Wednesday, October 1, 2008

Ubi Plot Gets $85 PPR Bid

Source : The Business Times, October 1, 2008

THE Urban Redevelopment Authority (URA) has received a top bid of $26.3 million from Sim Lian Land for an industrial site at Ubi Avenue 4.

This works out to about $85 per sq ft per plot ratio (psf ppr). It is 13.6 per cent higher than the only other bid of $75 psf ppr submitted by Orion-Four Development, and 20 per cent higher than a committed bid received by URA in August.

Li Hiaw Ho, executive director at CBRE Research, said Sim Lian's bid is only marginally lower than the price paid for a 60-year leasehold site at Ubi Avenue 4/Ubi Road 2. Mr Li said that Sim Lian-linked 3 Link Development paid $89 psf ppr for that site in April 2008.

Sim Lian said that a seven or eight-storey flatted factory will be built on the site at Ubi Avenue 4/Ubi Road 2. 'It is likely that Sim Lian will develop a similar project if awarded the subject site,' Mr Li said. 'Breakeven cost for a similar project at the subject site is expected to be about $300 psf.'

US Faces Long, Steep Decline: Economists

Source : The Business Times, October 1, 2008

Paulson's US$700b bank rescue package unlikely to prevent recession

(WASHINGTON) The US may face its longest recession in a quarter century no matter what action Congress takes on Treasury Secretary Henry Paulson's US$700 billion plan to rescue the battered banking industry.

Buying less: The US economy likely shrank in the third quarter as credit-crimped consumers cut spending for the first time since 1991. The combination of strapped consumers and cautious companies may cause the economy to contract by as much as one per cent in the fourth quarter

Economists including Joseph Lavorgna of Deutsche Bank Securities and David Greenlaw of Morgan Stanley said it now appears that the US economy shrank in the third quarter as credit-crimped consumers cut spending for the first time since 1991. A further contraction is likely in the next two quarters, some economists predicted, which would make the recession the longest since 1981-82.

'This has been a body blow to consumer and business confidence,' said Mark Zandi, chief economist at Moody's in West Chester, Pennsylvania. 'The next six months are going to be very difficult.'

How bad it gets depends on whether Congress passes some form of assistance for the banks.

The Standard & Poor's 500 index plunged 8.8 per cent on Monday, its biggest fall since 1987, after the House of Representatives rejected the rescue package. The stockmarket rout wiped out a record US$1.3 trillion of wealth.

The defeat of the measure - and the steep price decline that accompanied it - set off a scramble among the plan's backers for additional support before another vote, which likely won't come until later in the week.

If Congress ultimately fails to approve a bailout, what is shaping up to be a long and moderate recession might turn into a long and steep decline as credit freezes up and stock prices continue to nosedive, said Allen Sinai, chief economist at Decision Economics in New York.

'We're going through a period of holy terror,' he said.

The grim outlook puts pressure on Federal Reserve chairman Ben Bernanke and his colleagues to reduce interest rates, following Monday's move to pump an extra US$630 billion into the global financial system.

'They should and will cut rates,' said John Lonski, chief economist at Moody's Investors Service in New York.

So far, the economy has largely been able to weather the financial crisis, growing by 2.1 per cent during the past year, thanks to well-timed tax relief and healthy corporate cash- flow. Both now look to be losing their potency.

Consumer spending was flat in August as the boost from US$93 billion worth of rebates faded and households grappled with mounting job losses, declining home prices and a squeeze on credit.

Morgan Stanley reduced its forecast for third-quarter gross domestic product and now sees it contracting by an annualized rate of 0.6 per cent instead of remaining unchanged, Mr Greenlaw said in a note to clients on Monday.

The economy grew by 2.8 per cent in the second quarter.

Deutsche Bank's Mr Lavorgna also turned more pessimistic after the consumer-spending numbers were announced on Monday, saying that the economy looks set to suffer a 0.5 per cent decline in the third quarter. He had previously expected a 0.7 per cent gain.

'The spending outlook is even worse going forward, given the dramatic tightening in financial conditions that has occurred in the last couple of weeks,' he said in a note to clients. The outcome could end up looking like the credit-induced slowdown of 1980, when consumer outlays plunged at a 5 per cent annual rate over two quarters, he wrote.

