This highlights the missing link in most people's calculations of the wider impact of the sub-prime meltdown.

They see the linkage to the global economy as primarily a financial one, capable of being contained by central bank action whereas it is in fact the trade linkage that is more important.

Not that financial system shocks will not be serious enough in themselves to cause a lot of damage, it was suggested. For the moment, the focus is on damage caused to the profit and loss accounts or balance sheets of investment banks, hedge funds and commercial banks via money and capital markets.

But the real pain will come on the lending side.

Banks will be tougher in extending credit, resulting in a fall in the rate of credit expansion and further exacerbating the decline in personal consumption in the US and elsewhere. A drop of 0.5 per cent - or even one per cent - in US short-term interest rates will 'not help the real economy', one economist suggested at the Oxford meeting. It will help only to oil the machinery of Wall Street in the current liquidity crunch.

It is at this point that many people take heart from the notion that demand has become self-sustaining, or close to self-sustaining within Asia.

This remains very much an unknown quantity however. Certainly, emergent middle classes in these merging markets have been giving a considerable boost to demand there but this has taken place against a background of buoyant export demand and consumer confidence.

ANTHONY ROWLEY
Tokyo Correspondent

Property Transactions With Contract Dates Between 3rd-8th Sept 2007

Source : The Business Times, Thu, Sept 27, 2007

Affordability Will Take A Hit If Developers Talk Up Prices

Source : The Business Times, Thursday, September 27, 2007

I REFER to the report, ‘Redas: Mass market poised for double-digit growth’ (BT, Sept 26).

It is interesting to note that the first vice-president of Redas, an interested party in Singapore’s booming property market, commented that just because mass market prices have not moved in tandem with prices in the high-end market, the former should have double-digit growth over the next 12 months.

Also, I regret to note the statement by the NTUC Choice Homes CEO that just because building costs have gone up, selling prices also must go up. There is an assumption here that the buyers of mass market property can and do have the cash to pay these higher prices and to service expensive mortgages.

The president of Redas, Simon Cheong, is wise to hint that choice locations will be hard to come by and the prices for such properties will continue to go up. This is very probable as he is targeting high net worth foreigners and high income Singaporeans.

In my opinion, the mass market developers’ comments look like attempts to talk up the market. My advice to Singaporeans?

If you are going to live to 85 and may not have enough money to tide over daily expenses, your best response to these ‘interested forecasters’ is: If you raise your prices, I will not be able to afford to buy your properties.

Lu Keehong Singapore

UOB Kay Hian In Strategic Tie-Up With Dubai Investment

Source : TODAY, Thursday, September 27, 2007

VIETNAM Asset Management (VAM), a fund management company in Vietnam, announced yesterday a strategic partnership with Dubai Investment Group (DIG) and UOB Kay Hian Trading (UOBKH), with both financial institutions having invested in VAM’s Vietnam Strategic Fund.

Mr John Lyn, VAM's executive chairman said the move will lend support to the company’s various initiatives.

The most immediate one would be the planned listing of their Vietnam Emerging Market Fund where the company plans to raise US$200 million ($300 million) from investors.

MMP Reit Buys Office-Cum-Retail Building In Tokyo

Source : TODAY, Thursday, September 27, 2007

MACQUARIE MEAG Prime Real Estate Investment Trust (MMP Reit) has acquired the America-Bashi Building from Fleg International Company in Japan yesterday for a total purchase price of 5,700 million yen ($74.5 million).

MMP Reit said the building will be renamed Ebisu Fort, and the acquisition will be fully funded by debt.

The seven-storey building, completed this month, includes two basement levels and is located in the Ebisu area, Shibuya-ku in Tokyo.

Designed for office and retail use, Ebisu Fort is 100-per-cent master-leased and sub-tenants have commenced fitting-out.

Fleg has been appointed the local asset manager of Ebisu Fort for a period of two years from completion, with the option for another year.

With this acquisition, MMP Reit’s portfolio comprises 10 assets located in Singapore, China and Japan, valued at approximately $1.9 billion.

