Thursday, December 13, 2007

DBS Will Move Its HQ To Marina Bay In Largest Lease Ever

Source : TODAY, Thursday, December 13, 2007

DBS Group Holdings, South-east Asia’s largest bank, is moving its headquarters in Singapore to Marina Bay, with an office lease that it said is the largest in the city.

The bank will move its key office to the Marina Bay Financial Centre development, being built at the edge of the business district.

DBS will take about 700,000 sq ft of office space in 22 storeys in a 12-year lease starting 2012, it said yesterday in a statement.

“The new DBS headquarters will allow the bank to consolidate its various customer facing units, trading operations and its corporate headquarters into one building,” Mr Jackson Tai, the bank’s outgoing chief executive officer, said in the statement. It provides “certainty of our occupancy costs over the near term”, he added.

Marina Bay Financial Centre is a 2.6-million-sq-ft office and residential bayfront project developed by Hong Kong billionaire Li Ka-shing’s Cheung Kong Holdings, Hongkong Land Holdings and Singapore’s Keppel Land.

The site, in an area designated the “new downtown”, has attractions that include Las Vegas Sands’ US$4-billion ($5.8-billion) casino-resort.

Goldman Sachs Group, which owns the development that now houses DBS’ Singapore offices, is seeking buyers for the property, the Business Times reported, citing people it did not identify. Goldman is expecting $1.75 billion for the property, which it bought for $690 million in 2005, the newspaper said.

The statement from DBS also said it would move “various units” to a new nine-storey building at a business park in eastern Singapore.

US Real Estate Fund Pays $205m For Apollo Centre

Source : The Straits Times, Dec 13, 2007

Deal reaffirms confidence in Singapore's office market

APOLLO Centre on Havelock Road has been sold to a United States fund manager for $205million.

This higher-than-expected price comes as a relief to property watchers, who say it is a strong sign that foreign investors remain confident in the Singapore office market despite the US sub-prime mortgage crisis.

Marketing agent Knight Frank launched the seven-storey office building near Chinatown for sale in September, hoping to get at least $200 million.

The final sale price, paid by US real estate fund manager AEW Capital Management, works out to $1,378 per sq ft (psf) of net lettable area.

This is a 'fair price', considering that 'in today's market, prime offices about 10 minutes' walk from this building are going at close to $3,000 psf', said Mr Donald Han, the managing director of property consultancy Cushman & Wakefield.

At nearby Chinatown Point, office prices are already hovering around $1,300 psf, he added.

The sale of Apollo Centre is significant as it shows that foreign buyers are starting to look outside the prime Central Business District (CBD) for good deals, said Knight Frank's executive director, Mr Foo Suan Peng.

Most high-profile office sales in recent months have been of gleaming 'trophy' office buildings in the heart of the CBD.

As office prices skyrocket amid the space crunch, however, older properties on the CBD fringe are starting to look more attractive, even to foreigners who might not be familiar with Singapore's office market.

'Local buyers usually don't mind properties that are a bit out of the CBD, but a lot of overseas investors concentrate on prime Grade A buildings in the CBD,' said Mr Foo.

The 99-year leasehold Apollo Centre, which has 75 years left on its lease, is not a prime Grade A office building. It returns rents of about $8 psf, compared with about $18 psf for spanking new One George Street across the road, according to Mr Han.

Apollo Centre, however, has 'tremendous' potential in terms of increasing its lettable area, he said. When refurbished, it could command rents of at least $10 psf, he added.

The sale is 'certainly very good news now, when just one or two months ago, the market was trying to find its footing after the backlash from the US sub-prime crisis', he said.

'It's refreshing to know that foreigners, such as AEW, YTL and even Jackie Chan, have started to buy portfolios in Singapore.'

Mr Han was referring to Malaysia's YTL Corp, which last month bought Westwood Apartments on Orchard Boulevard for a record price, and Chan's recent purchase of 1 Neil Road.

AEW, which set up an office in Singapore in April, is also believed to have bought a row of conservation shophouses at Murray Terrace, off Maxwell Road. It is understood that the fund manager is looking to buy properties in Bangkok, Kuala Lumpur and Hong Kong.

Most of the tenants at Apollo Centre, within walking distance of the Subordinate Courts, are law firms.

