Saturday, September 1, 2007

Hike In Building Costs: Economy Unlikely To Be Hit, Says Hng Kiang

Source : The Straits Times, 1 Sept, 2007

THE escalating construction costs are not likely to have a significant impact on the economy, said Trade and Industry Minister Lim Hng Kiang yesterday.

Responding to media questions on the sidelines of a ground-breaking ceremony for the new Formula One pit building, Mr Lim said that the construction industry amounts to only 4 per cent of gross domestic product (GDP) - and so, a rise in construction costs would not significantly impact the economy.

Explaining the spike in costs, he said that there was a consolidation within the construction industry during the relative lull of the previous years. 'So, our capacity was reduced.'

But now, a big spurt in projects has upped demand for construction. Plus material prices, of steel for instance, have also gone up.

The most recent example of this - the Marina Bay Sands integrated resort project expects the price tag to rise by up to US$1.4 billion (S$2.1 billion), a significant increase on the original US$3.6 billion estimate.

'We are struggling quite frankly to stay within budget,' said Las Vegas Sands president William Weidner earlier this week.

The higher cost was attributed to recent increases in construction prices, including the cost of sand, as well as various refinements to the design.

Yesterday, Mr Lim said that the Government can help try to mitigate the impact of the rising construction costs by adjusting the quotas for foreign workers for the industry for instance.

Officers from the Ministry of National Development are also talking with the Singapore Contractors Association, he said.

This to avoid a situation where contractors were 'creating a self-fulfilling prophecy' by factoring in their expectations of higher costs in building tenders.

Mr Lim said: 'We don't want to have a situation where... contractors... (are) padding their tenders with high expectations of continued cost escalations.

'We must have a realistic view of situation... and know the measures that different parties are taking to mitigate it and ride this boom.'

Record Rise In Development Fee Could Slow Collective Sales

Source : The Straits Times, 1 Sept 2007

PROPERTY developers will now have to pay a much bigger fee if they want to buy and redevelop a site to enhance its use, such as in a collective sale.

The charges they must pay were raised sharply by the Government yesterday, in what is believed to be the steepest round of hikes ever.

The record increases - which come into effect today - are likely to put a dampener on the collective sale frenzy, property consultants said.

The main impact of higher development charges is that they make it more costly for developers to acquire sites for redevelopment.

Although the half-yearly revision of these development charges is a routine affair, the extent that they rose by yesterday caught market watchers by surprise.

The charges even doubled in some areas, which consultants said has never happened before.

These rises come on top of an unexpected round of hikes in July, which pushed up all development charges by 40 per cent across the board.

Development charges, which can amount to millions of dollars, are based on recent land and property values.

They are revised in March and September every year to keep them up to date with current market values.

Their dramatic rise yesterday was mostly due to the unusually steep climb in property and land prices over the last six months, and particularly because of the record- breaking run of collective sales recently.

The charges are divided by sector - including commercial, hotel and residential - and into 118 locations.

The biggest rises this time round were for non-landed residential sites in the Spottiswoode/Cantonment area, the River Valley/Kay Poh Road/Kellock Road area, and the Newton/Surrey/Lincoln roads area.

Charges in these areas rose by between 108 per cent and 112 per cent, an unprecedented jump.

They may have been boosted by recent deals such as the collective sale of Lincoln Lodge in Newton, which set a benchmark for the area.

In general, charges for non-landed residential land rose by up to 85 per cent in the downtown area, up to 100 per cent in Orchard and 89 per cent in Sentosa.

Islandwide, they rose by 58 per cent on average - the highest increase among the different sectors. Up to last week, consultants were predicting an average rise of 25 per cent at most.

Charges for commercial land, which includes shops and offices, went up by 42 per cent on average.

The largest hikes were for land in the Telok Ayer/Amoy Street area and the Anson Road area. Charges in these locations grew by 105 per cent.

In other sectors, the average hike for hospital and hotel land was 23 per cent, and 11 per cent for landed residential sites. Industrial land saw charges go up by 2 per cent on average.

Given the July rises, some consultants were surprised that yesterday’s hikes were so high.

The ‘double whammy’ of rises in July and yesterday, coming at a time when global credit is tightening, could dampen the collective sale market, said Ms Tay Huey Ying, director for research and consultancy at Colliers International.

The hikes are ‘likely to lead to more cautious bidding by developers and more realistic price expectations by sellers’, she said.

At the same time, Ms Tay added, the supply of collective sale sites could also take a beating as upcoming changes in legislation make it more difficult for estates to go en bloc.

But most developers have already acquired significant land banks and are likely to have locked in lower development charges, noted Mr Nicholas Mak, director of research and consultancy at Knight Frank. He added that another result of the hikes could be a shift in collective sale activity to the suburban areas.

‘The rates are significantly steeper now for prime areas, so suburban areas such as Bedok and Buona Vista may look more attractive to developers,’ said Mr Mak.

Higher Prices Drive Construction Costs Up By At Least 30%: Analysts

Source : Channel NewsAsia, 31 August 2007

SINGAPORE : Round-the-clock work on major projects is putting a strain on construction resources.

That coupled with a general upward trend in prices is pushing overall construction costs higher by as much as 30 per cent, according to consultants.

Consultants say they expect developers to face pressure on their margins going forward.

Cost pressures in Singapore's construction sector are widespread, according to consultants.

Donald Han, Managing Director, Cushman and Wakefield, says: "Every segment of the market, let it be the Sands at Marina Bay, let it be the industrial, the residential - all the commercial sector have increases in construction costs.

Overall, if you look into the construction industry, you would see an increase of about 20 to about 30 percent."

Contractors say the reasons go beyond Indonesia's sand and granite ban earlier this year.

As it is, the many major projects under construction are already putting strains on plant, equipment and labour.

But they also see developers pushing to complete their projects by 2010, to tie in with the opening of the two integrated resorts.

Simon Lee, Executive Director, Singapore Contractors' Association, says: "There are developers who actually want to have a short time frame for the construction. And because of short time frame, some of these works need to be accelerated. People will need (to work) longer hours and they may need to do shift work. So that has actually increased the prices."

Property consultants say the average construction cost per square foot now runs at about S$350 compared to S$250 a year ago.

They say developers were able to quite comfortably pass on the higher costs to home buyers in the first half of this year.

But going forward, they expect developers to drive harder bargains with vendors.

Mr Han says: "They would probably be looking into factoring any increase in construction costs at the early stage of buying the property, buying the land. They won't pay the price of what the vendor is asking. They will basically go in to negotiate the price to factor in all the risks. They'll probably put in a certain factor of appreciation. But a market like now it's a bit harder to tell."

Despite increases in land prices and construction costs, consultants stress that Singapore's property market remains fundamentally sound.

They note that they are still seeing healthy demand from home buyers and rental tenants. - CNA/ch

Singapore Welcomes Proposed Portuguese Centre To Boost Business

Source : Channel NewsAsia, 01 September 2007

Singapore has welcomed the proposal to establish a Portuguese Centre to facilitate business cooperation between Portugal and Southeast Asia.

Foreign Minister George Yeo said this in Lisbon during a meeting with Portuguese Minister of State and Foreign Affairs, Dr Luis Amado.

They agreed there is scope for strengthening political and economic ties between Portugal and Singapore.

Portugal is currently holding the European Union Presidency.

As ASEAN Chair, Mr Yeo updated Dr Amado on the upcoming ASEAN-EU Commemorative Summit.

The ministers agreed that the summit will be a good opportunity to explore areas of cooperation between the two regions.

They added that the summit will be a good time to have discussions ahead of the "Conference of Parties of the United Nations Framework Convention on Climate Change" in Bali this December.

Earlier, Mr Yeo also met the President of the Foreign Affairs Commission of the Parliament, Dr José Arnaut. - CNA/ch

More Details Released On Rejuvenation Of First Three HDB Towns

Source : Channel NewsAsia, 31 August , 2007

Artist impression of a park in revamped Dawson estate

SINGAPORE: More details on the first HDB estates to be rejuvenated across Singapore have been released.

The three chosen ones are Punggol, because it is new; Yishun, because it is middle-aged; and Dawson estate in Queenstown, because it is old.

Punggol has already been picked for transformation, under the Punggol 21 plan.

But the renewal effort is being stepped up.

Among the facilities planned are a seafront promenade which stretches around the town, reservoirs for water activities, a waterway through the town centre, and proposals for a town plaza and sports complex.

HDB officials cannot say when construction will start on the individual projects.

Instead they say they are focusing on gathering feedback first.

But the plan is to put at least one piece of land in Punggol on the market for construction over the next couple of years, and possibly more in other areas.

As for Yishun, proposals include a new polytechnic or university and a shopping complex that is integrated with housing and a bus exchange.

These are on top of the facilities already under construction, such as the Khoo Teck Puat Hospital and the extended Northpoint shopping mall that will feature a new Community Library.

Because Yishun is considered a middle-aged town, it qualifies for two new upgrading programmes - the Home Improvement Programme (HIP) and the Neighbourhood Renewal programme (NRP).

The HIP is for improvements inside the home while the NRP is for works done on the blocks and around the neighbourhood.

Flats will be eligible for the NRP if they were built in 1989 or before, and have not undergone the Main Upgrading Programme (MUP), Interim Upgrading Programme (IUP) or the IUP Plus.

Dawson Estate in Queenstown is an old estate.

So the idea is to provide new public housing and integrate facilities into a seamless community.

But the estate's memories will be retained.

Some of the new ideas for Dawson include housing-in-the-park and multi-generation living.

Three local architect companies have drawn up concepts for three parcels of land in the estate.

