Thursday, September 20, 2007

Buy Second Home But Don’t Over-Commit

Source : The Straits Times, 20 Sep 2007

MANPOWER Minister Ng Eng Hen yesterday cautioned against over-committing when buying property at the expense of putting aside money for retirement.

The good news though is that with the latest changes, Central Provident Fund (CPF) members will be able to achieve both home ownership and retirement security, he said.

Indeed, with the new CPF system, more than eight in 10 new entrants to the workforce will meet their Minimum Sum for retirement. This is even for low-wage workers and even after buying their first home.

‘So our home ownership need not be sacrificed for retirement adequacy. We can have both,’ said Dr Ng.

But the problem, he pointed out, comes when some Singaporeans over-commit in buying bigger and subsequent homes.

It was an issue raised by Dr Muhammad Faishal Ibrahim (Marine Parade GRC), who recounted how a resident was shocked by the large amount of money he received after selling his house.

Dr Ng said it was good that some of these people put the gains from the sale of their houses into their CPF accounts.

‘These people sell their first homes but plough back gains from the sale of their first home and purchase a bigger home. And I think this is a good thing,’ he said.

‘It’s a good aspiration that Singaporeans can own bigger homes if they can afford it.’

But he also had a reminder for them: They ought to consider how much funds they could plough into their retirement savings before buying the bigger home.

‘If he had put that money early into his special or retirement accounts which now earn 5 per cent on the first $60,000, compounded over a number of years, it adds up,’ he said. ‘We should study how to advise first-home sellers about this. I think it’s a good idea that we pay some attention to it.’

India's DLF plans US$2b Reit in S'pore

Source : The Business Times, September 20, 2007

(MUMBAI) DLF Assets, a privately held Indian firm, plans to raise about US$2 billion and get listed as a real estate investment trust in Singapore, an Indian newspaper reported yesterday.

The company was founded by KP Singh, chairman of real estate firm DLF Ltd, which raised 91.88 billion rupees (S$3.46 billion) in India's biggest-ever IPO in June.

A spokesman for DLF Ltd could not be reached for comment. But a top DLF official, who declined to be named, said that Goldman Sachs and Lehman Brothers were advising the company and that it was in a 'silence period', and so declined to comment further.

DLF Assets has a portfolio of special economic zones and infotech parks, the Business Standard newspaper said.

It quoted a company source as saying that DLF had sold some of its leased commercial properties to DLF Assets to separate its development and asset ownership businesses.

The company source told the newspaper that DLF Assets had paid about 24 billion rupees to DLF against a total consideration of 40 billion rupees.

Earlier this year, media reports said that US-based hedge fund DE Shaw had invested US$400 million in DLF Assets, while a fund sponsored by Lehman Brothers had invested US$200 million in the company.

DLF Ltd's shares were up 5.6 per cent in a firm Mumbai market at 5.44 am GMT. -- Reuters

Deutsche Bank Starts Services For Hedge Funds In S'pore

Source : The Business Times, September 20, 2007

DEUTSCHE Bank said yesterday that it has opened two desks in Singapore to provide prime brokerage and financing services to hedge funds, joining a list of global banks attracted by the city-state's fast-growing hedge fund industry.

The two desks - global prime finance and hedge fund capital introduction group - are aimed at expanding hedge fund coverage in Singapore, a bank official said.

Deutsche said the hedge fund capital introduction group, which matches hedge funds with investors that have interest in alternative investments, would be headed by Ferrel Daste. Nilesh Navlakha will head hedge fund equity sales in Singapore.

The global prime finance group will be headed by Scott Basili, who will be assisted by Anusha Varma.

'The increasingly diverse and complex needs of our growing Singapore client base demand the services of a local, specialist client service team,' Denis MacCarthy, co-head of Asian equity sales at Deutsche Bank, said in a statement.

Deutsche joined competitors Citigroup, Morgan Stanley and Merrill Lynch which earlier this year set up their prime brokerage offices in Singapore.

The number of hedge funds in Singapore rose 76 per cent to 190 in 2006, while assets managed by these funds rose 150 per cent to US$26 billion, according to central bank data.

Hedge funds in Singapore - which included several billion-dollar startups such as Broad Peak Investment Management and global players such as Tudor - have been attracted by its low taxes, flexible regulation and a vast pool of money managed by the the state-backed investment firms Temasek Holdings and the Government of Singapore Investment Corp.

Deutsche has moved bankers from New York and Hong Kong to start the new desks.

Fullerton Fund Management, a unit of Temasek, said earlier this month it is preparing a new hedge fund as investors remain keen on alternative investments despite financial market turbulence. -- Reuters

World Economy Close To Meltdown: Penner

Source : The Business Times, September 20, 2007

He says Fed rate cut won't fix sub-prime mortgage problem

(NEW YORK) The world economy 'is probably at its scariest point since the Depression' as fallout from the US sub-prime mortgage crisis crimps access to credit, said Ethan Penner, a pioneer of the US$600 billion commercial mortgage-backed securities market in the early 1990s.

'We're probably at the closest point to a big meltdown, a depression-type meltdown than we have been in our lives,' said Mr Penner, 46, now a principal at real estate fund management firm Lubert-Adler Partners LP, in a speech at a conference.

The US housing market is an 'unmitigated disaster' and will take at least another 18 months to recover, as the US Federal Reserve and European Central Bank respond to turmoil in credit markets, Mr Penner said. As foreclosures rise, lenders will try to sell the properties they acquire at depressed prices, dragging the market down further, he said.

'The effect that's going to have on the economy is sure to be bad. I don't think we're going to have a depression-like situation, but we are going to print a lot of money, and that's going to have its consequences. The price we will pay as a society to avoid depression is high inflation.'

Commercial real estate prices also are bound to drop as mortgage lenders refuse to underwrite prospective rent increases, he said. 'Nobody's going to be buying based on rosy forecasts of rental growth. That game's over.'

The Federal Reserve has lowered its benchmark interest rate a half point to 4.75 per cent, its first cut in four years. The bigger-than-forecast reduction signalled that the Fed fears the US economy is at risk of sinking into a recession.

A rate cut will not fix the problem, said Mr Penner, who was head of mortgage finance at Nomura Securities International Inc when it first packaged commercial mortgages as securities for sale to investors.

'It's completely beyond the Fed's capacity' to change long-term rates, he said. 'The Fed can't really call bond buyers and tell them to buy bonds.'

The three main rating companies, Moody's Investors Service, Standard & Poor's and Fitch Ratings, deserve blame for the turmoil sweeping credit markets, Mr Penner said. 'Trust has been lost' in the ratings companies, he said. 'There are three rating agencies and they govern finance in the world. It's kind of shocking.'

S&P and Moody's failed to downgrade bonds backed by loans to borrowers with poor credit until July, when some had already lost more than 50 cents on the dollar. Politicians in the US and Europe have called for probes into the ratings companies.

Mr Penner built Nomura into the largest real estate lender in the US before running into trouble in 1998 when the Russian government default spurred investors to flee loan securitisations for safer investments. -- Bloomberg

Servcorp Expands In S'pore As Office Market Booms

Source : The Business Times, September 20, 2007

All in a day's work: Servcorp's office packages offer a dedicated receptionist and access to meeting rooms

OFFICE space provider Servcorp is looking to expand in Singapore to take advantage of the booming office market here.

Last year, the Australia-based company grew the office space in its Singapore portfolio by 35 per cent with the opening of a new location in Prudential Tower and the addition of another level in Suntec Tower Three.

And now, it is looking to add another five Servcorp floors over the next three to five years.

Servcorp, which celebrated its 20th year in Singapore yesterday, leases office space in bulk from landlords, then re-leases the space to companies and provides office support - providing what it calls a 'serviced office network'.

It also offers 'virtual office packages', where a client can take advantage of a prestigious address, get a dedicated receptionist who answers calls in a company's name and gain access to boardrooms and meeting rooms.

The group has about 64,000 sq ft of space under lease in Singapore - out of more than 800,000 sq ft worldwide.

But to ride the booming office market here, it wants to grow its portfolio.

'Demand has certainly increased and we are seeing companies being much more bullish about their entry to the Singapore and Asian markets,' said Alf Moufarrige, Servcorp's chief executive. 'Instead of setting up with only one or two people, they are starting with six or more people - which, of course, increases the demand for space.'

Enquiries for space have climbed by about 30 per cent in the past year, he said.

Due to the strong demand, the rents charged by Servcorp have also gone up, in line with the rent the company has to pay to its own landlords.

'The commercial space market is definitely booming in Singapore!' said Mr Moufarrige. 'When I arrived in Singapore in early 2005, the asking rental for traditional space in Six Battery Road was $5.50 per square foot (psf). This is now at record levels of $18.50 psf.'

But there is still room for expansion, the company feels, as there are many office developments that are slated to come up over the next three to five years.

We Need CPF Changes To Stay Viable: Eng Hen

Source : The Business Times, September 20, 2007

Govt not leaving citizens to fend for themselves, he says

Dr Ng: S'poreans will see their CPF accounts grow faster after the changes

SINGAPORE has to adopt the proposed CPF changes to stay viable in the face of radical demographic shifts, said Manpower Minister Ng Eng Hen yesterday.

