Wednesday, August 22, 2007

US Credit Crunch Has Little Global Effect: Economist

Source : The Business Times, August 22, 2007

Asia's fundamentals still strong, says Deutsche Bank exec

(SINGAPORE) The current credit crunch will prolong the correction in the US housing market but have little effect on the global real economy, says Deutsche Bank chief economist Norbert Walter.

Prof Walter: The global economy should not spiral into a downswing unless the credit market worsens

'On a global scale, the correction in credit markets should have only limited impact on the real economy, given the healthy financial situation of corporates and consumers,' said Prof Walter, who was in Singapore last week.'In the US, by contrast, the problems in the sub-prime market will prolong the correction in the housing market. Negative wealth effects due to falling house prices might provide a bigger drag on the US economy than some of the more optimistic observers have thought so far.'

Prof Walter sees a 30 per cent chance of a US housing crash triggering a recession in America through 2008, which he lists as the biggest macro downside risk for global growth over the next two years.

'But even if the US avoids a recession, GDP growth in 2008 will probably be at least half a percentage point lower than the consensus still expects,' he told BT.

He sees the US economy growing 2 per cent in 2007 and 2008, after an average 3.2 per cent in the past four years.

The problems in the US mortgage market have been around for 18 months but have only just come to the attention of a wider audience, he pointed out.

Unless the credit market situation deteriorates 'significantly further', the global economy should not spiral into a downswing, he said.

'But (global) growth rates in the next two to three years should, mainly for cyclical reasons, turn out somewhat lower than during the last three years. This holds true for the Asian economies as well.'

Asia - led by India and China, which he deems to be the 'growth stars' for the 15 years to 2020 - will continue to drive global growth.

The current market turmoil - in which Asian bourses and currency markets have taken big hits - shows how much Asian economies are integrated into the world economy, he said.

'As such, they remain vulnerable to market correction episodes like the ones we are experiencing now. On the other hand, Asia's fundamentals are quite strong, particularly in what concerns their growth performance and prospects and their abundant external liquidity. The latter is a factor which makes the current turmoil different from the Asian crisis in 1997-98.

'Of course, this is not to say that the region is completely immune. For one, if market jitters continue and companies face tougher financing conditions, this is going to have a consequence on investment plans, and thus on growth. But overall, we expect growth in Asia-Pacific to remain robust, if not as buoyant as in 2006.'

Apart from a 30 per cent chance of a US recession, the other top macro downside risks over the next two years include a disorderly unwinding of the major currencies (15-25 per cent probability) and an escalation of military conflicts in the Middle East (15 per cent), resulting in a surge in oil prices on fears of supply shocks.

New Peg Next Year For Key CPF Interest Rate

Source : The Business Times, August 22, 2007

Interest on Special, Medisave, Retirement accounts to be tied to long-term bond yield

(SINGAPORE) The buzz that has surrounded changes in the CPF scheme was given a new direction yesterday, when Manpower Minister Ng Eng Hen highlighted a significant move in the offing.

The interest rate on savings in the CPF Special, Medisave and Retirement Accounts (SMRA) will no longer be 4 per cent from next year, but will be pegged to an appropriate long-term bond yield.

'The new SMRA rate will be a little lower, based on current yields, when we introduce it. But over time it should be more than 4 per cent,' said Dr Ng.

Currently, the SMRA interest rate is pegged to the prevailing Ordinary Account (OA) interest rate, earning an additional 1.5 percentage points above this rate.

The current OA rate is 2.5 per cent while SMRA savings earn 4 per cent.

Since the new SMRA rate will be 'pegged to the market', there 'will be fluctuations but it will be less volatile than equities', said Dr Ng.

Dr Ng said that the exact formula for the new peg as well as the benchmark long-term bond rate to be used will be announced during his ministerial statement in Parliament.

Currently, 20-year Singapore government bonds have yields-to-maturity of about 3.3 per cent, but Dr Ng expects the rate to be more than 4 per cent over time.

Speaking to the media yesterday, Dr Ng injected more clarity into the debate on CPF changes when he elaborated on the proposals.

For one thing, he cooled industry speculation that the private sector would probably be asked to manage the proposed compulsory annuity scheme. In fact, CPF Board could well administer the scheme itself, Dr Ng said.

He also assured CPF members that the bulk of their Minimum Sum could still be drawn down, as only a small portion of it would go towards the annuity premium.

Prime Minister Lee Hsien Loong had announced in his National Day Rally speech that some form of annuity would be made compulsory for CPF members.

Dr Ng said the government had still not decided who would administer the scheme.

'But as I outline the scheme - what we want to do - it gives a certain clarity, and if the industry can offer attractive terms and propositions, we are open to them participating,' he said.

The Minimum Sum is aimed at providing CPF members payouts after their drawdown age of 65 until they are 85 years old.

CPF members will receive the annuity payouts after the age of 85.

'The basic idea that we are what I call Very Long Life Expectancy Protection. If you are lucky enough to live past 85...then I want to make sure that you have some savings that can start paying you out after 85,' said Dr Ng.

Some members may want the annuity payouts to go to their family should they die before the age of 85, but such a scheme would mean higher premiums as there would be no pooling of risk, said Dr Ng.

Others thought they did not need the scheme as they were unlikely to live to 85. This was a myth that Dr Ng was anxious to debunk.

Statistics showed that for people here who reach 62, half will live beyond the age of 85. 'This means that 50 per cent might outlive their retirement sums, and that's what I want to cater to,' he said.

The annuity payouts would be small to start out with - around a subsistence level which is about $250-$300 by today's standards. This is so that the CPF member will not have to pay a large premium upfront and can have more in his Minimum Sum at drawdown age.

Another key strategy to ensure that Singaporeans have enough savings for their old age is to increase the returns on CPF savings.

The Prime Minister had announced a one percentage-point increase in interest on the first $60,000 in a CPF member's combined CPF accounts, with not more than $20,000 from the OA account.

Dr Ng said that this additional interest on the maximum $20,000 in OA savings will be paid into the Special Account, instead of the OA. The remaining 2.5 per cent interest will continue to be paid into the OA.

'That makes sense because I am not giving you that extra one per cent to buy a larger home if you can't afford it,' said Dr Ng. This extra interest is for retirement needs.

This $20,000 in OA savings will also not be available for investment under the CPF Investment Scheme.

Industry players have said that with this change, CPF members may be denied higher returns available in the market.

But Dr Ng pointed out that CPF members who invest on their own typically receive less than the 2.5 per cent interest guaranteed in the OA by CPF.

'Our own data suggests that more people have been less smart than they thought.'

Between Oct 1, 2005 and Sept 30, 2006, about 45 per cent of CPF members who invested their CPF savings suffered losses, while another 32 per cent had returns of less than 2.5 per cent.

Be Prepared For Strange Reversals

Source : The Business Times, August 22, 2007

Market players are divided on whether the worst is yet to come, but agree Asia will be hit by weaker global demand

IS it a case of 'game over' with the financial crisis and Pandora's Box safely closed again? It is tempting to think so as stocks enjoy a partial recovery, currency markets steady and some investors even begin to dabble in yen 'carry trades' again.

A yen for the yen: Japan is an increasingly attractive haven to the global investor; Mr Cutis says its currency is 'undervalued by 30 per cent'

A yen for the yen: Japan is an increasingly attractive haven to the global investor; Mr Cutis says its currency is 'undervalued by 30 per cent'
But the answer to this billion-dollar question depends on whom you listen to, and there are some very different opinions out there as to how serious last week's wobbles in the financial system were.

According to Mark Cutis, chief investment officer at Shinsei Bank in Tokyo, a 'securitisation monster' has been unleashed and is set to wreak potentially 'cataclysmic' damage on global finances.

But to hear investment guru Jesper Koll, president of investment advisory firm Tantallon Research Japan, tell it, talk of a monster is 'nonsense' and all that we are seeing is a 'normalising adjustment in the new global financial architecture'.

The two clashed at a financial symposium held this week at the Foreign Correspondents' Club of Japan in Tokyo. But if there was one thing that they and other panellists could agree on, it was that the Japanese yen has nowhere to go but up from here, and that the safest haven for investors now is Japan - whether last week's market turmoil turns out to be a passing squall or the skirts of an approaching typhoon.

Markets were expected to stabilise after the US Federal Reserve unexpectedly cut the discount rate at which it makes emergency funding available to the banking system, and lengthened the period for which banks can borrow from this window. This was a critical step because, as Mr Cutis noted, the financial system was literally in danger of seizing up. Institutions would no longer accept one another's short-term obligations (commercial paper).

But a certain ominous note was injected back into the market by the news yesterday that US Senate Banking Committee chairman Christopher Dodd had sought an emergency meeting with two top US economic policymakers, Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson, to discuss the recent financial market volatility. The closed-door meeting was due to be held in Washington yesterday.

The implication was that something else is afoot: either more problems that will require further massive injections of financial liquidity into the system by the Fed and other central banks - possibly even an announcement of more banking system distress - or that senior policymakers need to hold a symbolic meeting simply to calm markets further.