Boon Lay Site Draws Lukewarm Response

Source : The Straits Times, Dec 13, 2007

A WEAK response to a residential site tender at Lakeside has caught the industry by surprise - given that suburban centres have been touted as the next property hot zones.

The 99-year leasehold site bounded by Boon Lay Way and Lakeside Drive had attracted only two bids by the time of the tender's close yesterday, said the Urban Redevelopment Authority (URA).

The top bid was put in by Frasers Centrepoint at $205.6 million - or $248 per sq ft per plot ratio (psf ppr) - for the 236,731 sq ft site. First Capital Holdings put in the other bid at $191 million or $230 psf ppr.

The site, with a gross floor area of 828,552 sq ft, is just five minutes from the Lakeside MRT station, with views of the Chinese Gardens and Japanese Gardens next door.

With its convenient location and future URA plans for Jurong East to become a regional hub for the west of Singapore, 'it is surprising that there were so few bids', said Savills Singapore's director of business development and marketing, Mr Ku Swee Yong.

A possible reason for the lukewarm response could be rising building costs, he said. 'For mass market homes, if construction costs escalate, the profit margin shrinks and the project becomes very unattractive.'

CBRE Research executive director Li Hiaw Ho said the new site is likely to break even at about $600 psf, and may sell for between $700 psf and $800 psf.

More Properties From SLA

Source : TODAY, Thursday, December 13, 2007

Three more properties have been put up for tender by the Singapore Land Authority (SLA) for office and other uses.

One site at Queensway is the former Alexandra fire station, which includes the former Singapore Civil Defence Camp. The tender will open this month for the two-storey building, with tenancy renewable up to 2015.

Another two-storey building is the office formerly occupied by the Civil Aviation Authority of Singapore at Upper Changi Road North. The tender for the two-year tenancy will open later this month.

The former Upper Aljunied Technical School offers a land area of five blocks, bigger than two football fields. The tenancy is renewable up to 2012 and the tender closes Dec 21.

Several properties were awarded solely for office use this month. The former Police Headquarters at Pearl's Hill went to Mr Tan Yong Boon, who put in a bid of $53,501 per month.

"We plan to sublet units to start-ups and those who were forced out of offices," he said.

A former office-cum-showroom at Sims Avenue was awarded at a monthly rental of $7,700, while the former Haig Boy's School at Mountbatten Road went for $139,003 to Ritzland Investment, which says it is likely to invest more than $2 million in refurbishments.

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Several Changes To CPF Scheme Kick In From Jan 1

Source : TODAY, Thursday, December 13, 2007

Singaporeans will continue to enjoy a 4-per-cent interest rate on their Special, Medisave and Retire- ment Accounts (SMRA) for the Jan 8 to March 8 quarter next year as several changes to the CPF scheme kick in from Jan 1.

In a statement yesterday, the Central Provident Fund Board said that savings in the SMRA would be pegged to the 12-month average yield of the 10-year Singapore Govern- ment Security (10YSGS) plus 1 per cent.

The average yield of the 10YSGS from Dec 1, 2006, to Nov 30, 2007, plus 1 per cent worked out to 3.9 per cent.

To help CPF members adjust to the floating SMRA rate, the Government will maintain the 4-per-cent floor rate for two years if the 10YSGS plus 1 per cent dips below 4 per cent.

However, after two years, the 2.5-per-cent floor rate will apply for all CPF accounts.

An additional 1 per cent interest will be paid on the first $60,000 of a member's combined balances, with up to $20,000 from the Ordinary Account (OA).

The additional interest received on the OA will go into the members' Special or Retirement Account to enhance his savings for old age.

CPF members turning 55 and who meet the Minimum Sum must set aside a required amount (RA) in their Medisave Account when they make a withdrawal.

From Jan 1, the RA will be raised to $14,000 from the current $11,500, increasing by $2,500 each year until it reaches $25,000 on Jan 1, 2013.

The changes will also affect the CPF Minimum Sum top up and investment schemes and housing withdrawal limits.

For details, log on to or call 1800-227 1188.

DBS Bank To Move Headquarters To Marina Bay Financial Centre

Source : The Straits Times, Dec 13, 2007

AFTER months of speculation, DBS Bank has finally announced that it will move its headquarters from Shenton Way to Singapore's next financial hot spot - the Marina Bay Financial Centre.