The HDB estimates about 3,500 flats can be built on the land.

National Development Minister Mah Bow Tan said: "This (rejuvenation of HDB heartlands) will happen in the next few years. At first, we will start slowly because we need to gain experience in the new type of housing; our architects, our engineers, even the contractors and developers and builders will also have to gather new experience. But as we become more experienced, this will gather pace. So, what we have done is we have drawn up plans for Punggol and Dawson estate in Queenstown, for a start. We are going to replicate this in other parts of Singapore. Of course, it is going to take us time - 20 to 30 years."

To get an idea of just how different the new generation of public housing will be, you can catch an exhibition at the HDB Hub.

It is on till 8 September before it makes its way to the heartlands where it will be on until early October.

Visitors to the exhibition can give their feedback on the proposed plans for the new generation of public housing via the telephone, Internet and HDB service counters. - CNA/ir


Bernanke, Bush Ride To Aid Of Troubled Markets, Homeowners

Source : Channel NewsAsia, 01 September 2007

WASHINGTON: The Federal Reserve will act "to limit the adverse effects" of the mortgage crisis on the economy, chief Ben Bernanke said Friday as the White House unveiled plans to aid homeowners facing foreclosure.

Bernanke, in his first speech since global markets were roiled by fears of a liquidity crisis stemming from the housing slide, said the Fed wants to avoid "further tightening of credit conditions," which could have "adverse effects on consumer spending and the economy more generally."

Markets viewed the chairman's remarks as opening the door to a potential rate cut that could lower overall borrowing costs and stimulate frozen credit markets even though Bernanke said the Fed's mission was not "to protect lenders and investors from the consequences of their financial decisions."

"The (Fed) continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets," Bernanke said.

Related Video Link -
US President Bush proposes steps to deal with mortgage crisis

Bernanke's speech "does not offer explicit steps or promises from the Fed, but his statements validate expectations the Fed will do what is necessary to restore order and liquidity in the capital markets," said Stephen Gallagher, economist at Societe Generale in New York.

"That includes a cut in the Fed funds rate if necessary, on September 18."

Meanwhile President George W. Bush outlined a series of actions aimed at averting foreclosure for distressed homeowners, many of whom are facing a crisis as adjustable-rate mortgages are reset to reflect higher rates.

One measure announced by Bush would allow homeowners with a good credit history but cannot afford their current payments to refinance into federally insured mortgages.

He also encouraged lenders to try to work out payment arrangements with financially strapped homeowners and urged Congress to pass additional relief measures.

However analysts said the measures would only affect a small fraction of homeowners in trouble.

Bernanke, speaking at a Fed symposium in Jackson Hole, Wyoming, did not directly address the question of the next move on interest rates, but appeared to be aiming to allay concerns that the Fed would do nothing to prevent a broader credit crunch that drags down the economy.

The bank has kept its main federal funds rate at 5.25 percent for over a year but on August 17 cut the discount rate for direct loans from central bank a half-point to 5.75 percent in an effort to promote credit flows.

He said the Fed's moves in the past few weeks were to "address unusual strains in money markets."

Even if banks do not borrow directly from the Fed, "the knowledge that liquidity is available should help alleviate concerns about funding that might otherwise constrain" lending, Bernanke said.

Bernanke said incoming reports suggest the world's biggest economy "continued to expand at a moderate pace" as the third quarter began.

But he noted that the outlook has become somewhat murkier in view of the financial market turmoil of recent weeks.

"In light of recent financial developments, economic data bearing on past months or quarters may be less useful than usual for our forecasts of economic activity and inflation," he said.

Data released Thursday showed the US economy grew at a solid 4.0 percent pace in the April-June quarter, but analysts say they expect a sharp slowdown in view of the credit tightening.

Bernanke cited the recent "financial stress" which has spread from mortgage markets to other financial instruments including commercial paper used by companies for short-term loans.

Because of the tight credit conditions, Deutsche Bank economists Joseph LaVorgna and Carl Riccadonna said in a note to clients that the Fed is likely to cut its base rate by a quarter-point in September and by the same amount in October.

"The current medicine (of easier discount window lending) has not worked," they said.

"The asset-backed commercial paper market has remained completely frozen. If this situation continues a much broader credit crunch could develop, which would have serious negative consequences for the economy. The Fed will not take this chance."
- AFP /ls

Panel On Longevity Insurance Issues To Take In Public Views

Source : Channel NewsAsia, 01 September 2007

SINGAPORE : The committee that is going to study the issue of longevity insurance for Singaporeans will consult widely and take in public views, says Manpower Minister Ng Eng Hen.

More details on the committee will be announced in Parliament later this month when Dr Ng delivers his Ministerial Statement detailing the CPF changes.

Dr Ng was responding to questions on Saturday from Channel NewsAsia at the sidelines of the Army Open House.

The issue has been a hot topic since the Prime Minister spoke on the proposed compulsory annuity and ageing issues in his National Day Rally speech.

Dr Ng says: "There have been basically two reactions, one which is not quite being able to understand it. Some misunderstand how this indeed works, some understand but actually want more protection. Some Singaporeans have said, I regret, they are older now, maybe in their late 70s and they regret they did not buy this longevity insurance...And they are actually asking how can I enter this scheme when you start it. So what it tells us there are varying needs."

Dr Ng feels the best way forward is a longevity insurance for everyone which is flexible and affordable.

And coming up with a product that meets these criteria is a task for the committee that will study the issue.

Related Video Link -
Panel on longevity insurance issues to take in public views

Dr Ng says: "I want the committee to take in public views. They should have an established channel for the public to give their views about what their needs are. They must also consult industry experts, so how do you stretch this premium you have put for this longevity insurance so that it is as affordable as possible but you can stretch the dollar so that it is as effective as possible."

Members of Parliament have also been addressing the issues during their dialogue sessions and Dr Ng says from the feedback he's been receiving, Singaporeans generally understand and accept the need to address the challenges being posed by an ageing population in Singapore.

But he says some of them are a bit concerned whether they can work longer.

Dr Ng says: "They say that if they can work longer, they don't mind the (later) draw-down age because that means they have a longer payout period. We have to spend the next few months patiently explaining it in simple ways they can understand. It is a lot of details and so this what we will do over the next few months."

The tripartite committee working out the guidelines for the re-employment legislation expects to come up with a set of guidelines that is acceptable to all within the next two years. - CNA/ch

Home Loans Boost Growth In bank Lending To 9-Year High

Source : The Straits Times, Sat, Sep 01, 2007

A PICKUP in housing loans has spurred the biggest rise in domestic bank lending in Singapore in more than nine years.

Bank loans climbed 10.9 per cent in July from a year earlier, to about $211.1 billion.

This is the fastest rate of monthly loan growth since January 1998.

According to monthly data released by the Monetary Authority of Singapore (MAS) yesterday, one of the drivers behind the multi-year record loan growth was the anticipated take-off in mortgage lending.

Borrowing by homebuyers was up 8.1 per cent in July, accelerating from 6.9 per cent in June, as the property boom in the Republic gradually translated into a higher take-up in home loans.

Home loans make up the majority of Singapore banks' consumer loans.

However, this segment had previously stayed sluggish for several months despite the Singapore property boom.

In the 11 months to March, mortgage growth in Singapore had remained under 3 per cent even though home sales surged.

A key factor for this is the popularity of deferred payment schemes offered by developers.

Such plans allow homebuyers to delay paying the bulk of a new home's price for up to a few years.

As more residential projects approach completion, growth in home loans is expected to accelerate even further.

Meanwhile, another facet of Singapore's property boom is also contributing to banks' healthy loan growth.

Borrowing by the building and construction industry continued to surge in July, increasing by 18.9 per cent, albeit at a slower clip than June's 20.8 per cent.

While Singapore's lenders enjoyed roaring business from builders and homebuyers, the manufacturing sector was another story.

Loans to manufacturers fell year-on-year for the fourth consecutive month and was down 1.6 per cent in July.

On the other hand, loans to the transport and communications sector - a relatively small segment - jumped by 61.2 per cent in July.

There was also a marked rise in banks' loans-to-deposits ratio in July.

The ratio, which reflects the extent to which banks are lending available funds, had been falling steadily to below 0.68 in May, before picking up in June. In July, the ratio was about 0.69.

Nevertheless, deposits still surged at more than double the pace of loans.

In July, total deposits by non-bank customers rose 24.6 per cent from a year earlier to about $305.2 billion.

Market Lifted By Hopes US Mortgage Crisis Will Ease

Source : The Straits Times, Sep 01, 2007

THE local bourse yesterday shrugged off losses on Wall Street to post strong gains amid hopes that United States authorities would soon tackle the sub-prime mortgage crisis.
The Straits Times Index (STI) surged 71.76 points, or 2.1 per cent, to 3,392.91 points, helped in large measure by the three local banks' solid rises.

The surge came despite the Dow Jones Industrial Average's fall of 50.56 points to 13,238.73 points on Thursday.

Investors are hopeful a speech by US Federal Reserve chairman Ben Bernanke, due last night, and moves by US President George W. Bush will ease the crisis that has rocked markets.

President Bush is set to announce plans to help US home owners with sub-prime mortgages pay their loans, The New York Times reported.

Analysts said moves like these helped push up the local market yesterday. Another possible factor for the sharp uptick was month-end 'window-dressing', when fund managers tidy up their portfolios.

The local benchmark index hit an intra-day high of 3,399.35 points in early afternoon trading before declining. Just before the close, however, a sharp spike in the index brought it to within points of its intra-day high.

Despite the strong STI upswing, volume was thin - at only 1.93 billion shares, down from 2.49 billion shares on Thursday.

