Source : The Straits Times, Mar 7, 2008
U.S. HOUSING WOES
By Robert J. Shiller
ONE great puzzle about the recent housing bubble is why even most experts didn't recognise the bubble as it was forming.
Mr Alan Greenspan, a very serious student of the markets, didn't see it, and, moreover, he didn't see the stock market bubble of the 1990s either. In his 2007 autobiography, The Age Of Turbulence: Adventures In A New World, he talks at some length about his suspicions in the 1990s that there was irrational exuberance in the stock market. But in the end, he says, he just couldn't figure it out: 'I'd come to realise that we'd never be able to identify irrational exuberance with certainty, much less act on it, until after the fact.'
With the housing bubble, Mr Greenspan didn't seem to have any doubt: 'I would tell audiences that we were facing not a bubble but a froth - lots of small local bubbles that never grew to a scale that could threaten the health of the overall economy.'
The failure to recognise the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world.
If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.
Were all these people stupid? It can't be. We have to consider the possibility that perfectly rational people can get caught up in a bubble. In this connection, it is helpful to refer to an important bit of economic theory about herd behaviour.
Three economists, professors Sushil Bikhchandani, David Hirshleifer and Ivo Welch, in a classic 1992 article, defined what they call 'information cascades' that can lead people into serious error.
They found that these cascades can affect even perfectly rational people and cause bubble-like phenomena. Why? Ultimately, people sometimes need to rely on the judgment of others, and therein lies the problem. The theory provides a framework for understanding the real estate turbulence we are now observing.
Prof Bikhchandani and his co-authors present this example: Suppose that a group of individuals must make an important decision, based on useful but incomplete information. Each one of them has received some information relevant to the decision, but the information is incomplete and 'noisy' and does not always point to the right conclusion.
Let's update the example to apply it to the recent bubble: The individuals in the group must each decide whether real estate is a terrific investment and whether to buy some property. Suppose that there is a 60 per cent probability that any one person's information will lead to the right decision.
In other words, that person's information is useful but not definitive - and not clear enough to make a firm judgment about something as momentous as a market bubble. Perhaps that is how Mr Greenspan assessed the probability that he could make an accurate judgment about the stock market bubble.
The theory helps explain why he - or anyone trying to verify the existence of a market bubble - may have squelched his own judgment.
The fundamental problem is that the information obtained by any individual - even one as well-placed as the chairman of the Federal Reserve - is bound to be incomplete.
If people could somehow hold a national town meeting and share their independent information, they would have the opportunity to see the full weight of the evidence. Any individual errors would be averaged out, and the participants would collectively reach the correct decision.
Of course, such a national town meeting is impossible. Each person makes decisions individually, sequentially, and reveals his decisions through actions - in this case, by entering the housing market and bidding up home prices.
Suppose houses are really of low investment value, but the first person to make a decision reaches the wrong conclusion (which happens, as we have assumed, 40 per cent of the time). The first person, A, pays a high price for a home, thus signalling to others that houses are a good investment.
The second person, B, has no problem if his own data seems to confirm the information provided by A's willingness to pay a high price. But B faces a quandary if his own information seems to contradict A's judgment. In that case, B would conclude that he has no worthwhile information, and so he must make an arbitrary decision - say, by flipping a coin to decide whether to buy a house.
The result is that even if houses are of low investment value, we may now have two people who make purchasing decisions that reveal their conclusion that houses are a good investment.
As others make purchases at rising prices, more and more people will conclude that these buyers' information about the market outweighs their own.
Prof Bikhchandani and his co-authors worked out this rational herding story carefully, and their results show that the probability of the cascade leading to an incorrect assumption is 37 per cent. In other words, more than one-third of the time, rational individuals, each given information that is 60 per cent accurate, will reach the wrong collective conclusion.
Thus we should expect to see cascades driving our thinking from time to time, even when everyone is absolutely rational and calculating.
This theory poses a major challenge to the 'efficient markets' view of the world, which assumes that investors are like independent-minded voters, relying only on their own information to make decisions.
The 'efficient markets' view holds that the market is wiser than any individual: In aggregate, the market will come to the correct decision. But the theory is flawed because it does not recognise that people must rely on the judgments of others.
Now, let's modify the Bikhchandani-Hirshleifer-Welch example again, so that the individuals are no longer purely rational beings. Instead, they are real people, subject to emotional reactions.
Furthermore, these people are being influenced by agencies like the National Association of Realtors, which is conducting a public-relations campaign intended to show that putting money into housing is a reliable way to build wealth.
Under these circumstances, it is easy to understand how even experts could come to believe that housing is a spectacular investment.
It is clear that just such an information cascade helped to create the housing bubble. And it is now possible that a downward cascade will develop - in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels.
The writer is professor of economics and finance at Yale University and co-founder and chief economist of MacroMarkets LLC.
Copyright: New York Times
Friday, March 7, 2008
Limp US Housing Market Looks Even Weaker
Source : The Straits Times, Mar 7, 2008
NEW YORK - NERVOUS homeowners and economic analysts have been wondering how much worse the US housing market could get. On Thursday they got an answer: Plenty.
Foreclosures are at a record high. Home equity is at a record low. The housing market is spiralling down with no end in sight - and taking people's sense of economic security with it.
For the first time since the Federal Reserve started tracking the data in 1945, the amount of debt tied up in American homes now exceeds the equity homeowners have built.
The Fed reported on Thursday that homeowner equity actually slipped below 50 per cent in the second quarter of last year, and fell to just below 48 per cent in the fourth quarter.
And that was just one example in a day of dismal housing reports.
The Mortgage Bankers Association said foreclosures hit an all-time high in the final quarter of last year. And pending US home sales - those in the gap between when a buyer signs a contract and when the deal closes - came in below analyst expectations for January and remained at the second-lowest reading on record.
'There is no sign that we're near the bottom in the housing market,' said Mr Douglas Elmendorf, a senior fellow at the Brookings Institution and former Fed economist. 'Housing prices will probably fall for a year, two or three to come.'
The trifecta of reports illustrates a housing market caught up in a 'very negative, reinforcing downward spiral,' said Mr Mark Zandi, chief economist at Moody's Economy.com.
Home equity, the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices and homeownership rates jumped earlier this decade. That was due to a surge in cash-out refinancings, home equity loans and lines of credit and an increase in no-down-payment mortgages.
Now declining home prices are eating into equity, and economists expect the figure to drop even more.
Economy.com estimates 8.8 million homeowners, or about 10 per cent of homes, will have zero or negative equity by the end of the month.
Even more disturbing, about 13.8 million households will be 'upside down' if prices fall 20 per cent from their peak. The latest Standard & Poor's/Case-Shiller index showed US home prices plunging 8.9 per cent in the final quarter of 2007 compared with a year earlier.
More homeowners struggling with monthly payments
Experts believe foreclosures will rise as more homeowners struggle with monthly payments as the interest rates on their mortgages adjust higher. Problems in the credit markets and eroding home values are making it harder for people to refinance their way out of unmanageable loans.
The threat of so-called 'mortgage walkers,' or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of it.
'If you're struggling with payments and you have negative equity in your home, your struggling isn't getting you very far,' Mr Elmendorf said. 'It's very likely you want to stop and walk away.' Even for those who retain some equity, the effect on consumer sentiment and spending will be profound.
Homeowners, who once happily tapped home equity for expenditures and home improvements, may instead save money as they watch their total net worth wither. Those who are willing to spend their home equity will find lenders reluctant to give out home equity loans or lines of credit.
'People were relying on home equity to maintain consumption. They can't keep doing that once the equity's gone,' said Mr Dean Baker, co-director at the Center of Economic Policy Research.
'Undoubtedly, this is one reason for the falloff in consumption in last couple of months.' Economists worry that the prolonged housing downturn has put the economy on the brink of recession. The economy grew an anaemic 0.6 per cent in the fourth quarter.
A massive loss in home equity could even mean some Americans won't have enough money to retire. On average, housing is Americans' single largest asset, representing 39 per cent of a household's total net worth.
Ms Melba Dumay, 44, worries that higher costs for insurance and other expenses will outpace any growth in value of the home she's owned in Tampa, Florida, for about 10 years. She was depending on her home equity for retirement and as something she could pass on to her high-school-aged daughter.
'It's your legacy to your children and everything else, and if that's not worth anything then you got to start all over again,' Ms Dumay said.
Economic stimulus package
So far, the government has stepped in with a number of measures to contain the housing fallout. Last month, Congress passed a US$168 billion (S$233 billion) economic stimulus package with provisions aimed at helping homeowners refinance into more affordable loans.
The Federal Reserve has also slashed interest rates to in hopes of spurring growth.
On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners. But some experts think more help is needed.
'At the end of the day, these efforts will be insufficient,' Mr Zandi said. 'Policymakers will need to be more aggressive and put taxpayer money on the line to stem this. Ultimately, we will find a bottom, but it would be a mistake to let the market run its course.' -- AP
NEW YORK - NERVOUS homeowners and economic analysts have been wondering how much worse the US housing market could get. On Thursday they got an answer: Plenty.
Foreclosures are at a record high. Home equity is at a record low. The housing market is spiralling down with no end in sight - and taking people's sense of economic security with it.
For the first time since the Federal Reserve started tracking the data in 1945, the amount of debt tied up in American homes now exceeds the equity homeowners have built.
The Fed reported on Thursday that homeowner equity actually slipped below 50 per cent in the second quarter of last year, and fell to just below 48 per cent in the fourth quarter.
And that was just one example in a day of dismal housing reports.
The Mortgage Bankers Association said foreclosures hit an all-time high in the final quarter of last year. And pending US home sales - those in the gap between when a buyer signs a contract and when the deal closes - came in below analyst expectations for January and remained at the second-lowest reading on record.
'There is no sign that we're near the bottom in the housing market,' said Mr Douglas Elmendorf, a senior fellow at the Brookings Institution and former Fed economist. 'Housing prices will probably fall for a year, two or three to come.'
The trifecta of reports illustrates a housing market caught up in a 'very negative, reinforcing downward spiral,' said Mr Mark Zandi, chief economist at Moody's Economy.com.
Home equity, the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices and homeownership rates jumped earlier this decade. That was due to a surge in cash-out refinancings, home equity loans and lines of credit and an increase in no-down-payment mortgages.
Now declining home prices are eating into equity, and economists expect the figure to drop even more.
Economy.com estimates 8.8 million homeowners, or about 10 per cent of homes, will have zero or negative equity by the end of the month.
Even more disturbing, about 13.8 million households will be 'upside down' if prices fall 20 per cent from their peak. The latest Standard & Poor's/Case-Shiller index showed US home prices plunging 8.9 per cent in the final quarter of 2007 compared with a year earlier.
More homeowners struggling with monthly payments
Experts believe foreclosures will rise as more homeowners struggle with monthly payments as the interest rates on their mortgages adjust higher. Problems in the credit markets and eroding home values are making it harder for people to refinance their way out of unmanageable loans.
The threat of so-called 'mortgage walkers,' or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of it.
'If you're struggling with payments and you have negative equity in your home, your struggling isn't getting you very far,' Mr Elmendorf said. 'It's very likely you want to stop and walk away.' Even for those who retain some equity, the effect on consumer sentiment and spending will be profound.
Homeowners, who once happily tapped home equity for expenditures and home improvements, may instead save money as they watch their total net worth wither. Those who are willing to spend their home equity will find lenders reluctant to give out home equity loans or lines of credit.
'People were relying on home equity to maintain consumption. They can't keep doing that once the equity's gone,' said Mr Dean Baker, co-director at the Center of Economic Policy Research.
'Undoubtedly, this is one reason for the falloff in consumption in last couple of months.' Economists worry that the prolonged housing downturn has put the economy on the brink of recession. The economy grew an anaemic 0.6 per cent in the fourth quarter.
A massive loss in home equity could even mean some Americans won't have enough money to retire. On average, housing is Americans' single largest asset, representing 39 per cent of a household's total net worth.
Ms Melba Dumay, 44, worries that higher costs for insurance and other expenses will outpace any growth in value of the home she's owned in Tampa, Florida, for about 10 years. She was depending on her home equity for retirement and as something she could pass on to her high-school-aged daughter.
'It's your legacy to your children and everything else, and if that's not worth anything then you got to start all over again,' Ms Dumay said.
Economic stimulus package
So far, the government has stepped in with a number of measures to contain the housing fallout. Last month, Congress passed a US$168 billion (S$233 billion) economic stimulus package with provisions aimed at helping homeowners refinance into more affordable loans.