Dr Ng emphasised that the government is not leaving Singaporeans to fend for themselves. 'We will spend at least $1.1 billion each year to build up their CPF savings through Workfare and higher CPF. We will provide up to $1.2 billion in deferment bonuses. These changes are real. They will see their CPF accounts grow faster after these changes.'

On Monday, the government said CPF members will receive an additional one percentage point interest on the first $60,000 in their accounts, while the draw-down age for the Minimum Sum will rise to 65 in 2018. There will be a new longevity insurance (LI) scheme.

These changes came as the population here is ageing and 'each person must save enough to last his life span,' Dr Ng said.

He said that LI was a solution to the problem, as 'you need only set aside a small fraction of your retirement savings, and it will guarantee you a monthly income for life, starting from 85 years'.

Earlier, some members had also called for CPF savings to be drawn down earlier for workers who fail to be re-employed.

However, the minister said such a move will only compromise the retirement adequacy of the worker, and he will not be able to receive higher interest on the sum if it had been left until the 'drawn down age'.

An exception is made for workers who are unemployed due to their medical condition, where the CPF Act allows for early withdrawal.

Earlier, MPs including Sin Boon Ann had suggested that a portion of CPF money be set aside for management by established fund management corporations to reap better returns for members.

However, Dr Ng disagreed, warning that the higher returns would come with higher risks.

He said: 'You can reduce cost of distribution and administrative charges. You can diversify your risks through a balanced portfolio but no one can insulate you from market risk.'

In contrast, the CPF system minimises risks, and 'the minimum guarantee can stand up to market scrutiny and competition'.

In fact, he pointed out, 'there are no suitors asking to take over our funds and guaranteeing equivalent returns ... because it is more than fair.'

Dr Ng also brushed aside the idea of a national pensions system, saying that it would 'bring upon us the very problems that those with socialised pension schemes are trying to get out (of)'.

He said the CPF system is strong and fully funded, and warned that the government should not take on the responsibility of providing for the retirement needs of every Singaporean.

'It will slow us down, deplete our reserves and impoverish us. We would then have little resources to help anyone,' he said.

However, the minister was open to some ideas like inflation-linked payouts or for some amount to be returned if the CPF member dies earlier, adding that these options could be offered as 'an additional rider to the basic product'.

Some MPs have appealed for more help to be given to groups such as housewives, contract workers, odd-job labourers and caregivers for disabled children.

Dr Ng said that 'through Comcare, financial assistance schemes, additional housing grants, the CDCs, top-ups during budget surpluses, we do assist them'.

He added that since 2001 special transfers from the government have totalled $11.7 billion, including the GST Offset package.

Frasers To Open 10 New China Projects By 2009

Source : The Business Times, September 20, 2007

Five of the serviced residences will open before Beijing Olympics

Plenty of potential: Frasers' new serviced residences coming up in China include one in Shanghai (left)

FRASERS Hospitality said yesterday that it will open 10 new gold standard serviced residences across China by 2009, half of them before the 2008 Beijing Olympics.

The 10 new properties in Nanjing, Chengdu, Tianjin, Guangzhou, Shanghai, Hong Kong and Beijing are part of the 23 new properties which Frasers said earlier this month it would open in the next 18 months.

Nine of them are properties in which Frasers will have management contracts with owners that include Yanlord, global private equity firm Carlyle, and COFCO, China's largest importer, manufacturer and exporter of food.

The tenth, in which Frasers itself will invest a total of US$130 million, is a prime property in Beijing's central business district.

Frasers, a wholly-owned subsidiary of Frasers Centrepoint, already owns two properties in Shenzhen. Frasers Centrepoint in turn is fully owned by Fraser and Neave.

Frasers' chief executive Choe Peng Sum said that China is the biggest growth engine for the global economy.

Related link -
Frasers Hospitality's news release

'China's foreign direct investment grew 12 per cent to US$31.9 billion in the first half of 2007,' Mr Choe said. 'This basically means lots of potential for our industry and our brand.'

Frasers targets business executives on medium to long-term business projects.

It said it is still pursuing other properties in China and is talking to property owners in other key gateway cities like Dalian, Suzhou, Xian, Chongqing, Hangzhou and Wuxi.

Apart from China, Frasers is also expanding in South-east Asia, the Middle East, Europe and India.

Frasers has about 19 properties in Europe, North Asia, the Middle East, South-east Asia and Australia.

Currently, overseas projects contribute to about 70 per cent of Frasers' earnings, which will increase over the next 18 months when the the 23 projects are rolled out.

Stanchart Joins Big League Of Private Banking

Source : The Business Times, September 20, 2007

US$860m acquisition of AEB yields 10,000 customers, US$22.5b of managed assets

Standard Chartered Bank's acquisition of American Express Bank (AEB) catapults it into the big league of private banking. But what does its biggest shareholder, Temasek Holdings, think about it?

'We have informed Temasek about the acquisition and they have always been a strong supporter of our management and strategy,' a Stanchart spokeswoman said yesterday.

Stanchart, 17 per cent owned by Temasek, is paying US$860 million for AEB. The combined entity's assets under management (AUM) will come to US$30 billion, putting it among the top 10 private banks serving the rich in Asia.

In netting AEB, Stanchart will gain 10,000 customers, US$22.5 billion of AUM and more than 120 relationship managers serving 20 offices in four continents.

Asked about the deal, Temasek spokeswoman Lim Siow Joo said: 'We do not get involved in the day-to-day operations of our portfolio companies. Standard Chartered has its own board and management to make independent decisions based on what makes sense for its business.'

At a news conference yesterday, Stanchart global private bank head Peter Flavel said that the acquisition would fast-track the private banking unit, which was launched this year.

AEB has a presence in many of the markets that Stanchart is targeting, he said. AEB markets to non-residents in London, is strong in Dubai, India, Singapore and Hong Kong and has a Miami office that serves mainly Latin America.

It also has a European booking centre in Geneva and two trust companies, in Guernsey and the Cayman Islands - all of which figure in Stanchart's plans for its private bank.

'In our London marketing to non-resident Indians, non-resident Pakistanis, non-resident Koreans and non-resident Taiwanese, they like the idea of booking closer to them,' said Mr Flavel.

Stanchart already has two booking centres - in Singapore and Hong Kong.

Private banks have been jostling with one another to sell to wealthy Asians, of whom there are an estimated 2.7 million, according to the 2006 Merrill Lynch-Capgemini World Wealth Report.

The integration of the two banks will take 24 months. And Mr Flavel said that there would be a period of consolidation.

Stanchart had said earlier that it aims to have 350 to 450 private bankers by 2010. It has so far taken on 150.

Asked if AEB would drive the combined entity's private banking business, given its experience, Mr Flavel said: 'We're pleased with our new private bankers. They're delivering at the rates we set.'

As for their new AEB colleagues, he said: 'They can now look to us for a network to market into.'

Stanchart's core business is banking, and there will be 'little overlap in clients', he said. 'Our clients come to us through referrals from the corporate banking.'

They are mainly first and second generation entrepreneurs, and the average age of a Stanchart millionaire client is 34.

On the outlook for Asian private banking amid market turmoil, Mr Flavel expects 'overall growth of a high single digit'.

Private banking in Asia has powered ahead at double-digit rates in the past three years.

'We are still mildly bullish in terms of the global economy and we believe in the continued growth of the Indian and the Chinese economy,' Mr Flavel said. 'The wild card is the state of the American economy.'

Shifting From Tranquillity To Turbulence

Source : The Business Times, September 20, 2007

Greenspan actually presided over one of the greatest surges of US prosperity ever - which now threatens to unravel, with the end of a favourable cycle of disinflation's benefits

Disturbing the peace? Mr Greenspan's outlook is sombre. With oil prices having already soared, reversing globalisation's impact on inflation, he sees little relief and thinks productivity growth will slow at best to 2% annually, down from about 3% from 1995 to 2005. He also fears inflation will gradually move to 4-5% and, in the process, raise interest rates and hurt stock prices. Plus, he worries that the US hasn't faced the costs of an ageing baby boom.

ALAN Greenspan has called his memoir The Age of Turbulence, but a more accurate title might have been The Age of Tranquillity. During his long tenure as chairman of the Federal Reserve Board (from August 1987 to January 2006), the US economy suffered only two modest recessions - those of 1990-91 and 2001 - totalling 16 months.

Otherwise, here's what happened:

* The economy (gross domestic product) grew 70 per cent from 1987 through 2005.

* The number of non-farm jobs increased 31.4 million, or 31 per cent, with average unemployment of 5.6 per cent.

* Annual inflation as measured by the Consumer Price Index averaged 3.1 per cent.

* Pretax corporate profits jumped from US$369 billion to US$1.33 trillion.

* The stock market quadrupled, with the Standard & Poor's 500 stock index rising from 287 (the 1987 average) to 1,207 (the 2005 average).

Mr Greenspan's reputation rests on this astonishing record. To be sure, job growth was sometimes sluggish, and there were scary moments - the scariest being the 22.6 per cent drop in the stock market on Oct 19, 1987.

The economy is now completing a quarter-century cycle dominated by the fall of inflation from 13.3% in 1979 to 1.9% in 2003. This steady disinflation triggered a virtuous chain reaction of lower interest rates, higher stock prices, greater wealth, and strong consumer and business spending.