Such 'no business' meetings were held at the time of the financial crash in the 1920s.

Another disquieting bit of news yesterday was that the US Office of Thrift Supervision is very closely monitoring events at troubled mortgage lender Countrywide Financial Corp and that yet another ailing mortgage company, Capital One Financial Corp, would eliminate 1,900 jobs and shut down a wholesale mortgage unit it acquired less than a year ago, as it struggles with the housing downturn.

While Mr Cutis, a veteran banker and former treasurer at the European Bank for Reconstruction and Development, was prepared to concede at Monday's seminar that the 'sub-prime fiasco is probably over - for now', and that the unwinding of yen carry trades that sent currency markets into a spin is also 'pretty much over', he was much less sanguine about the overall health of the global financial system in the wake of recent tremors.

'We are expecting to see a much more vicious sell-off (in financial markets) in October,' he said. 'We are still waiting for the other shoe to drop.' There is still a lot of uncertainty about just how far the financial system has been damaged by credit excesses of recent years and whether the emergency measures of the past week have prevented a total seize-up or simply softened the grinding of tectonic plates with temporary lubricant.

'The securitisation machine, or securitisation monster, has created a lot of these problems. Because of that, you will be getting periodic declarations that this institution or that bank has lost money from their positions. The wild position in credit markets, where everyone was able to borrow money and spreads were coming down all the time - that is over,' said Mr Cutis.

But former Merrill Lynch analyst Mr Koll was having none of it. 'Securitisation monster - that is nonsense,' he declared. 'Throughout the past 15 years, the world economic and financial leaders have built a new financial architecture where the bank-based financial system was replaced by a security-based system and that has largely been completed.'

The results of this experiment have been overwhelmingly positive so far, he said.

'The world economy has had an unprecedented period of high growth but we are having some market jitters now. Some of the risks are coming out. There have been more and more players coming into the market and, as a result, returns get squashed, which is exactly what is happening now,' he insisted.

'We are going through a period of normalisation (and) the system is being stress-tested,' he said.

Only time will tell which of these two views is right but the panel produced a broad consensus that the world economy cannot expect to emerge unscathed from the debacle in financial markets - though whether this means one percentage point off global growth or as much as 2.5 per cent in a full year was not something on which anyone was prepared to stake bets.

Asia will be impacted adversely in coming months by weaker demand from the US and elsewhere, the panellists agreed. This seems inevitable given that various studies have shown that the degree of self-sufficiency or self-sustainability of currently buoyant economic activity in East Asia is considerably less than often supposed.

Less than 20 per cent of final demand for products is actually generated within the region, the studies show.

But Japan could be an exception to the rule of inevitable slowdown, it was argued. It has few structural economic problems, very little debt in the household or corporate sector (unlike the public sector) and stands to gain from a potentially huge repatriation of flight capital as the attractions of overseas investment financed by yen carry trades diminish in the wake of the financial crisis.

The yen is 'undervalued by 30 per cent' against a basket of currencies, argued Mr Cutis, while JPMorgan Chase Bank's chief foreign exchange strategist in Tokyo, Tohru Sasaki, was also positive about the yen. It will probably stabilise in a range of 110 to 120 to the dollar for now, Mr Sasaki argued, a conclusion that also drew support from former Bank of Japan senior official Rei Masunaga.

However, if the Fed decides that the financial system is not yet ready to stand on its own feet again and cuts short-term interest rates by around one percentage point in short order, then things could get more 'interesting' for the yen, it was acknowledged. A combination of Fed cuts with interest rate hikes by the BOJ later this year could send the yen soaring to '75 to the dollar', suggested Mr Sasaki.

That plus the fact that the Tokyo stock market has nowhere to go from here but up (as Mr Cutis argued) as domestic investors end their dangerous flirtation with foreign currencies and bonds would make Japan a remarkably attractive haven for global investors.

This would be a strange reversal of the pattern seen over the past decade but as recent events in financial markets have shown, we live in strange times. Anything can happen, it seems.

What Will Happen From Here On?

Source: The Business Times, August 22, 2007

Few dare assume that the worst is really behind us

FINANCIAL markets have come back from the brink after last week, thanks to the Fed's deft move to stave off a meltdown in global financial markets. But only the very brave dare believe the worst is now over.

When massive injections of short-term liquidity into shell-shocked money market systems from Japan to Europe and the US proved less than effective in stopping the deluge of nervous sell-offs in stock and currency markets, the Fed had no choice but to offer a half per cent cut in its discount rate.

In Asia, meanwhile, there were widespread reports of central banks stepping in to stop their currencies from selling off too sharply as things got from bad to worse. On the stock market side, there was also talk of covert stockmarket purchases, even before China announced (this week) that individuals on the mainland can now buy stocks direct in Hong Kong.

But before all of that, a few stock indices suffered painful relapses of 20 per cent or more from their 2007 highs, and the year's carry-trade favourites like the Australian and New Zealand dollars likewise plunged a fifth or more against the low-yield yen in frenetic trading last Friday - before recovering this week.

The US dollar, meanwhile, received a respite from the appeal of safe-haven US Treasuries; except against the yen, the week's biggest 'comeback kid' - where large carry trade positions favouring the Antipodean pair and even more exotic assets were nervously unwound.

And while we got the direction right here a week ago, all of our targets save one proved modest before the worst was over.

Here's a sampling: Yes, in broader indexed terms, the US dollar easily breached our first overhead resistance area at 81.25 but ran out of steam at our next overhead carrier at 82.00-20. Elsewhere, however, the greenback blew past our first resistance area of S$1.53 - and even S$1.54 above that.

On the carry trade side, the yen surpassed all expectations as it exploded against the Australian dollar, New Zealand dollar, euro and British pound.

All were easily savaged below our week's respective targets - at 95 yen, 85 yen, 160 yen and 235 yen for the pound. Before the Fed's rescue, the Australian dollar was forced down to lows of 86 yen and S$1.18, the New Zealand dollar to 74 yen and S$1.02, the euro to 149 yen and S$2.05, and the pound to 219 yen and less than S$3.02. All have since recovered. In yen terms, for example, all four were trading at least five yen above the past week's ugly lows yesterday.

Yet, all said and done, we are obliged to say that even as more intrepid souls return to nibble once more at the favourite currency plays of 2007 - selling the US dollar and buying high-yielders Down Under and elsewhere - there are reasons to suggest that the financial typhoons of the past week haven't completely subsided.

True, the Long Term Capital Management (LTCM) debacle of October 1998 was followed by higher US stock prices and a stronger US dollar. However, it is seldom safe to assume that history will repeat itself, especially when the backdrop is quite different.

So here are some important factors to think about over the coming fortnight, even as trading rooms slowly return to full force at the end of the summer holidays.

If no one has really been able to unload any of their ugly sub-prime debt and unwieldy financial derivative structures in current market conditions, can we really say for sure that the worst is behind us? If we also combine the talk of weaker US growth in 2008 with growing expectations for two, if not more, cuts in the short-term US Fed funds rate, won't the US dollar be in danger of resuming its slide?

And if the worst is indeed over, why are our friends at research firm Forecast telling us that the spread between safe-haven, three-month US Treasury bills and straight bank deposits has exploded this week to more than 2.5 per cent? We're told it's the widest gap between the two in more than three decades.

This column will resume on Wednesday, Sept 5

MAS Paving Way For banks To Buy Mortgage Insurance

Source : The Straits Times, 22 Aug 2007

Regulator not saying when new rules take effect but bankers say it could be ‘quite soon’

The Government is drafting new rules to pave the way for banks in Singapore to take up mortgage insurance for the first time.

Such insurance protects banks from the risk of borrowers defaulting on their mortgages, which make up a major chunk of banks’ loans portfolio.

Some banks may implement mortgage insurance later next year, say industry players. This may be in anticipation of a surge in new mortgages when more properties are completed and home owners on deferred payment schemes take up loans.

Deferred payment schemes, which allow homebuyers to delay paying the bulk of a new home’s price for up to a few years, have been popular here.

In response to The Straits Times’ queries, the Monetary Authority of Singapore (MAS) said it is ‘drafting the required legislation’ for mortgage insurance. This follows the consultation paper it issued last October that set out the proposed regulatory framework for the business.

Almost every bank in Singapore has been in talks with mortgage insurers to cover borrowers with higher loan-to-value (LTV) mortgage, typically above 80 per cent. LTV refers to the loan amount as a percentage of the property’s value.

Mortgage insurance, which is available widely in other markets such as the United States, Australia and Hong Kong, protects residential mortgage lenders against losses if borrowers default.

There are no mortgage insurers operating in Singapore but the MAS said it has ‘received indications of interest from several internationally renowned’ providers to open outlets here. Two firms thought to be eyeing the Singapore market are Hong Kong Mortgage Corp and one of the US’ largest mortgage insurers, Genworth Financial.