DBS will take 700,000 sq ft of office space spread across 22 storeys, the largest lease deal ever in the Republic after the 508,298 sq ft of office space also at the Marina Bay Financial Centre leased to Standard Chartered Bank.

By moving to Marina Bay, DBS joins French corporate and investment bank Natixis, Swiss private bank Pictet and other financial heavyweights that will park themselves within the new development being built at the edge of the Central Business District facing the sea.

Outgoing DBS chief executive Jackson Tai said at a press conference that the 12-year lease would start in 2012.

'In the 1970s, the DBS Building at Shenton Way was the tallest in Singapore. Today, with the signing of this lease, we are pleased to anchor the new financial business district at Marina Bay,' Mr Tai said.
The new DBS headquarters will allow the bank to consolidate its various customer-facing units, trading operations, treasury and capital markets business in one building.

The bank's key support functions and 'various units', meanwhile, will relocate to a nine-storey building at Changi Business Park, near the Expo MRT station in 2010.

Goldman Sachs, which owns the development that now houses DBS' two office towers, is seeking buyers for the property, according to The Business Times, citing unnamed sources. The US investment bank bought DBS' offices two years ago.

The financial centre, according to Jones Lang LaSalle Asia Pacific head of investments Lui Seng Fatt, used to be the area surrounding OCBC Building, UOB Plaza and OUB Centre.

DBS' move to the 'new downtown', with attractions such as Las Vegas Sands' upcoming casino-resort, merely highlights the fact that the business hub is moving down south.

'I do not pre-empt after this round. We see a lot of those buildings that will start upgrading themselves, including some of the older buildings such as OUB Centre,' Mr Lui said.

Marina Bay Financial Centre general manager David Martin said DBS' move cemented Marina Bay Financial Centre's reputation and would significantly add to the centre of banking and financial excellence and vibrant urban setting his group was creating at Marina Bay.

Boon Lay Way/Lakeside Drive Residential Site Attracts 2 Bids

Source : Channel NewsAsia, 12 December 2007

The tender for the residential site at Boon Lay Way and Lakeside Drive has attracted two bids.

The top offer of S$205 million came from Frasers Centrepoint, and it works out to S$248 per square foot per plot (psf/plot) ratio. This is 25.9 per cent above the S$197 psf/plot ratio paid for the site at The Lakeshore five years ago.

CB Richard Ellis believes a project built on the 240,000 square foot site will have a breakeven price of about S$600 per square foot.

The property consultant adds that the future condominium project is likely to sell for up to S$800 per square foot.

The other bid of S$191 million came from First Capital.

The Urban Redevelopment Authority says a decision on the award of the tender will be made after the bids have been evaluated. - CNA/ac

Prime Office Space Rentals To Continue Rising In 2008, But At Slower Rate

Source : Channel NewsAsia, 12 December 2007

Rentals of prime office space in Singapore shot up by as much as 91 percent in 2007, according to estimates.

While such gigantic leaps are not expected next year, property consultants said the days of cheaper rents are over.

They see office rentals continuing on the uptick next year, albeit at a slower rate of around 10-15 percent.

Players in the realm of office space and rentals could hardly catch a breather this year as prices hit stratospheric highs.

"We had a year of extremely fast escalation of office rents. Year-on-year rents rose just over 80 percent, which is a very fast pace of growth. In fact, according to our statistics, this is the fastest pace of growth in any major city globally," said Moray Armstrong, Executive Director, Office Services, CB Richard Ellis.

Analysts said such prices have put pressure on businesses to be creative in containing costs, such as moving backroom operations outside the city where rents are cheaper.

But these high prices are less of a problem than the severe lack of office space, which could deter business expansion despite Singapore's encouraging economic outlook.

"Overall, the situation in prime CBD (Central Business District) area is we're expecting rents to continue moving upwards, in view that over the next 12-24 months, there won't be much supply going into the equation," said Donald Han, MD of Cushman & Wakefield.

Armstrong agreed: "Businesses will have to brace themselves for further increases in rent. But we do believe that the pace will moderate... perhaps rental increases in the order of 10-15 percent versus the 80 percent year-on-year increase that we've just come through."