But mainly, Mr Greenspan presided over one of the greatest surges of US prosperity ever.

Was this luck - or Mr Greenspan's skill? The answer: some of both. To understand why, you have to grasp that the American economy is now completing a quarter-century cycle dominated by the fall of inflation from 13.3 per cent in 1979 to 1.9 per cent in 2003. This steady disinflation triggered a virtuous chain reaction of lower interest rates, higher stock prices, greater wealth and strong consumer and business spending.

Here's how it worked:

Interest rates dropped because lenders needed less protection to compensate for the erosion of their money. A 10-year Treasury bond fetched 13 per cent in 1982, 8 per cent in 1987 and 5 per cent in 1998. As rates declined, people shifted funds into the stock market and later housing.

Share prices and home values rose, making Americans wealthier. Many Americans substituted this added wealth for annual savings. They spent more from current income and borrowed more. In 1982, the personal savings rate was 11 per cent of disposable income; by 2005, it was barely more than zero.

The Great American Shopping Spree kept the economy advancing.

Meanwhile, strong economic growth, low inflation, rising profits and high stock prices attracted trillions of dollars of overseas investment. Because foreigners wanted US dollars - and bought them by selling their own currencies - the US dollar remained highly valued internationally. In turn, the strong dollar made imports into the United States cheaper. This sated US consumers and restrained inflation.

Other factors also cut inflation. In the 1990s, oil prices dropped. Productivity growth - old-fashioned efficiency - increased, probably reflecting the impact of computers.

Mr Greenspan also cites globalisation. From 1989 to 2005, he writes, the number of workers worldwide engaged in export-oriented industries rose from 300 million to 800 million - a reflection of the entry of China and India into the global economy. All these new workers put downward pressure on 'wages, inflation, inflation expectations, and interest rates, and accordingly significantly contributed to rising world economic growth'.

In part, Mr Greenspan was a happy bystander to all this good fortune. But he also helped create it. The Fed's easy money policies in the 1970s led to double-digit inflation. Through a severe recession, Paul Volcker - Mr Greenspan's predecessor - had cut inflation to 4.4 per cent by 1987.

Mr Greenspan's Fed continued the assault, but more gently. Four times (1988-89, 1994-95, 1999-2000 and 2004-2006), it raised short-term interest rates to check price increases. Someone less convinced that inflation is dangerous might have let it drift up. Mr Greenspan's Fed also deftly supplied credit in those scary moments (such as the 1987 stock crash) when financial panic was a threat.

Unfortunately, disinflation's benefits - the huge drop in interest rates, the big increases in stock and home values - can be enjoyed only once. This favourable cycle has ended. Indeed, it has left a hangover, as higher stock prices and home values both inspired damaging speculative 'bubbles'. Good times often foster their own undoing. People become overly optimistic, giddy, careless, complacent. Businesses become sloppy and sometimes criminal in pursing growth and profits. Mr Greenspan's successor, Ben Bernanke, has inherited the hangover.

As for Mr Greenspan, his outlook is decidedly sombre. Oil prices have already soared, reversing globalisation's impact on inflation. He sees little relief. He thinks productivity growth will slow at best to 2 per cent annually, down from about 3 per cent from 1995 to 2005.

He fears that inflation will gradually move to 4-5 per cent and, in the process, raise interest rates and hurt stock prices. He worries that the nation hasn't faced the costs of an ageing baby boom. If he is right, the age of tranquillity may slowly become his age of turbulence. -- The Washington Post Writers Group

Spectre Of 'Bernanke Put' Looms

Source : The Business Times, September 20, 2007

Fed's half-point cut in federal funds rate also expected to produce new problems

Mr Bernanke: If the US economy continues to plunge and/or if the inflation rate goes up, he would have to defend Tuesday's decision in his memoirs

CRITICS of Alan Greenspan have depicted what was seen as an attempt by former chairman of the US Federal Reserve Board, Alan Greenspan, to ensure liquidity in the capital markets by lowering interest rates as the 'Greenspan put'. According to this argument, during the Greenspan term in the Fed, investors operated under the expectations that disorder in the capital markets would make it more likely than not that the US central bank would lower interest rates.

Hence, this 'Greenspan put' may have created incentives for some investors out to engage in risky and irresponsible behaviour since they expected that lower interest rates would serve to bail them out. Their risky behaviour, in turn, would end up igniting more disruptions in the financial markets.

So against the backdrop of the crisis in the US housing market and the ensuing credit crunch, it was not surprising that financial analysts were wondering whether the current Fed chief, Ben Bernanke, would decide to pursue a different course than that of his predecessor, and send a signal to investors that the central bank would refrain from responding to every disruption in the capital markets by cutting interest rates and so change expectations among investors.

As they were waiting for Tuesday's decision by the central bank's Federal Open Market Committee, that scenario - a Bernanke playing the role of the anti-Greenspan - had probably caused sleepless nights to many investors. But Mr Bernanke - ironically just a day after Mr Greenspan's published memoirs, The Age of Turbulence: Adventures in a New World had hit bookstores - did not disappoint the anxious investors.

In a very Greenspan-like move, Mr Bernanke and the rest of the Fed's policy makers slashed the benchmark federal funds rate by a half-percentage point as part of an effort to contain the turbulence in the financial markets, taking the overnight rate down to 4.75 per cent, its lowest level since May of last year.

In fact, Mr Bernanke and his colleagues had only three policy options available to them. They could have done nothing, which would have produced hysteria not only on Wall Street but also in Washington where leading Republicans and Democrats - both political parties have close financial ties to the investment community - have been pressing the Fed to 'do something' to relieve the credit crunch.

Or the Fed's policymakers could have cut the key rate by a quarter of a percentage point. Indeed, analysts had speculated that that would be exactly what the Fed would do - while not closing the door for future interest rate relief. Such a decision could have struck the right balance between the current worries over the problems in the housing market and the capital markets on the one hand, and possible concerns over future inflationary pressures on the other.

Nevertheless, with growing indications that the 'real economy' was in bad shape, including the downturn in the housing market as well as well rising unemployment and lower consumer confidence, the expectations on Wall Street was that the Fed would have no choice but to cut the key rate by half a point.

If the Fed had refrained from taking that expected step, it could have created havoc in the financial markets and sent shivers through Washington, especially in the White House. After all, President George W Bush recalls that his father had blamed Mr Greenspan's decision not to cut interest rates for the economic recession that helped bring about his loss of the presidential re-election bid in 1992.

But Tuesday's decision is expected to produce new problems for Mr Bernanke. If the economy is indeed now in such a mess that it required a major cut in rates, why wasn't the Fed chief able to detect earlier the dangers showing on the horizon? There is also the threat of inflation that could spread across the economy, a point that Mr Greenspan made during a television interview to mark the publication of his autobiography. Reports in the press suggested that some members of the Fed's policy makers had opposed a steep cut in rates which could ignite inflation. And once again, the Fed would be seen as bailing out the greedy and reckless investors, creating the spectre of a 'Bernanke put'.

In a statement issued after its meeting, the Fed said that 'the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally' and that the rate cut was 'intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time'.

But the statement also included a warning about inflation, indicating that even though readings on core inflation 'have improved modestly' this year, 'some inflation risks remain', and stressing that the central bank would continue to 'monitor inflation developments carefully'. This warning might suggest that the Fed is not inclined to lower rates again.

While the Fed's decision helped ease concern among investors, it is not clear whether this aggressive move would revive the housing market and prevent the slowdown in growth which could lead to an economic recession. Hence, if the economy continues to plunge and/or if the inflation rate goes up, Mr Bernanke would have to defend Tuesday's decision in his memoirs.

Property Transactions With Contract Dates Between Aug 27 - Sept 1, 2007

Fraser Extends Reach In China

Source : TODAY, Thursday, September 20, 2007

Ten new projects for S’pore-based firm before Olympics

SERVICE apartment operator Frasers Hospitality announced the opening of 10 new projects yesterday in China — five of which will be up and running before the Beijing Olympics next year.

Currently, Frasers — the hospitality arm of Fraser and Neave — operates two properties in Shenzhen. The 10 newlyannounced service residences will be in Beijing, Nanjing, Chengdu, Tianjin, Guangzhou, Shanghai and Hong Kong.

Of these, one property situated in the capital’s Central Business District, was acquired by Frasers from Chinese conglomerate Cosco Holdings in June for US$130 million ($197 million). It is now valued at $260 million.

Called Frasers Suites Beijing, the 23-storey building, featuring 357 luxury serviced residences, will open in April next year. Frasers will operate the nine other properties under management contracts. These include the Fraser Residence CBD East owned by global private equity firm Carlyle, slated to open November this year.

Frasers said it has been receiving 25 to 30 queries about apartment stays during the Olympics next year, even before the buildings are completed.

Beyond the Olympics, Frasers is bullish about China’s potential in attracting business executives on medium-to-longterm business projects to its serviced apartments.

“The trends in business are really pointing to the need for serviced apartments,” said Frasers CEO Choe Peng Sum. “And this is in line with world trends because many businesses fly in their taskforce or corporate start-up teams to major cities to start up the business, stay for up months, and when the job is done, the teams are flown out.”