The value of the shares was higher, though, at $2.39 billion, compared with $1.99 billion the previous day.

Dealers said retail investors stayed on the sidelines. Trading activity was largely confined to traders and investors who were 'bottom-fishing' for bargains.

'With the lack of liquidity, it is easy for the index to move up or down,' said one.

DBS Group Holdings rose 50 cents to $20, likely buoyed by a Standard & Poor's report that its exposure to collateralised debt obligations is unlikely to affect its ratings.

Other banking stocks also enjoyed a reprieve. United Overseas Bank rose 50 cents to $20.80, while OCBC Bank improved 10 cents to $8.55.

SingTel rose 10 cents to $3.64 and contributed 10.3 points to the STI's rise.

On the economic front, there was good news on tourist arrivals, with Singapore receiving 951,000 visitors in July, up 4 percent from a year earlier and a record number for any month.

Labroy Marine continued its slide, after CLSA raised concerns over its head of rig building, Mr K.K.Ng, moving to a business development role. It fell four cents to $1.98.

The usual suspects featured on the top volume list. Centillion was unchanged at 11 cents, with a volume of 128 million shares. Genting International was also unchanged at 63.5 cents with 108.2 million shares.

Construction company Yongnam Holdings rose two cents to 43.5 cents, while Liang Huat Aluminium was two cents weaker at seven cents. Volume was 58.5 million shares.

Lease Buyback Scheme: Govt To Give Extra Cash Subsidy To Home Owners

Source : The Business Times, September 1, 2007

A flat's value will be based on current market value: Mah

THE government will hand out an additional cash subsidy to encourage elderly owners of public housing flats to join its proposed Lease Buyback Scheme (LBS).

About 25,000 HDB flat owners are already eligible for this scheme and the number is set to rise.

Speaking on the sidelines of the launch of the Housing and Development Board's Remaking Our Heartland exhibition yesterday, National Development Minister Mah Bow Tan said the government will 'top up the cash value' that flat owners receive after HDB buys back the tail end of a lease from them.

The value of a flat will be based on current market value.

The news comes two weeks after Prime Minister Lee Hsien Loong first said the government was working on a scheme to allow elderly people to monetise their HDB flats to provide them with retirement income.

Mr Mah said LBS could be finalised next year, around the time of the Budget debate in Parliament.

Elderly owners who sign up for the scheme will be left with a 30-year lease on their HDB flats.

Mr Mah said the scheme will pay cash from the buyback of a flat in three tranches - a lump sum, monthly payments for a fixed number of years and longevity insurance.

He also said LBS is likely to 'ride on the Central Provident Fund (CPF) scheme when it is ready'.

The onus will, however, be with HDB.

The housing board now has a bigger role, Mr Mah said: 'It is a provider of a roof over people's heads through the subsidies; it maintains value (of property) through upgrading schemes; and it is an old-age pension scheme as it were.'

He said the new Home Improvement Programme that replaces the Main Upgrading Programme 'gives residents what they want, and they pay less for it because the government is going to increase subsidies'.

Mr Mah also revealed that HDB has comprehensive plans to upgrade old, middle-aged and new housing estates, starting with Dawson Estate, Yishun and Punggol 21+.

Dawson Estate could see a 'new generation' of public housing designed by local award-winning architects, while Yishun's new town centre could be home to a large educational institution. The most ambitious plans are for Punggol 21+, which is envisioned as a waterfront community that could eventually have up to 92,000 flats.

Mr Mah said development of a town centre could start as early as 2010, when work to create new reservoirs there is completed.

A spokesman for PUB confirmed that construction work on dams to create reservoirs at Sungei Punggol and Sungei Serangoon started at the end of 2006 and will be completed in 2009.

So far, at least one commercial-cum-residential development site in Punggol 21+ has been identified for the Government Land Sales Programme and could be made available within five years.

Punggol 21+ will have a 60:40 public-private development ratio.

Noting that as a development model Punggol 21+ resembles Sentosa Cove in its infancy, property consultant Cushman & Wakefield's managing director Donald Han said: 'There should be some buyers looking to have the first-mover advantage there.'

MI-Reit To Buy Warehouse For $18.3m

Source : The Business Times, September 1, 2007

MACARTHURCOOK Industrial Reit (MI-Reit) has signed a conditional put and call option agreement to acquire a four-storey office and warehouse facility at 7 Clementi Loop for $18.3 million.

The vendor of the facility, Nova Engineering and Logistics, will lease back the property for five years, with the option to extend the lease for another five years.

The lease will start after refurbishment to the building is completed by Nov 30, which is when MI-Reit's acquisition of the property is expected to be completed.

Based on this scheduled completion date, the pro forma financial effect on MI-Reit's distribution per unit (DPU) for the financial year ended March 31, 2008 is an additional 0.20 cents per unit on an annualised basis.

This represents an increase of 2.7 per cent from the forecasted FY2008 DPU of 7.41 per cent per unit.

For FY2009, the pro forma effect of the acquisition is an additional 0.23 cents a unit, representing an increase of 3 per cent over the forecasted DPU of 7.59 cents a unit.

Chris Calvert, CEO of the Reit manager MacarthurCook Investment Managers (Asia), said that apart from the yield accretion derived from the deal, the property will provide greater geographic diversification to the Reit's portfolio and provide exposure to the growing logistics and warehousing property sub-sector here.

'MI-Reit will benefit from firm rentals and capital values in this sub-sector as a result of the strong demand for high quality and strategically located warehousing and logistics property, arising from the growing outsourcing trend in high value-added industries,' said Mr Calvert.

The acquisition will reduce MI-Reit's exposure to UE Tech Park, the Reit's largest property by value, from 36.1 per cent to 34.1 per cent of total portfolio value. In terms of income source, exposure to UE Tech Park is reduced from 33.2 per cent to 31.3 per cent.

The purchase of 7 Clementi Loop is also the first of a series of acquisitions worth a total of $500 million that MI-Reit intends to complete by March 31, 2008.

CDOs Unlikely To Hit DBS Bank Rating: S&P

Source : The Business Times, September 1, 2007

(HONG KONG) DBS Group Holdings Ltd's Singapore banking unit is unlikely to have its credit ratings downgraded because of investments in collateralised debt obligations (CDOs), Standard and Poor's (S&P) said yesterday.

DBS Bank Ltd, Singapore's biggest, said on Monday that it had $2.4 billion at risk from collateralised debt obligations, more than earlier stated, after an entity it manages was forced to seek funding.

The bank stands to lose no more than $1.1 billion through its so-called conduit, called Red Orchid Secured Assets (Rosa), Standard and Poor's said in an e-mailed statement. Standard and Poor's has a AA-minus rating on DBS Bank's long-term foreign-issuer credit status, the fourth-highest investment grade.

Most of Rosa's assets are rated AAA, or the highest investment grade, according to Standard and Poor's. None are 'directly exposed' to the US sub-prime mortgage market, DBS has said.

Rosa needed financial help because of turmoil in credit markets caused by fallout from US sub-prime mortgage defaults, according to DBS. Rosa, an off-balance sheet structure called a conduit, held $1.1 billion of CDOs, which are bundles of bonds and loans.

Sub-prime fallout has roiled global markets as investors dump riskier assets and lenders tighten credit. S&P replaced its president on Thursday after lawmakers and investors criticised the company for failing to judge the risks of securities backed by sub-prime mortgages.

The crisis led US Senate Banking Committee chairman Christopher Dodd to call on credit rating companies to explain why they assigned 'AAA ratings to securities that never deserved them'. -- Bloomberg

DBS Indonesia Loses Primary Dealer Licence

Source : The Business Times, September 1, 2007

Indon finance ministry says on website bank can't fulfil requirements

DBS Group's Indonesian unit has lost its licence to trade government debt securities on behalf of the central bank and the finance ministry here.

The announcement was posted on the ministry's website yesterday.

In a brief, five-sentence statement, the ministry said that the government had withdrawn PT Bank DBS Indonesia's licence as a primary dealer.

'Since PT Bank DBS Indonesia cannot fulfil its requirements as a primary dealer and has been given reminder letters three times in the past one year, its appointment as a primary dealer has been revoked,' the statement said.

It did not say what the requirements were or how or why Bank DBS Indonesia failed to fulfil them.

Bank DBS Indonesia is a unit of DBS Group, Singapore's biggest lender by assets.

According to its website, Bank DBS Indonesia has a head office in Jakarta, branches in Jakarta, Bandung, Makassar, Medan, Pekanbaru, Semarang and Surabaya, and five sub-branches in Jakarta.

These branches provide a full range of banking services including corporate and consumer lending, trade finance, time deposits, current accounts, savings accounts, money market and foreign exchange services.

Contacted by BT yesterday, DBS was unable to say how and why its licence was revoked, or what effect this would have on its Indonesian operations.

A DBS spokesman said: 'We are aware of the matter and are in discussions with the relevant authorities.'

DBS Indonesia was one of 15 banks and four securities houses named primary dealers to trade treasury bills on behalf of the central bank and the finance ministry.

Besides DBS, other foreign banks among the primary dealers include Citibank, Deutsche Bank, Standard Chartered, HSBC and JP Morgan Chase.

Work To Start On $33m F1 Pit Building

Source : The Business Times, September 1, 2007

Project off Raffles Boulevard will take 9 months to complete

Sporting milestone: Artist's impression of the 350-metre-long F1 pit building. The 3-storey structure will house the 36 garages for the 12 F1 teams, race control facilities, winners' podium and hospitality lounges for 4,000 guests.