S’pore, Still A Business Paradise

Source : TODAY, Thursday, September 27, 2007


















For second year, Republic is the best place to do business:World Bank

FOR the second year running, Singapore has topped the World Bank’s annual global survey as the easiest place to do business.

The Republic’s winning formula is in tapping the Internet to increase efficiency, according to Mr Justin Yap, the bank’s regulatory economist and co-author of the Doing Business 2008 study.

“It’s a unique example where ... so many parts of the cycle of operating a business can be done online,” said Mr Yap. “It is also a country that seems to require relatively few interactions with the Government, for example, through the use of ‘onestop shops’.

“And the fact that you don’t need to go to separate agencies to go through different (business) procedures, these are all aspects that work in Singapore’s favour.” He was speaking to reporters in seven global locations through a live videoconference from Washington yesterday.

New Zealand ranked second in the survey on 178 economies, followed by the United States.

Hong Kong, Singapore’s closest rival in Asia edged up one position from last year, to take the fourth spot.

Running into its fifth year, the rankings, done by the World Bank and its private sector arm International Finance Corporation, are based on 10 business criteria that essentially track time and cost to meet government requirements in business start-ups.

Singapore emerged best in two areas, employing workers and trading across borders, said Mr Ryan Ang, private sector liaison officer for the World Bank Group’s Singapore office.

The report also tracked the progress of business reforms worldwide — with 200 reforms observed in 98 economies between last April and June this year.

While China is the region’s top reformer, Singapore — being the open economy that it is — did not have any recorded reforms that impacted its indicators for the ranking, said Mr Yap.

“Singapore had one minor reform whereby the number of days to start a business here has been reduced from six to five days,” said Mr Ang.

Private Home Rents Jump By 8% To 10%

Source : The Straits Times, Sept 27, 2007

RENTS of private homes continued to rise strongly between July and September.

They jumped 8 per cent to 10 per cent islandwide over the previous three months, estimated property consultancy Knight Frank.

This was on top of a record 10.4 per cent growth in the second quarter, added Mr Nicholas Mak, Knight Frank's director of research and consultancy.

Rents in the Woodlands and Mandai area saw some of the highest growth rates in the third quarter. They surged between 25 per cent and 30 per cent, largely because of the draw of the Singapore American School in the area, said Mr Mak.

'This is an indication that although expatriates are concerned with rising housing rentals and costs, they are still willing to pay a premium to stay near international schools in Singapore,' he added.

For the last three months of the year, Mr Mak expects rents to rise slightly less, by 5 per cent to 10 per cent. This would bring full-year rental growth to between 30 per cent and 40 per cent, he said.

Knight Frank added that market activity is expected to pick up in the last quarter, as developers step up launches to meet year-end targets.

Another 3,500 to 4,500 units are likely to be launched for sale, and home prices for the whole year are expected to grow by up to 25 per cent.

Sentosa Cove Puts Last Site Up For Sale

Source : The Straits Times, Sept 27, 2007

Bids of up to $144m are expected for Pearl Island, which can host up to 19 waterfront villas

DEVELOPERS who want a slice of the Sentosa Cove pie will have to act fast - the enclave's final development site was put on sale yesterday.

Up for grabs is Pearl Island, the last of five islands zoned for landed homes. The 159,740 sq ft site can host up to 19 waterfront villas with private berths.

Property consultancy CB Richard Ellis expects offers of $127 million to $144 million for the plot, which works out to $800 to $900 per sq ft (psf).

Pearl Island was originally packaged with another parcel, Sandy Island, which has since been sold at $617 psf.

The most recent bungalow sale at Sentosa Cove saw seven offers for three individual plots. A new benchmark price was set at $1,527 psf.

Pearl Island is located near the Tanjong Beach and Tanjong Golf Course and has a maximum gross floor area of 127,792 sq ft. The plot is being marketed through an expressions of interest exercise that will close on Oct 25.

Sentosa Cove's last condominium site, The Pinnacle, was also recently launched for sale in a tender that will close in December. The only land still unsold in the enclave are four seafront bungalow plots for individual buyers.