The Federal Reserve has also slashed interest rates to in hopes of spurring growth.
On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners. But some experts think more help is needed.
'At the end of the day, these efforts will be insufficient,' Mr Zandi said. 'Policymakers will need to be more aggressive and put taxpayer money on the line to stem this. Ultimately, we will find a bottom, but it would be a mistake to let the market run its course.' -- AP
Singles, Live With Parents
Source : TODAY, Thursday, March 6, 2008
HDB dangles $20,000 carrot
A NEW initiative has been launched to encourage singles to live with their parents. The Housing and Development Board (HDB) will provide a $20,000 grant if they choose to buy a resale flat to live with their elderly parents.
Responding to concerns raised by Members of Parliament over the needs of the elderly, Minister-in-Charge of Ageing Issues Lim Boon Heng explained that the scheme is similar to the current higher-tier CPF Housing Grant given to a first-timer family buying a resale flat, if the family opts to live close to, or in the same flat, as their parents.
Currently, singles aged 35 and above are only eligible for an $11,000 housing grant for a resale flat in any location. The HDB will announce details of the new scheme later.
The move is one of several new measures to make life better for senior citizens, with day care centres (DCC) being another place where the elderly can enjoy social interaction.
A transport subsidy based on means testing for trips to these centres would be introduced in the second half of the year.
In addition, the Ministry of Community Development, Youth and Sports (MCYS) will also introduce therapists at the DCCs who will design exercise and other programmes to help the elderly maintain mental agility - slated to begin next year.
The MCYS will invest some $3 million to effect these initiatives. Mr Lim also said a Wellness Programme will be piloted at six sites islandwide to support seniors in the community.
Each site will reach out to at least 1,000 seniors and provide services such as health screening and promote active ageing. MCYS will be allocating $4 million for the pilot project, he said.
Addressing the need to help the elderly with dementia, the Alzheimer’s Disease Association will be issuing a “Safe Return” identity card containing contact information of their next-of-kin in case the elderly are found wandering in public, he said.
A new Seniors for Physical Activity Committee, chaired by Minister of State for Health Heng Chee How, will develop a national blueprint to promote and facilitate active ageing.
“This way, we can look forward not only to a happy life, but also a healthy and long one,” said Mr Lim.
HDB dangles $20,000 carrot
A NEW initiative has been launched to encourage singles to live with their parents. The Housing and Development Board (HDB) will provide a $20,000 grant if they choose to buy a resale flat to live with their elderly parents.
Responding to concerns raised by Members of Parliament over the needs of the elderly, Minister-in-Charge of Ageing Issues Lim Boon Heng explained that the scheme is similar to the current higher-tier CPF Housing Grant given to a first-timer family buying a resale flat, if the family opts to live close to, or in the same flat, as their parents.
Currently, singles aged 35 and above are only eligible for an $11,000 housing grant for a resale flat in any location. The HDB will announce details of the new scheme later.
The move is one of several new measures to make life better for senior citizens, with day care centres (DCC) being another place where the elderly can enjoy social interaction.
A transport subsidy based on means testing for trips to these centres would be introduced in the second half of the year.
In addition, the Ministry of Community Development, Youth and Sports (MCYS) will also introduce therapists at the DCCs who will design exercise and other programmes to help the elderly maintain mental agility - slated to begin next year.
The MCYS will invest some $3 million to effect these initiatives. Mr Lim also said a Wellness Programme will be piloted at six sites islandwide to support seniors in the community.
Each site will reach out to at least 1,000 seniors and provide services such as health screening and promote active ageing. MCYS will be allocating $4 million for the pilot project, he said.
Addressing the need to help the elderly with dementia, the Alzheimer’s Disease Association will be issuing a “Safe Return” identity card containing contact information of their next-of-kin in case the elderly are found wandering in public, he said.
A new Seniors for Physical Activity Committee, chaired by Minister of State for Health Heng Chee How, will develop a national blueprint to promote and facilitate active ageing.
“This way, we can look forward not only to a happy life, but also a healthy and long one,” said Mr Lim.
More Landed-Home Owners Installing Lifts
Source : The Straits Times, Mar 7, 2008
Many do so to help elderly family members with mobility problems get around the house.
OFFICES, shopping malls and high-rise apartments are not the only places with lifts zipping people up and down the different levels.
More Singaporeans in landed properties are coming round to the idea of installing them in their homes as well.
CONVENIENCE: Mr Harold Tan's wife uses her home elevator to take her to the roof garden on the fourth level. -- ST PHOTO: FRANCIS ONG
While they are generally those who are better-off, having a lift at home is not always about sloth or showing off: Many have at least one family member with mobility problems.
Take 52-year-old Mr Harold Tan, an air-cargo businessman. His four-storey house in the Braddell area has a carpeted lift servicing the four levels.
He already had the lift in mind when the house was being designed, primarily because his mother - now 82 and who goes over to stay once a month - has a knee problem.
‘Now, with a lift, she and her friends can come over and they can go to any floor they want. It is not a problem like before,’ he said.
The others in the house are his 40-year-old wife, their 20-year-old daughter and a maid.
He added: ‘Home lifts are going to become more common as people start to live longer.’
Those in the business of making lifts confirm the trend.
Otis Elevator and Hitachi Asia said they have noticed an increase in home lift installations in the past few years. And architectural firms like Interdesign Berakan started designing homes with lift shafts in 2006.
Mr Siew Yat Hung, a senior sales manager at Hitachi, said the company has seen a 50 per cent jump from 2006 in lifts installed in homes.
He put the trend down to the economy doing well and people getting older and needing help negotiating the stairs.
Often, they have a wheelchair-bound family member, and can afford the cost of this convenience.
Installing a lift costs less than people think, said Mr Siew.
‘It costs less to install a home elevator than to own a car - and many in Singapore own more than one car.’
Mr Tan, for example, spent $45,000 for his lift, which he reckoned was ‘not much’ when compared to the cost of the house. He also does not consider the yearly maintenance cost - $1,000 for four servicings - too much to pay.
Instead of moving to apartments, owners of landed properties can consider installing a lift when their weak, ageing knees start giving problems.
Mr Tan said his neighbour has already retrofitted his home with a lift shaft in anticipation of such a day.
Mr Peter Fong, a semi-retired oil and gas consultant, has also decided to install a lift so he can continue to enjoy his space as he ages.
His house in Bukit Timah is now being fitted with a $70,000 Otis lift, which he said will ‘help me keep track of my active grandchildren when they run up and down’.
Already, the three, aged from two to five, run him ragged whenever they visit, which is often.
Of course, the pragmatic Singaporean who installs a lift in his home looks far ahead as well.
Mr Tan said: ‘A home with a lift will be a draw for three-tier families if the house is ever put up for sale.’
While the lift is now a boon for his mother, he also plans to spend his own golden years in the house, without needing to worry about navigating those stairs.
Many do so to help elderly family members with mobility problems get around the house.
OFFICES, shopping malls and high-rise apartments are not the only places with lifts zipping people up and down the different levels.
More Singaporeans in landed properties are coming round to the idea of installing them in their homes as well.
CONVENIENCE: Mr Harold Tan's wife uses her home elevator to take her to the roof garden on the fourth level. -- ST PHOTO: FRANCIS ONGWhile they are generally those who are better-off, having a lift at home is not always about sloth or showing off: Many have at least one family member with mobility problems.
Take 52-year-old Mr Harold Tan, an air-cargo businessman. His four-storey house in the Braddell area has a carpeted lift servicing the four levels.
He already had the lift in mind when the house was being designed, primarily because his mother - now 82 and who goes over to stay once a month - has a knee problem.
‘Now, with a lift, she and her friends can come over and they can go to any floor they want. It is not a problem like before,’ he said.
The others in the house are his 40-year-old wife, their 20-year-old daughter and a maid.
He added: ‘Home lifts are going to become more common as people start to live longer.’
Those in the business of making lifts confirm the trend.
Otis Elevator and Hitachi Asia said they have noticed an increase in home lift installations in the past few years. And architectural firms like Interdesign Berakan started designing homes with lift shafts in 2006.
Mr Siew Yat Hung, a senior sales manager at Hitachi, said the company has seen a 50 per cent jump from 2006 in lifts installed in homes.
He put the trend down to the economy doing well and people getting older and needing help negotiating the stairs.
Often, they have a wheelchair-bound family member, and can afford the cost of this convenience.
Installing a lift costs less than people think, said Mr Siew.
‘It costs less to install a home elevator than to own a car - and many in Singapore own more than one car.’
Mr Tan, for example, spent $45,000 for his lift, which he reckoned was ‘not much’ when compared to the cost of the house. He also does not consider the yearly maintenance cost - $1,000 for four servicings - too much to pay.
Instead of moving to apartments, owners of landed properties can consider installing a lift when their weak, ageing knees start giving problems.
Mr Tan said his neighbour has already retrofitted his home with a lift shaft in anticipation of such a day.
Mr Peter Fong, a semi-retired oil and gas consultant, has also decided to install a lift so he can continue to enjoy his space as he ages.
His house in Bukit Timah is now being fitted with a $70,000 Otis lift, which he said will ‘help me keep track of my active grandchildren when they run up and down’.
Already, the three, aged from two to five, run him ragged whenever they visit, which is often.
Of course, the pragmatic Singaporean who installs a lift in his home looks far ahead as well.
Mr Tan said: ‘A home with a lift will be a draw for three-tier families if the house is ever put up for sale.’
While the lift is now a boon for his mother, he also plans to spend his own golden years in the house, without needing to worry about navigating those stairs.
Sub-Prime: Six Lessons, And Counting
Source : The Business Times, March 7, 2008
The more things change, the more they stay the same - the US fiasco has thrown up mostly old lessons to be re-learned.
EVERY financial crisis has its lessons. Most of them are old lessons which need to be relearned. Here are six (and still counting) from the United States sub-prime crisis:
1. Financial innovation is not always innovative, nor benign
Many of the so-called financial innovations at the root of the sub-prime crisis have been seen before, in previous crises. For example, the securitisation of credit (the packaging of loans and other financial assets into marketable securities) and the ‘originate and distribute’ model (whereby financial institutions create various financial instruments and then distribute them to investors) were in evidence during the run-up to the great stockmarket crash on Wall Street in 1929. At that time, banks originated and ingeniously repackaged highly speculative loans and marketed them through their own networks.
Similarly, in the run-up to the current crisis, financial institutions creatively sliced up sub-prime mortgages and packaged them into ‘collateralised debt obligations’ (CDOs), which ultimately found their way into the portfolios of investors around the world, including many large banks.
Many other features of the sub-prime crisis - the use of leverage, the opaqueness of investment instruments and their multi-layered structures - evoke, likewise, a sense of deja vu.
Amid boom times, the lessons of the past are not always remembered. As one of the sharpest observers of financial crashes through history, late economist John Kenneth Galbraith pointed out: ‘In the world of high and confident finance, little is ever really new. The controlling fact is not the tendency to brilliant invention; the controlling fact is the shortness of the public memory, especially when it contends with a euphoric desire to forget.’
2. Gatekeepers tend to be behind the curve
In the sub-prime crisis, the main ‘gatekeepers’ can be said to have been the credit rating agencies. They were unable to spot the excesses when it really mattered. This again is not new. It also happened before the crash of 1929, when credit raters were too liberal with their seals of approval and were unable to anticipate the sharp drop in bond values or the defaults that were to come.
More recently, we saw during the Asian financial crisis of 1997 how many Asian economies enjoyed high sovereign ratings prior to the crisis, even on the eve of the crisis itself. But once the crisis hit and the rating blunders became obvious, the credit raters overcompensated in the opposite direction, subjecting Asian economies to downgrades of extreme severity - which made the crisis worse.
Rating agencies were again caught flatfooted by the collapse in 1999 of US energy giant Enron - which they had also rated highly. US Senator Joseph Lieberman, whose Senate committee held the first public hearings on Enron, described the credit raters as ‘dismally lax’. ‘They didn’t ask probing questions and generally accepted at face value whatever Enron’s officials chose to tell them,’ he said.
Similarly in the sub-prime crisis, most CDOs - despite being highly opaque - were rated AAA (the highest rating, which explains their popularity among investors). After the soundness of CDOs and other mortgage-related bonds became obviously suspect, their ratings were furiously downgraded. Remarkably, the bond insurers who insured CDOs were also given AAA ratings. When the insurers’ exposure to these toxic instruments became clear, the rating agencies threatened to downgrade the bond insurers as well. But if this happens (and it already has, in a few cases), the latter’s business model - and, indeed, very survival - is threatened, because few entities would want to be insured by a insurer that is less than financially sound.