(SINGAPORE) The first infrastructure project for next year's Formula One race was flagged off yesterday by Minister for Trade and Industry Lim Hng Kiang, at a groundbreaking ceremony.

The pit building for the inaugural Singapore F1 Grand Prix on Sept 28, 2008, will cost $33 million and take nine months to complete.

The three-storey building will house the 36 garages for the 12 F1 teams, race control facilities, winners' podium and hospitality lounges for 4,000 guests.

It is situated off Raffles Boulevard, close to the Singapore Flyer ferris wheel.

Race promoter Singapore GP Pte Ltd is developing the 350-metre-long building, which will have a gross floor area of about 18,000 sq m.

At yesterday's groundbreaking ceremony, Mr Lim called F1 the world's third most-watched event after the Olympics and the World Cup.

The race promoter and government agencies 'face the daunting task of building 20 per cent of the circuit and this pit building from ground up', he said. 'But Singapore is a city of possibilities, so I have full confidence we will be ready for the Sept 28, 2008, race date.'

The pit building is described as having a 'simple yet modern' design that is environmentally sustainable and meets the Building and Construction Authority's Green Mark standard.

The world governing body for motorsports, FIA, is expected to confirm the final circuit layout of Singapore's 5.1 km track this month, Singapore Tourism Board chief executive Lim Neo Chian said yesterday.

When that happens, the Land Transport Authority will start work on constructing and widening roads that will form the street circuit.

'FIA will also confirm soon whether Singapore will stage a race at night, and in so doing, become the first venue in the F1 calendar to do so,' said STB's Mr Lim.

Mr Lim Hng Kiang and STB's Mr Lim took part in the groundbreaking with Minister of State for Trade and Industry S Iswaran and race promoter and property tycoon Ong Beng Seng.

'The pit building that will rise from this piece of land we now stand on will be one significant milestone that all will watch closely,' said Mr Lim Hng Kiang.

'But besides the infrastructure, what will also be watched closely will be the softer aspects - how Singapore plays host to this international event.'

F1 is part of the government's efforts to grow tourism into a significant contributor to the economy, he said.

Visitor arrival figures are already breaking records every month. In July there were 951,000 visitors - an increase of 4 per cent from a year earlier.

'This is the highest number of visitors we have ever received in any single month,' the minister said. 'From January to July, a total of 5.883 million people visited Singapore - a 5 per cent increase over the same period last year.'

President Bush's Plans To Help US Homeowners

Source : The Business Times, Mr Bush's plans to help US homeowners (Fed ready to act to limit damage from sub-prime: Bernanke), 1 Sept 2007

Fact Sheet: New Steps to Help Homeowners Avoid Foreclosure

President Bush Announces Steps To Help American Families Keep Their Homes And Reform The Mortgage Finance System

President Bush Has Announced Steps At The Federal Level To Help Homeowners In Need Of Assistance Avoid Foreclosure. These steps will help homeowners having difficulty paying their mortgages and ensure that the problems now disrupting the housing industry do not happen again. The fundamentals of America's economy are strong – economic growth is healthy, wages are rising, and unemployment is low. The markets are in a period of transition as participants are re-assessing and re-pricing risk. One area that has shown particular strain is the mortgage market, particularly the subprime sector.

The President Announced The Following Steps To Help American Families Keep Their Homes

1. The President Calls On Congress To Pass Federal Housing Administration (FHA) Modernization Legislation. The President's FHA modernization proposal would lower downpayment requirements, allow FHA to insure bigger loans, and give FHA more pricing flexibility. These reforms would empower FHA to reach more families that need help – first-time homebuyers, minorities, and those with low-to-moderate incomes – and offer more options to homeowners looking to refinance their existing mortgage.

* The Administration Will Also Launch A New FHA Initiative Called "FHASecure." The President has asked Secretary Jackson to pursue important administrative changes to give FHA the flexibility to help more families stay in their homes during this time of transition in the mortgage market. The FHASecure program will help people who have good credit but who have not made all of their payments on time because of rising mortgage payments. For the first time, FHA will be able to offer many of these homeowners an option to refinance their existing mortgage so they can make their payments and keep their homes. FHA will also charge mortgage insurance premiums based on the individual risk of each loan, using traditional underwriting standards, so it can expand access and help even more families.

* Since 1934, FHA Has Helped Close To 35 Million People Buy A Home And Stay In Their Home. FHA is a government agency that provides mortgage insurance to borrowers through a network of private sector lenders. It also offers options to homeowners looking to refinance their existing loan. The President's FHA modernization bill was first sent to the Hill in April 2006, and it passed the House last Congress with over 400 votes. The President has once again asked Congress to send him a clean FHA modernization bill as soon as possible so he can sign it into law.

2. The President Calls On Congress To Change A Key Housing Provision Of The Federal Tax Code So It Does Not Punish Families Who Are Forced To Sell Their Homes For Less Than Their Mortgage Is Worth. Current tax law counts cancelled mortgage debt on primary residences as taxable income. For example, if the value of a home declines and $20,000 of the homeowner's loan is forgiven, the tax code treats that $20,000 as taxable income. The President proposes temporary relief to ensure that cancelled mortgage debt on a primary residence is not counted as income.

* The President Is Working With Congress In A Bipartisan Fashion To Make This Important Change. Senator Debbie Stabenow (D-MI), along with Senator George Voinovich (R-OH) and others, has introduced a bipartisan bill that would protect homeowners from having to pay taxes on cancelled mortgage debt. In the House, Representatives Rob Andrews (D-NJ) and Ron Lewis (R-KY), along with several of their colleagues, have introduced similar legislation. The President looks forward to working with Congress to reach agreement on a bill, so we can deliver this vital tax relief to American homeowners.

3. The President Announced That The Administration Will Launch A New Foreclosure Avoidance Initiative To Help Struggling Homeowners Find A Way To Refinance. Housing and Urban Development Secretary Alphonso Jackson and Treasury Secretary Henry Paulson will reach out to a wide variety of groups that offer foreclosure counseling and refinancing for American homeowners. These groups include community organizations like NeighborWorks, mortgage lenders and loan servicers, FHA, and Government-Sponsored Enterprises like Fannie Mae and Freddie Mac. The goal of this initiative is to expand mortgage financing options, identify homeowners before they face hardships, help them understand their financing options, and allow them to find a mortgage product that works for them.

The President Supports Actions To Protect Homeowners And Prevent These Problems From Happening Again

Federal Banking Regulators Are Improving Disclosure Requirements To Ensure That Lenders Provide Homeowners With Complete, Accurate, And Understandable Information About Their Mortgages. Many borrowers did not receive clear and complete disclosure regarding the terms and conditions of their mortgages. To help protect homeowners in the future, Federal banking regulators recently issued new disclosure guidelines for lenders, and they continue to consider new rules. Homeowners must have complete, accurate, and understandable information – including on the potential increases in their monthly payments.

Federal Banking Regulators Are Working To Strengthen Mortgage Lending Standards. Questionable underwriting standards enabled mortgage lenders to place some borrowers in sophisticated products they could not afford. The Federal banking regulators recently set forth new guidelines to address lending standards, and they will continue to examine new rules. Lenders have an obligation to ensure that their standards accurately measure whether borrowers can afford their mortgage.

The Administration Is Working On New Rules To Help Consumers Shop For The Best Loan Terms. This fall, HUD will propose reforms to the Real Estate Settlement Procedures Act (RESPA) that would promote comparative shopping by consumers for the best loan terms, provide clearer disclosures, limit settlement cost increases, and require fee disclosure.

The Administration Supports State-Based Efforts To Create A Comprehensive Mortgage Broker Registration System. The President has also asked Secretary Paulson to examine the broad issues surrounding mortgage brokers and originators.

The Administration Is Committed To Pursuing Fraud And Wrongdoing In The Mortgage Industry. Some lenders deceived their customers – and pushed them into taking out loans they knew these home buyers could not afford. Federal agencies, such as HUD, the Department of Justice, the Federal Trade Commission, and others, are aggressively pursuing wrongdoers and predatory lenders to ensure they are punished. This will send the message that these practices will not be tolerated.

The President Will Create A Presidential Council On Financial Literacy Composed Of Leading Private Sector Individuals Who Can Help Promote Financial Literacy. This Council will work closely with the Treasury Department, HUD, and the Department of Education to make sure that we are raising awareness of these complicated issues.

The President Supports The Efforts Of Public and Private Sector Groups That Are Promoting Financial Literacy And Providing Foreclosure Counseling. For example, the President's Budget proposes $120 million for NeighborWorks, which provides foreclosure workshops and counseling to borrowers. The President's FY 2008 Budget request includes $50 million for HUD's housing counseling program.

The President Has Asked Secretary Paulson To Lead The President's Working Group On Financial Markets In Examining Some Of The Broader Market Issues Underlying The Recent Mortgage Problems. The President's Working Group on Financial Markets is led by Treasury Secretary Paulson and is composed of Federal Reserve Chairman Bernanke, Securities and Exchange Commission Chairman Cox, and Commodity Futures Trading Commission Acting Chairman Lukken. The group will examine:

*The role of credit rating agencies and how their ratings are used in lending procedures, and

*How securitization, the repackaging and selling of assets, has changed the mortgage industry and related business practices.