The MAS declined to say when the legislation will be put in place but some bankers expect it to be ‘quite soon’, especially with concerns about defaults on higher-risk home loans.

‘Against the backdrop of the subprime home loan crisis in the US, there is inadvertently more pressure on banks to take precautions with their mortgages,’ said a banker.

While the risk of defaults is generally low here, there is still a danger that an economic downturn may affect the ability of borrowers, especially those on deferred payment schemes, to service their loans, he added.

Citibank Singapore business director Tan Chia Seng also noted that ‘if property prices keep rising faster than increases in income, it may make sense for banks to consider additional tools for managing default risk, such as mortgage insurance’.

Banks now must set aside higher amounts of capital for mortgages with an LTV of more than 80 per cent.

But the banks will be able to reduce the amount of capital they set aside by buying mortgage insurance.

The MAS said it is ‘prepared to apply a lower capital risk charge for high LTV loans with mortgage insurance as a risk mitigant’.

Banks may also decide to pass on some of the mortgage insurance costs to borrowers in the form of higher interest rates. In Hong Kong, all banks, including DBS, must take out mortgage insurance for loans with an LTV above 70 per cent.

But the MAS said it ‘does not interfere with banks’ decisions about whether or not to use mortgage insurance to mitigate mortgage risks’.

Even with the upcoming regulations, it is unclear whether mortgage insurers will pile into the Singapore market.

One Hong Kong player, PMI Group, noted that selling mortgage insurance in Singapore could be ‘quite difficult’.

This is because ‘mortgage pricing is quite low in Singapore and banks are very comfortable with the lending at the 80 per cent LTV,’ said Mr Albert Ting, PMI Hong Kong’s country manager. PMI is a reinsurer to Hong Kong Mortgage.

Another mortgage insurer, Radian Group, is understood to be in talks with several banks in Singapore. But its plans may be put on hold as it is currently facing massive losses of well over US$460 million (S$701 million) in sub-prime loan investments, said one source.

Rise In Office Rentals Slows To 2.7% In July

Source : The Straits Times, 22 Aug 2007

PRIME office rents went up by 2.7 per cent last month, the slowest monthly rise so far this year, according to a report by consultancy Cushman & Wakefield yesterday.

Since January, office rents have been rising by 4.5 per cent to 9 per cent.

An acute supply crunch and burgeoning demand from expanding businesses in Singapore have been pushing up office rents since last year, prompting market watchers to air concerns over Singapore’s competitiveness.

Although rents overall grew at a slower pace last month, monthly rents for prime offices - those in the Central Business District, City Hall, Orchard and Bugis areas - were at record highs.

Rents in these areas hit $11.82 per sq ft (psf) last month, up from $11.51 psf in June, said Cushman & Wakefield.

Rents in the top 25 Grade A offices, which are in the best category of space in Singapore, rose 2.8 per cent to an average of $12.07 psf per month.

In sought-after Raffles Place, rents now average $12.96 psf per month, about 58.8 per cent above the last peak in June 1996.

At the very top end, City Developments’ Republic Plaza has achieved monthly rentals of $17.50 psf, the developer said earlier this month.

Cushman & Wakefield managing director Donald Han said rents, although still on the rise, should climb at a slower pace.

‘We are already at a very high base, so any increase cannot go up at the same rate of 4 to 5 per cent every month,’ he said. ‘At some stage, it’s got to slow down.’

Mr Han added that tenants are actively looking to minimise increases in their occupancy costs by relocating some operations outside high-priced central areas.

Recent moves by the Government to provide more data on the office market and assure tenants of ample future supply also seem to have paid off, said Mr Han.

‘I think that has had some impact in terms of tenants resisting high rentals by landlords,’ he said.

However, Mr Han believes the balance of power still lies with the landlords. ‘In general, we’re still looking at a mismatch between supply and demand,’ he said.

‘But moving forward, tenant relationships and finding quality tenants may become more important than trying to chase the highest rents in the marketplace.’

MTI Sees Growth At Upper End Of 4%-6% Range (ST)

Source : The Straits Times, 22 Aug 2007

The economy should be able to expand annually at the ‘upper end’ of the Government’s 4 per cent to 6 per cent estimate over the next five years - if external conditions stay favourable.

That is the view of the Ministry of Trade and Industry (MTI) and follows comments in Prime Minister Lee Hsien Loong’s National Day Rally speech on Sunday.

He said Singapore’s economy had the potential to grow by an average of between 4 per cent and 6 per cent annually for the next five to 10 years.

While the Economic Review Committee had estimated previously that the medium-term growth potential was between 3 per cent and 5 per cent, reforms in the past five years have resulted in growth averaging 6.1 per cent a year, said MTI.

The new estimate is based on higher labour force growth of between 1.5 per cent and 2.5 per cent and higher productivity of between 2.5 per cent and 3.5 per cent.

‘The economy’s diversification into higher value-added industries and influx of new capital investments will increase productivity growth,’ said MTI.

The estimate also takes into account the rise of China and India - which will join the United States, the European Union and Japan as external drivers of demand - as well as the recovery of South-east Asian countries from the Asian financial crisis.

HDB Flat Owners Can Pay Less When Opting Out Of Upgrades

Source : The Straits Times, 22 Aug 2007

Also, essential repairs to older flats will be free under new home improvement scheme

OWNERS of ageing Housing Board flats will soon be able to pay less when opting out of bigger improvements and have essential repairs done for free.

The changes are part of the new Home Improvement Programme announced by Prime Minister Lee Hsien Loong on Sunday.

The programme, which is tailored to be more responsive to residents’ views, will introduce greater flexibility.

Under the existing scheme, upgrading flats could involve anything from new toilets, doors and even additional rooms - but at a cost.

Some households landed bills of $6,200 or so, which could not be cut even if they opted out of various items. The extra rooms the HDB used to offer for old flats were rejected by several residents who feared the disruption involved.

But the new programme means flat owners will have the option to reduce their bills by opting out of extras such as new doors and grille gates.

The Government will fully pay for essential improvements like replacing waste pipes and fixing spalling concrete, and subsidise the cost of optional items like new doors or toilets.

Subsidies for this work will be increased. An owner of a four-room flat, for example, will have to pay only 7.5 per cent of the upgrading bill for optional items instead of 15 per cent.

That means eligible households will pay $550 to $1,375 if they opt for the full package, instead of $2,490 to $6,225 now.

The changes were all about tailoring upgrading to suit residents’ needs, said Minister of State for National Development Grace Fu yesterday.

‘We thought in order to cover a wider group of residents, it’s good that we focus on the issues they’re most bothered with and just address them,’ she said.

About 200,000 more homes now stand to benefit from this smaller scale plan, which is targeted more at fixing the common problem of spalling concrete and ceiling leaks in old flats.

Spalling occurs when steel bars embedded in concrete corrode and expand, causing walls and ceilings to crack.

An MP for Pasir Ris-Punggol GRC, Mr Charles Chong, said the problem has been reported in as many as 30 per cent of flats in some blocks more than 10 years old.

Precincts in Yishun and Tampines will be the first to try the new programme. Work will start once 75 per cent of owners in a selected block vote on upgrading.

The new plan is a relief for housewife Zeenat Kausar, 46, whose bathroom ceiling in her Tampines flat has been leaking for around three years even though it was repaired about seven years earlier.

‘We don’t mind paying as long as they do a good job,’ said Ms Zeenat.

‘If HDB does it, people will feel more reassured, as opposed to finding your own contractor who might disappear after a few years.’

Meanwhile, bigger improvements to older estates will be readjusted to account for residents’ views, which will be gleaned from ‘town hall’ meetings.

Individual precincts - which comprise about eight to 10 blocks each - will be grouped so the cost of big items like tennis courts or skate parks can be shared.

These changes were suggested by residents during a recent series of dialogues on building community ties.

Mr Chong hopes the consultative approach will make residents appreciate the compromises needed when adding community facilities.

He said: ‘By making the process more transparent, hopefully we will get a more sophisticated society that works out issues with the Government.’

HDB Upgrading : More Groups Will Benefit

Source : The Business Times, 22 Aug 2007

Subsidised optional improvements will cheer sandwich class

The Housing and Development Board (HDB) has released details of two new upgrading programmes which are seen as benefiting a broad spectrum of Singaporeans, including the middle class.

New look: Under the two new programmes, HIP and NRP, the government will pay for essential improvements like spalling concrete and repairing ceiling leaks

The two new programmes, which Prime Minister Lee Hsien Loong mentioned during his National Day Rally speech, are the Home Improvement Programme (HIP) and the Neighbourhood Renewal Programme (NRP).

The government will pay for essential improvements like spalling concrete and repairing ceiling leaks under HIP.

Compared to the existing Main Upgrading Programme (MUP), it will be a targeted programme that will also offer optional improvements like the upgrading of toilets and the replacement of entrance doors, for which the government will subsidise between 87.5-95 per cent of the cost.