Pearl Island was not the only plot put on the market yesterday. Four sites were put up for collective sales, ahead of new rules on such sales which are expected to kick in next month.

One estate, Chateau Eliza at Mount Elizabeth, has an indicative price of $115 million to $120 million, said marketing agent Credo Real Estate.

This works out to $2,130 to $2,222 psf per plot ratio (psf ppr) - just shy of the record $2,338 psf ppr paid for The Ardmore in June.

Chateau Eliza sits on a 17,997 sq ft plot with a possible gross floor area of close to 54,000 sq ft. No development charge is payable for the site.

A 36-storey condominium with 20 units of about 2,500 sq ft each can be built on the plot, said Credo.

Meanwhile, property firm Newman & Goh put up two estates for sale: Toho Garden in Yio Chu Kang and Vista Park in South Buona Vista Road.

The owners of freehold Toho Garden are asking $60.8 million, or $580 psf ppr. The 86,881 sq ft site has a 1.4 plot ratio and can host 80 new units.

Vista Park, a 99-year leasehold site, is priced at around $300 million, or $680 psf ppr, including an estimated upgrading premium of $37.3 million. About 300 new units can be built on the 319,248 sq ft plot.

The fourth site put on sale yesterday was a vacant plot in River Valley Road, between River Valley Grove and St Thomas Walk. It is 28,798 sq ft in size, can be built up to 36 storeys and has 80,634 sq ft of gross floor area, said marketing agent Jones Lang LaSalle.

Condo-Demolition Noise Levels Within Legal Limits

Source : The Straits Times, Sept 27, 2007

WE REFER to the letter by Mr Simon Lee Siang King, 'Condo demolition noise affecting baby's sleep' (ST, Sept 14).

We would like to inform readers that the National Environment Agency (NEA) controls construction noise using a set of maximum permissible noise limits stipulated under the Environmental Pollution Control (Control of Noise at Construction Sites) Regulations.

The noise limits during night-time (10pm to 7am) are more stringent than the noise limits for day-time. The noise limits are also more stringent in areas where the premises affected by the noise pollution are more sensitive to noise disturbances, e.g., hospitals, homes for the aged, schools and residential areas.

Construction companies are required to take noise-abatement measures and manage their works so as to comply with the noise limits stipulated.

The contractor responsible for the project at the worksite in question has been required to set up noise-monitoring equipment to measure the noise levels generated by the demolition works.

The Code of Practice for Demolition prescribes the methods that may be used. In this case, the method used by the contractor is one which is provided for under the code.

The NEA checks the noise-monitoring results for any violations of the permissible construction noise limits. Results of the noise monitoring showed that the noise levels were within legal limits.

We will continue to monitor the worksite in question and will not hesitate to take enforcement action against the contractor if the permissible construction noise limits are exceeded.

We would also like to inform readers that the NEA has recently tightened the permissible noise limits at night and on Sundays and public holidays for construction sites that are located within 150m of residential premises. The set of new noise limits, which will come into effect on Oct 1, takes into consideration the expectations of our people for a quieter living environment, and the needs of the economy.

We thank Mr Lee for his feedback.

Tan Quee Hong
Acting Director
Pollution Control Department
National Environment Agency

Ong See Ho
Director
Building Engineering Division
Building and Construction Authority

MP Clarifies Remarks In CPF Debate

Source : The Straits Times, Sept 27, 2007

DURING the recent parliamentary debate on CPF reforms, I spoke about higher returns for CPF savings. My speech on Sept 19 was subsequently reproduced in parts in The Straits Times and by the various mass media.

I would like to put on record the following clarifications:

* My assertion that CPF members have 'no choice' but to lend their CPF savings to the Government is too sweeping and factually incorrect as individual members do have the choice, if they so wish, to invest their CPF savings under the CPF Investment Scheme in a wide range of investment products to enhance their retirement nest egg.

* To achieve higher returns on any investment, we must subject the investment to more risk, including the risk of loss of capital, and there is no certainty that any particular rate of return can be achieved in the future. Therefore, the illustration I used in my Parliament speech comparing a fixed interest of 4 per cent per year and an annual return of 10 per cent over 40 years was simply to demonstrate mathematically the theoretical difference between the aforesaid rates of return compounded over time.