At least when it comes to their ratings of the bond insurers, the credit rating agencies can be said to have been not just behind the curve, but asleep on the job. As Professor Nouriel Roubini of New York University (and one of the first to raise the alarm about the sub-prime crisis) put it: ‘Any business that needs a triple-A rating to remain in business doesn’t deserve a triple-A rating in the first place.’
3. Self regulation does not work
Prior to the sub-prime crisis, US financial markets relied heavily on self-regulation, even for highly leveraged entities such as hedge funds and private equity funds. Financial institutions have been free to ‘innovate’, including to create highly complex and opaque instruments and various ‘off-balance sheet’ vehicles like conduits and ’structured investment vehicles’ or SIVs (which are in fact driven precisely by the desire to avoid regulatory requirements, such as minimum capital and liquidity standards). A number of ‘innovative’ loans (such as ‘liar loans’ which did not need any income verification and ‘piggyback loans’, which involved no downpayments) also became common.
Self regulation was also de rigueur in the run-up to previous crises. Before the Asian crisis, for instance, regulation of banks was either light or not enforced, which enabled such excesses as lending based on relationships rather than creditworthiness to flourish and unregulated entities like finance companies to operate with wanton disregard for risk. The years before the 1929 stockmarket crash were likewise attended by extremely lax regulations on financial institutions which led to the proliferation of all manner of wondrous investment schemes and structures.
Each crisis has been followed by regulatory catch-up, as the lesson is re-learned that voluntary codes of conduct and self-regulation is no regulation without vigilant official surveillance, at a minimum. Also, that some rules are needed to protect investors and financial institutions - ultimately, from themselves - and to guard against systemic risk.
4. Consumer spending can be artificial
Much of the US economic boom since 2002, in particular, has been driven by consumer spending, which accounts for more than 70 per cent of US GDP. The exuberance of the American consumer has been considered a litmus test of the health of the US economy. However, much of consumer spending was financed not out of savings but out of debt, in an era of super-low interest rates. It was also inflated by rising home prices: consumers with mortgages were able to draw ‘cash out’ by refinancing, often repeatedly; the bigger the mortgage, the more the home could be used as an ATM. The high ratings given to mortgage-backed securities which the banks peddled to investors fuelled ever more generous terms on mortgages, further inflating the home -equity-financed consumer spending binge.
A lesson: beware of debt-financed consumption as a sustainable driver of economic growth, and/or financial markets - all the more so if the debt is based on rising home prices.
5. You can bet against the Fed
There’s a popular saying in the markets: ‘Never bet against the Fed.’ Some of the events of the sub-prime crisis prove that this is not always true. Throughout 2006 and most of 2007, the US Federal Reserve’s assessments of the risks facing the US economy and financial markets - particularly the assertion that the US sub-prime crisis would be ‘contained’ - were way off the mark. Anybody who bet otherwise (and some did) and went short in the markets would have done well. Also, repeated interest rate cuts by the Fed (by 2.25 percentage points in the last six months) have failed to lift either the US economy or the stock markets. Part of the reason is that the Fed cannot do much in the short term to help troubled banks recapitalise. Its rate cuts also cannot directly resolve the problems facing non-depository financial institutions like hedge funds, investment banks and off-balance sheet entities like SIVs.
Whether the Fed’s rate cuts can avert a US recession during the current crisis also remains to be seen. On some previous occasions (most recently, the period following the dotcom bust of 2001), they were unable to do so.
6. When in trouble, bankers embrace socialism
The often spectacular gains that bankers make during boom times accrue to shareholders, employees and, above all, top bank executives. But in terrible times, such as now in the US, losses are, more often than not, sought to be dumped on governments - in other words, on taxpayers.
In the current crisis, the most prominent case so far has been the nationalisation of the British bank Northern Rock, for whose imprudence British taxpayers will end up paying tens of billions of pounds. In the US, while there have been no comparably overt bailouts (although we could yet see some), banks have been getting low-cost loans from the Fed and other government agencies, using collateral of questionable value. There are also various bank-supported plans afoot to expand the guarantees provided by US federal agencies for mortgage refinancings by delinquent borrowers.
At the end of the day, the final tab picked up by the US government to pay for the banks’ recklessness could well end up being several times as large as the approximately US$150 billion spent on the bailouts of the US savings and loan (S&L) institutions during the last significant banking crisis - the S&L crisis of the 1990s.
Similar bailouts have taken place over and over in the history of the banking industry, going back decades. As Martin Wolf, chief economics commentator of the Financial Times, put it recently: ‘No industry has a comparable talent for privatising gains and socialising losses.’
The more things change, the more they stay the same - the US fiasco has thrown up mostly old lessons to be re-learned.
EVERY financial crisis has its lessons. Most of them are old lessons which need to be relearned. Here are six (and still counting) from the United States sub-prime crisis:
1. Financial innovation is not always innovative, nor benign
Many of the so-called financial innovations at the root of the sub-prime crisis have been seen before, in previous crises. For example, the securitisation of credit (the packaging of loans and other financial assets into marketable securities) and the ‘originate and distribute’ model (whereby financial institutions create various financial instruments and then distribute them to investors) were in evidence during the run-up to the great stockmarket crash on Wall Street in 1929. At that time, banks originated and ingeniously repackaged highly speculative loans and marketed them through their own networks.
Similarly, in the run-up to the current crisis, financial institutions creatively sliced up sub-prime mortgages and packaged them into ‘collateralised debt obligations’ (CDOs), which ultimately found their way into the portfolios of investors around the world, including many large banks.
Many other features of the sub-prime crisis - the use of leverage, the opaqueness of investment instruments and their multi-layered structures - evoke, likewise, a sense of deja vu.
Amid boom times, the lessons of the past are not always remembered. As one of the sharpest observers of financial crashes through history, late economist John Kenneth Galbraith pointed out: ‘In the world of high and confident finance, little is ever really new. The controlling fact is not the tendency to brilliant invention; the controlling fact is the shortness of the public memory, especially when it contends with a euphoric desire to forget.’
2. Gatekeepers tend to be behind the curve
In the sub-prime crisis, the main ‘gatekeepers’ can be said to have been the credit rating agencies. They were unable to spot the excesses when it really mattered. This again is not new. It also happened before the crash of 1929, when credit raters were too liberal with their seals of approval and were unable to anticipate the sharp drop in bond values or the defaults that were to come.
More recently, we saw during the Asian financial crisis of 1997 how many Asian economies enjoyed high sovereign ratings prior to the crisis, even on the eve of the crisis itself. But once the crisis hit and the rating blunders became obvious, the credit raters overcompensated in the opposite direction, subjecting Asian economies to downgrades of extreme severity - which made the crisis worse.
Rating agencies were again caught flatfooted by the collapse in 1999 of US energy giant Enron - which they had also rated highly. US Senator Joseph Lieberman, whose Senate committee held the first public hearings on Enron, described the credit raters as ‘dismally lax’. ‘They didn’t ask probing questions and generally accepted at face value whatever Enron’s officials chose to tell them,’ he said.
Similarly in the sub-prime crisis, most CDOs - despite being highly opaque - were rated AAA (the highest rating, which explains their popularity among investors). After the soundness of CDOs and other mortgage-related bonds became obviously suspect, their ratings were furiously downgraded. Remarkably, the bond insurers who insured CDOs were also given AAA ratings. When the insurers’ exposure to these toxic instruments became clear, the rating agencies threatened to downgrade the bond insurers as well. But if this happens (and it already has, in a few cases), the latter’s business model - and, indeed, very survival - is threatened, because few entities would want to be insured by a insurer that is less than financially sound.
At least when it comes to their ratings of the bond insurers, the credit rating agencies can be said to have been not just behind the curve, but asleep on the job. As Professor Nouriel Roubini of New York University (and one of the first to raise the alarm about the sub-prime crisis) put it: ‘Any business that needs a triple-A rating to remain in business doesn’t deserve a triple-A rating in the first place.’
3. Self regulation does not work
Prior to the sub-prime crisis, US financial markets relied heavily on self-regulation, even for highly leveraged entities such as hedge funds and private equity funds. Financial institutions have been free to ‘innovate’, including to create highly complex and opaque instruments and various ‘off-balance sheet’ vehicles like conduits and ’structured investment vehicles’ or SIVs (which are in fact driven precisely by the desire to avoid regulatory requirements, such as minimum capital and liquidity standards). A number of ‘innovative’ loans (such as ‘liar loans’ which did not need any income verification and ‘piggyback loans’, which involved no downpayments) also became common.
Self regulation was also de rigueur in the run-up to previous crises. Before the Asian crisis, for instance, regulation of banks was either light or not enforced, which enabled such excesses as lending based on relationships rather than creditworthiness to flourish and unregulated entities like finance companies to operate with wanton disregard for risk. The years before the 1929 stockmarket crash were likewise attended by extremely lax regulations on financial institutions which led to the proliferation of all manner of wondrous investment schemes and structures.
Each crisis has been followed by regulatory catch-up, as the lesson is re-learned that voluntary codes of conduct and self-regulation is no regulation without vigilant official surveillance, at a minimum. Also, that some rules are needed to protect investors and financial institutions - ultimately, from themselves - and to guard against systemic risk.
4. Consumer spending can be artificial
Much of the US economic boom since 2002, in particular, has been driven by consumer spending, which accounts for more than 70 per cent of US GDP. The exuberance of the American consumer has been considered a litmus test of the health of the US economy. However, much of consumer spending was financed not out of savings but out of debt, in an era of super-low interest rates. It was also inflated by rising home prices: consumers with mortgages were able to draw ‘cash out’ by refinancing, often repeatedly; the bigger the mortgage, the more the home could be used as an ATM. The high ratings given to mortgage-backed securities which the banks peddled to investors fuelled ever more generous terms on mortgages, further inflating the home -equity-financed consumer spending binge.
A lesson: beware of debt-financed consumption as a sustainable driver of economic growth, and/or financial markets - all the more so if the debt is based on rising home prices.
5. You can bet against the Fed
There’s a popular saying in the markets: ‘Never bet against the Fed.’ Some of the events of the sub-prime crisis prove that this is not always true. Throughout 2006 and most of 2007, the US Federal Reserve’s assessments of the risks facing the US economy and financial markets - particularly the assertion that the US sub-prime crisis would be ‘contained’ - were way off the mark. Anybody who bet otherwise (and some did) and went short in the markets would have done well. Also, repeated interest rate cuts by the Fed (by 2.25 percentage points in the last six months) have failed to lift either the US economy or the stock markets. Part of the reason is that the Fed cannot do much in the short term to help troubled banks recapitalise. Its rate cuts also cannot directly resolve the problems facing non-depository financial institutions like hedge funds, investment banks and off-balance sheet entities like SIVs.
Whether the Fed’s rate cuts can avert a US recession during the current crisis also remains to be seen. On some previous occasions (most recently, the period following the dotcom bust of 2001), they were unable to do so.
6. When in trouble, bankers embrace socialism
The often spectacular gains that bankers make during boom times accrue to shareholders, employees and, above all, top bank executives. But in terrible times, such as now in the US, losses are, more often than not, sought to be dumped on governments - in other words, on taxpayers.
In the current crisis, the most prominent case so far has been the nationalisation of the British bank Northern Rock, for whose imprudence British taxpayers will end up paying tens of billions of pounds. In the US, while there have been no comparably overt bailouts (although we could yet see some), banks have been getting low-cost loans from the Fed and other government agencies, using collateral of questionable value. There are also various bank-supported plans afoot to expand the guarantees provided by US federal agencies for mortgage refinancings by delinquent borrowers.
At the end of the day, the final tab picked up by the US government to pay for the banks’ recklessness could well end up being several times as large as the approximately US$150 billion spent on the bailouts of the US savings and loan (S&L) institutions during the last significant banking crisis - the S&L crisis of the 1990s.
Similar bailouts have taken place over and over in the history of the banking industry, going back decades. As Martin Wolf, chief economics commentator of the Financial Times, put it recently: ‘No industry has a comparable talent for privatising gains and socialising losses.’
Speculators Holding Out For Higher Prices
Source : The Business Times, March 7, 2008
Subsale activity slows but transacted prices remain resilient
Property prices have been bolstered by speculators in the last year. But now that speculation is on the decline, could prices follow suit?