With just 10 per cent of hotel rooms in the world being serviced apartments, Mr Choe said there is room for growth.

“Many people who travel actually prefer serviced apartments — bigger living places, your own kitchen, but with hotel services … You wake up, you make your own coffee but you are sitting in the living room versus sitting in the bedroom,” he added. “It makes a lot of difference to a lot of people who travel a lot.”

Fraser’s 19 properties worldwide enjoy an average occupancy rate of 90 per cent. In Singapore, its serviced apartments generally have a threemonth waitlist.

This augurs well for the Singapore-based property company’s foray into China, as it sets its sights on operating 4,000 serviced residences in over a dozen cities across the country by 2010. The company said it is also looking into entering the secondary business cities such as Wuhan, Chongqing and Shenyang.

Fraser’s announcement yesterday follows hot on the heels of the opening of its first service residences in Sydney last month. Including the 10 projects in China, the company plans to open a total of 23 properties worldwide in the next 18 months.

The Wall Street Bear Still Lurks

Source : TODAY, Thursday, September 20, 2007

S’pore market soars after Fed rates cut, but outlook still unclear

INVESTOR confidence has returned — but is it here to stay?

Analysts, like investors, were mostly bowled over by the United States Federal Reserve’s aggressive move yesterday, cutting two key rates by a hefty 50 basis points each to stave off recession risks.

As with markets around the globe, the Singapore share market soared, cheered by what is regarded as the Fed’s determination to keep economic growth on an even keel. A healthy US economy is generally positive for the rest of the world, particularly export- reliant economies such as Singapore’s.

“Confidence has returned and this bodes well for the market, at least for the next couple of weeks,” said Mr Jimmy Koh, UOB’s head of economics and treasury research.

The markets, he said, would want to see how the effects of the Fed rate cuts filter out into the broader economy.

“Are people more willing to lend? The problem now is not a lack of liquidity, but a lack of willingness to lend.”

Mr Vasu Menon, chief editor at online bank, agrees, saying: “Once the euphoria dies, people will examine what the Fed has done and whether it is enough, and whether the signal they are sending to the market is one of concern that (the economy could slip) into recession.”

The Fed’s comments accompanying the rate decision also raised expectations that yesterday’s move might be the start of a loosening trend.

CIMB-GK — which now expect the Fed funds rate target to fall to 4 per cent by the end of this year from their previous 5.25-per-cent forecast — said: “Our reading of the Fed statement is that risks to the inflation outlook have become more balanced, given the greater downside risks to real growth. The scope of the policy statement seems to indicate that the door is still open for rates cuts.”

But Mr Menon wonders if inflation will stand in the way of further rate cuts, adding that: “There are underlying inflationary pressures in the US, not just rising oil prices, but from the tight labour market, weak US dollar and other factors.”

Thus, even as the Fed has delivered more than what many had been expecting, the outlook is still far from clear.

Singapore shares will continue to take the lead from Wall Street: If the Dow Jones Industrial Index manages to stay above 13,500, the Straits Times Index (STI) could test its July high of 3665 points. But if the DJI retreats, the STI could return to 3400-3600, said UOB’s Mr Koh.

For that reason, analysts continue to caution, especially for the banking sector even though Singapore banks hold up well because of their limited exposure to the US sub-prime mortgages.

The oil and gas sector could benefit, should the policy loosening revive the economy and stoke fuel demand as some expect. Moreover, as the Northern hemisphere enters the winter season, “there have been concerns of supply,” said Mr Menon.

High oil prices encourage oil exploration and demand for oilrigs and the like, helping shares of companies such as Keppel Corp and SembCorp Marine.

With the improved sentiment, Mr Yeo Kee Yan, a DBS Vickers retail market strategist, said housing property developers, particularly for the mid-to-lower end market, might have potential for gains after developer Far East Organization paid a record $202.9 million for an Ang Mo Kio site.

He also favours the hospitality sector ahead of the year-end holiday season.

“The hotel wave is coming because of the year-end holiday season, the opening of Changi Terminal 3 next year and the F1 Grand Prix coming to town. All these bode well for the hospitality sector. Even if more hotel rooms come out now, it won’t be enough. There would still be a shortage,” he said.

The STI gained 3.4 per cent, or 116.61 points, to close at 3594.36 yesterday.


The risk of a US recession is increasing, although the chance is less than 50 per cent, according to an official at Fitch Ratings.

The US central bank yesterday reduced its key rate by 50 basis points, more than what economists expected. Asian economies can weather a US slowdown, although a recession is likely to hurt growth in the region, said Mr James McCormack, head of Asian sovereign ratings at Fitch, said.

“The risk of recession has gone up, but is less than 50 per cent,” he said. “We still forecast a slowdown. A 50-basispoint cut should be supportive of growth.” — BLOOMBERG

Balancing Pension Needs

Source : TODAY, Thursday, September 20, 2007

Opportunity cost of keeping funds in SMRA accounts

Letter from LOKE YUE CHONG

I REFER to Second Minister for Finance Tharman Shanmugaratnam’s statement in Parliament yesterday.

Mr Shanmugaratnam said that the Government has to peg Central Provident Fund (CPF) interest at market rates, instead of paying above-market rates.

If the Government paid CPF interest above market rates, then the CPF would become an interest rate subsidy scheme instead.

One can agree with the Minister’s remarks only if the CPF scheme is a voluntary one and is subject to free market forces, which it is not.

Minister of Manpower Ng Eng Hen had admitted in Parliament that 30 years is the average time that the money in members’ Special, Medisave, Retirement Accounts (SMRA) stays in their account.

CPF members are now better educated and more financially savvy. Thirty years is a very long time for their funds to be locked into an SMRA account.

It seems almost pointless for members to have such large sums of money in their accounts when they are restricted in how they can invest this money.

Given the opportunity cost, economic logic dictates that the Government should offer CPF members a premium over market rates as a form of compensation.


Self-reliance in retirement will safeguard the economy


I AGREE with Second Finance Minister Tharman Shanmugaratnam that Singaporeans must continue to be self-reliant when financing their retirement needs.

Many expect the Government to subsidise and even fund retirement programmes.

However, the Government already subsidises healthcare, education and housing. Although we have substantial reserves, Singaporeans should always be self-reliant and have enough personal savings for their retirement.

In many developed countries, retirement pensions are funded by governments. In some countries, this has contributed to record budget deficits year on year. People squander their earnings and expect their governments to provide for their retirement needs. Leaders in such countries continue to do this for political reasons but their citizens will pay the price ultimately.

Our Government’s policy of topping up our retirement account by providing favourable interest rates is admirable.

Not only is it safe, it almost guarantees that the population will receive more money when they retire.

The drawback is that only the first $60,000 of CPF money is eligible for this higher interest rate.

Perhaps more CPF money can be made eligible for the higher interest rates, especially for low-income earners?

I am also glad to know that low-income earners will continue to enjoy Workfare Income top-ups.

This group will need the most assistance when they retire, as they probably will not be able to save money regularly. Their relatively low monthly incomes also mean their CPF accounts will have insufficient funds.

I am confident the Government is on the right track in looking after our retirement needs.

The Fed Takes A Gamble

Source : TODAY, Thursday • September 20, 2007

IN TAKING the bold step of cutting short-term interest rates by a half percentage point on Tuesday, the United States Federal Reserve has rolled the dice on what could prove a high stakes gamble.

In order for that bet to pay off, the Fed will need to see economic data prove weaker than what has come before. Otherwise, relatively solid data in coming months, joined with an assist from easier monetary policy, could risk a reignition of price pressures in an economy that is still beset by fairly persistent inflation gains.

To be sure, economists rate this threat as a relatively small one, and they support the idea of rate cuts. They point to recent economic data from the period before the recent market crisis that were already showing signs of strain. Financial markets still remain unsettled and represent a continued headwind to economic growth, in turn suggesting the real possibility that the Fed may have to cut rates again.

Still, a number of economists said in the wake of the Fed's decision to cut its target rate by 50 basis points to 4.75 per cent that the risk taken by central bankers is that the economic environment may not prove as weak as many currently fear.

Should various measures of economic performance turn out better than now projected, the heavy duty rate cut on Tuesday would serve as stimulant to growth and in turn re-stoke the embers of inflation. And the Fed itself hasn't stopped worrying about the issue, saying in its policy statement that "some inflation risks remain".

Incremental improvements in economic prospects will put more positive pressure on raw material prices, and other prices up the supply chain, which are already not low, noted Mr Ken Mayland, who helms forecasting firm ClearView Economics.

History suggests the Fed will again cut rates, he said. But he noted that in past cycles that have brought surprise rounds of rate cuts — the fall of 1998, as the Fed reacted to the shakeout at hedge fund Long-Term Capital Management — those easings have been quickly followed by tightening campaigns as central bankers have sought to put the inflation genie back in the bottle.

Indeed, after pushing the funds rate from 5.5 per cent at the start of September 1998 to 4.75 per cent by November of that year, the Fed was back to raising rates by June 1999, in a tightening cycle that ended in May of the following year, with the funds rate at 6.5 per cent.

In a speech last week, San Francisco Fed President Janet Yellen addressed the dilemma facing policy makers in the current environment. Current economic data don't yet reflect the woes that hit markets last month, complicating deliberations over what should be done with rates, she said.