It does not in any way suggest that the higher rate of return will be achievable over the next 40 years.

Ong Kian Min
MP for Tampines GRC

Better Returns Aside, Relook CPF System

Source : The Straits Times, Sept 27, 2007

I REFER to the letter, 'New CPF rates are fair and reasonable' (ST, Sept 25), by Mr Jason Soon Hun Khim.

The question as to whether the new CPF rates are 'fair and reasonable' must not be considered in isolation.

How is the CPF doing benchmarked against its peers? In the 2000 World Bank study, 'Managing public pension reserves', between 1961 and 1995, Singapore achieved 1.5 per cent per annum in real compounded returns, worse than South Korea's 5.4 per cent and Malaysia's 3.2 per cent, although better than Peru's -44 per cent and Uganda's -33.1 per cent.

The point is, can more generous returns be achieved, while not deviating from the 'basic objective' as Mr Soon highlighted?

The answer is likely to be positive. The best indication of the capacity for higher interest rates is the very proposal to raise interest rates now. Nothing has changed recently except the Government now believes workers need better returns to meet their retirement needs. This suggests that perhaps an even higher rate of interest could be paid out.

Raising CPF returns is definitely a move in the right direction. But improving the CPF system should go beyond a one-off rate adjustment and involve a relook at the entire system.

The World Bank has suggested a public-private approach to managing pension funds. These funds remain public in that the government maintains control over contribution rates and withdrawal criteria while management of the funds is left to private financial institutions, subject to investment guidelines dictated by the government.

With over three million members and $128.8 billion in funds, I believe the CPF Board has the bargaining power to seek better returns for its members, with no additional risk.

Faye Chiam Pui Hoon (Miss)

Prime Office Space

Source : The Business Times, September 27, 2007

Sentosa Cove Turns Sea To Gold With $3b Land Sales

Source : The Business Times, September 27, 2007

Relaunched Pearl Island could see luxury villas going at hefty prices, market watchers say

The combination of sand, sea and location have worked wonders for Sentosa Cove Pte Ltd (SCPL).

Pearl Island: The site can accommodate up to 19 waterfront villas with private berths. Consultants expect bids to go as high as $1,300 psf

It has raised more than $3 billion selling land parcels in its namesake upscale waterfront housing district since late 2003, market watchers have calculated. And by the time SCPL finishes selling the last few land parcels that remain, the total takings are expected to go way over $4 billion.

By the time it is completed, Sentosa Cove will have about 2,500 homes.

The remaining 99-year leasehold plots that the master planner and developer of Sentosa Cove is now left with include four seafronting bungalow plots; the man-made Pearl Island which can be developed into 19 bungalows (this site is being relaunched today) and a plum condo site, dubbed The Pinnacle Collection at the entrance of Sentosa Cove's marina basin.

The tender for The Pinnacle Collection was launched earlier this month and closes on Dec 12, with a reserve price set at $963.8 million or $1,600 per square foot per plot ratio. But most market watchers expect the winning bid to be much higher.

As for the 159,742.1 sq ft Pearl Island, CB Richard Ellis executive director Li Hiaw Ho expects it to draw bids of $800 to $900 psf of land area. This is about 30 to 46 per cent above the $617 psf that the next-door Sandy Island fetched during an expression of interest that closed in November last year.

Pearl Island was offered for sale during the same exercise but the site was not awarded by SCPL although it received offers above the reserve price.

Pearl Island, which can accommodate up to 19 luxury waterfront villas with private berths in their backyards, will not be sold to individual buyers seeking a plot. Instead, the entire land parcel must be bought at one go, presumably by developers. 'This is an opportune time for developers to develop and offer luxury waterway villas in Sentosa Cove to satisfy the pent-up demand,' said Ms Kemmy Tan, general manager of Sentosa Cove.

CBRE said that assuming land bids of $800-900 psf for Pearl Island, prices for the completed individual bungalow units will likely start from $8 million upwards.