To plug the supply gap, the government is releasing transitional office sites into the market, allowing some 410,000 square metres of commercial space to go on sale in first half of next year.

The office space crunch is expected to improve when developments like the Marina Bay Financial Centre are complete.

Citigroup is even predicting a supply glut in the long run, but the Urban Redevelopment Authority (URA) and some other market watchers disagree.

Said Choy Chan Pong, Director of Land Administration Division at URA: "Citigroup's projection is premised on the assumption that future demand will be similar to historical demand. Over the last three years, with good economic growth ranging from GDP growth of 6.5 to 8 percent, we have been seeing demand for office space, on an annual basis, of between 250,000 to almost 300,000 square metres per year.

"So, if we continue to see the kind of economic growth, then the demand for office space will be similar to what we've been seeing in the last three years. In this case, the chances of an oversupply will be unlikely."

Colin Tan, Director of Research & Consultancy at Chesterton International said: "They might have underestimated annual demand. There may be certain moments, going forward, such as the sub-prime (crisis) where there'll be an oversupply, but I don't think a glut is the correct word to use."

Overall, industry players agree with the government that plans and projects for office space that are underway right now will lead to an equilibrium in the long term. - CNA /ls

Apollo Centre Sold For $205m

Source : The Business Times, December 13, 2007

Buyer AEW intending to refurbish it

US PROPERTY fund manager AEW Capital Management has bought Apollo Centre for $205 million, or $1,378 per sq ft (psf) of lettable floor area, the property firm that brokered the deal said yesterday.

Apollo Centre, in Havelock Road, is a seven-storey commercial building with shops on the basement, first and second storeys and offices on the upper floors.

It sits on 54,600 sq ft of land and has a gross floor area of around 217,500 sq ft. The lettable floor area is 148,700 sq ft. It is on a 99-year lease, with 75 years left.

Knight Frank, which marketed the building, said the purchase shows continued investor confidence in the Singapore commercial market since the US sub-prime crisis.

Apollo Centre was sold by Singapore Exchange-listed Apollo Enterprises. The company also owns and manages Furama City Centre Singapore and Furama RiverFront Singapore.

Knight Frank put up the property for sale in September and the tender closed on Oct 16. Several parties were interested and negotiations went on for several weeks after, said Knight Frank executive director Foo Suan Peng.

AEW and its affiliates manage more than US$41 billion of real estate assets and securities in North America, Europe and Asia. The group set up an office in Singapore in April as a base from which to expand in the region. AEW intends to refurbish Apollo Centre, BT understands.

Right now, office rents in the area are about $8.00 psf per month (psf pm) while retail rents range from $8.00-$8.50 psf pm.

Sentosa Cove Condo Plot Draws 3 Bids

Source : The Business Times, December 13, 2007

Tender for Boon Lay condo site attracts just 2 bids that are below expectations

A TENDER for the last condo plot at Sentosa Cove - named The Pinnacle Collection - is said to have attracted three bids when it closed yesterday, including a joint bid by Ho Bee Investment and Malaysia's IOI Group. The other two bidders are said to include foreign players/funds.

Sentosa Cove Pte Ltd (SCPL) declined to reveal the names of the bidders or their bid prices ahead of an evaluation process that will be based on both design concept and price. 'We expect the site to be awarded by early January,' an SCPL spokeswoman said.

The plum 99-year leasehold condo site, gracing the entrance to Sentosa Cove's marina basin, has a reserve price of $963.8 million or $1,600 psf per plot ratio, although top bids were expected to be above $2,000 psf, which would suggest an absolute amount of at least $1.2 billion. However, the deal clincher for the winning bidder may be its design concept, rather than how much it bid, market watchers observed.

The 99-year leasehold site can be developed into a 20-storey condo (this will make it the tallest project in the upscale waterfront housing precinct) with up to 357 apartments.

Over in the Jurong/Boon Lay area, an Urban Redevelopment Authority tender for a condo site next to Lakeside MRT Station drew just two bids - $205.56 million or $248 psf per plot ratio from Frasers Centrepoint and $191 million or $230.44 psf ppr from GuocoLand.

Both bids are below earlier market expectations of about $300 to $375 psf ppr indicated in October. Nonetheless, market watchers expect the site to be awarded. CB Richard Ellis observed that the higher bid yesterday of $248 psf ppr is 26 per cent above the $197 psf ppr achieved for The Lakeshore condo plot back in August 2002.

