Friday, December 14, 2007

Asia At Risk If US Growth Slows: ADB

Source : The Business Times, December 14, 2007

Region still depends on outside markets despite growing intra-Asian trade

ASIA'S emerging economies are likely to be hit hard by any serious slowdown in the wake of the US sub-prime mortgage crisis, the Asian Development Bank (ADB) warns in a report published yesterday.

Asia still depends heavily on the US and other outside markets despite growing trade between the region's emerging economies, the report says.

The cautious tone contrasts with that of an up-beat report published recently by the World Bank, which suggested emerging Asian economies including China would suffer only marginally even if GDP growth in the US were to slump to zero in 2008.

ADB forecasts that economic growth in emerging East Asia will ease from 8.5 per cent in 2007 to 8 per cent in 2008 amid volatility in financial markets and rising oil prices.

'Risks are tilted more to the downside on expectations of a sharper slowdown in the US economy, further tightening of global credit, an abrupt adjustment in exchange rates and continued rises in oil and commodity prices,' it says.

Growth in China is forecast to slow to 10.5 per cent next year from an expected 11.7 per cent in 2007, as government measures to cool the economy take hold.

But growth in Asean is tipped to moderate only slightly, from an expected 6.3 per cent in 2007 to 6.1 per cent in 2008.

Inflation is rising in many economies and price pressures are likely to remain in 2008. 'Slower growth but rising inflationary pressures, despite appreciating currencies, pose major challenges for the region's policymakers.'

The report warns that a hard landing of the US economy could have a significant impact on East Asia because the region's trade with the major industrialised economies remains strong despite increasing intra-regional trade.

'If we take into account the total share of intra-regional trade that is ultimately destined for the G3 markets (Japan, Europe and US), the share of G3 markets in the region's total exports is still over 60 per cent,' ADB says.

'The region's macro-economic managers will gain by adopting greater flexibility of exchange rates and exploring ways to maintain stability among intra-regional exchange rates.'

ADB says boosting domestic demand, managing capital inflows and strengthening financial systems would help underpin growth in East Asia.

'So far the turmoil in the US sub-prime market has not spilled over into emerging East Asian markets and economies as exposure of regional banks to such portfolios remain limited,' it says. 'However, the region remains vulnerable as its banking sector expands into new lines of businesses and exposes itself to unknown risks.

'The changing structure of capital inflows, with volatile short-term capital accounting for more than 60 per cent of total inflows, remains a cause for worry. The sharp rise in asset prices is also at risk of correction if swings in global financial markets spread to the region. Changes in asset prices could impact growth through wealth effects and higher cost of capital.

'Despite resurgent capital inflows after the August market turmoil, a sharp reversal in investor risk appetite remains a possibility in this climate of heightened uncertainty. This could lead to a broader re-pricing of risk and unwinding of so-called carry trades.'

Shop Rents Rising Faster In City Fringe, Suburbs Than In Orchard

Source : The Straits Times, Dec 14, 2007

Landlords enjoy good takings as demand spills over from prime belt.

ORCHARD Road may be the epicentre of shopping buzz, but malls in quieter areas are coming into their own.

Rents of shops on the city fringe and in suburban areas rose faster than those in the prime shopping belt in the October to December period, according to Knight Frank.

The property consultancy said the biggest increase in rents came from shopping malls on the fringe of Orchard Road, such as Tanglin Mall and Park Mall. Retail rents in this area climbed by 8.9 per cent in the quarter, thanks to a spillover from Orchard Road and a better tenant mix, said Knight Frank.

In contrast, rents of malls in Orchard Road proper - including Wisma Atria and Ngee Ann City - rose only 2.6 per cent. Suburban malls such as Tampines Mall and Jurong Point fell in between, with rents rising 5.8 per cent.

The main reason for this is rents in Orchard Road have already risen so much that any further increases will be quite small, said Knight Frank’s director of research and consultancy, Mr Nicholas Mak.

On the other hand, retail rents in suburban and fringe areas are starting from a lower base, so they will rise by more, he added.

Indeed, Knight Frank’s data shows that despite having the smallest rent increases, the central areas still have the highest rents, and vice versa.

In the heart of Orchard Road, average gross monthly rents have soared to double those of malls on the fringes. This is because over this year, rents in Orchard Road central have gone up the most. They rose by 17.2 per cent this year, almost double the 9.9 per cent rise in Orchard Road fringe malls. In suburban malls, retail rents rose just 7.5 per cent for the year.

But overall, it has been a good year for landlords of shopping malls islandwide.

They have raised rents by more than market experts had forecast, thanks to higher wages, a strong economy and a booming property market.