Speaking on the sidelines of an event yesterday, Minister of State for National Development (MND) Grace Fu added that the new programmes are expected to, ‘benefit a large number of residents’.

National University of Singapore sociology professor Paulin Straughan told BT: ‘Generally, what was announced focuses on the lower income and the lower-income elderly.’

But she noted that general housing estate upgrades that can be expected through HIP and NRP ‘will benefit everyone’.

Although some of the improvements under these programmes may not cost a lot - renovating a toilet is expected to cost around $2,000 - Prof Straughan believes that there is a growing middle class, or, ’sandwich class’ that finds itself over-stretched.

Typically in their 40s and 50s, with children and ageing parents, some of these people do not even have the option of downgrading. ‘Selling their flats and downgrading is not feasible because they would have bought their homes at a high,’ she added.

That’s why the help will be handy.

HIP will apply to flats built in 1986 or before. MUP applied only to flats built in 1980 or before. Up to 300,000 flats are now eligible compared to just 100,000 flats under MUP.

Co-payments under HIP are also significantly less at an estimated $550-$1,375 compared to $2,490-$6,225 under MUP. ‘One must see co-payment as part of stake-holding,’ said Prof Straughan.

NRP - a general upgrading programme which could be more comprehensive and consultative than in the past - will be completely funded by the government.

While more people are expected to benefit from upgrading works, PropNex CEO Mohamed Ismail pointed out that under MUP, upgrades were more extensive and even included the addition of extra rooms or toilets. ‘In terms of adding value, HIP cannot compare with MUP,’ he said.

Mr Mohamed did add however, that with HIP, homeowners, ‘will enjoy the benefits earlier with fewer disturbances and the value of their property will be enhanced in general’.

With their values, ‘enhanced’, it could be more feasible for cash-strapped home owners to monetise their assets and downgrade.

However, resale figures from ERA Singapore suggests that the downgrading trend has plateaued as the economy has improved.

ERA’s vice-president Eugene Lim notes that the percentage of resale three-room flats has dropped from 36 per cent two years ago to about 30 per cent today. Four-room flats also make up less of the resale market at 38 per cent, down 2 per cent from two years ago, while the the number of resale five-room and executive flats have gone up.

Mr Lim believes that upgrading flats through HIP and NRP is more about improving living conditions. ‘There is a world of difference between a new flat today and a flat built 20 years ago,’ he added.

MND’s Ms Fu also said that HIP and NRP applies to opposition wards as long as they meet the criteria.

Three Sentosa Bungalow Plots Released For Sale

Source : The Business Times, 22 Aug 2007

New benchmark price of $1,233 psf set for a waterway bungalow site

SENTOSA Cove Pte Ltd (SCPL) yesterday released another three 99-year leasehold bungalow plots for sale, after reporting new benchmarks being set for waterway and fairway facing plots in the upscale locale.

After the latest offer, the only sites the master developer will have left for sale are two more individual bungalow plots, a man-made island (which can be developed for 19 bungalows) and a plum condo plot at the mouth of the marina.

In all, the developer will have sold plots for a total of about 2,500 homes since October 2003.

SCPL said yesterday that an expression of interest (EOI) for four bungalow parcels that closed in July saw a new benchmark price of $1,233 per square foot of land area being achieved for a waterway bungalow lot, surpassing the $960 psf previous record for such land set earlier this year.

The other two waterway plots offered in the July EOI were also sold at above $960 psf. The sole fairway bungalow site in that EOI fetched $1,065 psf, surpassing the previous high of $910 psf for such sites achieved earlier this year.

The last seafront bungalow plot at Sentosa Cove was sold for a record $1,473 psf during an EOI in May, surpassing the top price of $1,308 psf previously for such plots seen at an EOI late last year.

SCPL’s latest EOI, which is being launched tomorrow, is for three bungalow sites - all waterway-fronting plots, one of which also boasts nearby views of, but is not directly fronting, the Tanjong Golf Course and the sea.

This plot has a land area of 6,941 sq ft. The other two plots are 7,414 sq ft and 10,663 sq ft.

The EOI closes on Sept 4, with the award being based solely on price.

Credo Real Estate managing director Karamjit Singh predicts that the three latest waterway plots could fetch prices ranging from $1,100 to $1,300 psf, with scarcity value raising the price.

Following this EOI sale, the last two individual bungalow plots at Sentosa Cove - both of which face fairways - will be sold by private treaty.

Pearl Island and a coveted high-rise condo plot (dubbed C-13) at the entrance to Sentosa Cove’s marina basin will be offered for sale before the year runs out.

Mayer Mansion Owners Win Appeal Case

Source : The Business Times, 22 Aug 2007

They will also keep the $3m deposit paid by Travista

Owners of Mayer Mansion on Devonshire Road have won their case in the Court of Appeal against a company that sued them for cancelling a $30 million collective sale.

The owners of the 10-unit property will also get to keep the $3 million deposit paid by foreign-owned property developer Travista Development.

They have sold their homes for $42 million to Golden Flower Group (GFG) which is owned by the Indonesian family of its chairman Po Sun Kok.

GFG has its core businesses in apparel manufacturing, real estate and financial services.

Its real estate division, Golden Flower Group Real Estate (GFGRE), bought MacDonald House in 2003.

Yesterday, GFGRE chief executive Nico Po told BT that the company bought all 10 units in Mayer Mansion through its subsidiary Somerset Residences, and plans to develop the estate into 30 units of ’boutique, ultra-luxurious apartments’.

The case began in December last year when Travista agreed to buy Mayer Mansion and offered the owners of the 10 unit residential property $30 million in the collective sale.

However, Travista, which had to get a qualifying certificate to buy the property because it was foreign-owned, did not complete the transaction by March 12 as had been agreed between the parties.

Travista sued the owners on April 3 and applied for an injunction to restrain them from exercising their rights under the agreement, but failed in its application.

Two days later, the owners notified Travista that they had rescinded the sale and purchase agreement. Travista finally obtained the qualifying certificate on April 11.
The case went to the High Court where Travista argued that it was entitled to complete the purchase but owners argued that Travista was obliged to use its ‘best endeavours’ to obtain the certificate and to do so ‘without delay’.

Travista’s case was dismissed by the High Court in May and the Court of Appeal last month.

The owners were represented by senior counsel Davinder Singh, Hri Kumar and Tham Feei Sy of Drew & Napier.

Fed Pumps US$3.75b Into Financial System

Source : Channel NewsAsia, 21 August 2007

WASHINGTON : The US Federal Reserve on Tuesday injected 3.75 billion dollars into the distressed financial system, seeking to unblock a credit crunch that has upset markets around the world.

The Federal Reserve Bank of New York, which handles such operations for the Fed, announced the infusion on its website.

The latest injection brought the total to 101.25 billion dollars added to money markets in repurchase agreements since August 9, when central banks began a series of major cash infusions to ease tightening credit due to a crisis in the US high-risk sub-prime mortgage sector.

The Fed on Friday unexpectedly slashed its discount rate to commercial banks to 5.75 percent from 6.25 percent to also boost liquidity in the banking system. - AFP/de

US Treasury Chief Says Credit Crunch Will Ease In Time

Source : Channel NewsAsia, 21 August 2007

WASHINGTON : US Treasury Secretary Henry Paulson expressed confidence on Tuesday that the credit crunch roiling America's financial markets will ease over time as investors re-price risk.

Paulson, a former chief executive of investment banking titan Goldman Sachs, told the CNBC business television channel that US economic growth will likely be dented by the credit turmoil, but said the global and US economies were strong.

"This will play out over time and liquidity will return to normal when the market has a better understanding, when investors have a better understanding, of the risk return trade-off," Paulson said.

The Treasury chief spoke after US stock markets have experienced strong volatility in the past week due to concerns about the ailing housing and mortgage markets.

Rising home foreclosures have seen investors shun mortgage-backed securities and prompted big banks to tighten their lending practices. Fears of evaporating credit have spooked Wall Street.

"We've been seeing stresses and strains in a number of capital markets, but this is against the backdrop of a very strong global economy, a very healthy US economy," Paulson said.

The Treasury secretary spoke ahead of a meeting later Tuesday with Federal Reserve chairman Ben Bernanke and Senator Christopher Dodd, the chairman of the powerful Senate Banking Committee and a Democratic presidential contender.

The Fed slashed the interest rate it levies on loans to commercial banks on Friday, to 5.75 percent from 6.25 percent, in a bid to lower borrowing costs and keep the banking system from gumming up. - AFP/de

Keep Minimum Sum Withdrawal Age For Some

Source : The Straits Times, Wed, Aug 22, 2007

NOT many countries in the world fine-tune their policies to the extent that Singapore does to address the problems arising from a greying population.

While I welcome the raft of measures proposed by Prime Minister Lee Hsien Loong in his National Day Rally speech, I must hasten to add that not all Singapore men will be able to live to a ripe old age.

In recent years, I have seen quite a few of my classmates and university mates pass from the scene in their late 50s and early 60s.