Remarks By Fed Reserve Chairman Ben S. Bernanke

Source : The Business Times, Mr Bernanke's Speech (Fed ready to act to limit damage from sub-prime: Bernanke), 1 Sept 2007

At the Federal Reserve Bank of Kansas City's Economic Symposium, Jackson Hole, Wyoming

Housing, Housing Finance, and Monetary Policy

Over the years, Tom Hoenig and his colleagues at the Federal Reserve Bank of Kansas City have done an excellent job of selecting interesting and relevant topics for this annual symposium. I think I can safely say that this year they have outdone themselves. Recently, the subject of housing finance has preoccupied financial-market participants and observers in the United States and around the world. The financial turbulence we have seen had its immediate origins in the problems in the subprime mortgage market, but the effects have been felt in the broader mortgage market and in financial markets more generally, with potential consequences for the performance of the overall economy.

In my remarks this morning, I will begin with some observations about recent market developments and their economic implications. I will then try to place recent events in a broader historical context by discussing the evolution of housing markets and housing finance in the United States. In particular, I will argue that, over the years, institutional changes in U.S. housing and mortgage markets have significantly influenced both the transmission of monetary policy and the economy's cyclical dynamics. As our system of housing finance continues to evolve, understanding these linkages not only provides useful insights into the past but also holds the promise of helping us better cope with the implications of future developments.

Recent Developments in Financial Markets and the Economy
I will begin my review of recent developments by discussing the housing situation. As you know, the downturn in the housing market, which began in the summer of 2005, has been sharp. Sales of new and existing homes have declined significantly from their mid-2005 peaks and have remained slow in recent months. As demand has weakened, house prices have decelerated or even declined by some measures, and homebuilders have scaled back their construction of new homes. The cutback in residential construction has directly reduced the annual rate of U.S. economic growth about 3/4 percentage point on average over the past year and a half. Despite the slowdown in construction, the stock of unsold new homes remains quite elevated relative to sales, suggesting that further declines in homebuilding are likely.

The outlook for home sales and construction will also depend on unfolding developments in mortgage markets. A substantial increase in lending to nonprime borrowers contributed to the bulge in residential investment in 2004 and 2005, and the tightening of credit conditions for these borrowers likely accounts for some of the continued softening in demand we have seen this year. As I will discuss, recent market developments have resulted in additional tightening of rates and terms for nonprime borrowers as well as for potential borrowers through "jumbo" mortgages. Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy. We are following these developments closely.

As house prices have softened, and as interest rates have risen from the low levels of a couple of years ago, we have seen a marked deterioration in the performance of nonprime mortgages. The problems have been most severe for subprime mortgages with adjustable rates: the proportion of those loans with serious delinquencies rose to about 13-1/2 percent in June, more than double the recent low seen in mid-2005.1 The adjustable-rate subprime mortgages originated in late 2005 and in 2006 have performed the worst, in part because of slippage in underwriting standards, reflected for example in high loan-to-value ratios and incomplete documentation. With many of these borrowers facing their first interest rate resets in coming quarters, and with softness in house prices expected to continue to impede refinancing, delinquencies among this class of mortgages are likely to rise further. Apart from adjustable-rate subprime mortgages, however, the deterioration in performance has been less pronounced, at least to this point. For subprime mortgages with fixed rather than variable rates, for example, serious delinquencies have been fairly stable at about 5-1/2 percent. The rate of serious delinquencies on alt-A securitized pools rose to nearly 3 percent in June, from a low of less than 1 percent in mid-2005. Delinquency rates on prime jumbo mortgages have also risen, though they are lower than those for prime conforming loans, and both rates are below 1 percent.

Investors' concerns about mortgage credit performance have intensified sharply in recent weeks, reflecting, among other factors, worries about the housing market and the effects of impending interest-rate resets on borrowers' ability to remain current. Credit spreads on new securities backed by subprime mortgages, which had jumped earlier this year, rose significantly more in July. Issuance of such securities has been negligible since then, as dealers have faced difficulties placing even the AAA-rated tranches. Issuance of securities backed by alt-A and prime jumbo mortgages also has fallen sharply, as investors have evidently become concerned that the losses associated with these types of mortgages may be higher than had been expected.

With securitization impaired, some major lenders have announced the cancellation of their adjustable-rate subprime lending programs. A number of others that specialize in nontraditional mortgages have been forced by funding pressures to scale back or close down. Some lenders that sponsor asset-backed commercial paper conduits as bridge financing for their mortgage originations have been unable to "roll" the maturing paper, forcing them to draw on back-up liquidity facilities or to exercise options to extend the maturity of their paper. As a result of these developments, borrowers face noticeably tighter terms and standards for all but conforming mortgages.

As you know, the financial stress has not been confined to mortgage markets. The markets for asset-backed commercial paper and for lower-rated unsecured commercial paper market also have suffered from pronounced declines in investor demand, and the associated flight to quality has contributed to surges in the demand for short-dated Treasury bills, pushing T-bill rates down sharply on some days. Swings in stock prices have been sharp, with implied price volatilities rising to about twice the levels seen in the spring. Credit spreads for a range of financial instruments have widened, notably for lower-rated corporate credits. Diminished demand for loans and bonds to finance highly leveraged transactions has increased some banks' concerns that they may have to bring significant quantities of these instruments onto their balance sheets. These banks, as well as those that have committed to serve as back-up facilities to commercial paper programs, have become more protective of their liquidity and balance-sheet capacity.

Although this episode appears to have been triggered largely by heightened concerns about subprime mortgages, global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans. In part, these wider losses likely reflect concerns that weakness in U.S. housing will restrain overall economic growth. But other factors are also at work. Investor uncertainty has increased significantly, as the difficulty of evaluating the risks of structured products that can be opaque or have complex payoffs has become more evident. Also, as in many episodes of financial stress, uncertainty about possible forced sales by leveraged participants and a higher cost of risk capital seem to have made investors hesitant to take advantage of possible buying opportunities. More generally, investors may have become less willing to assume risk. Some increase in the premiums that investors require to take risk is probably a healthy development on the whole, as these premiums have been exceptionally low for some time. However, in this episode, the shift in risk attitudes has interacted with heightened concerns about credit risks and uncertainty about how to evaluate those risks to create significant market stress. On the positive side of the ledger, we should recognize that past efforts to strengthen capital positions and the financial infrastructure place the global financial system in a relatively strong position to work through this process.

In the statement following its August 7 meeting, the Federal Open Market Committee (FOMC) recognized that the rise in financial volatility and the tightening of credit conditions for some households and businesses had increased the downside risks to growth somewhat but reiterated that inflation risks remained its predominant policy concern. In subsequent days, however, following several events that led investors to believe that credit risks might be larger and more pervasive than previously thought, the functioning of financial markets became increasingly impaired. Liquidity dried up and spreads widened as many market participants sought to retreat from certain types of asset exposures altogether.

Well-functioning financial markets are essential for a prosperous economy. As the nation's central bank, the Federal Reserve seeks to promote general financial stability and to help to ensure that financial markets function in an orderly manner. In response to the developments in the financial markets in the period following the FOMC meeting, the Federal Reserve provided reserves to address unusual strains in money markets. On August 17, the Federal Reserve Board announced a cut in the discount rate of 50 basis points and adjustments in the Reserve Banks' usual discount window practices to facilitate the provision of term financing for as long as thirty days, renewable by the borrower. The Federal Reserve also took a number of supplemental actions, such as cutting the fee charged for lending Treasury securities. The purpose of the discount window actions was to assure depositories of the ready availability of a backstop source of liquidity. Even if banks find that borrowing from the discount window is not immediately necessary, the knowledge that liquidity is available should help alleviate concerns about funding that might otherwise constrain depositories from extending credit or making markets. The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets.

It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy. In a statement issued simultaneously with the discount window announcement, the FOMC indicated that the deterioration in financial market conditions and the tightening of credit since its August 7 meeting had appreciably increased the downside risks to growth. In particular, the further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effects on consumer spending and the economy more generally.

The incoming data indicate that the economy continued to expand at a moderate pace into the summer, despite the sharp correction in the housing sector. However, in light of recent financial developments, economic data bearing on past months or quarters may be less useful than usual for our forecasts of economic activity and inflation. Consequently, we will pay particularly close attention to the timeliest indicators, as well as information gleaned from our business and banking contacts around the country. Inevitably, the uncertainty surrounding the outlook will be greater than normal, presenting a challenge to policymakers to manage the risks to their growth and price stability objectives. The Committee continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets.

Beginnings: Mortgage Markets in the Early Twentieth Century
Like us, our predecessors grappled with the economic and policy implications of innovations and institutional changes in housing finance. In the remainder of my remarks, I will try to set the stage for this weekend's conference by discussing the historical evolution of the mortgage market and some of the implications of that evolution for monetary policy and the economy.

The early decades of the twentieth century are a good starting point for this review, as urbanization and the exceptionally rapid population growth of that period created a strong demand for new housing. Between 1890 and 1930, the number of housing units in the United States grew from about 10 million to about 30 million; the pace of homebuilding was particularly brisk during the economic boom of the 1920s.

Remarkably, this rapid expansion of the housing stock took place despite limited sources of mortgage financing and typical lending terms that were far less attractive than those to which we are accustomed today. Required down payments, usually about half of the home's purchase price, excluded many households from the market. Also, by comparison with today's standards, the duration of mortgage loans was short, usually ten years or less. A "balloon" payment at the end of the loan often created problems for borrowers.2

High interest rates on loans reflected the illiquidity and the essentially unhedgeable interest rate risk and default risk associated with mortgages. Nationwide, the average spread between mortgage rates and high-grade corporate bond yields during the 1920s was about 200 basis points, compared with about 50 basis points on average since the mid-1980s. The absence of a national capital market also produced significant regional disparities in borrowing costs. Hard as it may be to conceive today, rates on mortgage loans before World War I were at times as much as 2 to 4 percentage points higher in some parts of the country than in others, and even in 1930, regional differences in rates could be more than a full percentage point.3

Despite the underdevelopment of the mortgage market, homeownership rates rose steadily after the turn of the century. As would often be the case in the future, government policy provided some inducement for homebuilding. When the federal income tax was introduced in 1913, it included an exemption for mortgage interest payments, a provision that is a powerful stimulus to housing demand even today. By 1930, about 46 percent of nonfarm households owned their own homes, up from about 37 percent in 1890.