Islandwide, shop rents in well-located malls jumped by a better-than-expected 22.1 per cent for the whole year, said Knight Frank. Its report on retail rents analysed prime shop space of between 400 and 800 sq ft, typically located on the ground floor of malls, with good frontages.

But rent growth is expected to moderate next year to 10 to 15 per cent, it said. While retail sales and demand for shop space are likely to stay strong, new malls will open with 2.3 million sq ft of space. These include West Coast Plaza, Iluma at Bugis, Ion Orchard, Orchard Central and Jurong Point’s new wing.

‘Landlords who try to raise rentals in the later part of next year are likely to face stronger resistance from retailers,’ said Mr Mak.

This may come as a relief to retailers. One retailer, who asked not to be named, said she had to move a boutique out of Paragon last year when rents nearly doubled. Another outlet at Suntec City has had rents rise by 30 to 40 per cent.

‘We used to be making money at most of our shops, but now because of the rental increases we are only breaking even at some,’ she said.

‘We can handle rents rising to a certain point, but after that it is untenable.’

PECC Sees Slower Asia-Pacific Growth In 2008

Source : The Business Times, December 14, 2007

Asia-Pacific's economic outlook is now more uncertain than any time since the 1997 Asian crisis, and the region is expected to post slower economic growth in 2008, according to one think-tank.

In its latest State of the Region report, the Pacific Economic Cooperation Council (PECC) forecast a 4.9 per cent real gross domestic product (GDP) growth for the region this year and next - lower than the 5 per cent seen in 2006. The equivalent forecast for 2009 is 5.2 per cent.

East Asia is expected to post GDP growth of 6.4 per cent and 5.6 per cent in 2008 and 2009 respectively.

PECC is an international tripartite partnership of senior individuals from business and industry, government, academic and other intellectual circles. Its forecasts are based on the assumptions that the US will not enter into a recession and that there will be a recovery in the housing sector there in the second half of next year.

'The US slowdown will affect exports from East Asia but this will be offset somewhat by robust import growth in China,' the report says.

PECC said that the external sector continues to be characterised by huge current account imbalances across the Pacific.

While the weakening greenback had slowed the growth of American imports to just 2.2 per cent this year and PECC expected the deficit to be about 5.1 per cent of US GDP by 2009, the deficit will still remain very large in dollar value terms.

After falling from US$794 billion in 2006 to US$760 billion in 2008, the deficit is expected to balloon again in 2009, to around US$786 billion, the report said.

As for China, the current account balance is forecast to balloon to about US$507 billion in 2009, which is roughly 10 per cent of GDP.

The Chinese currency is expected to appreciate to an average of 6.9 yuan (S$1.35) per US dollar in 2008 and 6.4 yuan in 2009.

The report singled out the spillover of recent financial market volatility into the real economy as a major new source of risk, especially in the US.

'The full extent of the damage from the sub-prime mortgage crisis is still being worked out, but it could be as much as US$300 billion,' it says.

'Together with a falling dollar, the result will be downward pressure on investment, employment, asset prices and consumer confidence.'

On the impact of the crisis on Asia, the report believes that a large share of the sub-prime mortgage market may be held by Asian investors from both private sector and public sector, who will be hit by value downgrades in their holdings and a depreciating greenback.

Asian central banks will be concerned that massive withdrawals from US dollar assets could lead to domestic currency appreciation and a loss of export competitiveness.

'With the Federal Reserve expected to cut interest rates at its forthcoming meetings, Asian central banks will face conflicting pressures to either follow suit - and thus hold back the upward pressure on their currencies and the costs of sterilisation activities - or to keep domestic interest rates high in order to restrain inflation and to cool overheated property markets even at the expense of export competitiveness,' says the report.

Although it said that the possibility of a severe market crash leading to systemic financial sector crisis and a deep US recession is small, it cannot be ruled out entirely.

There are also worries about inflationary pressures in the world economy, speculative bubbles in Asia and the rapid unwinding of the US current account imbalance.

The report pointed out that while East Asian economies continue to show strong growth, it is premature to suggest that the region has 'decoupled' from North America.

Property Transactions Between Nov 19th - 24th , 2007

Koh Brothers Wins $78.9m MOE Job

Source : The Business Times, December 14, 2007

PROPERTY and construction company Koh Brothers yesterday said it has won a $78.9 million contract from the Ministry of Education (MOE) to build the River Valley High School and Hostel complex at Boon Lay Avenue.

'With this project, we have achieved total contracts in hand of $849 million up to 2011' - Koh Brothers' CEO Francis Koh

Under the contract, KohBrothers will build a comprehensive range of teaching and hostel facilities.

These will include the construction of eight low-rise blocks which will house classrooms, a library, laboratories, and a canteen, among others. There will also be an850-seat auditorium.