US consumers are so pinched they're even trimming purchases of basic goods. Walgreen Co, the largest US drugstore chain, reported on Monday that its profits rose less than analysts estimated after it posted its smallest sales increase in a decade.

Faced with stalling consumer spending and fading profits, companies are also starting to rein in their outlays and pare their payrolls.

Industrial production fell in August by the most in almost three years as slower car sales prompted carmakers to cut back on output. Data coming out on Friday is expected to show that jobs declined another 105,000 last month, after an 84,000 drop in August, according to economists polled by Bloomberg News.

Tighter credit is also beginning to take its toll on companies as earnings slow, making them more dependent on loans to expand their businesses.

The so-called financing gap - the amount of money companies pay for capital expenditures minus what they generate internally from profits - rose to an annualized US$327 billion in the second quarter from US$163 billion in the same period a year earlier, Fed data show.

'Businesses are starting to be squeezed,' Mr Lonski said.

McDonald's Corp, the world's largest restaurant company, told some US franchisees to seek other ways to finance store improvements after Bank of America Corp declined to increase lending, according to a memo obtained by Bloomberg.

Even companies that are able to get credit must pay more for it. While Caterpillar Inc raised US$1.3 billion last week in its biggest bond offering ever, it had to offer the highest yields it has paid on such debt in nine years.

Mr Zandi said the combination of strapped consumers and cautious companies may cause the economy to contract by as much as one per cent in the fourth quarter of this year and again in the first quarter of next.

A bank rescue package 'is not going to save us from recession', said Nariman Behravesh, chief economist at Global Insight Inc in Lexington, Massachusetts. 'It will only prevent it from getting a lot worse.' - Bloomberg

Asset Growth Of Rich To Slow Down

Source : The Straits Times, Oct 1, 2008

Financial crisis to hurt region's well-heeled this year and next, but they'll rebound, says report

THE financial crisis will dent asset growth among the Asia-Pacific region's well-heeled this year and next, but their wealth will start expanding again and hit US$13.9 trillion (S$19.9 trillion) by 2012, predicted Merrill Lynch and Capgemini.

They also found that the well-off have been adapting to the bearish climate and wild markets by altering their investment mix.

Asian high net worth individuals - they hold at least US$1 million in investible assets - have been shifting assets to less volatile sectors since the second half of last year.

This includes Singaporeans, who are third richest in Asia with an average net worth of US$4.9 million. Well-heeled Singaporeans were relatively more willing to hold equities than their Asia-Pacific counterparts last year, according to the third annual Asia-Pacific wealth report released yesterday.

The report, which included surveys of financial advisers, found that Singaporeans put a third of their portfolios last year in equities and a third in cash and fixed income. One quarter went to real estate with the rest in alternative investments like structured products, hedge funds and currency.

In contrast, the wealthy in the Asia-Pacific region overall allocated 26 per cent to equities, and put 46 per cent of their holdings in cash, deposits and fixed-income securities - an increase of seven percentage points from 2006.

The report also stated that the region's high net worth individuals are likely to turn to fixed-income securities that offer less volatile returns next year.

It noted: 'They are also expected to increase their allocations to alternative investments, mainly in the form of hedge funds or other investments, more suited to uncertain market conditions.'

Mr Rahul Malhotra, the head of advisory for Merrill Lynch Global Wealth Management's Asia-Pacific business, said yesterday that 'growth prospects in the near term are likely to be compromised by the global slowdown'.

He did not forecast how much growth of Asian high net worth individuals' wealth might decline by next year, but in the longer term, the region's wealth will continue to expand at 7.9 per cent annually - higher than the 7.7 per cent global rate, he noted.

Singapore's millionaires club last year grew by about 10,000 people, or 15.3 per cent, to 77,000. This is 1.7 per cent of the population and puts Singapore joint seventh globally in terms of growth in numbers of such wealthy individuals. The total wealth of these well-heeled Singapore residents grew by 18.4 per cent to US$380 billion last year.

The Capgemini and Merrill Lynch report also showed that the number of emerging high net worth individuals - they have US$750,000 to US$1 million in investible assets - in Singapore grew 15 per cent to 24,000 last year. Their combined wealth was US$20 billion.

The ultra rich segment - with investible assets of at least US$30 million - rose 17 per cent to 1,000 with total wealth of US$159 billion.