The limited availability of data prior to 1929 makes it hard to quantify the role of housing in the monetary policy transmission mechanism during the early twentieth century. Comparisons are also complicated by great differences between then and now in monetary policy frameworks and tools. Still, then as now, periods of tight money were reflected in higher interest rates and a greater reluctance of banks to lend, which affected conditions in mortgage markets. Moreover, students of the business cycle, such as Arthur Burns and Wesley Mitchell, have observed that residential construction was highly cyclical and contributed significantly to fluctuations in the overall economy (Burns and Mitchell, 1946). Indeed, if we take the somewhat less reliable data for 1901 to 1929 at face value, real housing investment was about three times as volatile during that era as it has been over the past half-century.

During the past century we have seen two great sea changes in the market for housing finance. The first of these was the product of the New Deal. The second arose from financial innovation and a series of crises from the 1960s to the mid-1980s in depository funding of mortgages. I will turn first to the New Deal period.

The New Deal and the Housing Market
The housing sector, like the rest of the economy, was profoundly affected by the Great Depression. When Franklin Roosevelt took office in 1933, almost 10 percent of all homes were in foreclosure (Green and Wachter, 2005), construction employment had fallen by half from its late 1920s peak, and a banking system near collapse was providing little new credit. As in other sectors, New Deal reforms in housing and housing finance aimed to foster economic revival through government programs that either provided financing directly or strengthened the institutional and regulatory structure of private credit markets.

Actually, one of the first steps in this direction was taken not by Roosevelt but by his predecessor, Herbert Hoover, who oversaw the creation of the Federal Home Loan Banking System in 1932. This measure reorganized the thrift industry (savings and loans and mutual savings banks) under federally chartered associations and established a credit reserve system modeled after the Federal Reserve. The Roosevelt administration pushed this and other programs affecting housing finance much further. In 1934, his administration oversaw the creation of the Federal Housing Administration (FHA). By providing a federally backed insurance system for mortgage lenders, the FHA was designed to encourage lenders to offer mortgages on more attractive terms. This intervention appears to have worked in that, by the 1950s, most new mortgages were for thirty years at fixed rates, and down payment requirements had fallen to about 20 percent. In 1938, the Congress chartered the Federal National Mortgage Association, or Fannie Mae, as it came to be known. The new institution was authorized to issue bonds and use the proceeds to purchase FHA mortgages from lenders, with the objectives of increasing the supply of mortgage credit and reducing variations in the terms and supply of credit across regions.4

Shaped to a considerable extent by New Deal reforms and regulations, the postwar mortgage market took on the form that would last for several decades. The market had two main sectors. One, the descendant of the pre-Depression market sector, consisted of savings and loan associations, mutual savings banks, and, to a lesser extent, commercial banks. With financing from short-term deposits, these institutions made conventional fixed-rate long-term loans to homebuyers. Notably, federal and state regulations limited geographical diversification for these lenders, restricting interstate banking and obliging thrifts to make mortgage loans in small local areas--within 50 miles of the home office until 1964, and within 100 miles after that. In the other sector, the product of New Deal programs, private mortgage brokers and other lenders originated standardized loans backed by the FHA and the Veterans' Administration (VA). These guaranteed loans could be held in portfolio or sold to institutional investors through a nationwide secondary market.

No discussion of the New Deal's effect on the housing market and the monetary transmission mechanism would be complete without reference to Regulation Q--which was eventually to exemplify the law of unintended consequences. The Banking Acts of 1933 and 1935 gave the Federal Reserve the authority to impose deposit-rate ceilings on banks, an authority that was later expanded to cover thrift institutions. The Fed used this authority in establishing its Regulation Q. The so-called Reg Q ceilings remained in place in one form or another until the mid-1980s.5

The original rationale for deposit ceilings was to reduce "excessive" competition for bank deposits, which some blamed as a cause of bank failures in the early 1930s. In retrospect, of course, this was a dubious bit of economic analysis. In any case, the principal effects of the ceilings were not on bank competition but on the supply of credit. With the ceilings in place, banks and thrifts experienced what came to be known as disintermediation--an outflow of funds from depositories that occurred whenever short-term money-market rates rose above the maximum that these institutions could pay. In the absence of alternative funding sources, the loss of deposits prevented banks and thrifts from extending mortgage credit to new customers.

The Transmission Mechanism and the New Deal Reforms
Under the New Deal system, housing construction soared after World War II, driven by the removal of wartime building restrictions, the need to replace an aging housing stock, rapid family formation that accompanied the beginning of the baby boom, and large-scale internal migration. The stock of housing units grew 20 percent between 1940 and 1950, with most of the new construction occurring after 1945.

In 1951, the Treasury-Federal Reserve Accord freed the Fed from the obligation to support Treasury bond prices. Monetary policy began to focus on influencing short-term money markets as a means of affecting economic activity and inflation, foreshadowing the Federal Reserve's current use of the federal funds rate as a policy instrument. Over the next few decades, housing assumed a leading role in the monetary transmission mechanism, largely for two reasons: Reg Q and the advent of high inflation.

The Reg Q ceilings were seldom binding before the mid-1960s, but disintermediation induced by the ceilings occurred episodically from the mid-1960s until Reg Q began to be phased out aggressively in the early 1980s. The impact of disintermediation on the housing market could be quite significant; for example, a moderate tightening of monetary policy in 1966 contributed to a 23 percent decline in residential construction between the first quarter of 1966 and the first quarter of 1967. State usury laws and branching restrictions worsened the episodes of disintermediation by placing ceilings on lending rates and limiting the flow of funds between local markets. For the period 1960 to 1982, when Reg Q assumed its greatest importance, statistical analysis shows a high correlation between single-family housing starts and the growth of small time deposits at thrifts, suggesting that disintermediation effects were powerful; in contrast, since 1983 this correlation is essentially zero.6

Economists at the time were well aware of the importance of the disintermediation phenomenon for monetary policy. Frank de Leeuw and Edward Gramlich highlighted this particular channel in their description of an early version of the MPS macroeconometric model, a joint product of researchers at the Federal Reserve, MIT, and the University of Pennsylvania (de Leeuw and Gramlich, 1969). The model attributed almost one-half of the direct first-year effects of monetary policy on the real economy--which were estimated to be substantial--to disintermediation and other housing-related factors, despite the fact that residential construction accounted for only 4 percent of nominal gross domestic product (GDP) at the time.

As time went on, however, monetary policy mistakes and weaknesses in the structure of the mortgage market combined to create deeper economic problems. For reasons that have been much analyzed, in the late 1960s and the 1970s the Federal Reserve allowed inflation to rise, which led to corresponding increases in nominal interest rates. Increases in short-term nominal rates not matched by contractually set rates on existing mortgages exposed a fundamental weakness in the system of housing finance, namely, the maturity mismatch between long-term mortgage credit and the short-term deposits that commercial banks and thrifts used to finance mortgage lending. This mismatch led to a series of liquidity crises and, ultimately, to a rash of insolvencies among mortgage lenders. High inflation was also ultimately reflected in high nominal long-term rates on new mortgages, which had the effect of "front loading" the real payments made by holders of long-term, fixed-rate mortgages. This front-loading reduced affordability and further limited the extension of mortgage credit, thereby restraining construction activity. Reflecting these factors, housing construction experienced a series of pronounced boom and bust cycles from the early 1960s through the mid-1980s, which contributed in turn to substantial swings in overall economic growth.

The Emergence of Capital Markets as a Source of Housing Finance
The manifest problems associated with relying on short-term deposits to fund long-term mortgage lending set in train major changes in financial markets and financial instruments, which collectively served to link mortgage lending more closely to the broader capital markets. The shift from reliance on specialized portfolio lenders financed by deposits to a greater use of capital markets represented the second great sea change in mortgage finance, equaled in importance only by the events of the New Deal.

Government actions had considerable influence in shaping this second revolution. In 1968, Fannie Mae was split into two agencies: the Government National Mortgage Association (Ginnie Mae) and the re-chartered Fannie Mae, which became a privately owned government-sponsored enterprise (GSE), authorized to operate in the secondary market for conventional as well as guaranteed mortgage loans. In 1970, to compete with Fannie Mae in the secondary market, another GSE was created--the Federal Home Loan Mortgage Corporation, or Freddie Mac. Also in 1970, Ginnie Mae issued the first mortgage pass-through security, followed soon after by Freddie Mac. In the early 1980s, Freddie Mac introduced collateralized mortgage obligations (CMOs), which separated the payments from a pooled set of mortgages into "strips" carrying different effective maturities and credit risks. Since 1980, the outstanding volume of GSE mortgage-backed securities has risen from less than $200 billion to more than $4 trillion today. Alongside these developments came the establishment of private mortgage insurers, which competed with the FHA, and private mortgage pools, which bundled loans not handled by the GSEs, including loans that did not meet GSE eligibility criteria--so-called nonconforming loans. Today, these private pools account for around $2 trillion in residential mortgage debt.