An analysis by Savills Singapore of properties subsold last year after being bought from developers in the same year has revealed that while subsale activity dropped significantly in the last quarter, subsale prices did not, suggesting that speculators are not ready to offload their investments yet.
The number of subsales fell by 66.7, 69.1 and 39.1 per cent in the high, mid and mass-market segments respectively in the fourth quarter of last year from a quarter earlier.
However, average gains made from subsales over the developers' sale price remained relatively stable. They came to 34.2 per cent in the high-end segment in Q4, 14 percentage points higher than the full-year average gains. In the mid-tier segment, average gains fell marginally by 2.4 points to 21.1 per cent, while in the mass-market segment, they rose 1.6 points to 17.2 per cent.
Savills director (marketing and business development) Ku Swee Yong adds: 'Speculators appear to be holding out for better prices.'
Interestingly, Savills's analysis also shows that there have been several speculators that have subsold on very thin profit margins of 5 per cent or less, adding credence to market talk that some speculators may be looking to offload properties at bargain prices soon.
However, while Mr Ku believes that speculators that cannot manage the mortgage payments - especially after holding for a year or more on the deferred payment scheme - might be letting go at lower profits, he does not think they represent a majority.
By his estimation, there are about 6,000 residential units that will receive TOP (temporary occupation permit) this year. 'While there may be some dumping from those who cannot afford to pay up at the point of TOP, we do not think that it will constitute more than one per cent of the 6,000 units,' he adds.
The situation could change next year.
'We expect around 10,000 units to receive TOP in 2009. Those who bought using the deferred payment scheme in the last couple of years might let go if they are really speculators and cannot afford to pay,' says Mr Ku.
But he is optimistic that the low mortgage rates may mitigate the need to sell. 'The buyers might go for rental yield instead.'
Subsales of major new launches in the high-end sector, which include developments such as Marina Bay Residences, Scotts Square and The Orchard Residences, fell to just four transactions in Q4, compared to 32 for the full year.
Two subsales were done at less than 10 per cent above the developer's sale price.
The average gains from subsales over the developer's sale price were highest in the high-end market, substantiating Mr Ku's belief that this segment could prove more resilient if the global economic downturn is prolonged. 'There is a large proportion of buyers in the high-end market that are so rich, they buy properties with cash.'
This segment is also largely supported by foreign buyers and Mr Ku says: 'Foreigners are not speculators.'
Last year, the mid-tier segment saw 140 subsales of newly launched developments like Sky @ Eleven, The Rochester and One North Residences.
In Q4, one subsale was transacted at just 2.3 per cent above the developer's sale price.
In the mass market, there were 49 subsales of newly launched projects such as The Parc Condominium, Casa Merah and Clementiwoods for the year.
In Q4, there were 14 subsale transactions. Three were done at less than 10 per cent above the developer's sale price.
The number of Sky @ Eleven subsales - over 60 - was among the highest in 2007. In July and August, four units were subsold for over 50 per cent of the developer's sale price.
But the days of huge capital gains could be over.
Mr Ku says that, based on data for January so far, subsale gains could trend downwards slightly. But he adds that there is no evidence that speculators will find themselves in negative territory yet.
Subsale activity slows but transacted prices remain resilient
Property prices have been bolstered by speculators in the last year. But now that speculation is on the decline, could prices follow suit?
An analysis by Savills Singapore of properties subsold last year after being bought from developers in the same year has revealed that while subsale activity dropped significantly in the last quarter, subsale prices did not, suggesting that speculators are not ready to offload their investments yet.
The number of subsales fell by 66.7, 69.1 and 39.1 per cent in the high, mid and mass-market segments respectively in the fourth quarter of last year from a quarter earlier.However, average gains made from subsales over the developers' sale price remained relatively stable. They came to 34.2 per cent in the high-end segment in Q4, 14 percentage points higher than the full-year average gains. In the mid-tier segment, average gains fell marginally by 2.4 points to 21.1 per cent, while in the mass-market segment, they rose 1.6 points to 17.2 per cent.
Savills director (marketing and business development) Ku Swee Yong adds: 'Speculators appear to be holding out for better prices.'
Interestingly, Savills's analysis also shows that there have been several speculators that have subsold on very thin profit margins of 5 per cent or less, adding credence to market talk that some speculators may be looking to offload properties at bargain prices soon.
However, while Mr Ku believes that speculators that cannot manage the mortgage payments - especially after holding for a year or more on the deferred payment scheme - might be letting go at lower profits, he does not think they represent a majority.
By his estimation, there are about 6,000 residential units that will receive TOP (temporary occupation permit) this year. 'While there may be some dumping from those who cannot afford to pay up at the point of TOP, we do not think that it will constitute more than one per cent of the 6,000 units,' he adds.
The situation could change next year.
'We expect around 10,000 units to receive TOP in 2009. Those who bought using the deferred payment scheme in the last couple of years might let go if they are really speculators and cannot afford to pay,' says Mr Ku.
But he is optimistic that the low mortgage rates may mitigate the need to sell. 'The buyers might go for rental yield instead.'
Subsales of major new launches in the high-end sector, which include developments such as Marina Bay Residences, Scotts Square and The Orchard Residences, fell to just four transactions in Q4, compared to 32 for the full year.
Two subsales were done at less than 10 per cent above the developer's sale price.
The average gains from subsales over the developer's sale price were highest in the high-end market, substantiating Mr Ku's belief that this segment could prove more resilient if the global economic downturn is prolonged. 'There is a large proportion of buyers in the high-end market that are so rich, they buy properties with cash.'
This segment is also largely supported by foreign buyers and Mr Ku says: 'Foreigners are not speculators.'
Last year, the mid-tier segment saw 140 subsales of newly launched developments like Sky @ Eleven, The Rochester and One North Residences.
In Q4, one subsale was transacted at just 2.3 per cent above the developer's sale price.
In the mass market, there were 49 subsales of newly launched projects such as The Parc Condominium, Casa Merah and Clementiwoods for the year.
In Q4, there were 14 subsale transactions. Three were done at less than 10 per cent above the developer's sale price.
The number of Sky @ Eleven subsales - over 60 - was among the highest in 2007. In July and August, four units were subsold for over 50 per cent of the developer's sale price.
But the days of huge capital gains could be over.
Mr Ku says that, based on data for January so far, subsale gains could trend downwards slightly. But he adds that there is no evidence that speculators will find themselves in negative territory yet.
$40m Orchard Road Facelift Put Off Till Next Month
Source : The Straits Times, Mar 7, 2008
Talks between malls, tourism board drag on over impact of works on businesses
THE great $40 million Orchard Road makeover has stalled because some mall owners are objecting to some aspects of the works.
WORRIES OVER WIDER WALKWAY: Among the mall owners' concerns is how plans to close the right-most road along Orchard Road to create a wider walkway will add to the current congestion in the area. -- ST PHOTO: NG SOR LUAN
The revamp of Singapore's premier shopping street was supposed to have begun in the middle of last month, after Chinese New Year, but will now not go ahead till next month at the earliest.
The Straits Times understands that the delay is the result of talks between the Singapore Tourism Board (STB) and Orchard Road businesses dragging on for longer than expected.
One sticking point appears to be in the details of the makeover, although most of the mall owners believe the revamp is overdue.
The makeover, announced last October, involves introducing new plants and flowers, as well as new street furniture and lighting along the thoroughfare, which will be divided into three sections themed along the lines of fruit, flower and forest.
Sections of the pedestrian walkways from Tanglin Mall to Le Meridien hotel will be repaved, and the right-most road lane will be closed to create a wider walkway in front of Ion Orchard, Wisma Atria, Ngee Ann City and the Meritus Mandarin hotel.
This one-lane closure is among the mall owners' chief concerns.
A spokesman for a major shopping mall who did not want to be identified called the closure a 'double whammy' for the area, which already experiences frequent vehicular- and human-traffic jams.
'There's a bottleneck at the Paterson Road area because of massive work being done for Ion Orchard, and lots of congestion at Somerset too. The problem of pedestrian traffic will be compounded with the widening works,' said the spokesman.
The owners of some other malls and hotels are also upset that they have not been given details such as when, where and for how long hoardings will be erected.
Ms Lau Chuen Wei, executive director of the Singapore Retailers Association, said these businesses are worried because not knowing these details, and also how high the hoardings will be, means they do not know how traffic into the area will be impeded - or how their businesses will be affected.
But at least two malls - Ngee Ann City and Ion Orchard - have been given details of the works.
Another concern is how the upgrading works will affect July's Great Singapore Sale (GSS) and the Christmas shopping season.
Businesses have also been reported as saying that although the $40 million budget for the works is not small, the makeover will still fail to address major issues such as the lack of sheltered connectivity between buildings and down the entire strip.
When contacted by The Straits Times, the STB confirmed that works have been pushed back till next month, but added that they will still end on schedule, in April next year.
Mr Andrew Phua, its director for cluster development (tourism shopping and dining), said in a statement: 'These plans have been communicated to Orchard Road stakeholders as part of the STB's ongoing dialogue and engagement with its industry partners.'
The statement also assured mall owners that the GSS and Christmas shopping season will go ahead, but made no mention of whether they will be disrupted by the works.
This is not the first time mall owners have disagreed with the STB over plans to add polish to the area.
One suggestion last year for a glass canopy running down the stretch of the road was immediately shot down by mall owners, who said it would require too much maintenance.
Talks between malls, tourism board drag on over impact of works on businesses
THE great $40 million Orchard Road makeover has stalled because some mall owners are objecting to some aspects of the works.
WORRIES OVER WIDER WALKWAY: Among the mall owners' concerns is how plans to close the right-most road along Orchard Road to create a wider walkway will add to the current congestion in the area. -- ST PHOTO: NG SOR LUANThe revamp of Singapore's premier shopping street was supposed to have begun in the middle of last month, after Chinese New Year, but will now not go ahead till next month at the earliest.
The Straits Times understands that the delay is the result of talks between the Singapore Tourism Board (STB) and Orchard Road businesses dragging on for longer than expected.
One sticking point appears to be in the details of the makeover, although most of the mall owners believe the revamp is overdue.
The makeover, announced last October, involves introducing new plants and flowers, as well as new street furniture and lighting along the thoroughfare, which will be divided into three sections themed along the lines of fruit, flower and forest.
Sections of the pedestrian walkways from Tanglin Mall to Le Meridien hotel will be repaved, and the right-most road lane will be closed to create a wider walkway in front of Ion Orchard, Wisma Atria, Ngee Ann City and the Meritus Mandarin hotel.
This one-lane closure is among the mall owners' chief concerns.
A spokesman for a major shopping mall who did not want to be identified called the closure a 'double whammy' for the area, which already experiences frequent vehicular- and human-traffic jams.
'There's a bottleneck at the Paterson Road area because of massive work being done for Ion Orchard, and lots of congestion at Somerset too. The problem of pedestrian traffic will be compounded with the widening works,' said the spokesman.
The owners of some other malls and hotels are also upset that they have not been given details such as when, where and for how long hoardings will be erected.
Ms Lau Chuen Wei, executive director of the Singapore Retailers Association, said these businesses are worried because not knowing these details, and also how high the hoardings will be, means they do not know how traffic into the area will be impeded - or how their businesses will be affected.
But at least two malls - Ngee Ann City and Ion Orchard - have been given details of the works.
Another concern is how the upgrading works will affect July's Great Singapore Sale (GSS) and the Christmas shopping season.
Businesses have also been reported as saying that although the $40 million budget for the works is not small, the makeover will still fail to address major issues such as the lack of sheltered connectivity between buildings and down the entire strip.
When contacted by The Straits Times, the STB confirmed that works have been pushed back till next month, but added that they will still end on schedule, in April next year.
Mr Andrew Phua, its director for cluster development (tourism shopping and dining), said in a statement: 'These plans have been communicated to Orchard Road stakeholders as part of the STB's ongoing dialogue and engagement with its industry partners.'
The statement also assured mall owners that the GSS and Christmas shopping season will go ahead, but made no mention of whether they will be disrupted by the works.
This is not the first time mall owners have disagreed with the STB over plans to add polish to the area.
One suggestion last year for a glass canopy running down the stretch of the road was immediately shot down by mall owners, who said it would require too much maintenance.
US Housing Woes: It's The Affordability, Stupid!
Source : The Business Times, March 6, 2008
GLOOM. Doom. Calamity. Home prices are tumbling. We're bombarded by sombre reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse. The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last. It's elementary economics. Say, houses are apples. We have 1,000 apples, priced at US$1 each. They don't sell. We can either keep the price at US$1 and watch the apples rot. Or we can cut the price until people buy. Housing is no different.