Taking a more bullish view, Savills Singapore director of marketing and business development Ku Swee Yong predicts winning bids for Pearl Island will come in at $1,200 to $1,300 psf, reflecting absolute quantums of $191.7 million to $207.7 million.

The breakeven cost works out to about $13 million per bungalow. 'This still leaves a profit margin for the developer. After all, the owner of a seafronting completed bungalow at Sentosa Cove with a 9,000 sq ft land area is said to be asking for close to $20 million,' Mr Ku said.

The expression of interest for Pearl Island closes on October 25. Its award will be based solely on price.

SCPL yesterday also revealed that new benchmarks have been achieved for individual bungalow sites during an expression of interest that closed on Sept 4. A waterway plot fetched $1,247 psf of land area - a new high for such a site - while a fairway facing site achieved $1,527 psf, surpassing even the $1,473 psf that a seafronting bungalow site achieved during an expression of interest that closed in May this year.

Your Guide Major Projects Islandwide

Source : The Business Times, September 27, 2007

Can The Credit Crunch Dent Prime Office Market?

Source : The Business Times, September 27, 2007

MEGAN WALTERS and ALVIN TEO examine the impact of sub-prime woes on the real estate needs of financial institutions here

Volatile environment: With 70% of the top 25 buildings achieving full occupancy consistently, many businesses have resorted to reconfiguring their existing premises to contain more headcount due to shortage of spaces for their expansions

Singapore's fast growing financial sector has been a major user of prime office space and helped fuel the strong growth in rental and capital values of late. But the recent credit crisis in global markets stemming from defaulting US sub-prime loans has put a dampener on the financial sector.

At the start of the sub-prime fallout in July, Asian banks were thought to be relatively insulated from the problems. But by the end of August, banks, including DBS and the Bank of China, appeared to have greater exposure to US mortgage debt than previously thought.

DBS admitted to $2.4 billion exposure to collateralised debt obligations (CDOs), double what the market had expected. The Bank of China saw its share price fall 8.1 per cent when it became apparent that it held $9.5 billion or 3.8 per cent total securities investments in CDOs.

What will be the effect on the Singapore office market from this shake-up in the banking system? Cushman and Wakefield examine the issue by looking at the performance of the top 25 office buildings here.

Financial services are a key part of the Singapore economy, making up 20 per cent of GDP. More importantly, financial services' annual GDP growth was 17 per cent for Q2 07, more than double the manufacturing GDP growth rate of 8.3 per cent on the same basis.

Manufacturing is the largest single component of GDP accounting for 45 per cent GDP, but the growth rates in financial services means banking and related services is catching up fast.

The Singapore Department of Statistics found that for Q2 07, the financial services industry did extremely well with turnover growing at an astounding 39.7 per cent on an annualised basis.

A slowdown in the American economy is now expected - with higher borrowing costs, and falling house prices affecting US consumers. With the health of the financial sector dependent on the health of the main economy, the question is: to what extent is the slower growth of the US going to affect the financial sector in Singapore?

This will be two ways: first, the health of the general economy in Asia and, more specifically Singapore, and the second, where the interrelated nature of the financial markets means a downturn in the US financial sector will squeeze the financial sector here.

Of the two issues, the first - the general economic outlook for the region - is still very positive, whilst the second - the financial markets themselves - are still uncertain.

Following a review with 480 companies in seven Asian cities, including Singapore, IMA Asia, a consultancy firm, has revised its economic forecast for Asia (excluding Japan) upwards from 7.4 to 7.9 per cent for 2007 and 7.1 to 7.6 per cent for 2008, despite a substantial cut in the US GDP forecast.

The effect of the risk in the financial markets is much harder to judge - with no one really certain where the risk currently lies. This will be an issue for banks, uncertain whether to expand their regional operations to meet the projected regional growth, against the backdrop of uncertainty in the financial markets. What will be the effect of difficulties in the financial markets on Singapore prime office markets? As at end-August 2007, Singapore prime office rents are $12.21 psf/month with the Top 25 buildings at $12.28 psf/month.