A spokeswoman for Frasers Centrepoint described the group's bid price as 'conservative', adding that it would reflect a breakeven cost of about $550 psf. 'We would be looking at an average selling price of at least $700 psf,' she added.

The group's scheme is for an 18-storey development comprising three blocks, with a total of 600-plus apartments based on an average size of 1,300 sq ft. 'We're bullish about the mid-market and upgrader segment in 2008,' she added.

CBRE said that units at The Lakeshore near the latest site are being marketed at around $800 psf by its developer. In the subsale market, Lakeshore units have changed hands in recent months at $650-750 psf, while units at The Centris, one MRT station away, have been changing hands lately at $600-650 psf.

SLA Rents Out 3 Properties For Office Use, Offers 2 More

Source : The Business Times, December 13, 2007

Successful bid for former police HQ in Pearl's Hill Terrace is 40% above guide

THE Singapore Land Authority (SLA) has awarded three state-owned properties for rental through a public tender. And the successful bids were 17-40 per cent above the guide rents it had set.

The former Police Headquarters at 195 Pearl's Hill Terrace, the former Haig Boy's School in Mountbatten Road and a former office and showroom at 169 Sims Avenue went for monthly rents of $53,501, $139,003, and $7,700 respectively.

All three sites are for office use.

The top bid of $53,501 for the Pearl's Hill Terrace property works out to almost 40 per cent more than the guide rent.

The property, which has a gross floor area (GFA) of 145,431.2 square feet cost roughly $2.70 per square foot per month (psf pm).

Businessman Tan Yong Boon, who won the tender, said: 'We plan to sub-let units to new start-up companies and those who have been forced out of their existing offices.'

The Mountbatten Road property, which has an estimated GFA of 96,039.9 sq ft, fetched a top bid of $116,000 or 20 per cent above the guide rent. This works out to $0.70 psf pm.

Ritzland Investment, which won the tender, plans to pump in $2 million to refurbish the property.

The winning bid of $7,700 psf pm for the Sims Avenue property, with a GFA of 4,151.6 sq ft, was 17 per cent above SLA's guide rent and works out to $0.54 psf pm.

It was awarded to businessman Koh Teck Lee who plans to sub-let the units within three months after a $300,000 refurbishment.

A fourth property, the former Queenstown Neighbourhood Police Station, with a GFA of 12,780 sq ft, drew a top bid of $55,888 - more than double the guide rent. The bids for this property are still being evaluated.

SLA also said that two more sites have been put up for public tender.

The first, the former Upper Aljunied Technical School at 102 Upper Aljunied Road, was first put up for tender in October for short-term office use. There were no takers.

The site, with GFA of 83,118.9 sq ft, has now been re-designated for office and mixed use.

The second site is the former Alexandra fire station at 55 Queensway. Also for office and mixed use, the property has a GFA of 34,548.9 sq ft.

Corporate Abodes With Style

Source : The Business Times, December 13, 2007

Big names in professional services believe an address in the Marina Bay area will boost accessibility and branding

It's not only banks that want to be located in a financial centre. The big professional services - law, auditing, management consultancy - are all hustling to Marina Bay, the new downtown.

The suits hobnobbing there will not only be pin-striped bankers, but also legal advisers and accountants. The spanking new One Raffles Quay, for instance, which houses banks UBS, Credit Suisse and Societe Generale, is also home to auditor Ernst & Young and law firm Norton Rose.

'Being located in the centre of the business district puts us where we can have our finger on the pulse of business activity,' said Ong Yew Huat, country managing partner of Ernst & Young. The firm occupies eight levels of the 50 in the North Tower of One Raffles Quay.

He pointed out that the heart of Singapore's business district was shifting southward, towards the bay area from Raffles Place, as the Marina Bay district develops. 'We welcome and look forward to more offices, shops and other developments being set up nearby, which will inject colour and life to the area,' he said.

One Raffles Quay was built by the same developers now constructing another massive project called the Marina Bay Financial Centre. Together, the two projects will double the supply of premium office space in the central business district.

Many are expecting the new buildings, which will stand alongside other coming attractions such as the Sands casino and the Singapore Flyer, to further energise Singapore's business district, which has traditionally referred only to the area around Raffles Place.