Even many economists - who should know better - describe the present situation as an oversupply of unsold homes. True, there is about 10 months' supply of existing homes as opposed to four months a few years ago. But the real problem is insufficient demand. There aren't more homes than there are Americans who want homes; that would be a true surplus. There's so much supply because many prospective customers can't buy at today's prices. By definition, the 'housing bubble' meant that home prices got too high. Easy credit, lax lending standards and panic buying raised them to foolish levels. Weak borrowers got loans. People with good credit borrowed too much. Speculators joined the circus.
Look at some numbers from the (US) National Association of Realtors. From 2000 to 2006, median family income rose almost 14 per cent to US$57,612. Over the same period, the median-priced existing home increased about 50 per cent to US$221,900. By other indicators, the increase was even greater. But home prices could not rise faster than incomes forever. Inevitably, the bust arrived. Credit standards have now been tightened, and the (false) hope of perpetually rising home prices - along with the possibility of always selling at a profit - has evaporated. For many potential buyers, prices have to drop for housing to become affordable.
How much? No one really knows. There is no national housing market. Prices and family incomes vary by state, city and neighbourhood. Prices rose faster in some areas (Los Angeles, Miami, Phoenix) than in others (Dallas, Detroit, Minneapolis). Some economists now expect an average national decline of about 20 per cent. The Federal Reserve estimates that owner-occupied real estate is worth almost US$21 trillion. A 20 per cent reduction implies losses of about US$4 trillion.
The largest part would be paper losses for homeowners: values that rose spectacularly will now fall less spectacularly - back to roughly 2004 levels; that's still 30 per cent or so higher than in 2000. But hundreds of billions of dollars of other losses are already being suffered by builders (from the lower value of land and home inventories), mortgage lenders (from defaulting loans), speculators and homeowners (from lost homes). Mark Zandi of Moody's Economy.com estimates that mortgage defaults this year will exceed 2 million, up from 893,000 in 2006.
To be sure, all this weakens the economy. No one relishes evicting hundreds of thousands of families from their homes. Eroding real estate values make many consumers less willing to borrow and spend. Some economists fear a vicious downward spiral of home prices. More foreclosures depress prices, increasing foreclosures as people abandon houses where the mortgage exceeds the value. Losses to banks and other lenders rise, and they curb lending further. Particularly vulnerable would be Fannie Mae and Freddie Mac, the two government-sponsored housing lenders.
Up to a point, there's a case for providing relief to some mortgage borrowers. In many cases, everyone would gain if lenders and borrowers renegotiated loan terms to reduce monthly payments. Losses to both would be less than if their homes went into foreclosure and were sold. The Treasury has organised voluntary efforts. Some measures being considered by Congress (for example, overhauling the Federal Housing Administration) might help. But other proposals - particularly empowering bankruptcy judges to reduce mortgages unilaterally - would perversely hurt the housing market by raising the cost of mortgage credit. Lenders would increase interest rates or downpayments to compensate for the risk that a court might modify or nullify their loans.
The understandable impulse to minimise foreclosures should not serve as a pretext to prop up the housing market by rescuing too many strapped homeowners. Though cruel, foreclosures and falling home values have the virtue of bringing prices to a level where housing can escape its present stagnation. Helping today's homeowners makes little sense if it penalises tomorrow's homeowners. An unstoppable free fall of prices seems unlikely.
Slumping home construction and sales have left much pent-up demand. What will release that demand are affordable prices. -- The Washington Post Writers Group
By ROBERT SAMUELSON
GLOOM. Doom. Calamity. Home prices are tumbling. We're bombarded by sombre reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse. The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last. It's elementary economics. Say, houses are apples. We have 1,000 apples, priced at US$1 each. They don't sell. We can either keep the price at US$1 and watch the apples rot. Or we can cut the price until people buy. Housing is no different.
Even many economists - who should know better - describe the present situation as an oversupply of unsold homes. True, there is about 10 months' supply of existing homes as opposed to four months a few years ago. But the real problem is insufficient demand. There aren't more homes than there are Americans who want homes; that would be a true surplus. There's so much supply because many prospective customers can't buy at today's prices. By definition, the 'housing bubble' meant that home prices got too high. Easy credit, lax lending standards and panic buying raised them to foolish levels. Weak borrowers got loans. People with good credit borrowed too much. Speculators joined the circus.
Look at some numbers from the (US) National Association of Realtors. From 2000 to 2006, median family income rose almost 14 per cent to US$57,612. Over the same period, the median-priced existing home increased about 50 per cent to US$221,900. By other indicators, the increase was even greater. But home prices could not rise faster than incomes forever. Inevitably, the bust arrived. Credit standards have now been tightened, and the (false) hope of perpetually rising home prices - along with the possibility of always selling at a profit - has evaporated. For many potential buyers, prices have to drop for housing to become affordable.
How much? No one really knows. There is no national housing market. Prices and family incomes vary by state, city and neighbourhood. Prices rose faster in some areas (Los Angeles, Miami, Phoenix) than in others (Dallas, Detroit, Minneapolis). Some economists now expect an average national decline of about 20 per cent. The Federal Reserve estimates that owner-occupied real estate is worth almost US$21 trillion. A 20 per cent reduction implies losses of about US$4 trillion.
The largest part would be paper losses for homeowners: values that rose spectacularly will now fall less spectacularly - back to roughly 2004 levels; that's still 30 per cent or so higher than in 2000. But hundreds of billions of dollars of other losses are already being suffered by builders (from the lower value of land and home inventories), mortgage lenders (from defaulting loans), speculators and homeowners (from lost homes). Mark Zandi of Moody's Economy.com estimates that mortgage defaults this year will exceed 2 million, up from 893,000 in 2006.
To be sure, all this weakens the economy. No one relishes evicting hundreds of thousands of families from their homes. Eroding real estate values make many consumers less willing to borrow and spend. Some economists fear a vicious downward spiral of home prices. More foreclosures depress prices, increasing foreclosures as people abandon houses where the mortgage exceeds the value. Losses to banks and other lenders rise, and they curb lending further. Particularly vulnerable would be Fannie Mae and Freddie Mac, the two government-sponsored housing lenders.
Up to a point, there's a case for providing relief to some mortgage borrowers. In many cases, everyone would gain if lenders and borrowers renegotiated loan terms to reduce monthly payments. Losses to both would be less than if their homes went into foreclosure and were sold. The Treasury has organised voluntary efforts. Some measures being considered by Congress (for example, overhauling the Federal Housing Administration) might help. But other proposals - particularly empowering bankruptcy judges to reduce mortgages unilaterally - would perversely hurt the housing market by raising the cost of mortgage credit. Lenders would increase interest rates or downpayments to compensate for the risk that a court might modify or nullify their loans.
The understandable impulse to minimise foreclosures should not serve as a pretext to prop up the housing market by rescuing too many strapped homeowners. Though cruel, foreclosures and falling home values have the virtue of bringing prices to a level where housing can escape its present stagnation. Helping today's homeowners makes little sense if it penalises tomorrow's homeowners. An unstoppable free fall of prices seems unlikely.
Slumping home construction and sales have left much pent-up demand. What will release that demand are affordable prices. -- The Washington Post Writers Group
By ROBERT SAMUELSON
More Excitement As Tans Firm Up Stakes In Wearnes, UEL?
Source : The Business Times, March 6, 2008
WITH Oversea-Chinese Banking Corporation’s founding Lee family capitulating to the family of the late Tan Chin Tuan (the bank’s longest-serving chief executive) in the fight for control of Straits Trading Company (STC), it would have appeared that things would take a quiet turn now.
By Tuesday, the Tans had gained control of nearly 75 per cent of Straits Trading’s outstanding shares as OCBC Bank handed over its 6.2 per cent stake. But instead of just consolidating their control over the company - which not only has a cash stash of some $347 million besides some prime property and one of the world’s largest tin smelters - the Tans now appear to have set their sights on several other parts of the OCBC Bank stable like Wearnes (WBL Corporation) and United Engineers Ltd (UEL).
Wearnes last Friday announced matter-of-factly to the Singapore Exchange (SGX) that a certain Kambau Pte Ltd had increased its stake in the diversified company, whose interests include automobile distribution, electronics and property .
Kambau, which is affiliated to the Tan family’s Tecity Management Pte Ltd and Tan Foundation, reported that it had raised its stake in Wearnes from 1.56 per cent to 1.92 per cent through the purchase of an additional 755,000 shares at $4.30 each.
Nevertheless, Kambau’s deemed interest in Wearnes remains at exactly the same 3.09 per cent as before the latest purchases. Perhaps an explanation to the less initiated would be helpful.
Normally, an investor with a stake lower than 5 per cent does not have to report to the Exchange until that mark has been breached. But with Straits Trading already having a 6.22 per cent stake, Kambau must have decided that it was prudent to report the deal.
The price of Wearnes shares since Kambau’s transactions has shot up to a high of $5.35 as some sophisticated investors appear to have wised up to the game; it was just $4 a share a month ago. And, remember, this is in a market where most other stock prices have been depressed.
Also, in the last few days, both the volume and price of transactions in United Engineers shares have risen significantly. The property and engineering company’s shares hit a high of $4.05 yesterday; a month ago, they could be bought for as low as $3.42 apiece. In the last couple of days, more than three million shares have changed hands.
The market has it that, again, the Tan family is involved, as Straits Trading holds some 12.22 per cent of its ordinary stock. Kambau owns 7.89 per cent of the preference shares while, interestingly enough, Wearnes has a 9.97 per cent stake in the company.
It makes some sense for the Tan family to consolidate its holdings in Wearnes and United Engineers through Straits Trading. The current purchases are perhaps to ensure that, should Straits Trading make a takeover bid for these two chips of the old OCBC block, it would succeed.
Both companies and OCBC Bank are part of the stable that the late Mr Tan nurtured and grew into the blue chips they are now. So Tecity chief executive Chew Gek Khim, Mr Tan’s daughter, is familiar with these companies and should, at the very least, have a rough idea of their worth.
Perhaps it’s Ms Chew’s desire that the rest of the stable does not go the same way as department store Robinsons & Company, which is now the subject of a takeover bid by ALF Global Private Ltd, a unit of the Middle East-based Al-Futtaim Group.
In any case, a contest for control of these companies can only be good for their minority shareholders as the combatants unlock the true value of these stocks.
WITH Oversea-Chinese Banking Corporation’s founding Lee family capitulating to the family of the late Tan Chin Tuan (the bank’s longest-serving chief executive) in the fight for control of Straits Trading Company (STC), it would have appeared that things would take a quiet turn now.
By Tuesday, the Tans had gained control of nearly 75 per cent of Straits Trading’s outstanding shares as OCBC Bank handed over its 6.2 per cent stake. But instead of just consolidating their control over the company - which not only has a cash stash of some $347 million besides some prime property and one of the world’s largest tin smelters - the Tans now appear to have set their sights on several other parts of the OCBC Bank stable like Wearnes (WBL Corporation) and United Engineers Ltd (UEL).
Wearnes last Friday announced matter-of-factly to the Singapore Exchange (SGX) that a certain Kambau Pte Ltd had increased its stake in the diversified company, whose interests include automobile distribution, electronics and property .
Kambau, which is affiliated to the Tan family’s Tecity Management Pte Ltd and Tan Foundation, reported that it had raised its stake in Wearnes from 1.56 per cent to 1.92 per cent through the purchase of an additional 755,000 shares at $4.30 each.
Nevertheless, Kambau’s deemed interest in Wearnes remains at exactly the same 3.09 per cent as before the latest purchases. Perhaps an explanation to the less initiated would be helpful.
Normally, an investor with a stake lower than 5 per cent does not have to report to the Exchange until that mark has been breached. But with Straits Trading already having a 6.22 per cent stake, Kambau must have decided that it was prudent to report the deal.
The price of Wearnes shares since Kambau’s transactions has shot up to a high of $5.35 as some sophisticated investors appear to have wised up to the game; it was just $4 a share a month ago. And, remember, this is in a market where most other stock prices have been depressed.
Also, in the last few days, both the volume and price of transactions in United Engineers shares have risen significantly. The property and engineering company’s shares hit a high of $4.05 yesterday; a month ago, they could be bought for as low as $3.42 apiece. In the last couple of days, more than three million shares have changed hands.
The market has it that, again, the Tan family is involved, as Straits Trading holds some 12.22 per cent of its ordinary stock. Kambau owns 7.89 per cent of the preference shares while, interestingly enough, Wearnes has a 9.97 per cent stake in the company.
