All Eyes On IRs Now

Source : The Business Times, August 9, 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.'