It is expected that any immediate effect on the local prime office market will come from banks as tenants. Most banks are not the owners or landlords of the top 25 office buildings. The majority of the buildings are owned by local property developers or, most recently, funds.

C&W research has found that banks and financial institutions occupy nearly 40 per cent of floor space or nearly 4.8m sq ft in the top 25 prime office buildings, a long way ahead of the next largest category of occupants - professional services firms such as auditors and lawyers.

Given the current volatility of the market triggered by the sub-prime lending in US and the most recent fear of a liquidity crunch, would this affect this group of occupiers in their aggressive expansion plans as we have witnessed in the past 18 months?

A squeeze on bank profits from the credit crunch may result in a reduction in headcount, as already seen in Lehman and HSBC in the US, which will lead to some secondary supply back on to the market. It is possible that this may affect the developers in the real estate markets, but to date we have no evidence of any problems for developers occurring as a result of the current credit crunch.

We have consistently witnessed space being taken up due to expansions and new set-ups. Although at a slightly slower pace as compared to the first half of the year, it is largely due to a lack of supply of good class office buildings.

Vacancy rates are consistently hovering at only one per cent for this group of buildings. Many large financial institutions are also aggressively pre-committing spaces even before the building is constructed and this was best demonstrated in Marina Bay Financial Centre where the entire Tower 1 of about 600,000 sf was pre-leased three years ahead of the building completion! They include tenants like Standard Chartered Bank and French investment bank Natixis.

With 70 per cent of the Top 25 buildings achieving full occupancy consistently, many businesses have also resorted to reconfiguring their existing premises to contain more headcount due to shortage of spaces for their expansions.

The fundamentals of the Asia-Pacific economies remain strong with GDP rates remaining robust. Singapore's own GDP figures have just been revised upwards by MTI from 5-7 per cent to an upbeat 7-8 per cent range. It is possible that the credit crunch will have little effect as fundamentals remain strong, and Singapore remains a competitive place to do business. Any reduction in headcount by banks and freeing up of supply will more than be met by demand from other sectors.

However, sentiment plays a strong part in stock markets particularly in Asia. In the longer term, the current market wobble may lead to a correction in prices which will affect firms' expansion plans, and the banks' willingness to lend.

Megan Walters is with Cushman & Wakefield (Asia-Pacific); Alvin Teo is with Cushman & Wakefield (Singapore)

The Changing Face Of Office Space

Source : The Business Times, September 27, 2007

CALVIN YEO looks at how the development of New Downtown at Marina Bay will shape new offerings in the current CBD

WITH demand for office space in Singapore outpacing supply in the last three and a half years on the back of healthy economic growth, rents have been surging, with prime space seeing a rise of over 200 per cent since the lows of 2004.

New look: The New Downtown (left) will not only bring a brand new skyline to the existing CBD (next), but also up the standards of design and facilities







Monthly gross rents of Grade A space in Raffles Place grew by a phenomenal 222 per cent from an average $3.95 per sq ft at the trough in Q1 2004 to a record $12.69 psf as at end Q2 this year. Occupancy of office space island-wide hit 92 per cent as of Q2 2007 - the highest level since Q3 1996, with most prime office buildings enjoying near full occupancy.

Against this backdrop of soaring rents and a dearth of supply, office tenants are eagerly awaiting new office stock coming to the market. This will largely comprise prime office developments in the New Downtown at Marina Bay.

Assuming the two new white sites at Marina View currently on tender are developed by 2011, the New Downtown would yield some 5.4 million sq ft of prime office space. This is equivalent to 47 per cent of the current Grade A stock in Raffles Place and Shenton Way/Tanjong Pagar.

The New Downtown at Marina Bay will not only give the Central Business District (CBD) a new skyline, but could also spur higher building standards in the existing CBD. When landlords of existing Grade A buildings in Raffles Place and Shenton Way/Tanjong Pagar redevelop or retrofit their properties in the coming years, they will have to raise their specifications to match those of offices in the New Downtown to stay competitive.