'One of the benefits to Allen & Gledhill is the accessibility to clients located in the area,' said the law firm, which is located at One Marina Boulevard. 'It is also convenient for employees, as there is easy access to various modes of transportation, shops and food outlets.'

As it is, some firms in and around Marina Bay are expanding.

Legal firm Drew & Napier, for instance, said it will require more space within Ocean Towers, its current abode right next to Raffles Place MRT station.

'We will remain in Ocean Towers till 2010. Accordingly, our priority over the next couple of years is to secure more office space, if possible, in Ocean Towers,' it said. The firm added that it intends to remain in the city area should it relocate. Even in the age of the internet and mobile technology, the firms say that geographical location is still of the utmost importance.

'There is no substitute for meeting face-to-face with our clients,' said Ernst & Young's Mr Ong.

Said Allen & Gledhill: 'Even with the availability of various lines of communication, it is important to us to meet our clients. Accessibility and convenience for our clients are therefore important considerations.'

There's another reason why companies are choosing the new downtown - image.

Besides the posh offices and their plush interiors, the larger Marina Bay area is also home to the historic Fullerton Hotel, the old Supreme Court and several national theatres and museums. These lend the area a certain high-mindedness and sense of the serieux. Simply put, for a top law firm, being located next to a fast-food joint on Orchard Road just wouldn't have the same gravitas.

Norton Rose's chief operating officer in Asia, Bob Ikin, said the legal firm's location 'enhances brand visibility, as One Raffles Quay is a very new and prestigious building'.

But it is not just the law and auditing firms that are gravitating to Marina Bay, but also Sophis, a software developer and service provider to the treasury, capital and commodity markets. As such, it's natural that it would be in the financial centre. But besides the obvious need to be close to its business partners, the company also had to think about its brand, said Nigel John Ford, business development director in Asia.

'Sophis takes particular care in choosing the right office address for its operations around the world,' he said. 'In New York we are on Broadway, in London we are in Gracechurch Street, and in Hong Kong we are in International Finance Centre 2. Marina Bay Financial Centre just has to be the address for our business in Singapore.'

For prospective customers, 'it shows we have discerning standards and reveals something of our corporate culture and brand,' he said. The company officially opened its Singapore office - on the 25th floor of One Raffles Quay's North Tower - in February.

For Ernst & Young's Mr Ong, 'the choice of a top-notch building and state-of-the-art work facilities reflects our attitude towards our people'.

Besides accessibility and image, some firms said they chose the Marina Bay area precisely because they could be somewhere else, quickly.

Management consultant McKinsey & Company, which is located at Centennial Tower, wanted to be near the city's main road arteries.

'Being a consultant often means being on the road travelling to and from client meetings,' said Chinta Bhagat, head of McKinsey in Singapore. 'We also fly in experts and consultants from our other global offices. Marina Bay is an excellent location with doorstep access to top hotels, restaurants and other facilities, and particularly rapid access to Changi airport.

'The people you see running up the boarding ramp just before they close the gate, they're unfortunately usually us,' he said.

No Going Back To Days Before Sub-Prime Crisis Emerged

Source : The Business Times, December 13, 2007


HOPE springs eternal and those who fail to understand the sub-prime mortgage crisis have been content to substitute hope for common sense (let alone logical thinking) by expecting a few interest rate cuts to restore things to 'normal'. Thus, the failure of the US Federal Reserve to make more than a nominal further cut in rates this week offended, if not to say angered, those market players who are clamouring for quick-and-easy solutions.

The late and great economist John Maynard Keynes once spoke (in a somewhat different context) of the futility of 'pushing on a piece of string' at one end, and expecting by so doing that some positive impulse will be transmitted to the other end. Cheaper credit does not make bad credit good, nor does it make shell-shocked lenders more willing to lend or traumatised borrowers more eager to borrow.

The financial system in the US and elsewhere, where fallout from the sub-prime crisis has been heavy, is not going to revert to the status quo ante. It is pointless to hope that the bubble can be re-liquefied and set floating again simply by making money cheaper.

Before things settle back to some sort of stability, asset values will need to adjust fundamentally and financial systems have to be restructured. This, obviously, is going to take some time - several years possibly - given the size and complexity of the securitised structures that are unravelling from day to day, even if the spotlight is being kept off what is going on by official anxiety to avoid any panic reaction in the markets.