To raise the withdrawal age of the Minimum Sum Scheme to 65 may deprive male Singaporeans of a useful source of income at a time when their health is failing.

I would thus suggest that this policy be fine-tuned to allow those who are suffering from a major illness to continue to adhere to the current withdrawal age, even after 2012.

This caveat should also apply to those Singaporeans who are unable to secure employment not because of lack of trying but because of health and other structural reasons.

Patrick Low Soh Chye

How About Housing Perks For The Middle-Income?

Source : The Straits Times, Wed, Aug 22, 2007

WITH regard to Prime Minister Lee Hsien Loong's National Day Rally speech, I wonder why the Government has not provided housing benefits for middle-income professionals.
The widening income gap does not simply occur between the poorest poor and the richest rich; there is a huge disparity between middle-income earners and the rich as well.

We are young professionals who have been in the workforce for only a few years. We are the middle-income sandwiched group that does not have solid CPF savings, yet we are not entitled to any subsidised housing.

For couples intending to get married, if your combined income exceeds $8,000 or $10,000, tough luck. You are not entitled to housing subsidies as a first-timer, housing grant, living-near-parents grant, or, indeed, any CPF housing loan at all.

My colleague jokingly told me that she might as well quit her high-prospects job so that her income, combined with her fiance's would fall below $8,000.

One of my friends told me the reason he wanted to apply for an HDB flat this year was that his annual increment at the end of the year would have caused him not to enjoy any housing benefits.

While the lower-income earner can purchase a new five-room flat from the Government with the subsidies, grants and minimal loan, the middle-income earner who pays higher income tax has to contend with no subsidies and grants, higher loan from commercial banks and a 25-year-old flat sold at $50,000 above valuation.

Middle-income earners are not seeking housing benefits to the extent that the poor and needy are entitled to but the Government should consider making the policies a tad less stringent to provide for the needs of this section of the populace. We are supposedly 'too rich' for public housing but we are too poor for private properties.

Bernice Swee Wern Foong (Ms)

A Creative Way To Tap Value

Source : The Straits Times, Wed, Aug 22, 2007

AS YOUNG as it is, Singapore already is a remarkable success story.

The economy today is strong, and growing in new directions as Singapore attempts to secure the future too. But it isn't without its challenges.

Perhaps the greatest of these is the widening income gap, itself a consequence of the rapid development that has taken the economy to ever higher levels of sophistication.

So in Prime Minister Lee Hsien Loong's speech on Sunday were to be found fresh initiatives to address this problem. The plan is many faceted and complex.

Among the various measures that captured our attention, one in particular was the attempt to allow more people to bank a retirement nest egg through the Housing Board.

Indeed, if creative planning has been the foundation of Singapore's prosperity,
clearly innovation can equally be employed to help those who have not received as many benefits as others from the country's growth.

Mostly, the plan is straightforward. The Additional CPF Housing Grant for lower-income families will be raised to a maximum of $30,000, a 50 per cent increase.

Also, the monthly-household-income ceiling for eligibility rises a third to $4,000.

There is no better way of building a retirement nest egg than through home ownership.

As Mr Lee noted, a three-room flat in the early 1970s cost around $8,000, but today would be worth $160,000 or more.

The most creative aspect of the HDB plan affects the elderly poor.

It involves shortening the lease on their flats to 30 years, and buying out the foregone lease period with a lump sum payment upfront and monthly payouts.

Since only the elderly in two- or three-room apartments who have had only one HDB flat - that is, those who haven't traded up the HDB ladder - are eligible, the scheme targets those who perhaps need the most help in their retirement age.

By letting people continue to live in their homes and still collect a financial windfall, this is a sympathetic approach to a pressing issue.

We suspect, as well, that because this is a government scheme, the take-up rate might prove better than for reverse mortgages.

Clearly, both HDB initiatives will cost money.

True, it is money Singapore can afford at present.

But if provisions need to be made for the future, one avenue available to the Government might be a modest reduction in the subsidies inherent in a HDB flat for those who trade up, specifically those who can afford a 'second bite' of the cherry.

In this way might a larger portion of society become tangibly invested in helping those who need a little boost.

Residents Look Forward To 'Punggol 21-Plus' - 22nd Aug

Source : The Straits Times, Aug 22, 2007

They hope new plans for estate will materialise fast; HDB says more details to be revealed soon

PLANS announced by Prime Minister Lee Hsien Loong for Punggol 21 have revived residents' hopes for more amenities and infrastructure to be built in their growing estate.

Mr Lee said in his National Day Rally speech on Sunday that Punggol 21 is 'back on track'.

The new 'Punggol 21-plus', as Mr Lee called it, will boast features like a freshwater lake and a waterway running through the estate with homes and a town centre built on both banks. The north-eastern coastal suburb will also get recreational facilities like water sports, gardens and parks with jogging tracks, and eateries for al-fresco dining, Mr Lee said.

THE FUTURE: Plans include a freshwater lake and waterway running through the estate with homes and a town centre built on both banks. -- FILE PHOTO: HDB

Residents told The Straits Times on Monday that they hoped the plan will bring more developments to the estate - and fast.

Punggol 21, launched in 1996 by former PM Goh Chok Tong, was heralded as a bold vision to transform the area into a resort-styled 'new concept housing'. But plans were hit by the 1997 Asian financial crisis which sent demand for flats nosediving, and then by financial troubles in the construction industry in 2003.

Marketing executive Shermaine Tan, 35, said it was with a 'feeling of deja vu' that she heard the latest news. She, like many others, had excitedly signed up for a Punggol flat after hearing it 'announced with a big bang'.

'Almost 11 years on, I still haven't seen the realisation of that dream estate,' she said.

POSH LIVING: Mr Gerard Raj, 38, who moved into Punggol estate last month, says he likes its 'posh, condo' feel. -- ST PHOTO: JOSEPH NAIR

Punggol Plaza remains the only shopping mall in the estate and there are no recreational facilities like cinemas or swimming pools for her family, said the mother of one.

But one resident, shopkeeper William Lee, 49, said that on the plus side, transport is improving as the estate is now connected by the MRT and LRT. The Kallang-Paya Lebar Expressway will also provide a more direct route to the city for Punggol and Sengkang residents when completed.

Entrepreneur Henry Koh, 33, acknowledged that 'it takes time' for estates to develop and is happy to wait: 'I think the plans are excellent, but will take the next five to 10 years to be realised.'

An HDB spokesman told The Straits Times on Monday that more details about the plan will be revealed soon. HDB data shows there were 15,727 occupied units in Punggol as of March 31 last year. The estate is projected to have 96,000 units when fully developed.

Speaking at the sidelines of a Singapore Chinese Chamber of Commerce and Industry event, Minister of State for National Development Grace Fu said yesterday that Punggol will have to be built at 'the right pace'.

'I don't think we can put a timeline to it because we do not want to build ahead of demand. But with the increased demand we have seen recently, Punggol's development will pick up speed.'

Mr Mohamed Ismail, chief executive of real estate firm PropNex, said he expects the value of properties in Punggol to go up. 'It's only a matter of time. It will be a different township that shows Singapore lifestyle at its best.'

New 'Tail-End Annuity' Scheme: Only Small Part Of CPF Minimum Sum To Be Used

Source : The Straits Times, Aug 22, 2007

Plan will kick in with smaller payouts at age 85 until member dies

NEW scheme making annuities compulsory for Central Provident Fund (CPF) members will be tailored to cover them only in the last phase of their lives.
It will thus be different from current annuities members can buy now.

For a start, members do not use all of their CPF Minimum Sum on the annuity, as is the case now.

Only a small portion of the Minimum Sum will be used to purchase a 'tail-end annuity' which will kick in only after the member's Minimum Sum runs out.

An annuity is a scheme which one buys by paying a lump sum to an insurer, who invests the money, and pays him a monthly income for life.

With the new compulsory annuity, a CPF member will get a monthly payout for the rest of his life from the age of 85 at a subsistence level of $250 to $300.

Bond-pegged interest rate from Jan
FROM Jan 1 next year, CPF members will have a new interest rate on their CPF savings.

The rate for their Special, Medisave and Retirement Accounts (SMRA) will no longer be fixed at 4 per cent.

It will be re-pegged to an 'appropriate long-term bond rate', said Manpower Minister Ng Eng Hen yesterday. He assured Singaporeans the new rate should see higher returns over the long term.

More details will be announced next month.

The change comes in tandem with the higher interest rate CPF members will enjoy on the first $60,000 of their combined Ordinary and SMRA accounts. From January, the combined balances will get 1 percentage point more.

Compulsory Annuity: How it works

Manpower Minister Ng Eng Hen gave these details yesterday. He was elaborating on Prime Minister Lee Hsien Loong's announcement in his National Day Rally speech on Sunday that annuities will be compulsory for CPF members below age 50.

Said Dr Ng: 'The basic idea that we are after is to ensure the tail end of life expectancy... very long life protection, or if you like, extreme longevity protection.'