It makes some sense for the Tan family to consolidate its holdings in Wearnes and United Engineers through Straits Trading. The current purchases are perhaps to ensure that, should Straits Trading make a takeover bid for these two chips of the old OCBC block, it would succeed.
Both companies and OCBC Bank are part of the stable that the late Mr Tan nurtured and grew into the blue chips they are now. So Tecity chief executive Chew Gek Khim, Mr Tan’s daughter, is familiar with these companies and should, at the very least, have a rough idea of their worth.
Perhaps it’s Ms Chew’s desire that the rest of the stable does not go the same way as department store Robinsons & Company, which is now the subject of a takeover bid by ALF Global Private Ltd, a unit of the Middle East-based Al-Futtaim Group.
In any case, a contest for control of these companies can only be good for their minority shareholders as the combatants unlock the true value of these stocks.
S-Reit Climate Fertile For M&A Activities: Goldman Sachs
Source : The Business Times, March 6, 2008
MacarthurCook, Cambridge and Allco seen as potential takeover targets
CAMBRIDGE Industrial Trust, MacarthurCook Industrial Reit and Allco Commercial Reit are among potential takeover targets among Singapore real estate investment trusts (S-Reits), says Goldman Sachs in a report this week.
‘We believe that Reits with relatively smaller market caps, fragmented shareholdings or larger shareholders which may be open to exiting their stakes, and relatively high yields compared with sector peers are likely takeover targets,’ the report authored by analyst Leslie Yee said.
The current S-Reit climate, with disparity in distribution yields at which Reits in the same asset class are currently trading on the stock market, provides fertile ground for merger and acquisition (M&A) activities, the bank contends.
‘Hypothetically, a Reit trading at a lower yield that acquires a Reit trading at a higher yield, would be making an accretive acquisition, if the acquirer trades at the same yield post-acquisition,’ it added.
It may be easier for S-Reits to grow by acquiring other Reits as the traditional method of growing - through the acquisition of physical assets - has become more difficult. This is because the slump in S-Reit prices on the stock market has raised their distribution yields, making it harder for them to make yield-accretive acquisitions of properties .
Goldman Sachs said other factors that have brought forward M&A as a theme for the S-Reit space include the prices of certain Reits trading below net asset value, increasing openness of management teams discussing the possibility of M&A, and trade sales.
In mid-February, Macquarie MEAG Prime Reit’s (MMP Reit’s) manager announced a strategic review to enhance value for unitholders following the receipt of unsolicited bids made to Macquarie Real Estate, which holds a 26 per cent interest in MMP Reit.
‘We think this strategic review can lead among others to an outright sale of the Reit or sale of underlying assets on a piecemeal basis. There are precedents among the Australian Reits of acquisitions of entire Reits and piecemeal divestments of their properties . We see either of these actions as among the many ways in which Reits trading below book value can help realise book value,’ Goldman said.
‘We believe that MMP Reit’s efforts could cause shareholders of other Reits trading below NAV to seriously consider how best to unlock value. We note that Reits in mature markets like Australia divest assets on a piecemeal basis to optimise their portfolio, and we do not rule out S-Reits divesting individual assets to reconfigure their portfolios or even pay special dividends,’ it added.
‘Besides Reits’ takeovers, another possibility is the takeover of Reit managers. We note ARA Asset Management has stated it is keen to acquire other Reit managers,’ the report said.
The M&A theme will be positive for S-Reits. For large-cap Reits which trade at relatively low yields, M&A will create another avenue for growth. For smaller Reits trading at relatively high yields, investors should be able to cash in on premiums paid to buy out their respective Reits. ‘We expect the focusing of M&A as a theme by investors to result in narrowing of discounts to RNAV,’ Goldman said.
It also recommends investors to be ‘overweight’ on S-Reits given the defensive nature of these instruments and their relatively high distribution yields.
‘Based on our stress tests, we are comfortable that downside risk to our revised 12-month target prices is capped at about 14 per cent on bear case scenarios which we do not expect to materialise. In a flight to quality environment, we favour well-managed big-cap names, with debt capacity to fund acquisition growth, and which trade at discount to RNAV and show strong near-term organic growth.’
Goldman has upgraded office landlord CapitaCommercial Trust from ‘neutral’ to ‘buy’ and added it to its Conviction List of top ‘buy’ calls. It has also upgraded Ascendas Reit from ’sell’ to ‘neutral’. The bank also has ‘buy’ recommendations for CDL Hospitality Trusts, K-Reit Asia and Suntec Reit. It has downgraded CapitaMall Trust from ‘buy’ to ‘neutral’, and MMP Reit from ‘neutral’ to ’sell’.
MacarthurCook, Cambridge and Allco seen as potential takeover targets
CAMBRIDGE Industrial Trust, MacarthurCook Industrial Reit and Allco Commercial Reit are among potential takeover targets among Singapore real estate investment trusts (S-Reits), says Goldman Sachs in a report this week.
‘We believe that Reits with relatively smaller market caps, fragmented shareholdings or larger shareholders which may be open to exiting their stakes, and relatively high yields compared with sector peers are likely takeover targets,’ the report authored by analyst Leslie Yee said.
The current S-Reit climate, with disparity in distribution yields at which Reits in the same asset class are currently trading on the stock market, provides fertile ground for merger and acquisition (M&A) activities, the bank contends.
‘Hypothetically, a Reit trading at a lower yield that acquires a Reit trading at a higher yield, would be making an accretive acquisition, if the acquirer trades at the same yield post-acquisition,’ it added.
It may be easier for S-Reits to grow by acquiring other Reits as the traditional method of growing - through the acquisition of physical assets - has become more difficult. This is because the slump in S-Reit prices on the stock market has raised their distribution yields, making it harder for them to make yield-accretive acquisitions of properties .
Goldman Sachs said other factors that have brought forward M&A as a theme for the S-Reit space include the prices of certain Reits trading below net asset value, increasing openness of management teams discussing the possibility of M&A, and trade sales.
In mid-February, Macquarie MEAG Prime Reit’s (MMP Reit’s) manager announced a strategic review to enhance value for unitholders following the receipt of unsolicited bids made to Macquarie Real Estate, which holds a 26 per cent interest in MMP Reit.
‘We think this strategic review can lead among others to an outright sale of the Reit or sale of underlying assets on a piecemeal basis. There are precedents among the Australian Reits of acquisitions of entire Reits and piecemeal divestments of their properties . We see either of these actions as among the many ways in which Reits trading below book value can help realise book value,’ Goldman said.
‘We believe that MMP Reit’s efforts could cause shareholders of other Reits trading below NAV to seriously consider how best to unlock value. We note that Reits in mature markets like Australia divest assets on a piecemeal basis to optimise their portfolio, and we do not rule out S-Reits divesting individual assets to reconfigure their portfolios or even pay special dividends,’ it added.
‘Besides Reits’ takeovers, another possibility is the takeover of Reit managers. We note ARA Asset Management has stated it is keen to acquire other Reit managers,’ the report said.
The M&A theme will be positive for S-Reits. For large-cap Reits which trade at relatively low yields, M&A will create another avenue for growth. For smaller Reits trading at relatively high yields, investors should be able to cash in on premiums paid to buy out their respective Reits. ‘We expect the focusing of M&A as a theme by investors to result in narrowing of discounts to RNAV,’ Goldman said.
It also recommends investors to be ‘overweight’ on S-Reits given the defensive nature of these instruments and their relatively high distribution yields.
‘Based on our stress tests, we are comfortable that downside risk to our revised 12-month target prices is capped at about 14 per cent on bear case scenarios which we do not expect to materialise. In a flight to quality environment, we favour well-managed big-cap names, with debt capacity to fund acquisition growth, and which trade at discount to RNAV and show strong near-term organic growth.’
Goldman has upgraded office landlord CapitaCommercial Trust from ‘neutral’ to ‘buy’ and added it to its Conviction List of top ‘buy’ calls. It has also upgraded Ascendas Reit from ’sell’ to ‘neutral’. The bank also has ‘buy’ recommendations for CDL Hospitality Trusts, K-Reit Asia and Suntec Reit. It has downgraded CapitaMall Trust from ‘buy’ to ‘neutral’, and MMP Reit from ‘neutral’ to ’sell’.
Singapore Ranked Top Reit Market In Asia-Pacific
Source : The Business Times, March 6, 2008
Survey cites support from regulators to the industry as advantageous.
SINGAPORE has been rated as the best location in Asia-Pacific for overall realestate investment trust (Reit) potential - for a second year.
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According to the second annual Asia-Pacific Reit Survey - undertaken for financial services provider Trust Company and law firm Allens Arthur Robinson - one of Singapore’s significant advantages is the support that the industry receives from regulators such as the Monetary Authority of Singapore and the Singapore Exchange.
Senior property, finance and business experts across the Asia-Pacific are confident that the region’s Reit markets will remain strong, the survey said.
However, the findings also showed that low yields, poor regulatory processes, the effects of financial engineering and adverse taxation developments will continue to be the greatest threats to Reits in Asia-Pacific.
The experts believe that most of these threats will diminish significantly in the longer term.
The survey suggests that over the next one or two years, companies will increase the size of their existing Reits rather than launch new ones, but this trend will be reversed in the longer term of three to five years.
According to the survey’s findings, retail, commercial/office and industrial and retail property will continue to be the main focus for market growth, even though the retail, commercial and office markets have cooled in the last 12 months.
The hotel and hospital sectors are expected to heat up while industrial and infrastructure property is expected to experience slight growth. Residential property, however, will remain cold, the survey said.
The findings also showed that China, India and Vietnam are ranked as the top three hot property growth markets in Asia-Pacific for the next five years. Singapore, which ranked fourth, was the highest placed established Reit market. Good growth is also expected in Malaysia.
Vicki Allen, executive general manager of institutional services at Trust, acknowledged that since the survey was conducted, some caution has surfaced in global Reit markets. But she said that Asia-Pacific Reit markets have fared reasonably well compared with their North American and European counterparts.
Robert Clarke, a partner at Allens Arthur Robinson, suggested that regulatory flexibility is key to staying ahead. He cited Singapore as an example.
Survey cites support from regulators to the industry as advantageous.
SINGAPORE has been rated as the best location in Asia-Pacific for overall realestate investment trust (Reit) potential - for a second year.
+7.jpg)
According to the second annual Asia-Pacific Reit Survey - undertaken for financial services provider Trust Company and law firm Allens Arthur Robinson - one of Singapore’s significant advantages is the support that the industry receives from regulators such as the Monetary Authority of Singapore and the Singapore Exchange.Senior property, finance and business experts across the Asia-Pacific are confident that the region’s Reit markets will remain strong, the survey said.
However, the findings also showed that low yields, poor regulatory processes, the effects of financial engineering and adverse taxation developments will continue to be the greatest threats to Reits in Asia-Pacific.
The experts believe that most of these threats will diminish significantly in the longer term.
The survey suggests that over the next one or two years, companies will increase the size of their existing Reits rather than launch new ones, but this trend will be reversed in the longer term of three to five years.
According to the survey’s findings, retail, commercial/office and industrial and retail property will continue to be the main focus for market growth, even though the retail, commercial and office markets have cooled in the last 12 months.
The hotel and hospital sectors are expected to heat up while industrial and infrastructure property is expected to experience slight growth. Residential property, however, will remain cold, the survey said.
The findings also showed that China, India and Vietnam are ranked as the top three hot property growth markets in Asia-Pacific for the next five years. Singapore, which ranked fourth, was the highest placed established Reit market. Good growth is also expected in Malaysia.
Vicki Allen, executive general manager of institutional services at Trust, acknowledged that since the survey was conducted, some caution has surfaced in global Reit markets. But she said that Asia-Pacific Reit markets have fared reasonably well compared with their North American and European counterparts.
Robert Clarke, a partner at Allens Arthur Robinson, suggested that regulatory flexibility is key to staying ahead. He cited Singapore as an example.
The Slow Unwinding Of The US Housing Crisis
Source : The Business Times, March 6, 2008
IT is becoming increasingly evident that the US housing crisis - the root cause of the US economic slowdown and the turmoil in the financial markets - is getting worse by the day. Any hopes for an economic recovery and a restoration of market stability will turn on how this crisis unfolds, and how it is dealt with.