But at the same time, "past experience does show that financial turbulence can be resolved more quickly than seems likely when we're in the middle of it".

So the risk the Fed faces is real. Still, forecasters said inflation worries need to be weighed against all the other troubles currently hitting the economy. With that in mind, few were concerned by the Fed's aggressive action.

"The economy looks to me like it's got a big weight around its neck from the housing recession," and credit market conditions are unlikely to normalise in the short term, said Lehman Brothers chief US economist Ethan Harris.

Relative to the experience of 1998, "it's a little harder to reignite the markets" via rate cuts right now, and thus the risk of the Fed restarting inflationary pressures is lower, he said.

And it bears noting that Fed chairman Ben Bernanke's views have been influenced by his studies on the Great Depression and what he sees as the central bank's role in exacerbating that downturn. Recently, he argued that the Bank of Japan may have not paid enough attention to the fallout of the bursting real estate bubble there.

Some of the concerns over the future course of events may be at the heart of why the Fed opted for the aggressive 50-basis-point cut. The last time an easing of that magnitude was in November 2002, and the tightening cycle that spanned June 2004 to June last year saw only quarter percentage point tightenings.

The size of the move on Tuesday means either "they are just trying to get out in front" of the trouble with a single bold move that may be all the central bank does, or "they are feeling more worried by things than we thought they were", said RBS Greenwich chief economist Stephen Stanley.

"The statement is not real clear" which is the likely explanation that in itself means Fed officials are likely making a play for flexibility while they watch the incoming data.

And it is the data that will be published from now until the Federal Open Market Committee meeting on Oct 30 and 31 that will make all the difference in determining whether the Fed went too far, or has more distance to travel, with its newfangled rate cut campaign. — Dow Jones

The writer is a Dow Jones special writer who has covered the Fed since 2001. He also covers bond markets and the economy.

'Engage Hearts, Hold Hands, Assuage Fears'

Source : TODAY, Thursday, September 20, 2007

" Minister Ng addresses MPs' worries about CPF changes, urges them to convince people

ANY tinkering with the Central Provident Fund (CPF) system, the savings nest for Singaporeans' golden years, was bound to be greeted with fear and uncertainty — especially if it meant resetting a system more than half a century old.

Mindful of this, Manpower Minister Ng Eng Hen, the man tasked to implement the changes, made an impassioned plea yesterday for his Parliamentary colleagues to sell the new policies to the ground.

Or, in his own words, to "engage hearts, hold hands and assuage fears".

As he wrapped up a three-day debate involving about 40 Members of Parliament (MPs), Dr Ng was convinced the Government was making all the right moves — as far as the CPF reforms were concerned.

But "pristine policies" alone were not enough. The Government, he admitted, needed to "be better at PR to sell our policies", as some MPs had highlighted.

He told the House: "I need you to spout poetic lines to convince your constituents that these measures are meant to help them. Spew forth with passion your Hokkien lyrics and poetic metaphors."

To deal with the rapidly-ageing population, the Government will put in place re-employment laws by 2012. In the same year, the draw-down age for the CPF Minimum Sum will rise to hit 65 by 2018.

From next year, the interest rates for the Special, Medisave and Retirement Accounts (SMRA) will be re-pegged to the yield of 10-year Singapore Government Securities, plus an extra 1 percentage point.

The CPF Board will also administer a longevity insurance, with the details still to be worked out by a special committee.

The sweeping changes were inevitable. "There is no other way," said Dr Ng. "We are changing the CPF because we are compelled to, by circumstances unimaginable and unanticipated when the CPF system was started 50 years ago. A system designed in 1955 for an average life expectancy of 61, left unattended, would falter under the weight of needs as more grow old."

But while each Singaporean will be expected to make provision for his own needs, the Government will not leave them to fend for themselves, he asserted.

A number of MPs had voiced concern over the delayed drawdown age and that Singaporeans could face hardship if re-employment failed to work.

To many Singaporeans, their CPF monies was becoming "a bit of a mirage", charged Non-Constituency MP Sylvia Lim, who also took issue with the timing of the reforms.

The Workers' Party chairman argued: "How can we agree to delay the drawdown age now when these details (of the re-employment laws) are up in the air? Will the new laws be just a piece of paper?"

In response, Tampines GRC MP Sin Boon Ann countered that allowing Singaporeans to draw down their CPF funds earlier would be a "disincentive" to continue working in their old age.

Pointing out that some companies were already adopting re-employment practices, Dr Ng assured Parliament that the parties involved in drafting the legislation were acutely aware that it "has to work".

Said Dr Ng: "Some (MPs) suggested that the re-employment law be enacted well before 2012. Laws assist but there are no shortcuts. We will work on guidelines first and gauge the process."

On some MPs' calls for "even higher risk-free interest rates" on SMRA accounts, Dr Ng described such a demand as "too good to be true".

Reiterating that 70 per cent of all CPF members would effectively enjoy a 3.5-per-cent rate on their Ordinary Account and 5 per cent on their SMRA, he said: "It is easy to claim that our investments should do better, but who dares to promise you this? No one will be willing to underwrite this system simply because it is more than fair."

There is no risk-free asset that guarantees a 2.5-per-cent minimum return per annum, "let alone a 3.5-per-cent minimum return", said Dr Ng. And top consultants engaged by the Government affirmed this, he added.

Nominated MP Siew Kum Hong had cited the example of Aviva's Big e fund. But Dr Ng pointed out the firm gives the money back to the investor should the returns fall below 2.5 per cent — it does not give a guarantee.

Said Dr Ng: "For our system, there is no fine print — and that's the bottom line."

As for those who do not pay CPF, such as odd-job labourers, contract workers and housewives, Dr Ng pointed out that there were help schemes such as additional housing grants, Workfare and Comcare.

Under the new CPF system, 84 per cent of new entrants to the workforce would have enough to meet the Minimum Sum for retirement, even for low wage earners and "even after buying their first home", said Dr Ng.

Praising the "high quality debate" in the House over the past three days, Dr Ng described the Government's most pressing challenge as somewhat of a happy headache.

Said Dr Ng: "We could not have imagined 40-odd years ago when this nation was conceived, that we would be here in 2007 discussing how to deal with the problem of people living longer."

And he was in no doubt that future generations would thank the Government of today for having the "resolve and courage to do what was necessary".

Said Dr Ng: "How will we be judged? It is hard to be completely sure. But of this one thing I can be reasonably sure that they will conclude: that this Government did not shirk its responsibility but lived up to its duty.

Fed Cut Euphoria, But Will It last?

Source : TODAY, Thursday, September 20, 2007

World markets rally, analysts look ahead with mixed sentiments

WASHINGTON — For months, he had been criticised for being too cautious in responding to the stress in capital markets unnerved by the United States sub-prime loan crisis. But on Tuesday, Federal Reserve chairman Ben Bernanke proved that like his legendary predecessor Alan Greenspan, he, too, could be a friend of the markets.

At a meeting of the Fed's policy-setting Federal Open Market Committee, Mr Bernanke got unanimous agreement among his colleagues — some of whom had been sceptical about the need for such a move — to cut its key federal funds rate for the first time in four years, to 4.75 per cent from 5.25 per cent.

The larger-than-expected cut surprised many economists and sent stock markets around the world northwards. For investors, the Fed's bold cut was a welcome sign to reassure markets that have been volatile in the past couple of months. Investors had been worried that tightening credit conditions, sparked by rising defaults on sub-prime mortgages in the US, might trigger a recession in the American economy — a vital export market for Asia.

On Wall Street, the Dow Jones Industrial Average skyrocketed to end up 335.97 points, or 2.51 per cent, at 13,739.39.

Asian key markets were thrilled, too, with the Nikkei 225 index in Japan rising 3.7 per cent to close at 16,381.54, while Hong Kong's Hang Seng Composite closed at a record of 25,554,64. In Singapore, the Straits Times Index gained 3.4 per cent, or 116.61 points, to close at 3,594.36 yesterday. European stocks also climbed the most in a month.

In Manila, Asian Development Bank president, Mr Haruhiko Kuroda, said the US rate cut will "definitely sustain the strong economic growth in the US, which is beneficial to emerging economies in Asia".

Indeed, oil prices also rose yesterday on the back of the same expectations — that the cut will revive the US economy and strengthen demand for already tight crude and petrol supplies. Crude oil traded above US$82 a barrel in New York for the second day yesterday.

In a statement accompanying the rate cut, the US central bank acknowledged that the risks of a recession were too big to ignore.

"The tightening of credit conditions has the potential to intensify the housing correction and restrain economic growth more generally. Today's action is intended to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets."

Leaving the door open for the possibility of more cuts, the central bank said it would "continue to assess" the economic outlook and "act as needed to foster price stability and sustainable economic growth".

At the same time, the Fed noted that "some inflation risks remain" — which suggests that the Fed may reverse its move should the US economy strengthen.

"The important policy debate now centres on the future interest rate path, but Fed officials left that more ambiguous," said Mr Richard Berner, chief US economist at Morgan Stanley.

While markets have welcomed the Fed's rate cut, some economists pointed out the move, while perhaps of some help, will not cure problems in the ailing housing market, which are expected to drag well into next year.