The Government will consult widely before introducing it, he promised.

The new details should go some way to assuage concerns that arose after Sunday's announcement.

Broadly, this is how it will work:

Members withdraw their CPF savings at age 55, but leave behind the Minimum Sum. This sum is set at $99,600.

They then use a small portion of the Minimum Sum to buy the annuity. When they reach 65, they start drawing down a monthly payout from the Minimum Sum until it runs out at age 85.

If they are alive then, the annuity gives a monthly payout - expected to be lower than their Minimum Sum payout - for the rest of their life.

Dr Ng noted that half of the people who reach 62 here are expected to live beyond 85.

'If I live past 85, I will get payouts from this sum which I insure. If I don't, it goes back into the pool to pay out for those who are still alive,' he said.

The news that annuities will be compulsory had miffed some CPF members as they felt they were denied a choice and forced to use up their Minimum Sum to buy the annuities.

Many would rather leave it in the Minimum Sum, as their family could get the remainder if they die before using it all up. Annuities do not return the remainder.

Yesterday, Dr Ng assured CPF members that, with the new annuities scheme, members will still draw down a large proportion of their Minimum Sum from age 65.

'We are not looking at putting the entire Minimum Sum into annuities,' he said.

He added that those who want the balance of their annuities payment returned to their family if they die before 85, will have to a bigger upfront payment.

Temasek Ups StanChart Stake To 15%

Source : The Business Times, Aug 22, 2007

SINGAPORE - Standard Chartered said late on Tuesday that Singapore state investor Temasek Holdings has raised its stake in the London-based bank to 15 per cent from 14 per cent.

Temasek earlier this month had raised its stake in Standard Chartered to 14 per cent from 13 per cent.

Based on Tuesday's share price, Temasek's total stake in the Asia-focused bank would be worth around �3.2 billion (S$9.6 billion).

Temasek, which is headed by Ho Ching, the wife of Singapore's Prime Minister Lee Hsien Loong, also owns stakes in Barclays and Bank of China. -- REUTERS

Scared Of Outliving Your Savings? Annuities Maybe An Option

Source : The Straits Times Video News

To make sure you enjoy life to a ripe old age without outliving your retirement savings,the Government is considering making the buying of annuities compulsory for all Singaporeans.

This means paying a premium to a private insurer using your CPF funds, so that when you retire, you'll get a monthly payout until the day you die.

But is it really necessary to make this mandatory?

Related Video Link :
Scared Of Outliving Your Savings? Annuities Maybe An Option

Interest Pegged To Long-Term Bonds

Source: The Straits Times, Aug 22, 2007


No more fixed 4% rate; move will spell better returns over long term: Eng Hen

THE Government is moving to float the interest rate of the Central Provident Fund's (CPF) Special, Medisave and Retirement Accounts and peg it to long-term bond rates.
What this means is that Singaporeans will no longer be guaranteed a fixed 4 per cent interest rate on these accounts come Jan 1 next year.

In giving details of the upcoming CPF changes, Manpower Minister Ng Eng Hen yesterday said the move to a pegged rate should, in the long term, mean better rates than at present.

'We think that over time this will be more than 4 per cent and that's why we are doing it and that will also increase further your CPF interest,' said Dr Ng.

'There will be fluctuations, but it'll be less volatile than the stock market. When we introduce it, it'll be a little lower because it's pegged to market at this point of time.'

He did not give further details of the move, saying that the formula will be spelt out when a ministerial statement is released next month.

Extra 1% CPF interest and compulsory annuities - details out (3:52)

The interest rate paid out on CPF Special, Medisave and Retirement accounts will no longer be fixed at 4 per cent, but pegged to long-term bonds.

Manpower Minister Ng Eng Hen revealed this today as he elaborated on the technical details of the recently announced CPF changes.

Speaking to the media, Dr Ng also said the payouts for the compulsory annuity will kick in only once a person reaches 85 years of age.


Dr Ng also said the higher 1 percentage point interest rate, announced by Prime Minister Lee Hsien Loong on Sunday, that would be applied to the Ordinary Account (OA) will not be credited to the OA but will go into the Special Account.

'That makes sense because I'm not giving you the extra 1 per cent to buy a larger home if you can't afford it. I'm giving you that extra 1 per cent to go into your Special Account,' said Dr Ng.

Financial analysts greeted the news with mixed reactions. Some said they had been expecting it while others said they were unsure, based on current bond markets, whether this would mean higher returns.

Other analysts like Mr Leong Sze Hian, president of the Society of Financial Service Professionals, said the volatility would cause unease among Singaporeans.'They have been used to the guaranteed 4 per cent returns for so long and now suddenly it's taken away.'

Chief executive Chris Firth of wealth management firm dollarDEX said the 4 per cent rate was a 'free lunch for members'.

But he thinks the move will protect the CPF Board from promising too much and giving out what is essentially a subsidy.

Most financial analysts were reluctant to speculate on what this would mean in actual returns, as the Government has not given details.

But one possible indicator of what the returns may amount to is the Singapore Government bonds market, said online unit trust distributor Fundsupermart's general manager Wong Sui Jau.

A bond is essentially a loan an investor makes to the bond's issuer, who is typically a government or corporation.

In return, the issuer gives out interest payments until the bond matures, at which point the issuer repays the principal.

In general, the longer the bond takes to mature, the higher the interest or yield.

The current yield for a 20-year Singapore Government bond is 3.2 per cent, said Mr Wong.

'But past performance is not indicative of future performance. Still, the general yield here is about 3.5 per cent or so, which, if is an indication, means the interest rate is effectively cut for the CPF accounts,' he added.

But Mr Roy Varghese, of financial planning firm Ipac, noted there could be potential for higher returns, as the Government might include global bond markets that give a better yield. 'I think it's an excellent move because it will make people have a sense of risk and reward,' he added.

But businessman Chris Lim, 27, was not impressed, wondering if the change would affect his future savings. 'I'm not sure introducing volatility would help me build up my retirement account, compared to previously,' he said.

Long Term, You'll Get More

Source: The Straits Times, Aug 22, 2007

MANPOWER Minister Ng Eng Hen yesterday fielded questions about the recent Central Provident Fund changes.

The interest rate for the Special, Medisave and Retirement Accounts (SMRA) will now be pegged to long-term bond rates. What will happen to the rates during severe economic downturns?

There will be some fluctuations that will move together with financial markets, but they'll be less volatile than equities. So if you look, for example, at our historical bonds, there is some fluctuation, but it's a narrow band and, more or less, it's within a smaller fluctuation range.

So yes, there might be some instances where it will be slightly below our current rates, but over the longer period, our projections show that it will be more than what you get now for your SMRA and that's the intent.

What's your response to people who are not happy with the delay in the CPF draw-down age from 62 to 65?

We never expected people to thank us for this. We know it's unpopular. But I think from what I read of what people are saying, they know it's sensible. They understand... the head has accepted it. The heart is taking slightly longer, but that's to be expected.

Why give only one percentage point more on the first $60,000 of combined CPF accounts?

PM said this is not tikam-tikam. This has to go to the President. We have to make sure that this is financially sensible.

For example, for the OA (Ordinary Account), the (first) $20,000 will draw 3.5 per cent. Can you get an equivalent product in the market, risk-free, that, in essence, you can still use for housing and education and get 3.5 per cent? Very hard to get.

For the SMRA rate, it will be very competitive and it will hard to match, risk-free, for the tenure. It cannot be out of sync with what the financial markets offer because then it becomes a subsidy.

Will there be an opt-out option for those who prefer to invest the $60,000 on their own?

That's conceivable, maybe down the line. It would be very complex now. But I would say that for somebody who feels that he can invest on his own, then he will be earning more. Beyond $20,000 in the OA, you can still take it out.

When the higher CPF interest kicks in, then the restrictions will come into place as well for investments. Will that affect people who have already invested their CPF savings?

Let me assure you that even after the new restrictions, there will be ample billions that will still be investable... quite tens of billions to be investable.

Those that are currently already in funds, we will still allow them. There will be no changes to that. They will still continue, so not to worry. We won't touch those funds.

Our message is not to send a signal to say that I don't want you to invest. What we're saying is that for those below $60,000, we think that it's safer and we're providing you higher interest.

Honestly, in our assessment, it's going to be very hard for the market to outbid the rates that we're going to give you, either on OA or in the SMRA, as a risk-free aspect.

So we feel some justificationthat this is long-term money to keep in-house because we really don't want you to take the higher interest that we give you and then invest, lose the money and then come back for higher interest again. Then all our efforts are wasted.

Can people opt out of the compulsory annuities scheme?

Although people say, 'well, why can't I provide for myself?', the reality is when you're old, if you don't make the provision and there's nobody to support you, then the rest of Singaporeans will have to support you. So I think that it's sensible to make it compulsory.

Last Shot At A Piece Of Sentosa Cove

Source : TODAY, Wednesday, August 22, 2007

WELL-HEELED homebuyers will soon be able to name their price for the last handful of available land parcels on Sentosa.