Recent statements and actions by US policymakers provide some clues of what is to come. In a widely reported address to American community bankers on Tuesday, US Federal Reserve chairman Ben Bernanke drew attention to rising delinquency rates on mortgages (and not only the sub-prime variety) and the likely persistence of this trend. Foreclosures too will rise, he said, as house prices decline further and interest rate resets on mortgages take effect.
Suggesting that 'this situation calls for a vigorous response', Mr Bernanke stressed the urgency of reducing 'preventable foreclosures'. And then he dropped what many view as a bombshell: he asked for banks to not only provide interest rate relief to borrowers, but also to write down principal in some cases - in other words, to forgive part of the mortgage loans. If not, there would be a stronger incentive to default among homeowners who are in negative equity on their mortgages. And that, in turn, would accelerate the decline in housing prices and make things even worse for already beleaguered mortgage lenders.
A day earlier, US Treasury Secretary Henry Paulson - who also acknowledged that housing 'poses the biggest downside risk' to the economy - urged homeowners (including those 'underwater' on their mortgages) to continue servicing their loans, if possible. While this might not be a wholly realistic suggestion, it underlines US officials' anxiety to stave off foreclosures.
Whether such exhortations will succeed, however, is moot. Bankers are generally loath to take 'haircuts' on loans except as the very last resort; and one can hardly count on most homeowners in negative equity being content to continue servicing huge mortgages when they're better off walking away and handing their house keys to the bank.
Absent such voluntary market-based solutions, there would appear to be a strong case for government intervention. Mr Paulson and other lawmakers have publicly maintained that they oppose any bailouts. However, at the same time, the scope and mandate given to US government agencies such as the Federal Housing Administration, Fannie Mae and Freddie Mac to guarantee or take over mortgages have been significantly expanded. US lawmakers are also examining bolder options. It is probably inevitable that some of these will involve an element of bailout, even if politicians are reluctant to admit as much. However, whether bailouts are involved or not, US policymakers need to address the US housing market bust urgently, despite the distractions of an election year. For it is now obvious that there is a systemic risk facing the US financial system - and that market mechanisms alone cannot deal with it.
IT is becoming increasingly evident that the US housing crisis - the root cause of the US economic slowdown and the turmoil in the financial markets - is getting worse by the day. Any hopes for an economic recovery and a restoration of market stability will turn on how this crisis unfolds, and how it is dealt with.
Recent statements and actions by US policymakers provide some clues of what is to come. In a widely reported address to American community bankers on Tuesday, US Federal Reserve chairman Ben Bernanke drew attention to rising delinquency rates on mortgages (and not only the sub-prime variety) and the likely persistence of this trend. Foreclosures too will rise, he said, as house prices decline further and interest rate resets on mortgages take effect.
Suggesting that 'this situation calls for a vigorous response', Mr Bernanke stressed the urgency of reducing 'preventable foreclosures'. And then he dropped what many view as a bombshell: he asked for banks to not only provide interest rate relief to borrowers, but also to write down principal in some cases - in other words, to forgive part of the mortgage loans. If not, there would be a stronger incentive to default among homeowners who are in negative equity on their mortgages. And that, in turn, would accelerate the decline in housing prices and make things even worse for already beleaguered mortgage lenders.
A day earlier, US Treasury Secretary Henry Paulson - who also acknowledged that housing 'poses the biggest downside risk' to the economy - urged homeowners (including those 'underwater' on their mortgages) to continue servicing their loans, if possible. While this might not be a wholly realistic suggestion, it underlines US officials' anxiety to stave off foreclosures.
Whether such exhortations will succeed, however, is moot. Bankers are generally loath to take 'haircuts' on loans except as the very last resort; and one can hardly count on most homeowners in negative equity being content to continue servicing huge mortgages when they're better off walking away and handing their house keys to the bank.
Absent such voluntary market-based solutions, there would appear to be a strong case for government intervention. Mr Paulson and other lawmakers have publicly maintained that they oppose any bailouts. However, at the same time, the scope and mandate given to US government agencies such as the Federal Housing Administration, Fannie Mae and Freddie Mac to guarantee or take over mortgages have been significantly expanded. US lawmakers are also examining bolder options. It is probably inevitable that some of these will involve an element of bailout, even if politicians are reluctant to admit as much. However, whether bailouts are involved or not, US policymakers need to address the US housing market bust urgently, despite the distractions of an election year. For it is now obvious that there is a systemic risk facing the US financial system - and that market mechanisms alone cannot deal with it.
Greenspan Says Credit Recovery Hinges On US Housing
Source : The Business Times, March 6, 2008
A recovery in global credit markets will depend on stabilisation in US home prices and a massive reduction in housing inventory, former Federal Reserve Chairman Alan Greenspan told Deutsche Bank AG clients on Wednesday, according to sources.
Mr Greenspan, the US Fed chairman from 1987 until 2006, also blamed the credit crisis on a 'general underpricing of risk' and a 'breakdown' of how assets are valued after the US housing bubble burst, sparking broader concerns about credit markets last year.
'The sooner we can get home prices in the United States stabilised, the sooner we will resolve all questions,' he said, according to two sources who were on a conference call with the former central bank chief.
Excessive housing inventories must fall before more signs of recovery are evident, he said. One in 10 US homeowners now hold mortgages that are larger than the worth of their homes, according to Moody's Economy.com, a sign that foreclosures may rise, adding to inventory and depressing home prices.
'The level of housing has got to fall,' Mr Greenspan said, according to one source on the call. 'If it doesn't fall further we are going to be involved with a continual backing up of inventory pressing on prices.'
US home prices dropped in the fourth quarter, the first consecutive quarters of decline since 1982, according to Freddie Mac, the second largest US home funding company.
Mr Greenspan, retained as a senior adviser to Deutsche Bank in August, added that he sees companies buying back stock in record volumes and that corporate balance sheets are in relatively good shape, according to the sources.
'We still have a way to go, but we are at least seeing some early signs that the process is well underway,' said Mr Greenspan, who in January was named an advisor to Paulson & Co, a US$30 billion hedge fund that successfully bet last year that the mortgage markets would fall. -- REUTERS
A recovery in global credit markets will depend on stabilisation in US home prices and a massive reduction in housing inventory, former Federal Reserve Chairman Alan Greenspan told Deutsche Bank AG clients on Wednesday, according to sources.
Mr Greenspan, the US Fed chairman from 1987 until 2006, also blamed the credit crisis on a 'general underpricing of risk' and a 'breakdown' of how assets are valued after the US housing bubble burst, sparking broader concerns about credit markets last year. 'The sooner we can get home prices in the United States stabilised, the sooner we will resolve all questions,' he said, according to two sources who were on a conference call with the former central bank chief.
Excessive housing inventories must fall before more signs of recovery are evident, he said. One in 10 US homeowners now hold mortgages that are larger than the worth of their homes, according to Moody's Economy.com, a sign that foreclosures may rise, adding to inventory and depressing home prices.
'The level of housing has got to fall,' Mr Greenspan said, according to one source on the call. 'If it doesn't fall further we are going to be involved with a continual backing up of inventory pressing on prices.'
US home prices dropped in the fourth quarter, the first consecutive quarters of decline since 1982, according to Freddie Mac, the second largest US home funding company.
Mr Greenspan, retained as a senior adviser to Deutsche Bank in August, added that he sees companies buying back stock in record volumes and that corporate balance sheets are in relatively good shape, according to the sources.
'We still have a way to go, but we are at least seeing some early signs that the process is well underway,' said Mr Greenspan, who in January was named an advisor to Paulson & Co, a US$30 billion hedge fund that successfully bet last year that the mortgage markets would fall. -- REUTERS
Punj Lloyd Singapore Unit Sees Orders Triple
Source : The Business Times, March 6, 2008
Sembawang Engineers & Constructors, a unit of India's Punj Lloyd, said yesterday its orderbook has tripled from a year ago on a construction boom in Singapore.
The strong demand helped Singapore's largest construction firm by sales raise its orderbook to $2.1 billion and boosted gross profit margins to 7-8 per cent from 1-1.5 per cent in 2006, said chief executive Alwyn Bowden.
'We're concentrating on infrastructure projects because these are bigger and more challenging, and are higher profile,' Mr Bowden told Reuters in an interview.
He said that while demand for building homes and offices is expected to slow amidst an easing property market here, the impact is 'negligible', offset by major infrastructure investments in its key target markets of Singapore, India, and the Middle East.
These projects will not be derailed by fears of a global slowdown sparked by an ongoing credit crisis, due to strong economic growth in India and a spike in oil prices that are boosting Middle East coffers, he said.
Currently Singapore makes up 80 per cent of the firm's orderbook. But the company aims to reduce that share and split its sales three ways between South- east Asia, India, and the Middle East.
'We only need to grab a relatively small share of that market, to already be headed towards the same sort of levels of revenues that we achieve here and in South-east Asia,' he said.
Shares in Punj Lloyd, India's fifth-biggest builder, slid 6 per cent yesterday to take losses for the year to 41 per cent, underperforming an 18 per cent fall since December in the broader Bombay market.
Sembawang is currently involved in a number of high-profile projects here, including casino resorts - the Marina Bay Sands and Resorts World at Sentosa - as well as a contract to build part of a new subway line. -- Reuters
Sembawang Engineers & Constructors, a unit of India's Punj Lloyd, said yesterday its orderbook has tripled from a year ago on a construction boom in Singapore.
The strong demand helped Singapore's largest construction firm by sales raise its orderbook to $2.1 billion and boosted gross profit margins to 7-8 per cent from 1-1.5 per cent in 2006, said chief executive Alwyn Bowden.
'We're concentrating on infrastructure projects because these are bigger and more challenging, and are higher profile,' Mr Bowden told Reuters in an interview.
He said that while demand for building homes and offices is expected to slow amidst an easing property market here, the impact is 'negligible', offset by major infrastructure investments in its key target markets of Singapore, India, and the Middle East.
These projects will not be derailed by fears of a global slowdown sparked by an ongoing credit crisis, due to strong economic growth in India and a spike in oil prices that are boosting Middle East coffers, he said.
Currently Singapore makes up 80 per cent of the firm's orderbook. But the company aims to reduce that share and split its sales three ways between South- east Asia, India, and the Middle East.
'We only need to grab a relatively small share of that market, to already be headed towards the same sort of levels of revenues that we achieve here and in South-east Asia,' he said.
Shares in Punj Lloyd, India's fifth-biggest builder, slid 6 per cent yesterday to take losses for the year to 41 per cent, underperforming an 18 per cent fall since December in the broader Bombay market.