Across the Asia-Pacific region, the number of ultra-rich individuals jumped 16.4 per cent to 20,400 last year.

Global Recession Feared If There Is No Rescue Plan

Source : The Straits Times, Oct 1, 2008


The effect on Singapore: depressed asset prices and an export slump

IF THE United States fails to pass some form of bailout plan, the world could be plunged into the worst global recession since the Great Depression, warned Singapore economists yesterday.

'In the worst-case scenario, if no plan goes through at all, we could see a far deeper recession in the US economy and the first global modern recession,' said CIMB-GK economist Song Seng Wun.

This would depress Singapore's asset prices, deepen its export slump and significantly weaken domestic demand, with mass retrenchments possible, added Citigroup economist Kit Wei Zheng.

But most economists are optimistic that some form of bailout will eventually be accepted by US lawmakers, who rejected Monday's proposal.

'Basically the Congress has no Plan B, so I think the bailout plan will probably pass through at some stage,' said OCBC economist Selena Ling.

The collapse of equity markets around the world yesterday after the shock rejection of the bailout would also likely 'force a rethink' by the Congress, Standard Chartered economists said.

Not everyone is rooting for a bailout, however. Investor Jim Rogers told The Straits Times that 'bailing out will make problems worse'.

Previous bailouts in Japan and the US propped up 'zombie companies' that should have been allowed to collapse and clean out the system, he said. In contrast, a sharp collapse in South Korea gave rise to one of the strongest growing economies in the last eight years.

Investment guru Marc Faber also told Bloomberg that a bailout would fail to avert a recession and any stock market rally it caused would be temporary.

With or without a bailout, signs of recession are gathering around the world.

US economists said the economy appears to have shrunk in the third quarter as consumers cut spending for the first time since 1991, Bloomberg reported yesterday. Further contraction is expected in the next two quarters, which would make the recession the longest in 20 years.

If no bailout is approved, what now looks like a long and moderate recession could turn into a long and steep decline, Mr Allen Sinai, chief economist at Decision Economics, told Bloomberg.

In London, British broadcaster ITV said it would cut about 1,000 jobs by March next year to reduce costs, according to a report by AFP.

Australian retailer Harvey Norman also plans to cut advertising, slow hiring and focus on costs amid growing fears of a recession, reported Bloomberg.

Around the region, analysts and economists said the impact of the failed bailout on Asian economies was minimal for now, but the slowdown in external demand would hit them eventually.

'The Thai financial sector is relatively strong, so the impact will be limited. But there may be an indirect impact because exports are a growth driver, and tourism is also a key contributor to the economy,' said Phatra Securities analyst Thanomsri Fongarun-rung in Thailand.

Japan's Fujitsu Research Institute senior economist Martin Schulz added: 'After the US and Europe, the next markets to go down will be those of emerging Asian economies, especially China, because their exports are down and so is their access to credit, which is badly needed.'

In Singapore, a technical recession is on the cards for the third quarter after dismal showings in manufacturing output, tourism and exports last month.

Job losses could be in the offing in manufacturing, retail and financial services, although the integrated resorts would create new jobs, said OCBC's Ms Ling.

To mitigate a possible recession, the Government could 'stand ready with relief measures for households, small businesses and disadvantaged groups', said Barclays economist Leong Wai Ho.

All eyes are now on the monetary policy review next month. Predictions for the Monetary Authority of Singapore (MAS) to adopt a neutral stance and allow the Singapore dollar to weaken have grown to a chorus, as signs point to faltering growth and tapering inflation.

But CIMB-GK's Mr Song believes that Singapore could come out of a recession quite quickly. 'Businesses and households are not as much in debt as before; there's enough fat to ride through a recession this time with fewer job losses and less falls in asset prices,' he said.


'If the (bailout) isn't resolved this week and markets perform badly around the world, Monday will open with a strong decline in the Chinese market. If, and I think this is likely, the US Congress and Treasury can cobble together something by the end of the week, we will probably see markets strengthen on Thursday and Friday, and that should probably carry over into China on Monday.'

Professor Michael Pettis of the Guanghua School of Management in Peking University in China


'On the financial side, the direct impact on Japan will be minimal as overall, Japanese financial institutions are sound. But it will be more difficult now to secure economic growth through external demand. The US slump will affect emerging nations, which will in turn affect Japan.'