Three bungalow land parcels — two waterway plots with mooring of private yachts in the backyards and one with dual views of Sentosa Gold Club’s Tanjong Golf Course and the sea, will be launched tomorrow. These will be Sentosa Cove’s final release of its prime bungalow land parcels that range from 644 sq m to 1,000 sq m each.

In the last Expression of Interest (EOI) exercise in July, there were more than 10 bids for four bungalow plots.

A waterway bungalow land parcel achieved a new benchmark price of $1,233 psf, or an increase of 27.4 per cent from earlier sale. A fairway plot also attained a new benchmark price of $1,065 psf, up 17 per cent.

Following this EOI, Sentosa Cove will only have two remaining plots facing the fairway for sale through private arrangement, and two prime sites — Sandy and Pearl Islands — for institutional sale.

Interested parties can submit their highest offer to Sentosa Cove on Sept 4 at its sales and information centre

Are Annuities That Attractive ?

Source : TODAY, Wednesday, August 22, 2007

New plan will work only if insurance firms give higher payouts: Reader

IF THE Government wants to make annuities compulsory, it should ensure that the elderly are not left to the mercy of commercial entities and forced to accept unattractive terms —such as Great Eastern’s ElderShield scheme, which offers low payouts despite high premiums.

People shun annuities for the simple reason that the monthly payout of $500+ is abysmally low — compared to $700+ if one leaves it with the Central Provident Fund (CPF) Board.

Many do not expect to live until 82, so they are satisfied with the 20 years’ higher payout from the CPF.

If the Government force people to buy annuities, it should require profit-driven insurance companies to:
• Give higher monthly payouts and cap profits from the elderly.
• Give an iron-clad guarantee that the monthly payout for life is fixed and not cut returns when the economy is down.

The Government should trust the people’s wisdom and reasons for shunning annuities, find out the reasons and fix them. This way, people do not have to be forced to do anything against their will.

Insurance companies are not altruistic angels and will exploit the more vulnerable group of senior citizens for profit.

Will Patience Pay?

Source : TODAY, Wednesday, August 22, 2007

Fresh grads may only be able to invest their CPF savings after 4 years in the workforce

FOUR years — that's how long the next batch of fresh entrants into the workforce may have to wait before starting to invest their Central Provident Fund (CPF) savings.

Under new rules from January, the first $20,000 in your CPF Ordinary Account (OA) will not be allowed for investment purposes.

And for a young graduate just starting work with a $2,000 monthly paycheque — the median gross starting wage of a professional last year — it would take about four years to amass such a sum, assuming his pay remains stable (see table).

Is this too long a wait for the young and gungho raring to grow their money trees? Not really, said 25-year-old Alvin Lee, who is into the eighth month at his first job as a commodity trader.

He has all along planned to wait for his CPF savings — currently between $6,000 and $7,000 — to hit a five-figure sum "before I do anything with it".

But in principle, he said, "it does sound a bit restrictive", referring to the Government's intention to bar CPF members from investing their first $60,000, which can include up to $20,000 from the OA. To grow the nest eggs of a fast-greying population, the amount locked up will earn 1 percentage point more than the CPF Board's existing interest rates.

But what if one could use that $60,000 to make a much bigger marginal gain, Mr Lee asked? Like-minded Singaporeans may rush to invest their CPF savings before Jan 1, said Mr Wong Sui Jau, general manager at Fundsupermart, an online unit-trust distributor.

Noting concerns, Manpower Minister Ng Eng Hen yesterday said at a media briefing: "We are not sending a signal to say, 'I don't want you to invest'. What we are saying is, for the amount below $60,000, it is safer (not to invest) and we will provide you higher interest. Our assessment is that it will be hard for the market to beat the new rates on the CPF accounts ... This is long-term money to keep in-house."

Since the CPF Investment Scheme (CPFIS) was introduced in 1986, members have been allowed to use all their savings in the OA and Special Account to buy financial products such as unit trusts and insurance. As at June 30, members had invested $32,102.7 million — about 28 per cent of CPF funds available for investing.

How those investments have fared is infamous. Only two in 10 enjoyed returns exceeding the OA's prevailing rate of 2.5 per cent in the year ended September 2006. There were 799,307 investing members.

The dismal record is partly why Mr Brian Goh, senior vice-president of ipac financial planning, agrees with the new restriction, which would enable a Singaporean to "capture 'X' dollars at guaranteed, risk-free and attractive interest rates".

Agreeing, Promiseland Independent's investment adviser Wilfred Ling suggested regarding the amount locked up as a type of 'safe' fixed-income asset within a person's diversified portfolio.

As for fresh graduates with little spare cash and CPF savings, the new ruling would mean no investing for the first few years, which may not be a bad thing, said Mr Wong. "Generally the 25-year-old will tell you, 'I can take maximum risk'. But what a fair number don't factor in is, they'll get married and want to buy a house when they're, say, 28."

Faced with this, the young person's "time horizon" — the longer it is, the more risk he can afford to take and ride out market downturns — is actually rather short, said Mr Goh. "If his investment time-frame is less than five years, I don't suggest he get into anything volatile."

Annuities Scheme Begins To Take Shape

Source : TODAY, Wednesday, August 22, 2007

If you are a Singaporean aged 50 or younger, you will have a "small portion" of your Central Provident Fund (CPF) minimum sum set aside for compulsory annuities.

This contribution will be pooled with others and once you hit the age of 85 and your minimum sum is exhausted, the annuity payouts will begin — possibly a monthly sum of $250 to $300 — assuring you a financial lifeline until the day you die.

For the first time since Minister Lim Boon Heng hinted that the Government was looking at making annuities compulsory and Prime Minister Lee Hsien Loong confirmed it on Sunday, citizens have been given an idea of what shape the scheme will likely take.

The actual premium amount has yet to be decided. But Manpower Minister Ng Eng Hen gave the reassurance that a major portion of the minimum sum will still be meant for CPF members to withdraw when they reach the official draw-down age.

Also not fixed: How the money will be drawn out, whether as a lump sum or monthly premiums.

But the tentative plan is to pay out $250 to $300 a month from the time members hit 85 – when the 20-year payouts from the minimum sum cease – until the day they die, said Dr Ng. "I'm trying to protect you for very long life expectancy," he added.

But should one not live to 85, the premium would be used to support others in the pool still alive. You can have the money transferred to your family members instead, but at the price of a higher premium.

Observers say the Government now has to "sell" the scheme to Singaporeans.

"To my knowledge, no country has ever made it compulsory for such a large chunk of the population to contribute to a pool in this manner. Most of us are waiting to see how much the premium will be," said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

Minister-in-Charge of ageing issues Lim Boon Heng urged insurance companies to come up with "creative" annuity products.

"They could have variations of life annuities, they could pay the person's estate in case he passes on too quickly after buying a life annuity. If those kinds of products came onto the market, more people would accept the idea of buying an annuity," he said.

Said a group manager from Great Eastern Life: "This compulsory scheme is a chance for insurance companies to 'wake up their ideas'. Annuities are big in the west, but have never taken off in Singapore. The returns on annuities are now averaging just 2.3 per cent ... The take-up was poor. Companies should now take advantage of the upcoming demand for annuities and come up with good products with better returns, say, 5 per cent."

The Ministry of Manpower is still "consulting widely" on the fine print of the compulsory annuity scheme, such as whether it would be managed by the CPF Board or the private sector.

More For The Old-Age Kitty

Source : TODAY, Wednesday, August 22, 2007

IF YOU are 62 years old today, there is one chance in two that you will live beyond 85.

This will not be good news if your retirement savings dry up before then.

With Government data showing that 50 per cent of people here are likely to "outlive their retirement savings", there is no mystery behind the changes to the Central Provident Fund (CPF) scheme which, in Manpower Minister Ng Eng Hen's words, seek to "tilt the playing field" to benefit older Singaporeans.

Disclosing a slew of details yesterday, Dr Ng said that the 1-percentage-point increase in CPF interest rates, announced by Prime Minister Lee Hsien Loong on Sunday, would kick in from Jan 1 next year.

What is significant, though, is that the rates for the Special, Medisave and Retirement Accounts (SMRA) will no longer be pegged at 1.5 percentage points above the Ordinary Account (OA) interest rate. Rather, they will be re-pegged to an appropriate long-term bond rate from Jan 1.

This will expose the interest rates to market fluctuations. Currently, Singapore Government Bonds yield 3 to 4 per cent. And Dr Ng said, the new SMRA interest rates will be a "little lower" at the start.

But eventually, the new SMRA rates are expected to be better than the current 4-per-cent rate, making the future CPF returns "hard for the market to match", he said. The exact formula for calculating returns has already been devised but will only be revealed when Dr Ng delivers a ministerial statement in Parliament next month.

These measures are aimed at enlarging the nest-egg for each Singaporean, ensuring that they have at least a "subsistence level" income until death, even as they are encouraged to work longer.