Among other things, this new office space will offer specifications and services catering to the evolving needs of multinationals and match the top standards found in other regional markets such as Hong Kong and Shanghai.
Examples of such specifications include:

* Larger floor plates in excess of 20,000 sq ft, against the current average of 13,000 sq ft

* Enhanced efficiencies with column-free regular floor plates

* Floor-to-ceiling heights in excess of 2.7m

* More robust technical infrastructure, such as dual-feed power supply to overcome power failure, and dedicated emergency power feed.

* New-generation prime office stock in the existing CBD can also be expected to offer services such as regular tenant feedback meetings.

An increasing number of companies are also looking to raise the quality of the work space, as an attractive office environment becomes key in recruiting and retaining the best talents, comprising largely the Generation X and Y workforce who drive change. Such an enviroment will also boost overall productivity. As such, we can expect future Grade A office supply in the existing CBD to feature the following:

* Maximum work space adjacent to natural light and views

* Good ventilation

* Minimal noise intrusion from building mechanical services

* Use of non-health hazardous building materials

* Dedicated higher capacity IT fibre connectivity

* Uninterrupted power supply.

With companies becoming more environmentally aware, tenants would also prefer to locate in an environmentally-friendly office building. This would include features such as efficient energy and water consumption and conservation systems, as well as measures on indoor pollutants against the corresponding green building maintenance and operational guidelines.

Hence, many redeveloped or retrofitted Grade A office buildings in the CBD can be expected to seek a Green Mark certification from the Building and Construction Authority.

In fact, the gentrification of the current CBD had already begun with the redevelopment of buildings such as Crosby House, Ocean Building and Overseas Union House. By 2011, some 3.5 million sq ft of redeveloped Grade A office space in the current CBD is expected to be completed.

Landlords of other older buildings in Raffles Place could choose to retrofit instead. For example, the landlords of 6 Battery Road, Singapore Land Tower and UOB Plaza II have opted for retrofitting. This includes re-cladding the building façade, creating space for cafes, installing multi-media screens, and upgrading lifts, lobbies, toilets and carparks. With this, they can command top rents and occupancy rates.

Second-tier buildings, such as those built on smaller footprints, could find a niche catering to tenants who do not require the most prime office locations or large floor plates. The answer is the boutique office, typically a high quality office building with a smaller footprint. These developments have small floor plates and target smaller space users such as fund managers, private banks, re-insurance firms, professional services firms and regional offices. They offer tenants the prestige and exclusivity of being a full-floor tenant.

The live, work and play concept is taking root here so tenants would appreciate features such as shower and fitness facilities and common break-out areas with wireless computer access and flexible after-office hours air-conditioning arrangements.

In this context, the clustering of eateries, convenience stores, laundries, mobile devices support centres, and covered walkways could just make buildings along a street collectively more attractive.

Some might say the current CBD lacks character. But with the New Downtown as catalyst, the older part of the business district could see an innovative repositioning that would help Singapore's office market gain depth and breadth, catering to a broad range of tenants, from MNCs to boutique operations.

The writer is director of commercial leasing, Colliers International

A Glowing Report Card For The Hotel Industry

Source : The Business Times, September 27, 2007

Business is brisk as visitor arrivals climb steadily, pushing up room rates and triggering a flurry of new hotel construction, writes DONALD HAN

SINGAPORE is all set to spur tourism in the next few years with high-impact projects like the two integrated resorts, the Singapore Flyer, the Formula One (F1) Grand Prix and a rejuvenated Orchard Road.

More tourists: Visitor arrivals are expected to hit 10.2 million this year. The STB has set a target of 17 million visitors by 2015 generating $30 billion in tourism receipts

Last year, a new record was set with 9.7 million foreign visitors coming to Singapore. This year's visitor arrivals are expected to hit a blistering 10.2 million with Singapore Tourism Board (STB) numbers showing a glowing mid-term report card. From January to July this year, visitor figures reached 5.9 million, a 5 per cent rise over the same period last year. July alone saw hotels raking in $168 million in room revenue, a 28 per cent increase from a year ago. This puts it right on target for another record-breaking year.