"I think the honeymoon is going to be pretty short for the euphoria of this Fed cut," said Mr Greg McBride, senior financial analyst for "A half-point cut can only do so much. It doesn't transform the housing market into sunshine and daffodils."

Others say the Fed move might send the wrong signal by bailing out those who contributed to the US housing bubble and encourage future market excesses. However one may view Tuesday's rate cut, this much is certain: Investors and Fed-watchers will start to view Mr Bernanke, who took over as Fed chairman last year, in a different light.

Much to Wall Street's chagrin, the former Princeton professor, a champion of steady rules to guide monetary policy, seemed to be more sceptical about reacting to financial turbulence than Mr Greenspan.

Mr Bernanke, for example, had earlier made it clear that he did not want to rescue investors or real estate speculators who made bad decisions.

But he apparently decided to that it was time to give the markets the rate cut they had been clamouring for after the August employment report showed that the US economy lost jobs for the first time in four years.

In doing so, he was acting very much like Mr Greenspan — reducing interest rates to pre-empt an economic slump, rather than waiting for one to occur.

Others believe that Mr Bernanke also wanted to challenge the prevailing view on Wall Street that he was not able to respond with sufficient boldness when the situation called for it.

"I think he resoundingly bashed those criticism on Tuesday," said Mr Mark Zandi, chief economist at "It was a very strong, clear statement that the Federal Reserve stands ready to do what is necessary to make sure the expansion stays on course."

Parliament Approves Land Titles (Strata) Bill Governing En-Bloc Sales

Source : Channel NewsAsia, 20 September 2007

Picture : Farrer Court En-Bloc Sale

Parliament has approved changes to the Land Titles (Strata) Bill, which clearly stipulates the proper conduct of en-bloc sales.

Moving the second reading of the bill in Parliament on Thursday, Law Minister Professor S Jayakumar said it aims to provide additional safeguards and greater transparency for all owners involved in en-bloc sales.

Related Video Link -
Parliament approves Land Titles (Strata) Bill governing en-bloc sales

It will also ensure that their interests are taken into consideration more adequately.

One of the changes requires the sales committee to call for a general meeting to discuss issues such as the appointment of a lawyer, property consultant and marketing agent.

The measures also seek to improve transparency in the en-bloc sales process by providing regular updates on bids received and how sales proceeds will be divided.

The amended law also helps owners better understand the legal implications of en-bloc sales. - CNA/ac

Annuities Scheme: 'Options Are Possible'

Source : TODAY, Thursday, September 20, 2007

Some had called for larger payouts from the proposed longevity insurance scheme. Others said the families of those who die early should get some money back.

The good news is, such calls from MPs have not been ruled out. Manpower Minister Ng Eng Hen said: "These options are all possible and could be offered as an additional rider to the basic product."

An annuities committee led by National Wages Council chairman Professor Lim Pin has been set up. It will submit its report to policy-makers within six months.

CPF members will be able to earmark a portion of the minimum sum in their Retirement Account as payments in the first 20 years after the draw-down age, said Dr Ng. So, likewise, they could allocate specific portions for the longevity insurance and its riders.

He added: "Some have asked if it's possible for earlier annuity payouts — say, at 75 years old instead of 85. Others want to reduce their dependence on the longevity insurance and may want to stretch their retirement account to 95.

"I say: Why not?"

He reiterated that the system "should be fair to all". While the CPF Board would administer the scheme, it should be left to the professionals to "determine the risks and the adjusted premiums".

He said: "How long you need to live to, to break even or get more with your premium, should be supplied, so people can choose their plans with full information."

Some MPs had asked that the deferment bonuses for the delayed drawdown age be used towards funding the annuity instead.

Dr Ng's counter was that when putting in place a system for future generations, the Government should "not begin with the philosophy that it should be subsidised".

"The CPF system works and is sustainable because it's based on savings, not tax. Each must save for his own needs," he said.

In like vein, the Government should not start a state pension system, which would "take us many steps backwards", he said. He cited the example of Italy, which spends 14 per cent of its Gross Domestic Product on pensions — the same proportion Singapore uses to run "the whole government".

The argument of dipping into the reserves to fund a pension system was "seductive but short-sighted".

Said Dr Ng: "Surely, the old have contributed to the reserves. Every generation would claim it has built and has a right to the reserves. But our reserves belong to all generations of Singapore, including future generations."

US Rate Cut Welcome, But...

Source : The Straits Times, Thu, Sep 20, 2007

THE United States Federal Reserve's policy-making Open Market Committee (FOMC) slashed short-term interest rates by a surprising 50 basis points. Global stock markets reacted deliriously, with the Dow Jones Industrial Average rising by 2.5 per cent on Tuesday. Happy days are here again? The sub-prime crisis is over? Fears of inflation have been laid to rest? A reading of the fine print of the FOMC's statement would suggest that the central bank has not altogether set aside its inflation concerns. It did not repeat its previous insistence that inflation was its 'predominant concern', but it did not say either that it was now worried most about the possibility of recession. Instead, it spoke of 'uncertainty' ahead.

Did it over-react to the uncertainty caused by the crisis in the sub-prime mortgage market? Many economists had warned that the Federal Reserve should not step in to make things easy for speculators. To do so would pose a moral hazard, they had argued, encouraging speculators to assume the central bank would always ride to the rescue. The FOMC obviously decided that the possibility of it encouraging the excesses that led to the sub-prime crisis paled in comparison to the possibility of that crisis triggering a downturn. Or to quote the words of former Fed chairman Alan Greenspan: 'The question (the FOMC) had to weigh was, 'Was punishing those (speculators) more important than doing something that (it) perceived to be in the greater good?'' - and it decided 'the greater good' was more important. Fed chairman Ben Bernanke and his fellow governors probably took note that the US lost jobs in August, the first time that this has happened in four years. They probably would have been struck too that housing foreclosures were 36 per cent higher in August than in July. As the FOMC's statement accompanying the rate cut put it, 'the tightening of credit conditions has the potential to intensify the housing correction and restrain economic growth more generally'.

Whether the rate cut will suffice to restore confidence will depend on developments in the credit markets. The chief problem the US economy faces now is not high interest rates, but liquidity. Investors spooked by the sub-prime crisis have been reluctant to take up mortgage-backed securities; banks, unable to sell their loans to the securities market, have been forced to carry them on their books; and hedge funds and private equity funds have found it difficult to borrow money. Cutting short-term interest rates will no doubt help businesses and consumers, but the sub-prime crisis will probably take some time to sort itself out.

MOM: Allow More Flexibility To Opt Into Longevity Scheme

Source : The Straits Times, Sep 20, 2007

SIMPLE choices, affordability and flexibility.

These were the key requirements that Manpower Minister Ng Eng Hen said was needed to ensure the smooth implementation of the compulsory National Longevity Insurance scheme, or deferred annuity scheme.

Dr Ng said this at the launch of the new training premises of the HMI Institute of Health Sciences, and the inaugural intake of a new Community Health Care Assistant Course on Thursday.

'So long as we give options for Singaporeans, it will be easier to implement,' he said.

Some of these 'options' Dr Ng raised included allowing those above the age of 50 to opt into the annuity scheme.

Under the scheme, all CPF members below the age of 50 must buy an annuity at age 55 with a small portion of their CPF minimum sum. Those above age 50 are excluded.

The annuity will likely give them a monthly payout of $250 to $300 once their Minimum Sum runs out when they reach 85.

Similarly, Dr Ng said another option to consider was to allow younger folk to buy their longevity insurance earlier, instead of waiting to turn 55.

That way, they can save a little on the premium.

'If I buy the longevity insurance earlier, it'll cost me less, that's the way the sums work. The earlier you buy, the cheaper it is...I think we should allow them (those aged below 55) to opt in as well,' he said.

In the meantime, a committee made up of grassroots leaders, academics, and non-governmental groups has been tasked to design the insurance scheme, and look into such flexible options.

The committee, headed by Professor Lim Pin, who also chairs the National Wages Council and Bioethics Advisory Committee, is expected to deliver its recommendations in 6 months.

Fed Cut A Stitch In Time But Will It Endure The Long Run?

Source : The Straits Times, Sep 20, 2007

PART OF THE CURE: Mr Gittler sees the Fed's move as a significant step towards restoring confidence to the credit markets. -- PHOTO: DEUTSCHE BANK

FORCEFUL. Gutsy. Unambiguous.

The United States Federal Reserve has delivered a powerful jolt to sickly financial markets by slashing the key federal funds interest rate by half a percentage point, double what most analysts were expecting.

This is strong medicine, considering that the last time the US Fed cut rates so drastically was in November 2002.

Investors showed their relief by sending stock markets skyrocketing worldwide yesterday.

So the Fed's action has already worked a dream on investor sentiment, if nothing else.

For one, it showed that America's central bank is not turning a blind eye to worsening financial conditions by keeping rates unchanged. Nor is it taking the ambiguous route by lowering rates by a timid quarter point.

But apart from knee-jerk euphoria, does this really mean that all is well for the global economy from now on?

For that matter, how exactly does an interest rate cut work?

'It is too early to tell if the Fed cut will work,' said United Overseas Bank economist Thomas Lam.