In this vein, the additional 1-percentage-point of interest that CPF members will earn on the first $20,000 in their OA, come Jan 1, will be set aside for old age.

This additional interest earned will be transferred to their Special Account (SA).

Funds in the SA cannot be used for housing or education, but only for old age related purposes such as investing in approved low-risk, retirement-related financial products.

"That extra 1 percentage point interest is not to help you buy a bigger home", but to boost the retirement kitty, said Dr Ng. He also noted that the Government would not be drawing on its reserves to fund the interest rate hike.

The Minister also gave more details about the compulsory annuity scheme being considered for all Singaporeans currently aged 50 and under.

The CPF reforms, said Dr Ng, are necessary because of the cumulative impact of "three fundamental shifts" in Singapore: Falling fertility rates, increasing longevity and smaller family sizes.

Life expectancy was just 61 when the CPF was introduced in 1957, and today, it has shot up to 80.

In 1990, there were 23 economically active residents aged 15 to 64 to support each resident above the age of 65. Today, that ratio has fallen to 9-to-1 and by 2030, it will drop even further to 3-to-1.

What this means is that individuals can no longer rely on others to support them in their old age. That Singaporeans are living longer is "something to celebrate, but only if we plan properly", said Mr Ng. "Individuals have to rely on their own savings and for much longer to fund their retirement needs."

The trend is true not only in Singapore but all over developed countries in Europe. Dr Ng shared how Italy's state pension fund would have to pay retirees more than it receives in contributions. Recently, both Germany and Denmark announced that retirement age would go up from 65 to 67, while Spain is studying incentives to get people to work beyond the retirement age of 65.

Over the years, the Government has eased its restrictions on CPF funds, allowing more Singaporeans to dip into their accounts for housing and medical needs. Now, the focus appears to have shifted emphatically back to retirement financing.

Experts say this is because of the fast pace at which the population is ageing. Said Professor Phua Kai Hong from the Lee Kuan Yew School of Public Policy: "There is that greater sense of urgency now, for sure. And I'm glad there is this considered effort.

"With the higher CPF interest rates, more people will have more for their old age. The Government is being cautious in not allowing these extra returns to be consumed. They're not taking the risk of letting people squander this money."

The changes to the CPF interest rates will cost the Government $700 million a year initially. Meanwhile, the higher Workfare Income Supplement (WIS) tiered payout for those above 55 — an extra incentive for older Singaporeans to continue working — will cost $83 million more each year, raising the total WIS budget to $432 million.

• Interest rates of Special, Medisave, and Retirement Accounts will be re-pegged to a long-term bond rate from Jan 1, 2008. The new formula, to be announced later, should in the long run yield an interest rate higher than 4 per cent

• The additional 1-percentage-point of interest earned on the Ordinary Account goes into the Special Account

• All Singaporeans aged 50 or under will pay a basic premium from their CPF minimum sum into an annuity plan, which will start paying out a monthly sum of possibly $250-$300 once a member reaches the age of 85. If he or she dies before then, the money will go into the national pool, or for a higher premium, the sum can be marked for transfer to family members

Later Drawdown Age = Fatter Payout If ....

Source : TODAY, Wednesday, August 22, 2007

Having a later drawdown age for your Central Provident Fund (CPF) minimum sum could mean a fatter payout later — provided you continue working longer, too.

The drawdown age is now 62 and will go up gradually from 2012 to age 65 by 2018. Also, people who work until age 65 will enjoy higher Workfare bonuses, higher CPF returns and legal assurance that they will be offered re-employment.

All this makes a “big difference”, said Manpower Minister Ng Eng Hen.

Take a 57-year-old worker today, who will be the first affected by the deferred drawdown age. Say, he earns $1,200 a month and stops working at 62. Under current rules, he would have a retirement account (RA) balance of about $44,000 — which would pay out $320 a month for 17 years until he turns 79.

But if he works for one more year, even if at a lower $1,000 salary, the income plus 12 months of higher CPF returns would hike his RA balance to $49,000 – enough for $340 a month for 19 years until he is 82.

And if he works until 65 and only starts drawing his minimum sum then, he will have a balance of $59,000 in his account — $390 a month for 20 years until he turns 85.

“We have not (even) included the additional Deferment Bonus and Voluntary Deferment Bonus, which we will announce later,” said Dr Ng. CPF members in their 50s, who will be among the first affected by the changes, will get a one-off bonus — as will those aged 58 and older who voluntarily delay drawing down their minimum sum.

It’s HIP And It’s Happening

Source : TODAY, Wednesday, August 22, 2007

New upgrade schemes will be more affordable and give residents more choices

• Some 300,000 flats built in or before 1986 are eligible.
• Two main components: Optional (toilet upgrading, replacement of entrance door and
refuse hopper) and Essential (compulsory improvements to those deemed necessary for
public health, such as repair of spalling concrete and replacement of waste pipes)
• For the optional improvements, cost-sharing ratios for flat-owners range from
5% to 12.5%, depending on flat size. Flat-owners need to fork out between $550 and $1,375.
• Essential improvements are fully-funded by the Government.

NEIGHBOURHOOD RENEWAL PROGRAMME (NRP)• 200,000 flats built in or before 1989 are eligible.
• Greater local consultation for affected flat-owners. Works will involve two or more
adjoining precincts, to avoid duplication of facilities and allow resources to be pooled
for facilities that would otherwise be too costly to build.
• Possible improvements include “non-standard” items such as skating parks, block
surveillance systems, soccer hardcourts and tennis courts.
• Fully-funded by the Government.

IF YOU’VE been waiting to upgrade the toilets or repair a spalling concrete ceiling in your old Housing and Development Board (HDB) flat, a new upgrading scheme launched by the Government yesterday means that you now can — and you will pay less to do it.

The Home Improvement Programme (HIP), which replaces the Main Upgrading Programme (MUP), will allow residents to opt for improvements to their toilets, front doors and grilles or refuse hoppers, even as “essential” upgrades to their waste pipes, bamboo pole holders and structural repairs are carried out — the cost of the latter to be borne fully by the Government.

Residents will also enjoy much higher subsidies, as the Government will foot 87.5 per cent to 95 per cent of the cost for optional improvements. Residents can expect to pay $550 to $1,375 if they choose all the upgrade options in the optional improvements component.

Some 300,000 flats across 22 estates and towns built in or prior to 1989 and that have not undergone the MUP, are eligible for the HIP. As under the MUP, works will proceed if at least 75 per cent of the eligible lessees in the block vote for it.

Details of the new upgrading programmes, as well as rejuvenation proposals for Punggol and Dawson, will soon be on display in a series of public exhibitions, the first of which will be held at the HDB Hub Mall from Sept 1 to 8.

As announced by Prime Minister Lee Hsien Loong on Sunday, Yishun and Tampines will be the first to pilot the HIP scheme. Other eligible estates and towns are Ang Mo Kio, Queenstown, Bukit Panjang and Pasir Ris.

Hougang — which includes the Opposition ward held by the Workers’ Party’s Low Thia Kiang — is also included, although it is not immediately clear which blocks there will be affected by the HIP.

Missing from the list was Opposition ward Potong Pasir. Mr Desmond Lim, consultant for the Potong Pasir Town Council, said that the Government should give “due consideration” to the flats in the Opposition wards “if the criteria is the age of the flats”.

According to him, the 60 blocks in Potong Pasir and Toa Payoh Lorong 8 — which are under Mr Chiam See Tong’s purview — are more than 20 and 30 years old respectively, and eligible for upgrade.

But speaking on the sidelines of a business event, Ms Grace Fu, Minister of State for National Development, said: “Like all HDB upgrading projects, there will be prioritisation involved.”

She noted that the selection of eligible areas was based on the age of the estate, and not politically-demarcated wards.

“As long as they meet the age criteria for the programme, they will be considered,” she said.

According to the HDB, precincts are selected based on age, the condition of the flats, common areas’ geographical spread, and support for Government programmes.

Ms Fu noted that the HIP, which has been tailored to meet changing expectations, gives residents flexibility to choose how much they want to upgrade.

“If you are a young couple and have done renovations before, you may not want the full-fledged HIP. But if you have not renovated for 20 years, you can go for the full package,” she said, estimating that the pilot schemes would be completed in about two or three years.

Yishun resident Mdm Mary Chee, who has been living in her three-room executive flat for about 20 years, welcomed the scheme. She plans to choose all the upgrade options. “We’ve been wanting to renovate the toilets for some time now. This scheme means it’s cheaper than doing it ourselves, so why not?”

The HDB yesterday also expanded on the new Neighbourhood Renewal Programme, which replaces the Interim Upgrading Programme. Residents will see precinct-level upgrades such as block surveillance systems, skating parks, tennis courts and soccer hardcourts.

It will affect 200,000 flats, some of which will also being undergoing the HIP. The HDB is studying the list of suitable neighbourhoods — including middleaged estates such as Bishan and Serangoon — and details will be announced in coming months.