In addition, two 12-storey and one 15-storey hostel blocks will be built to offer about 246 dormitory units complete with facilities.

Work on the project will start this month and is expected to be completed by August2009, Koh Brothers said.

'With this project, we have achieved total contracts in hand of $849 million up to 2011,' said the company's chief executive Francis Koh. 'Moving forward, we believe that we are on track to securing projects of highercontract values and are confident of delivering quality construction services to our customers.'

The company has undertaken numerous construction and infrastructure projects, including current mega projects such as the Changi Water ReclamationPlant, Marina Barrage and Common Service Tunnel in Marina Bay. Koh Brothers is also a niche property developer.

The company's shares lost 3.5 cents - or 7.7 per cent - to close at 42 cents yesterday. The stock has gained 31.3 per cent since thestart of the year, compared with a 16.5 per cent gain in the benchmark Straits Times Index.

New Star Turns Down 3 Bids For Parakou Building

Source : The Business Times, December 14, 2007

UK-BASED New Star International Property Fund has received three offers to buy the Parakou Building in Robinson Road for 20 per cent more than the $128 million it paid in May.

But it has decided that the rental returns are just fine - fornow.

'We are in Singapore for the long term,' said New Star Property Asset Management's head of global property Stuart Webster.

The potential buyers of the Parakou Building included two international funds and a private investor, hesaid.

Mr Webster was in Singapore yesterday to look at more acquisitions here. He did not give details but said one building in particular is worth about $120 million and he expects to close the deal early next year.

New Star was launchedsix months ago and has since raised US$1.1 billion, about half of which has been invested in property.

New Star has 13 properties - seven are in Japan, two in Australia, two in Germany, one in the Netherlands and one in Singapore.

Whileits seven properties in Japan account for 22.2 per cent of asset allocation, its single Singapore property accounts for 11.6 per cent.

Its portfolio may double by next year, with a longer-term target of around US$5 billion.

About 70 percent of assets will be in Asia. But the fund is not looking at property in China or India because these markets do not fit its risk profile.

It is not looking for trophy assets either, he said. 'I would rather have 10 small buildings rather thanone large one,' said Mr Webster. 'We are not looking for prestige but for quality investment.'

New Star is yielding about 4 per cent and is unique insofar as it is a non-leveraged fund with daily liquidity.

Up to 80 per cent of its assetswill be invested directly in property and with the other 20 per cent in property securities and cash.

Although one could argue that real estate investment trusts (Reits) offer investors exposure to real estate too, Mr Webster reckons Reits pickup the volatility of equities.

There is volatility in the property sector, but he believes the outlook for the office sector here is good.

Rents have hit $8 per sq ft per month at Parakou Building which is enjoying spillover demand forGrade A space in Raffles Place.

Mr Webster does not expect demand to weaken either, even after new supply comes on stream after 2010.

Based on his reading of the Singapore economy, he said: 'Singapore will need that supply.'

Adjustment Rate For Housing Loan Changed Unilaterally

Source : The Straits Times, Dec 14, 2007

CERTAIN banks in Singapore offer a feature on their home loans that allows you to deposit funds into a designated current account.

The funds in this account earn an adjustment that is pegged to the effective interest rates on the home loan. This adjustment will then offset the interest payable on the home loan.

I had just received a letter from Citibank that said that the adjustment rate had been changed from 100 per cent to 70 per cent for my loan. In the example given by Citibank for a $400,000 loan with a 30-year tenure, $100,000 in the current account and 4 per cent interest, the interest charges over the loan's tenure is increased by $38,728, simply as a result of this change.

Once a loan contract has been signed, there is nothing to stop Citibank (or any other bank) to even reduce the adjustment rate to zero, resulting in three times the interest increase.

This unilateral change in adjustment rate is an increase in effective interest on the loan, and it is done without changing the loan interest rates.

Is it fair for banks to offer adjustment rates as a 'feature' to woo customers but, six months into the loan, unilaterally reduce the benefits of the feature? Consumers are already locked into the loan without any recourse to redeem the loan or switch banks.

Eddie Tan Kian Wee

Ten Mile Junction Site Up For Sale

Source : The Straits Times, Dec 14, 2007

THE Urban Redevelopment Authority (URA) yesterday launched for sale by tender a site with a twist at Choa Chu Kang.

The URA is selling a 1.56ha site with a three-storey commercial development - the existing Ten Mile Junction Mall. The sale excludes the third-storey Light Rapid Transit (LRT) station, now in operation.

This is the first time the URA is selling a residential site for homes above an LRT station. A similar site sold previously was the Ion Orchard site above the Orchard MRT station.