In the meantime, the likely impact upon the global real economy of financial system distress seems to be as little understood as the original crisis was.

The sub-prime crisis has been blamed on all sorts of things. Some argue that it came about as a result of Bank for International Settlements requirements for banks to maintain minimum capital-to-asset ratios. This gave them an incentive to reduce assets as well as to boost capital, and many of them did so by shifting assets 'off balance sheet' into 'structured' investment vehicles that are about as transparent as limousines with tinted glass windows.

Others say that the sheer greed engendered among financial market practitioners by the practice of granting obscenely large bonuses drove them into an orgy of 'deal' making, regardless of the consequences.

In its Economic Outlook published last week, the Organisation for Economic Co-operation and Development (OECD) said that 'the origins of the final turmoil were lax lending standards for US mortgages, particularly in the sub-prime market. The consequences were magnified by information failures; in particular, the complexity of financial products linked to sub-prime loans made it difficult to assess asset values and the location of risk exposure.'

All this 'exposed inherent weaknesses in the expansion of securitisation and (in the way that) banks and other credit institutions have been able to issue credit without carrying it on their balance sheets'. 'Credit originators had little incentive to properly assess credit risk; investors in secondary markets for loans did not have enough expertise or experience to assess risks and rating agencies' assessments proved to be far too optimistic.'

Conditions in credit markets remain tight, the OECD observed. 'Money markets have not resumed normal functioning and the reassessment of structured product risk and exposure is not complete. The prices of US mortgage-backed securities have continued to fall, with damage spreading into tranches with most risk protection. Bank balance sheets seem generally robust but will likely have to re-absorb bad debts, some of which were held off balance sheet.'

Finally, the OECD noted, 'securitisation that has allowed credit to grow without affecting banks' balance sheets has stalled since the beginning of the crisis'. Anyone who feels that explanations of what is going on are just too technical to understand should at least take notice of this last sentence.

Credit makes the world go round, at least in Anglo-Saxon societies where the very thought of saving what you earn, and spending only what you save, is considered to be an outdated precept that offends against economic growth. If credit-generating institutions in such societies are suddenly burdened with bad credit to the point where they are no longer willing to lend, then the systems are going to slow down or seize up.

It was thus surprising to hear IMF managing director Dominique Strauss-Kahn suggesting this week that the impact of the sub-prime crisis on US consumption and labour markets had so far been moderate - and therefore that the impact on the global real economy might also be muted. Could Mr Strauss-Kahn possibly have forgotten that the Western world lives on credit and that credit is now fast drying up?

US Recession Fears Overblown: IMF

Source : The Business Times, December 13, 2007

But official says US growth outlook has become subject to greater risks

(WASHINGTON) World economic growth may be hobbled by financial market turmoil and the risks to the United States have mounted, said IMF first deputy managing director John Lipsky, but fears of a recession still look overdone.

'Never say never, but the latest indicators do not justify such a conclusion,' Mr Lipsky told an internal IMF publication in an interview posted on its website on Tuesday.

He had been asked whether a US recession was looming, but professed that he was 'cautiously optimistic'.

'Employment growth and wage increases have decelerated, but they both continue to grow. So long as US household income continues to expand, it's reasonable to expect consumption expenditures to increase,' he said.

A credit crunch spurred by the collapse of the US sub-prime mortgage market is expected to slow growth, and last month the IMF signalled it would cut its 2008 world economic growth forecast from the 4.8 per cent predicted in October.

Mr Lipsky did not indicate the scale on which the forecast would be revised. But he reiterated the challenges facing major economies like the United States, Europe and Japan, from tightening credit conditions and mounting energy prices.

'In particular, the US growth outlook, which we had perceived already as likely to be sub par in 2008, has become subject to somewhat greater risks,' he said.

'In Europe and Japan, growth appears to be decelerating after solid advances in the third quarter, and their outlooks would be affected if risks to US growth were to materialise,' Mr Lipsky added.

Emerging markets have been holding up so far but would be unlikely to weather a sustained downturn in the world's largest economies - tensions forcing up currencies like the euro, which Mr Lipsky said now looked overbought.