Senior economist Hisashi Yamada of Japan Research Institute in Japan

Short-Term Interest Rate Spikes

Source : The Straits Times, Sep 30, 2008

Rise in Sibor leads to bigger loan repayments but higher interest for cash deposits for some

THE global credit crunch has started hitting home here with short-term interest spiking, spelling bad news for some home buyers but better news for those with cash in bank deposits.

Local banks are said to have tightened their credit to each other and to corporate clients, which has had the effect of making money harder to borrow.

The three-month Singapore Interbank Offered Rate (Sibor) has jumped in response, up by 100 basis points in just a month to 2 per cent.

Sibor is the rate at which banks lend cash to each other and so directly influences what consumers pay on loans like mortgages as many home loans are pegged to it.

Take a home buyer with a 20-year mortgage of $100,000 pegged to the three-month Sibor plus 1 per cent.

Sibor's sharp rise could mean a monthly instalment of $506 surging to $555, according to United Overseas Bank's (UOB) head of loans, Mr Kevin Lam.

The one-year Sibor rate has also been rising, though not as fast as its shorter variant. It moved from 1.75 per cent last month to about 1.875 per cent now.

'The majority of our customers have chosen the 12-month Sibor, where the rates are fixed for 12 months. Their monthly instalments will not be affected since the rates will only be refreshed every 12 months,' said a DBS spokesman.

Economists said short-term rates are elevated and rising, including those here, reflecting the 'dislocations' in global credit markets, as well as 'stresses amid the global shortage of US dollars'.

'With everyone still wondering and suspecting who is next, credit and interbank markets are freezing up,' said OCBC Bank economist Selena Ling.

While key central banks around the world have been injecting massive amounts of liquidity to break the impasse in the interbank markets, economists say this may not be enough.

Ms Ling said: 'While these massive liquidity injections have ensured that funding for overnight to one week is still available, albeit at somewhat elevated rates, term funding exceeding one month is still hard to come by.'

Higher interbank rates could also translate into higher lending rates for companies, and analysts say this could add to 'downside growth risks' for countries like Singapore already hurt by export slowdowns.

Long-term Sibor rates have not risen as quickly as short-term ones, perhaps because funding pressures are more immediate in the short term, said Citigroup economist Kit Wei Zheng.

On the flip side, the rising Sibor has meant higher deposit rates for some savers.

HSBC's rates for its multi-currency account, which are pegged to one-month interbank rates, has moved from 0.17 per cent a year as at Aug 29, to 1.17 per cent as at Sept 29 for amounts less than $25,000.

This gives a yield better than most saving deposit rates of 0.25 per cent, though HSBC's rates for its multi-currency account could head south if short-term interbank rates fall.

Mr Dennis Khoo, general manager of lending at Standard Chartered Bank, said there will be 'upside pressure' on Singapore dollar Sibor in the immediate future.

But Mr Khoo expects the three-month Sibor to decline early next year to just below 1 per cent and remain around that depressed level for most of next year.

'We believe a US government-led rescue plan for the banking sector should be finalised and announced soon,' he said.

Since short-term interbank rates are expected to fall, consumers could consider a mortgage pegged to the three-month Sibor rather than one linked to the one-year Sibor, suggested Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

Mr Leong described the current situation - where short-term rates are higher than long-term rates - as an anomaly. It is the credit crunch, he said.

As a result, he would pick a shorter-term Sibor-linked package despite the higher instalments over a longer-term one as the three-month Sibor would trend lower.

The same reasoning applies to fixed deposits. 'If I'm putting money into a fixed deposit, I'll put it in a two-year fixed as I'm afraid short-term rates will go down,' he said.

Banks say that although the three-month Sibor has moved up significantly in the past week, Sibor-pegged home loans remain popular.

'They continue to be favoured over fixed rates and variable rates schemes as the applicable gross rate (Sibor plus a mark-up) is still relatively lower than the other two rate types,' said Mr Gregory Chan, OCBC's head of secured lending.


'With everyone still wondering and suspecting who is next, credit and interbank markets are freezing up.'
OCBC Bank economist Selena Ling, on the 'dislocations' in global credit markets