The latest 99-year leasehold site, at the junction of Choa Chu Kang Road and Woodlands Road, has a gross floor area of 254,394 sq ft for residential use, either for flats or service apartments. The mall has a fixed gross floor area of 121,191 sq ft.

The site could cost $75 million to $90 million at a market price of about $200 to $250 per sq ft, which allows smaller developers to also bid, said Savills Singapore's director of business development and marketing, Mr Ku Swee Yong.

Occupancy levels and property values are rising in that area, and the new project may add some buzz to the district, said Mr Ku.

In the past, the area has struggled to take off. Ten Mile Junction was reported as a 'ghost town' for some years after it first opened 1999.

After a series of tenants failed to create a buzz, supermarket chain Sheng Siong took over as master tenant in 2003 and drew in crowds.

Sheng Siong managing director Lim Hock Chee says his business is doing good as the mall is 'reasonably busy'. He, however, has expressed concern about the change in owners.

The URA said the tender would close at noon on April 3 next year.

High-End Home Launches To Take A Breather

Source : The Business Times, December 14, 2007

The frenzy of 2007 is expected to give way to a more sedate pace, slower price rises

Launches of high-end homes are set to shrink in the coming year - even though developers will push more units across Singapore.

The Core Central Region (CCR) - which comprises prime districts 9, 10 and 11, Sentosa and the Downtown Core (which includes the existing financial district and Marina Bay locale) - could see only 4,600 private homes being launched next year.

This is just 26 per cent of the total 17,800 private homes expected to hit the market islandwide.

In contrast, this year saw 5,700 private homes being launched in the CCR, according to CB Richard Ellis (CBRE). This works out to 38 per cent of the total 15,000 homes launched by developers in 2007.

Market watchers like Knight Frank managing director Tan Tiong Cheng feel that the dwindling new supply in the CCR could provide price support to the high-end market, which has soared steeply but is expected to hit a blip next year.

Developers and property consultants polled by BT earlier this month had expected high-end home prices to appreciate by less than 10 per cent in 2008 compared to mass-market homes - which they thought could climb between 10 and 20 per cent.

In contrast, CBRE estimated that high-end home prices have risen nearly 50 per cent in 2007, while the mass-market segment appreciated only by around 25 per cent.

Among the high-end projects expected to be launched next year are Marina Bay Suites, Sentosa Quayside, Goodwood Residence in Bukit Timah and The Hamilton at Scotts Road.

Still, DTZ Debenham Tie Leung executive director Ong Choon Fah did not expect developers to be in any hurry to push out high-end launches in 2008, given the substantial price rise in this segment this year.

'The high-end market is very exclusive. Very often, sales take place by invitation and viewings by appointment. Developers will not flood the market with upmarket projects. They will want to manage their supply pipeline for the high-end very carefully,' she said.

'I suppose also that for developers, their view is that with the opening of the integrated resorts in 2009/2010, there is perhaps an opportunity for them to sell their projects at that stage.'

Market watchers said that the supply of prime district residential sites emanating from collective sales may slow down next year as recent changes to en bloc rules could lengthen the time it takes to launch a sale.

Developers, too, are in no hurry. Riding on the high-end boom of the last couple of years, many of them have built up enough financial muscle to be able to hold back launches.

Even if they do go ahead with their launches, some developers have taken to holding back some units from sale for longer-term investment. This is what City Developments announced last month, when it partnered US-based Wachovia Development Corporation to buy two blocks at CityDev's Cliveden at Grange.

The slowdown in the high-end market could touch not just launches but also actual sales. This year, CBRE estimated that 29 per cent, or 4,458 of the 15,500-odd private homes sold came from the high-end segment.

Next year, not only are developers' islandwide sales expected to shrink to between just 10,000 and 13,000 private homes, but the CCR could account for an even smaller slice of the primary market sales, market watchers reckoned.

'Going forward, with a lower economic growth forecast of 4.5 per cent to 6.5 per cent in 2008 and a likely credit crunch arising from the sub-prime mortgage problems in the US, we expect the pace of sales and price hike in the residential market to slow down in 2008,' CBRE's executive director Li Hiaw Ho said.

Analysts said that some potential buyers may also find themselves being priced out of the market.

The sales volume of high-end homes will depend partly on whether those who have sold their homes in en bloc deals buy their replacement property in the high-end market, said Knight Frank's Mr Tan.

For foreign buyers, 'if they see nervousness in key markets like London and New York, they may pick Singapore instead,' he added.

CBRE expected the official Urban Redevelopment Authority's price index for private homes to rise 8-10 per cent next year, after jumping by an estimated 25-29 per cent for full-year 2007.

Soaring rentals, too, could moderate. CBRE estimated that URA's overall private residential rental index will appreciate 40 per cent this year but the pace could slow to 8-10 per cent next year.