'But as a calculated gamble, this had better work,' he said.

Mr Lam argued that the Fed was so aggressive this time because it believed a single dramatic shock was better than a few small ones spread out. In other words, 'the Fed is hoping to do (a half point) at a go, and that's it'.

The aim of such shock therapy is no longer just to prevent the US housing slowdown from infecting the whole economy.

Rather, as the Fed highlighted in its accompanying statement, 'the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally'.

Put simply, the more pressing worry is a paralysis in credit markets.

The unfolding credit crunch, which has left banks so wary of risks that they would rather sit on their cash than lend, makes funds expensive or simply harder to come by.

Calling this a 'plumbing problem', Deutsche Bank chief Asia Strategist, Mr Marshall Gittler said: 'The Fed's move is a significant step towards restoring confidence to the credit markets and thereby buys time, which is what's needed to solve the plumbing problem.'

Monetary easing can work in several ways, and shoring up confidence is as crucial as any other objective.

It instantly signals to the world that the Fed is serious about stimulating the economy. In the current credit squeeze, that news in itself would boost market sentiment, and perhaps encourage cautious investors to lend again.

Apart from spurring confidence, lowering the official interest rate works via three channels, explained Mr Lam.

First, it increases the pool of cash that banks have to lend to each other.

Second, it reduces the borrowing costs for any loans which are tied to the fed funds rate, for example, prime rates. Lower interest rates for adjustable rate mortgages could serve to reduce defaults, Mr Gittler pointed out.

Third, just as costlier funds make investors think twice about buying riskier assets, cheaper funds have the opposite effect.

It might cause a reassessment of risk by investors, and lead to a return in the appetite for riskier instruments, such as emerging market bonds. However, these effects take time to work their way through the financial system, and it is difficult to gauge whether yesterday's rate cut would be enough.

'The Fed cut is not a panacea, but it is clearly part of the cure,' said Citigroup economist Chua Hak Bin. 'Another (quarter point) rate cut would be needed to restore financial conditions to normal,' he said, as the recent seizing up of credit markets was equivalent in impact to the Fed hiking rates by between a half and a three-quarter point.

Mr Lam added: 'But if by the next Fed meeting in October, data comes in better than expected, and if financial markets normalise, then the Fed has done an excellent job by springing this surprise cut.'

S'pore Ranked No. 6 Globally As Arbitration Centre

Source : The Straits Times, Sep 20, 2007

Centre to resolve commercial disputes is also top in Asia

IT WAS an upbeat report card on Singapore's emergence as a top arbitration centre. And it is set to enhance its image as an impartial arbiter in commercial disputes.
Singapore International Arbitration Centre (SIAC) chairman Goh Joon Seng said the SIAC is currently ranked sixth globally, and that it is top in Asia.

The top five most frequently selected centres worldwide - Paris, Geneva, London, Zurich and New York - are all outside Asia. Such centres are found in 85 cities in 50 different countries.

After citing these figures, from the International Chamber of Commerce (ICC) which tracks all ICC-administered disputes, Mr Goh said the achievement was 'not bad, for a little red dot'.

He added that Singapore was also the leading Asian country in having the highest number of arbitrators nominated to the ICC's arbitration panel.

Mr Goh was speaking to The Straits Times yesterday to mark the launch of the book Confidentiality In Arbitration: How Far Does It Extend?

One of the main draws of arbitration - with parties free to appoint their own arbitrators to resolve disputes - as the preferred choice for settling disputes as compared to going to court, is that it is conducted away from the glare of the media and the public.

Such disputes arise within the construction, maritime and international trade sectors, among others.

The book, written by Senior Counsel Quentin Loh and lawyer Edwin Lee, and published by Academy Publishing, also explores how the confidentiality issue is dealt with in different countries.

Citing confidentiality as a reason for declining to illustrate from cases resolved, Mr Goh said the nature of cases here involved total sums that averaged about $1 billion a year and involved both local and foreign parties.

He recalled there was one international case dealt by the SIAC some years ago that involved a claim of more than US$6 billion (S$9 billion).

'We started in 1991 with two cases in our first year and today we handle 150 cases at any one time with seven out of every 10 cases being international as compared to domestic disputes.'

And the case numbers are set to boom, given the burgeoning China market.

Among others things, the SIAC has set up a joint venture with the giant American Arbitrators Association - the biggest in the world, with an 80-year history - to operate an International Centre for Dispute Resolution here.

The move makes Singapore even better positioned as an impartial location of choice for commercial disputes arising from growing United States-China trade and investments.

'Singapore is the financial and commercial hub for this part of the world. Arbitration is part of the infrastructure for a quick and fair resolution so that the party that is wronged can get redress,' Mr Goh said.

Legal observers too sounded upbeat about the future, adding that for every case handled by the SIAC , two are handled by ad hoc, privately appointed arbitrators.

They point to the presence of seasoned arbitrators here who are in demand, like retired judges L.P. Thean and G.P. Selvam.

Major law firm KhattarWong, which inked a cooperation deal with major Vietnam law firm PBC Partners yesterday, sees arbitration as a key growth area in its latest venture outside Singapore.

Said its deputy managing partner, Mr K. Anparasan: 'The tie-up makes arbitration just right for the picking.'

CPF Reforms Will Help Most To Save Enough For Retirement

Source : The Straits Times, Sep 20, 2007

Changes mean even low-wage workers can meet Minimum Sum, plus buy a home: Ng Eng Hen

THE latest Central Provident Fund (CPF) reforms will enable more than eight in 10 now entering the workforce to have the Minimum Sum they need for retirement.

Now, only one in three succeeds in doing so.

Manpower Minister Ng Eng Hen revealed yesterday that with the new system, even low-wage workers would be able to meet the Minimum Sum, and that is even after using their CPF to buy a home.

He was wrapping up three days of debate in Parliament on a suite of changes aimed at providing Singaporeans with a more secure retirement.

These include higher returns on CPF savings, later draw-down of the Minimum Sum, longevity insurance and a new re-employment law to help people work longer.

To Singaporeans worried about being stranded after age 62 with neither money nor jobs, he gave the assurance that the Government was 'fully committed to helping them work till 65'.

Related Link -
CPf Reforms Round-Up Speech

Related Video Link -
Government not shirking responsibility with CPF changes: MOM

Manpower Minister Ng Eng Hen has wrapped up the three-day debate in Parliament on CPF reforms stressing that the Government is 'not leaving Singaporeans to fend for themselves'.

Some 40 MPs raised various concerns such as, if Singaporeans would be worst off with the new system and if it is really necessary to have a compulsory annuity.

It expects the economy to create some 200,000 jobs this year and is confident it can absorb 20,000 older workers, he said.

Neither the Government nor its union and business partners under- estimated the practical issues that would have to be dealt with, but there were signs that change was under way, he said.

'There remains much work to be done, but it can be done. Laws will be passed, mindsets and practices changed.'

In all, 37 MPs joined the debate, with many calling on the Government to be more generous in its old-age support schemes.

The two changes that generated the most heat were the compulsory longevity insurance and the new CPF interest rate.

PAP MPs Ong Kian Min and Sin Boon Ann were among those who questioned if the extra one percentage point to be paid on the first $60,000 in CPF accounts was indeed the best that the Government could do.

Mr Sin said that CPF savings still seemed a 'cheap source of funds' for the Government.

Mr Ong called for part of the returns from investments managed by the Government Investment Corporation and Temasek Holdings to be shared with CPF members.

Dr Ng's response was a firm no.

Given that the CPF would be protected from market risks, he said the 3.5 per cent return a year on the Ordinary Account, and expected 5 per cent return on the Special, Medisave and Retirement Accounts, was 'more than fair'.

In fact, no financial consultant was prepared to offer CPF members as good a deal.

'There is no equivalent product in financial markets that offers such assured rates at no risk,' he said.

But he seemed to take a softer line with the proposed compulsory longevity insurance, which the public has been most strongly opposed to.

Yesterday, Dr Ng said that CPF members would have a choice as to how much of their Minimum Sum they wished to set aside for insurance to give them an income past age 85.

The scheme to be drawn up would provide 'basic, affordable and flexible options to meet the needs of different CPF members', he pledged.

But roundly rejected too were calls from opposition MPs Low Thia Khiang and Chiam See Tong for the Government to use tax revenue to fund a national pension plan.

It would be a fundamental mistake, he said, to depart from the principle of self-provision in retirement savings.

This was especially so because Singapore was among the world's fastest ageing societies. By 2030, there will only be four persons aged 15 to 64 to support every senior aged 65 or older, compared to eight now.

He did assure MPs, however, that vulnerable groups such as housewives and contract workers would be helped through government transfers such as CPF top-ups and housing grants.

Dr Ng said the reforms were a necessary response to changing circumstances and would strengthen the CPF system.

In supporting them, the House showed 'resolve and courage' in doing what was necessary for the good of future generations, he said to warm applause at the end of his speech.

With that, the debate ended. But the Government's work has, in a sense, only just begun.

Dr Ng acknowledged as much.

He appealed to MPs to employ Hokkien, poetry or whatever else it took to explain the new system to people and assure them their CPF accounts would grow faster as a result.

'With more savings, they can look forward to the future with confidence. This is what we are trying to achieve,' he said.