These developments did not occur in time to prevent a large fraction of the thrift industry from becoming effectively insolvent by the early 1980s in the wake of the late-1970s surge in inflation.7 In this instance, the government abandoned attempts to patch up the system and instead undertook sweeping deregulation. Reg Q was phased out during the 1980s; state usury laws capping mortgage rates were abolished; restrictions on interstate banking were lifted by the mid-1990s; and lenders were permitted to offer adjustable-rate mortgages as well as mortgages that did not fully amortize and which therefore involved balloon payments at the end of the loan period. Critically, the savings and loan crisis of the late 1980s ended the dominance of deposit-taking portfolio lenders in the mortgage market. By the 1990s, increased reliance on securitization led to a greater separation between mortgage lending and mortgage investing even as the mortgage and capital markets became more closely integrated. About 56 percent of the home mortgage market is now securitized, compared with only 10 percent in 1980 and less than 1 percent in 1970.

In some ways, the new mortgage market came to look more like a textbook financial market, with fewer institutional "frictions" to impede trading and pricing of event-contingent securities. Securitization and the development of deep and liquid derivatives markets eased the spreading and trading of risk. New types of mortgage products were created. Recent developments notwithstanding, mortgages became more liquid instruments, for both lenders and borrowers. Technological advances facilitated these changes; for example, computerization and innovations such as credit scores reduced the costs of making loans and led to a "commoditization" of mortgages. Access to mortgage credit also widened; notably, loans to subprime borrowers accounted for about 13 percent of outstanding mortgages in 2006.

I suggested that the mortgage market has become more like the frictionless financial market of the textbook, with fewer institutional or regulatory barriers to efficient operation. In one important respect, however, that characterization is not entirely accurate. A key function of efficient capital markets is to overcome problems of information and incentives in the extension of credit. The traditional model of mortgage markets, based on portfolio lending, solved these problems in a straightforward way: Because banks and thrifts kept the loans they made on their own books, they had strong incentives to underwrite carefully and to invest in gathering information about borrowers and communities. In contrast, when most loans are securitized and originators have little financial or reputational capital at risk, the danger exists that the originators of loans will be less diligent. In securitization markets, therefore, monitoring the originators and ensuring that they have incentives to make good loans is critical. I have argued elsewhere that, in some cases, the failure of investors to provide adequate oversight of originators and to ensure that originators' incentives were properly aligned was a major cause of the problems that we see today in the subprime mortgage market (Bernanke, 2007). In recent months we have seen a reassessment of the problems of maintaining adequate monitoring and incentives in the lending process, with investors insisting on tighter underwriting standards and some large lenders pulling back from the use of brokers and other agents. We will not return to the days in which all mortgage lending was portfolio lending, but clearly the originate-to-distribute model will be modified--is already being modified--to provide stronger protection for investors and better incentives for originators to underwrite prudently.

The Monetary Transmission Mechanism Since the Mid-1980s
The dramatic changes in mortgage finance that I have described appear to have significantly affected the role of housing in the monetary transmission mechanism. Importantly, the easing of some traditional institutional and regulatory frictions seems to have reduced the sensitivity of residential construction to monetary policy, so that housing is no longer so central to monetary transmission as it was.8 In particular, in the absence of Reg Q ceilings on deposit rates and with a much-reduced role for deposits as a source of housing finance, the availability of mortgage credit today is generally less dependent on conditions in short-term money markets, where the central bank operates most directly.

Most estimates suggest that, because of the reduced sensitivity of housing to short-term interest rates, the response of the economy to a given change in the federal funds rate is modestly smaller and more balanced across sectors than in the past.9 These results are embodied in the Federal Reserve's large econometric model of the economy, which implies that only about 14 percent of the overall response of output to monetary policy is now attributable to movements in residential investment, in contrast to the model's estimate of 25 percent or so under what I have called the New Deal system.

The econometric findings seem consistent with the reduced synchronization of the housing cycle and the business cycle during the present decade. In all but one recession during the period from 1960 to 1999, declines in residential investment accounted for at least 40 percent of the decline in overall real GDP, and the sole exception--the 1970 recession--was preceded by a substantial decline in housing activity before the official start of the downturn. In contrast, residential investment boosted overall real GDP growth during the 2001 recession. More recently, the sharp slowdown in housing has been accompanied, at least thus far, by relatively good performance in other sectors. That said, the current episode demonstrates that pronounced housing cycles are not a thing of the past.

My discussion so far has focused primarily on the role of variations in housing finance and residential construction in monetary transmission. But, of course, housing may have indirect effects on economic activity, most notably by influencing consumer spending. With regard to household consumption, perhaps the most significant effect of recent developments in mortgage finance is that home equity, which was once a highly illiquid asset, has become instead quite liquid, the result of the development of home equity lines of credit and the relatively low cost of cash-out refinancing. Economic theory suggests that the greater liquidity of home equity should allow households to better smooth consumption over time. This smoothing in turn should reduce the dependence of their spending on current income, which, by limiting the power of conventional multiplier effects, should tend to increase macroeconomic stability and reduce the effects of a given change in the short-term interest rate. These inferences are supported by some empirical evidence.10

On the other hand, the increased liquidity of home equity may lead consumer spending to respond more than in past years to changes in the values of their homes; some evidence does suggest that the correlation of consumption and house prices is higher in countries, like the United States, that have more sophisticated mortgage markets (Calza, Monacelli, and Stracca, 2007). Whether the development of home equity loans and easier mortgage refinancing has increased the magnitude of the real estate wealth effect--and if so, by how much--is a much-debated question that I will leave to another occasion.

I hope this exploration of the history of housing finance has persuaded you that institutional factors can matter quite a bit in determining the influence of monetary policy on housing and the role of housing in the business cycle. Certainly, recent developments have added yet further evidence in support of that proposition. The interaction of housing, housing finance, and economic activity has for years been of central importance for understanding the behavior of the economy, and it will continue to be central to our thinking as we try to anticipate economic and financial developments.

In closing, I would like to express my particular appreciation for an individual whom I count as a friend, as I know many of you do: Edward Gramlich. Ned was scheduled to be on the program but his illness prevented him from making the trip. As many of you know, Ned has been a research leader in the topics we are discussing this weekend, and he has just finished a very interesting book on subprime mortgage markets. We will miss not only Ned's insights over the course of this conference but his warmth and wit as well. Ned and his wife Ruth will be in the thoughts of all of us.



Benito, A., J. Thompson, M. Waldron, and R. Wood (2006). "House Prices and Consumer Spending" (420 KB PDF), Bank of England Quarterly Bulletin, vol. 46 (Summer), 142-54.

Bennett, P., R. Peach, and S. Peristiani (2001). "Structural Change in the Mortgage Market and the Propensity to Refinance," Journal of Money, Credit and Banking, vol. 33 (no. 4), pp. 955-75.

Bernanke, Ben S. (2007). "The Subprime Mortgage Market," speech delivered at the Federal Reserve Bank of Chicago's 43rd Annual Conference on Bank Structure and Competition, Chicago, May 17.

Burns, Arthur F., and Wesley C. Mitchell (1946). Measuring Business Cycles (New York: National Bureau of Economic Research).

Calza, A., T. Monacelli, and L. Stracca (2007). "Mortgage Markets, Collateral Constraints, and Monetary Policy: Do Institutional Factors Matter?" CFS Working Paper Series No. 2007/10 (Frankfurt: Center for Financial Studies).

de Leeuw, Frank, and Edward M. Gramlich (1969). "The Channels of Monetary Policy: A Further Report on the Federal Reserve-MIT Model," Journal of Finance, vol. 24 (May, Papers and Proceedings of the American Finance Association), pp. 265-90.

Dynan, Karen E., Douglas W. Elmendorf, and Daniel E. Sichel (2005). "Can Financial Innovation Help to Explain the Reduced Volatility of Economic Activity?" (424 KB PDF), Journal of Monetary Economics, vol. 53 (January), pp. 123-50.

Estrella, Arturo (2002). "Securitization and the Efficacy of Monetary Policy" (568 KB PDF), Federal Reserve Bank of New York, Economic Policy Review, vol. 9 (May), pp. 243-55.

Green, Richard K., and Susan M. Wachter (2005). "The American Mortgage in Historical and International Context" (190 KB PDF), Journal of Economic Perspectives, vol. 19 (no. 4), pp. 93-114.

Hurst, E., and F. Stafford (2004). "Home is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, vol. 36 (no. 6), pp. 985-1014.

Mahoney, Patrick I., and Alice P. White (1985). "The Thrift Industry in Transition," Federal Reserve Bulletin, vol. 71 (March), pp. 137-56.

McCarthy, J., and R. Peach (2002). "Monetary Policy Transmission to Residential Investment," Federal Reserve Bank of New York, Economic Policy Review, vol. 8 (no. 1), pp. 139-58.

Snowden, Kenneth A. (1987). "Mortgage Rates and American Capital Market Development in the Late Nineteenth Century," Journal of Economic History, vol. 47 (no. 3), pp. 671-91.

U.S. Department of Commerce (1937). Financial Survey of Urban Housing (Washington: Government Printing Office).

Weiss, Marc A. (1989). "Marketing and Financing Home Ownership: Mortgage Lending and Public Policy in the United States, 1918-1989" (617 KB PDF), in Business and Economic History,series 2, vol. 18, William J. Hausman, ed., Wilmington, Del.: Business History Conference, pp. 109-18.



1. Estimates of delinquencies are based on data from First American Loan Performance.

2. Weiss (1989) provides an overview of the evolution of mortgage lending over the past 100 years.

3. Snowden (1987) discusses regional variations in home mortgage rates at the end of the nineteenth century. In addition, the U.S. Department of Commerce (1937) provides information on mortgage rates for various U.S. cities for the 1920s and early 1930s.