'Most recently, we find that the euro is by now somewhat on the strong side with regard to our views of medium-term equilibrium,' he said.

The Fund said Germany has staged a 'remarkable and enviable' economic recovery in recent years but faces slowing growth in 2008. It needs to press forward with reforms to improve productivity.

In conclusions from its Article IV consultation with Germany, the IMF said the country's gross domestic product growth will slow to 1.9 per cent in 2008 from 2.5 per cent in 2007, due largely to a slowing US economy.

'Growth will also be dampened, though to a more modest extent, by the stronger euro and higher oil prices,' the IMF said in a statement.

The IMF said the effect of a strong euro on Germany 'should remain modest' if global trade imbalances continue to unwind in an orderly way. But it said a disruptive unwinding of such balances that leads to sharply lower world growth would amplify the consequences of a strong euro.

The IMF said a pause or reversal in Germany's reform agenda could undermine some of its recent economic gains. Stepping up productivity is key to sustaining growth, particularly for services sectors that have absorbed unskilled workers, it added.

There is a shortage of skilled labour in the country as highly trained Germans seek employment abroad for lower tax rates, higher compensation or better opportunities. The IMF said to address this, Germany must focus on improving education and training and encouraging immigration of skilled workers. -- Reuters

DBS To Move To Swanky New 700,000 Sq Ft Home

Source : The Business Times, December 13, 2007

It will be anchor tenant at MBFC Tower 3, S'pore's biggest commercial building

DBS Group will move its headquarters to the new and swanky Marina Bay Financial Centre (MBFC) Tower 3 in 2012.

At a media briefing yesterday, chief executive Jackson Tai said the group will occupy 22 floors spanning 700,000 square feet of the 48-storey MBFC Tower 3, which is expected to be completed in late 2011.

DBS's announcement confirms earlier reports in BT that it was eyeing a deal with MBFC.

The deal - a 12-year lease from 2012 with options to renew - is the largest lease transaction here so far, and will see the bank's headquarters, its trading, treasury and capital markets operations, and its 'customer-facing' business units housed in the MBFC, Mr Tai said. Neither DBS nor MBFC would say how much the bank will pay in rent.

The transaction was brokered by property consultants Jones Lang LaSalle, which also helped seal a similar leasing deal between Standard Chartered Bank and MBFC earlier this year.

'We want our headquarter building to continue to be located prominently in a modern facility at the heart of Singapore's financial district,' said Mr Tai.

The move is part of a broader plan that will see the bank relocate various 'core support functions' to a nine-storey building at Changi Business Park near the Expo MRT station in 2010.

The Changi site has a permissible gross floor area of some 500,000 sq ft and will be built in phases, he said.

Two months ago in Hong Kong, the bank also signed a lease for over 220,000 sq ft of office space at One Island East. DBS Hong Kong will be the anchor tenant in the 70-storey building when it moves in early next year.

In Singapore, the bank currently occupies a total of 1.05 million sq ft of office space. This comprises some 600,000 sq ft in its main DBS Towers 1 and 2 at Shenton Way, as well as other locations for back-office functions such as at Technopark @ Chai Chee in Bedok. It also occupies some 90,000 sq ft at The Comtech building within the Alexandra Distripark complex, which houses supporting operations such as account services. The bank sold both its Shenton Way office towers to a Goldman Sachs fund in late 2005 for $690 million or $789 per sq ft of net lettable area.

Goldman Sachs is now said to be in the process of selling the asset. Market watchers believe the top bids it would have attracted for the property would be in the region of $1,800- $1,900 psf.

MBFC general manager David Martin said DBS is the financial centre's sixth and largest tenant to date.

'Their tenancy brings the development as a whole close to 50 per cent let,' he said. With 1.3 million sq ft of office space, the MBFC Tower 3 will be the largest commercial building in Singapore when it is completed. Its floor plates range from 30,000 to 50,000 sq ft in size and the tower will include two large trading floors.

The entire MBFC project comprises 4.7 million sq ft of office space and sits on a 3.55 hectare site at the Marina Bay waterfront. It is jointly developed by Keppel Land, Hongkong Land and Cheung Kong (Holdings) Ltd.

DBS said it is likely to occupy some 1.3 million sq ft of space here in 2012, based on its current plans and the additional space at MBFC and Changi Business Park.