Ong Beng Seng Urges Horizon Towers Sellers To Resolve Sale

Source : The Straits Times, Sep 20, 2007

NO SUIT: Mr Ong told the sellers that he has not sued anyone in 30 years of doing business, say sources. -- BT FILE PHOTO

HOTEL Properties (HPL) chief Ong Beng Seng and his lawyers last night urged a group of Horizon Towers owners to cooperate in resolving the bungled $500 million collective sale of the condominium.
Mr Ong met the group at 4pm at Hilton Hotel yesterday - his first meeting with owners of the estate that he and his two partners are trying to buy.

HPL and partners are suing the Horizon Towers sellers for an alleged breach of contract and are seeking damages of more than $800 million.

The owners who met Mr Ong are anxious to avoid the potentially costly legal battle set to start next week. They had written to HPL earlier.

But a few others who had not written in turned up at the meeting and were eventually allowed in, sources said.

Lawyers from Allen & Gledhill, who represent the HPL-led consortium, were also present.

According to sources, Mr Ong told the Horizon Towers sellers that he has not sued anyone in 30 years of doing business.

He said that as HPL is a listed company and he has to protect shareholders, as well as his two partners, they added.

Mr Ong then told the sellers that they must have integrity, honour the contract and set a good example for their children.

Some sellers indicated at the meeting that they were keen to have Allen & Gledhill senior counsel K. Shanmugam participate at a major meeting to be held tonight.

The Horizon Towers sellers will have to decide on forming a sale committee and extending the sale deadline to allow the condominium's sale to go through. They plan to vote at the meeting to be held at the Raffles Town Club.

The HPL-led consortium urged the sellers to vote sensibly at the meeting tonight.

A group of about 50 sellers have written to other sellers to express their concerns that the meeting tonight has been called without proper notice.

Lehman Moves Global Property Unit To S'pore

Source : The Business Times, September 20, 2007

Bank to jointly invest $450m with Kajima in CBD office building

It's a deal: Mr Masao Hashimoto (left), vice-managing director of Kajima Overseas Asia, and Mr Olafson

US investment bank Lehman Brothers has moved the base for the South-east Asian operations of its global real estate group from Bangkok to Singapore, it said yesterday.

The group has of late been beefing up its presence here, said Blake Olafson, senior vice-president of Lehman's global real estate group.

Total staff count here has increased from about 30 to more than 200 now and the bank has also expanded its office space from half a floor at Suntec City to one-and-a-half floors, Mr Olafson said.

'The missing link was the real estate guys,' he said. 'To run the business out of Singapore is very, very easy.'

The real estate unit intends to double its team to 12 members from 6-7 at present, he added.

Mr Olafson was speaking to reporters at a press conference yesterday, where Lehman announced that it will jointly invest some $450 million with Japan's Kajima Corporation to build an office building in Singapore's central business district (CBD). The partners have a 50:50 stake in the project.

The 15-storey building would be Lehman's first direct property investment in Singapore. When completed in mid-2009, it will offer some 280,000 sq ft of office space.

Lehman's real estate unit is looking for more investment opportunities in Singapore in both the residential and commercial sectors, Mr Olafson said.

The group also intends to grow its property investments in Malaysia and Indonesia out of Singapore.

So far, the unit has made about US$11 billion worth of direct property investments since 2001, but currently holds around US$7.3 billion in assets - having securitised or sold off the rest.

Going forward, the group will continue to maintain investments at around the same amount, Mr Olafson said.

HDB Launches Coral Spring Flats In Sengkang

Source : The Straits Times, Sep 20, 2007

Nearly 700 4-room premium flats will be sold in Sengkang under the Housing and Development Board's build-to-order (BTO) system.

The flats with a floor area range of 95 to 96 sq metres have indicative prices of between $188,000 and $252,000.

Related Link -
HDB Coral Spring Launch Doc

The new estate, Coral Spring, is bounded by Sengkang West Avenue and Fernvale Road.

It is served by Fernvale LRT station and bus services, with easy access to the Tampines Expressway and Central Expressway.

It is close to Fernvale point, an interim commercial development housing a wet market, supermarket and food court.

A HDB news release said the flats have full floor finishes and colour-coordinated sanitary fittings. 'Buyers can also opt for internal timber doors to be installed in their flats under the Optional Component Scheme.'

An exhibition on Coral Spring is held at the Habitat Forum, HDB Hub, from Thursday till Oct 9. Applications for the flats are open during this period.

The selection exercise will start from Dec 7.

2008 Is Likely To Be A Bumpy Year At Best

Source : The Business Times, September 20, 2007

Latest ADB report examines scenarios in which things could go wrong in Asia-Pacific

Riding out external shock: Artificial credit-fed demand in the West and elsewhere has created a series of bubbles in housing markets, stock markets and all kinds of other asset markets worldwide. There is a comfortable fiction that Asian economies can survive this kind of shock; but it is almost certainly not true

IF YOU believe the Asian Development Bank (ADB), this will be a 'bumper' year for Asia-Pacific economies with overall growth hitting 8.3 per cent, and we can look forward to much the same thing next year.

But if you are of a nervous disposition, maybe you should not read beyond the first few reassuring sentences of the ADB's latest Asian Development Outlook because the optimistic message these convey are belied by the full report.

In the many years I have been scrutinising such reports from the ADB (or the World Bank for that matter) I have never seen a full, upfront acknowledgement of economic risks confronting the region - not even in 1997 when crisis struck.

Presumably economists in these institutions feel bound to act like central bankers and behave 'responsibly' by projecting an image that all is well. But just whose interests this is supposed to serve is not clear.

The latest report does admittedly examine various scenarios in which things could go wrong, and which could lead to growth falling, it suggests, by as much as two percentage points below the 8.2 per cent baseline forecast for 2008.

But that baseline itself is almost certainly too optimistic, and whether the worst-case scenario of 6 per cent growth next year is bad enough to be realistic is open to serious question.

To employ the words of a journalist, rather than of an economist, the global economy has been intoxicated for far too long, floating along on a champagne sea of financial liquidity, unquenchable optimism and a no-questions-asked attitude towards risk.

This party almost certainly came to an end once the US sub-prime mortgage crisis emerged, but there is still a reluctance on the part of the ADB and others to recognise or admit the fact.

To extend the metaphor, the world economy has been boozed on liquidity supplied by over-indulgent and irresponsible central bankers who were scared to take away the drink for fear of the aftermath.

This has created euphoria or irrational exuberance within the developed world and allowed emerging economies to get rich by pandering to profligate consumption elsewhere.

Credit creation - getting into debt, to put it more simply - cannot continue indefinitely. The worm at the core inevitably shows itself sooner or later and then the rotten apple begins to crumble, which is precisely what is happening now.

The worm in this case is artificial credit-fed demand, within the US especially but equally in the UK and other parts of Europe and beyond.

This has created a series of bubbles - in housing markets, stock markets and all kinds of other asset markets - not just in these basic and recognisable assets but also in a multitude of derivative financial products, some of which are being revealed now to be not worth the paper they are written on.

As this house of cards implodes, so the great sucking sound of consumer demand in the US and elsewhere is likely to ebb to a sigh.

There is a comfortable fiction that Asian economies can survive this kind of shock; but it is almost certainly not true. The next Asian crisis will not be a financial crisis as such but a demand shock triggered by financial crises elsewhere.

The crisis defences that Asia has built, in the form of vast foreign exchange reserves, will be of little use against this - at least in the short term.

Asia has not been tested against a real trade shock and it has been assumed that if such a shock is likely to come from anywhere at all it will be from an outbreak of protectionism in the US or Europe.

But what if it comes instead from an economic recession (followed by protectionism) in either or both of these areas? Again, the comfortable fiction says that this cannot happen nowadays because Asian demand has become 'self-sustaining'.

Again, this is not the case. The ADB report acknowledges in the small print (that probably far fewer will read than those who scan the 'bumper' tidings up front) that just under 80 per cent of the merchandise that leaves Asia's ports eventually ends up in external markets and that 'a chill in the US is therefore likely to send a downdraft along the region's supply chains'. Other studies have shown that only 15 per cent of Asian manufactured production is consumed locally.

The report also admits that, apart from the still very strong trade linkages through which an external economic shock could be transmitted to Asia, the 'explosive growth and integration of global financial markets' is a second reason why the often-touted 'uncoupling' of Asian economies from those in the West may be a bit of a myth.

In short, we have the prospect of tremors from an external quake being strong enough to topple Asian economies.

But a US recession, if indeed it should occur, will be of short duration and therefore its potential for provoking shocks elsewhere will be limited, the report argues.

Again, this looks like wishful thinking, or a bit more false reassurance. It is true that the US Federal Reserve and other central banks are likely to blink in their resolve and throw money at the problem rather than face the awful consequences of their past actions.

But the possibly unique combination of soaring confidence and strong liquidity that has supported the global bubble (or 'froth' of bubbles as former US Federal Reserve chairman Alan Greenspan likes to say) for so long is ebbing now.

Once confidence fails, throwing more money at a recession is like 'pushing on a piece of string' or entering a liquidity trap. Even if 2007 does go down as a 'bumper' year, next year is more likely to be a bumpy one at best.