STB has set a target of 17 million visitor arrivals by 2015 with $30 billion in tourism receipts. Based on the impressive year-on-year growth over the past 12 months, we should be on track to achieve the 2015 target.

To meet the growing number of visitor arrivals, more hotel rooms have to be built. Presently, there are about 37,000 rooms in Singapore. Based on new supply under construction, some 11,000 rooms will come on-stream by 2010. This includes 4,300 rooms from the two integrated resorts at Marina Bay and Sentosa. It is estimated that in 2010, a total of 14 million foreign visitors will visit Singapore. Based on a conservative average stay of 3.4 days, the city-state will experience an acute shortage of at least 35,000 rooms from now till 2010. Come next September, the F1 event alone will bring an estimated 50,000 visitors. In short, our existing hotel stock needs to be doubled in the next three years to meet surging demand.

To meet this need, the government has since 2006 offered 25 hotel sites for sale. Of this, 10 sites valued at $2.4 billion million have been acquired by developers. In addition, 11 hotels have effectively changed hands. Total private hotel investments soared to over $1.3 billion. Another two hotels, Paramount Hotel and Mitre Hotel, are either under negotiation or waiting for a finalised offer.

About 53 per cent or nine out of the total 17 hotel properties (including government sites), were sold to international investment funds, foreign hoteliers and investors since 2006. In the recent Beach Road tender, US-based Elad Group and Dubai-based Istithmar are joining forces to develop a $2.7 billion integrated hotel, office and retail project. The strong interest from foreign investors shows their astute reading of the opportunities arising from the shortage of Singapore hotel rooms, as well as the potential of reaping higher yields from room-rate increases. It is this overwhelmingly positive outlook that is driving investors' appetite.

In the first half of this year, the average occupancy rate (AOR) hit a high of 86 per cent with average room rates (ARR) reaching $189. STB recently announced that ARR had increased to $210 in June, the highest rate ever achieved. AOR in July hit 91 per cent, a whisker shy away of November 2006's 13-month peak of 92 per cent. With the third and fourth quarters typically being the busy period for hoteliers, room charges and occupancy rates are likely to be maintained or surge further.

For 2008, we are projecting that AOR will test the 90 per cent level with ARR expected to grow by at least 15 per cent from current levels.

With higher occupancy and rising room rates, the burning question is: Can Singapore hotels maintain their competitiveness to continue attracting foreign visitors? The answer is a resounding yes, based on the following reasons.

Singapore ranks sixth out of 15 key Asian cities in terms of ARR, according to a recent Cushman & Wakefield survey. Tokyo has the distinction of having the highest room rates in Asia followed by Hong Kong.

The government has been releasing more three-star hotel sites as part of its strategy to have enough affordable class hotels. These hotels cater to budget-conscious tourists, predominantly from South-east Asia, China and India. The hotel sites on the government sale list tend to be located at the city fringe such as Alexandra Road and Bencoolen Street. The latter is where Accor's Ibis three-star 538-room hotel will be built.

The opening of Changi Airport's Terminal 3 in January next year is set to bring in a steady stream of foreign visitors. The new terminal is capable of handling up to 22 million passengers a year and some of the world's largest aircraft.

Despite the US sub-prime lending setback, Singapore's hospitality sector is experiencing one of its strongest recoveries in over a decade. The market is at the initial stages of takeoff as the high-impact tourism projects start to unveil from 2008. This is when the world's tallest observatory, the Singapore Flyer and the F1 Grand Prix take centrestage in thrilling visitors from around the world.

A year later, all eyes will be on the opening of Marina Bay Sands, which will be the most expensive casino-cum-integrated resort ever built. In 2010, Universal Studios and Resorts World will open their doors to charm a global audience.

Some cities looking to break onto the world stage have looked to hosting mega catalytic events like the Olympic Games, which would instantly give them global city status. Singapore has its own booster in the high-impact tourism projects that will be ready between 2008 and 2010. These should collectively propel Singapore to a different league in the global travel and hospitality industry.

The writer is managing director, Cushman & Wakefield