4. Later, in anticipation of the end of World War II, the Congress created the Veterans' Administration Home Loan Guarantee Program, which supported mortgage lending to returning GIs on attractive terms, often including little or no down-payment requirement. In 1948, the Congress authorized Fannie Mae to purchase these VA loans as well.

5. Regulation Q provisions that still exist restrict banks' ability to pay interest on some deposits, but these remaining provisions have little effect on the ability of depository institutions to raise funds.

6. In detrended data, the correlation between quarterly single-family housing starts and the growth of small time deposits at thrifts during the preceding quarter was 0.53 for the 1960-1982 period; since 1983, this correlation has fallen to -0.02.

7. Mahoney and White (1985) reported that the net worth of 156 thrift institutions was less than 1 percent of assets in 1984; when reported net worth was adjusted to exclude regulatory additions that did not represent true capital, this figure swelled to 253.

8. Institutional factors can still be relevant, however, as can be seen by international comparisons. For example, in the United Kingdom, where the predominance of adjustable-rate mortgages makes changes in short-term interest rates quite visible to borrowers and homeowners, housing has a significant role in the monetary transmission mechanism through cash-flow effects on consumption, among other channels (Benito, Thompson, Waldron and Wood, 2006). Although adjustable-rate mortgages have become more important in the United States and now account for about 40 percent of the market, most adjustable-rate mortgages here are actually hybrids in that they bear a fixed rate for the first several years of the loan.

9. For example, McCarthy and Peach (2002) report a substantial decline in the short-run, though not long-run, interest elasticity of residential investment and real GDP after the early 1980s. Work by Dynan, Elmendorf, and Sichel (2006) supports this conclusion as does other work at the Federal Reserve on models for forecasting residential investment. Modeling work at the Fed also shows that the short-run sensitivity of residential investment to nominal mortgage rates fell by more than half after the end of the New Deal system, but, in line with the findings of McCarthy and Peach, remained largely static after 1982. Estrella (2002) finds that secular changes in mortgage securitization have reduced the interest sensitivity of housing to short-term interest rates and the response of real output to an unanticipated change in monetary policy.

10. Dynan, Elmendorf and Sichel (2006) argue that financial innovation has made it easier for households to use the equity in their homes to buffer their spending against income shocks, thereby reducing the volatility of aggregate consumption. Studies by Hurst and Stafford (2004) and Bennett, Peach and Peristiani (2001) provide indirect evidence supporting this argument.

Fed Ready To Act To Limit Damage From Sub-Prime: Bernanke

Source : The Business Times, September 1, 2007

But Fed chief gives no clear signal for interest rate cut at next meeting on Sept 18

JACKSON HOLE, Wyoming) Ben Bernanke, chairman of the Federal Reserve Board, declared yesterday that the central bank 'stands ready to take additional actions as needed' to prevent the chaos in mortgage markets from derailing the broader economy.

Mr Bernanke offered no explicit hint that the central bank will reduce the benchmark federal funds rate at the next policy meeting on Sept 18, and his remarks suggested that the Fed was unlikely to take any action before that date unless economic conditions deteriorate.

But he said nothing to dissuade investors from expecting a rate cut at that meeting, and financial markets have been betting on the near-certainty of such a move ever since the Fed took a partial step on Aug 17 of reducing its discount rate, which applies to emergency short-term loans to banks.

In anticipation of the speech, Wall Street rallied, with the Dow Jones industrial average jumping as much as 140 points.

Once Mr Bernanke's remarks were released at 10 am, investors trimmed those gains slightly. But all three major American stock indexes remained up nearly one per cent at 11 am.

In the long-awaited speech, his first since the nation's credit markets began to seize up several week ago, Mr Bernanke made it clear that the Fed's decision to cut interest rates will heavily depend on what happens to the housing and housing finance.

'Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the rest of the economy,' he told listeners at the Federal Reserve's annual symposium here in the Grand Tetons. 'We are following these developments closely,' he added.

Mr Bernanke walked a tight line between trying to reassure financial markets and locking the Federal Reserve into a rescue effort that could prove either unwarranted or unwise over the longer term.

Investors around the world had awaited his speech with an almost obsessive fixation in recent days, as what began as a panic in sub-prime mortgages for people with weak credit continued to freeze up lending on scores of other fronts, from 'jumbo' mortgages to borrowers with good credit to a growing number of billion-dollar leveraged buyouts.

Mr Bernanke spelled out a much tighter and more explicit link between the next decisions on interest rates and what happens in the housing market.

That was important, because the Fed has generally focused on the health of the overall economy rather than individual sectors. In an added attempt to soothe investors, Mr Bernanke also suggested that the central bank would focus less heavily than usual on incoming economic data, which has yet to signal a clear downturn.

'Economic data bearing on past months or quarters may be less useful than usual for our forecasts,' he said. 'As a result, we will pay particularly close attention to the timeliest indicators, a well as information gleaned from our business and banking contacts around the country.'

Meanwhile, US President George Bush yesterday pledged to help people with risky sub-prime mortgages keep their homes and tighten safeguards against predatory lending, while rejecting a bailout for 'speculators'.

'I plan to help homeowners, the government's got a role to play,' Mr Bush said. 'But it's not the government's job to bail out speculators or those who made the decision to buy a home they couldn't afford.' Mr Bush said that he will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favourable rates.

Tighter credit and higher borrowing costs threaten the housing market, which has been an engine of U.S. economic growth. -- Bloomberg, NYT

DC Rates Hoisted By As Much As 112%

Source : The Business Times, September 1, 2007

Average rate raised by 58% for non-landed residential use, and 42% for commercial use

(SINGAPORE) The government yesterday announced what is possibly the sharpest hikes in development charge (DC) rates, which are payable for enhancing the use of some sites or building bigger projects on them.

The Ministry of National Development (MND) cited the rise in market values as the reason for the increases.

On average, the DC rate for non-landed residential use was raised by 58 per cent and that for commercial use by 42 per cent. The average DC rate was also increased 23 per cent for hotel use, 11 per cent for landed residential use, and 2 per cent for industrial or warehouse use.

But the escalations were much bigger in certain locations - as high as 112.1 per cent for non-landed residential use in the Everton/Spottiswoode Park vicinity and 104.5 per cent for commercial use in the Maxwell Road/Telok Ayer St and Anson Road areas, based on Jones Lang LaSalle's analysis.

The latest increases, which take effect today, are in addition to the 40 per cent across-the-board appreciation in DC rates announced on July 18 arising from a change in formula for computing DC.

While yesterday's increases look steep, they did not surprise most market watchers given the substantial appreciation in land values over the past six months.

As to whether the latest hikes will further slow en bloc sales, which have decelerated lately as developers become more cautious about land-banking amid the stock market rout and credit tightening fears, property agents offered a range of views.

Credo Real Estate's managing director Karamjit Singh estimates that probably only about 20 to 30 per cent of all collective sale sites have substantial DC components amounting to 10 per cent or more of total land value. 'For many of these sites with high DC component, the increase may have been anticipated and priced in, so things can move on. For those that haven't, their progress for an en bloc sale could be affected if owners are unwilling to lower their price expectations.'

Jones Lang LaSalle's regional director and head of investments Lui Seng Fatt too said: 'Despite the stellar increases in DC rates, the impact of the DC hike on en bloc residential developments remains marginal on most sites, especially freehold sites. Some leasehold sites with substantial DC components, however, may feel the heat.'

CB Richard Ellis executive director Li Hiaw Ho said the hikes will to 'a small extent, slow down collective sales'. 'Coupled with homeowners' expectations of high prices for their properties, developers might not be as aggressive in acquiring sites,' he added.

Colliers International's director for research and consultancy Tay Huey Ying said two rounds of DC hikes in July and September, and global credit tightening, will likely lead to more cautious bidding by developers and more realistic price expectations by sellers.

Ms Tay said that increases in land prices may not be as phenomenal in the coming six months compared with the past six months. 'But demand for development land should stay healthy as the end-market for residential property is expected to remain healthy on the back of strong economic prospects,' she added.

Analysts noted that in any case, the supply of collective sale sites will slow due to impending changes to en bloc sale rules requiring more safeguards and procedures.

DC is specified according to use groups and is listed by 118 geographical sectors or locations across Singapore.

The 112 per cent hike in non-landed residential DC rates in the Everton/Spottiswoode Park area was attributed by most analysts to the Spottiswoode Apartment and Oakswood Heights collective sales in April and June at $732 psf per plot ratio and $740 psf ppr respectively - more than twice the land value of $307 psf ppr implied by the July '07 DC rate for the location.

And the DC rate hikes of 107.5 per cent each in the Newton/Surrey/Lincoln roads and River Valley/Jalan Mutiara areas were attributed to the collective sales of Lincoln Lodge for $1,449 psf ppr, and Bishopswalk for $1,544 psf ppr respectively, which are about three times the $492 psf ppr land value implied by the July '07 DC rate for the locations.

The Maxwell Road and Anson Road areas topped the increases for commercial use with gains of 104.5 per cent each, likely due to prices achieved at two recent state tenders for commercial sites at Anson Road. The same two locations also recorded the biggest increases in hotel use rates, at 66.7 per cent each, and again, this was probably due to two hotel sites at Gopeng Street and Tras Street sold by the state at significantly higher land values than implied by July DC rates.

As for industrial DC rates, the highest increase of 15.8 per cent was for the Pasir Panjang/Science Park area, followed by 11.1 per cent hikes in 15 other locations including Henderson Industrial Park, Bukit Merah View, Redhill and Hoy Fatt Rd/Alexandra Road, according to JLL's analysis.