Sembawang is currently involved in a number of high-profile projects here, including casino resorts - the Marina Bay Sands and Resorts World at Sentosa - as well as a contract to build part of a new subway line. -- Reuters
华业集团将推出 泛太平洋豪华服务公寓
《联合早报》Mar 6, 2008
看好本区域企业对服务公寓的需求将持续增加，华业集团（UOL）将在乌节路旺区推出首个泛太平洋（Pan Pacific）品牌的豪华服务公寓，抢攻这个市场。
华业集团将大华置业大厦拆除，耗资4000万元将它改建为泛太平洋服务公寓。
租金比高档次高20％
位于索美塞路的泛太平洋服务公寓(Pan Pacific Serviced Suites)，面对新加坡能源大厦，预订在今年4月8日开始营业。它拥有126个套房，每月租金从1万元至2万5500万元，日租则介于420元和1070元，比本地高档服务公寓收费来得高20％至25％。
华业集团总裁魏练庆说：“建筑在泛太平洋品牌上，进军豪华服务公寓是自然的发展。在亚太区旅客预料将在未来几年持续增长的背景下，目前是进场的好时机，让我们能更好地照顾到长期住户的需要。”
住户都有私人助理
与泛太平洋酒店同一家族的泛太平洋服务公寓，有别于竞争对手的地方在于公寓内的设备和设施，讲究个人化服务，每个住户将享有私人助理，协助打点日常生活。
泛太平洋服务公寓所在地过去是大华置业大厦（UOL Building）。两年半前在本地房地产市场还未腾飞之前，集团将这个旧办公楼拆除，耗资4000万元将它改建为一栋符合办公楼和服务公寓用途的商业大楼。
本地办公楼租金价格在过去一年多里暴涨，魏练庆解释，当初没有考虑把大厦重建成办公楼是由于预见到了2011年，本地办公楼市场供应将过剩，相对的，我国和本区域的旅游业正蓬勃发展，而随着越来越多企业派遣到本地的专业人士将增加，服务公寓的业务相信将蒸蒸日上，为集团带来稳定收入。
他说：“集团位于美芝路的文雅服务公寓(Park Royal Serviced Residences)，90个套房一直都保持90％的入住率，吸引中层住户。新服务公寓锁定的目标则是高端行业的专业人士。决定发展服务公寓绝对是个最有效的长期策略。”
华业集团业务总裁粘为信则补充，论办公楼，滨海地区较合适，乌节路作为新加坡的购物天堂则比较适合发展酒店或服务公寓项目，何况新服务公寓所在地由戏院、购物中心、健身中心、餐饮场所等包围，地铁站近在咫尺，是理想的居住环境。当隔壁由Land Lease发展的新购物中心建成后，服务公寓也将建造冷气通道衔接，提供住户更大的便利。
魏练庆透露，集团计划在未来3年里在本区域主要增长城市，包括中国、越南、泰国和马来西亚等设立5家泛太平洋品牌的豪华服务公寓。整体而言，集团计划在未来三年里在本区域设立15至20家泛太平洋品牌酒店和服务公寓。
他表示，前来亚太区的国际旅客人数在去年增加了7.9％，达3亿6170万人次，预计在未来几年里，这个人数每年将平均增加6％至7％。
华业集团去年4月以650万元收购泛太平洋酒店品牌，从而晋升为亚太区以新加坡为基地的最主要酒店业者之一。集团旗下的酒店总数目前扩增到26家，客房总数从5100间增加到8900间左右。
尽管本地房地产市场近几个月稍微趋软，魏练庆表示，虽然集团近年积极走向海外市场，但依然对本地房市感到谨慎乐观，计划在未来三年里继续保持60％投资资产（包括酒店业务），40％发展项目的策略组合。
他透露，如果有适合的地段集团还是会继续收购，但在本地的现有土地库足以维持3年。集团在近期内将推出位于东海岸上段，拥有88个单位的Breeze by the East。
看好本区域企业对服务公寓的需求将持续增加，华业集团（UOL）将在乌节路旺区推出首个泛太平洋（Pan Pacific）品牌的豪华服务公寓，抢攻这个市场。
华业集团将大华置业大厦拆除，耗资4000万元将它改建为泛太平洋服务公寓。租金比高档次高20％
位于索美塞路的泛太平洋服务公寓(Pan Pacific Serviced Suites)，面对新加坡能源大厦，预订在今年4月8日开始营业。它拥有126个套房，每月租金从1万元至2万5500万元，日租则介于420元和1070元，比本地高档服务公寓收费来得高20％至25％。
华业集团总裁魏练庆说：“建筑在泛太平洋品牌上，进军豪华服务公寓是自然的发展。在亚太区旅客预料将在未来几年持续增长的背景下，目前是进场的好时机，让我们能更好地照顾到长期住户的需要。”
住户都有私人助理
与泛太平洋酒店同一家族的泛太平洋服务公寓，有别于竞争对手的地方在于公寓内的设备和设施，讲究个人化服务，每个住户将享有私人助理，协助打点日常生活。
泛太平洋服务公寓所在地过去是大华置业大厦（UOL Building）。两年半前在本地房地产市场还未腾飞之前，集团将这个旧办公楼拆除，耗资4000万元将它改建为一栋符合办公楼和服务公寓用途的商业大楼。
本地办公楼租金价格在过去一年多里暴涨，魏练庆解释，当初没有考虑把大厦重建成办公楼是由于预见到了2011年，本地办公楼市场供应将过剩，相对的，我国和本区域的旅游业正蓬勃发展，而随着越来越多企业派遣到本地的专业人士将增加，服务公寓的业务相信将蒸蒸日上，为集团带来稳定收入。
他说：“集团位于美芝路的文雅服务公寓(Park Royal Serviced Residences)，90个套房一直都保持90％的入住率，吸引中层住户。新服务公寓锁定的目标则是高端行业的专业人士。决定发展服务公寓绝对是个最有效的长期策略。”
华业集团业务总裁粘为信则补充，论办公楼，滨海地区较合适，乌节路作为新加坡的购物天堂则比较适合发展酒店或服务公寓项目，何况新服务公寓所在地由戏院、购物中心、健身中心、餐饮场所等包围，地铁站近在咫尺，是理想的居住环境。当隔壁由Land Lease发展的新购物中心建成后，服务公寓也将建造冷气通道衔接，提供住户更大的便利。
魏练庆透露，集团计划在未来3年里在本区域主要增长城市，包括中国、越南、泰国和马来西亚等设立5家泛太平洋品牌的豪华服务公寓。整体而言，集团计划在未来三年里在本区域设立15至20家泛太平洋品牌酒店和服务公寓。
他表示，前来亚太区的国际旅客人数在去年增加了7.9％，达3亿6170万人次，预计在未来几年里，这个人数每年将平均增加6％至7％。
华业集团去年4月以650万元收购泛太平洋酒店品牌，从而晋升为亚太区以新加坡为基地的最主要酒店业者之一。集团旗下的酒店总数目前扩增到26家，客房总数从5100间增加到8900间左右。
尽管本地房地产市场近几个月稍微趋软，魏练庆表示，虽然集团近年积极走向海外市场，但依然对本地房市感到谨慎乐观，计划在未来三年里继续保持60％投资资产（包括酒店业务），40％发展项目的策略组合。
他透露，如果有适合的地段集团还是会继续收购，但在本地的现有土地库足以维持3年。集团在近期内将推出位于东海岸上段，拥有88个单位的Breeze by the East。
UOL Unit Unveils Luxury Serviced Suites In Somerset
Source : The Straits Times, March 6, 2008
IT HAS been 28 years since Singapore's listed UOL Group launched its last serviced apartment property, the Parkroyal Residences at Beach Road.
EXTRA PERKS: The Pan Pacific Serviced Suites will come with additional luxury perks, like round-the-clock personal assistants. -- PHOTO: PAN PACIFIC
Now, it is entering the luxury extended-stay business with the launch of its new property, Pan Pacific Serviced Suites, at 96 Somerset Road.
The new property is similar to serviced apartments but has additional luxury features such as round-the-clock personal assistants who can provide guests with local connections to business and social events.
The property is the first of five planned serviced suites that UOL is also planning in China, Vietnam, Malaysia and Thailand over the next three years, said Mr Gwee Lian Kheng, group president and chief executive of UOL yesterday.
UOL's wholly-owned unit Pan Pacific Hospitality, which owns the Pan Pacific Hotels and Resorts group of hotels, yesterday unveiled the luxury serviced suites.
The 16-storey building next to the Somerset MRT Station houses 120 one- or two-bedroom suites and six penthouses, ranging from 527 sq ft to 1,689 sq ft in size.
UOL believes demand for luxury serviced suites will rise as the number of international visitors to the region increases.
According to the Pacific Asia Travel Association, the Asia-Pacific region saw 361.7 million visitors last year, a jump of 7.9 per cent from the year before.
Mr Gwee expects another 6 to 7 per cent rise this year.
He also said some demand should be generated from a spillover effect of the current shortage of hotel rooms in Singapore.
There are at least 26 serviced residences in Singapore with about 3,500 units in all, compared with more than 37,000 hotel rooms.
According to CB Richard Ellis, the occupancy rate for serviced apartments in Singapore was 91.2 per cent in the fourth quarter of last year, an increase of 7.5 per cent from the same period in 2006.
Mr Gwee hopes the suites, constructed at a cost of $150 million, will see an occupancy rate of at least 90 per cent after the first six months.
The suites will launch early next month, and rates will range from $10,000 to $25,000 per month, or from $420 to $1,070 per day for a minimum stay of one week.
This is at a premium of 20 to 25 per cent over the market rate, said Mr Kam Tin Seah, UOL's senior general manager of investment and strategic development.
Pan Pacific Hospitality plans to launch its second serviced suite in Bangkok a year from now. As a group, UOL also plans to roll out between 15 and 20 new hotels and serviced suites over the next three years.
IT HAS been 28 years since Singapore's listed UOL Group launched its last serviced apartment property, the Parkroyal Residences at Beach Road.
EXTRA PERKS: The Pan Pacific Serviced Suites will come with additional luxury perks, like round-the-clock personal assistants. -- PHOTO: PAN PACIFICNow, it is entering the luxury extended-stay business with the launch of its new property, Pan Pacific Serviced Suites, at 96 Somerset Road.
The new property is similar to serviced apartments but has additional luxury features such as round-the-clock personal assistants who can provide guests with local connections to business and social events.
The property is the first of five planned serviced suites that UOL is also planning in China, Vietnam, Malaysia and Thailand over the next three years, said Mr Gwee Lian Kheng, group president and chief executive of UOL yesterday.
UOL's wholly-owned unit Pan Pacific Hospitality, which owns the Pan Pacific Hotels and Resorts group of hotels, yesterday unveiled the luxury serviced suites.
The 16-storey building next to the Somerset MRT Station houses 120 one- or two-bedroom suites and six penthouses, ranging from 527 sq ft to 1,689 sq ft in size.
UOL believes demand for luxury serviced suites will rise as the number of international visitors to the region increases.
According to the Pacific Asia Travel Association, the Asia-Pacific region saw 361.7 million visitors last year, a jump of 7.9 per cent from the year before.
Mr Gwee expects another 6 to 7 per cent rise this year.
He also said some demand should be generated from a spillover effect of the current shortage of hotel rooms in Singapore.
There are at least 26 serviced residences in Singapore with about 3,500 units in all, compared with more than 37,000 hotel rooms.
According to CB Richard Ellis, the occupancy rate for serviced apartments in Singapore was 91.2 per cent in the fourth quarter of last year, an increase of 7.5 per cent from the same period in 2006.
Mr Gwee hopes the suites, constructed at a cost of $150 million, will see an occupancy rate of at least 90 per cent after the first six months.
The suites will launch early next month, and rates will range from $10,000 to $25,000 per month, or from $420 to $1,070 per day for a minimum stay of one week.
This is at a premium of 20 to 25 per cent over the market rate, said Mr Kam Tin Seah, UOL's senior general manager of investment and strategic development.
Pan Pacific Hospitality plans to launch its second serviced suite in Bangkok a year from now. As a group, UOL also plans to roll out between 15 and 20 new hotels and serviced suites over the next three years.
Swiss Bank Julius Baer Expanding In S'pore
Source : The Straits Times, Mar 6, 2008
SWISS bank Julius Baer, named the fastest-growing financial institution in Singapore last year, is not letting up on its growth momentum here despite the global slowdown.
The bank, which uses the Republic as its hub for regional operations, has just signed a lease for 25,000 sq ft of office space on the fourth floor of Harbour Front Tower 1 to provide additional space to house its expanding operations.
Julius Baer's main office at One George Street is already full just two years after its official opening. It is now considering leasing a third site in town to expand its offices.
'Singapore is the alternative booking centre to Switzerland and a key market for our growth strategy,' said Julius Baer chief executive Alex Widmer on Monday.
The bank has grown rapidly into a full-fledged operation with marketing, operations, products and research banking functions in Singapore. Its turnover over the past three years has grown by a compound annual rate of 170 per cent.
This earned the bank the title of Singapore's fastest-growing finance-banking services company in an annual certification by DP Information Group last year.
The bank, which has about 240 employees in Singapore and Hong Kong, wants to add another 100 staff in the next three to four years.
Bank Julius Baer, its private banking group, intends to hire 50 to 60 relationship managers globally this year. 'But we may hire more than that if we find good quality bankers,' said Mr Widmer.
He expects 2008 to be challenging as the United States recession is likely to affect the growth momentum of all financial sectors including wealth management.
But he still expects Bank Julius Baer to attract net new money of above 6 per cent. It will also continue to invest in talent, information technology and infrastructure to support its growing client base.
Julius Baer, a 'pure-play' private bank without an investment banking arm, has avoided the massive US sub-prime mortgage write-downs that have hit rivals such as Citigroup.
'Being a pure-play bank helps us to focus on what we do best. We cannot dance on too many dance floors. We focus on being a dominant player in just one or two areas,' said Mr Widmer.
SWISS bank Julius Baer, named the fastest-growing financial institution in Singapore last year, is not letting up on its growth momentum here despite the global slowdown.
The bank, which uses the Republic as its hub for regional operations, has just signed a lease for 25,000 sq ft of office space on the fourth floor of Harbour Front Tower 1 to provide additional space to house its expanding operations.
Julius Baer's main office at One George Street is already full just two years after its official opening. It is now considering leasing a third site in town to expand its offices.
'Singapore is the alternative booking centre to Switzerland and a key market for our growth strategy,' said Julius Baer chief executive Alex Widmer on Monday.
The bank has grown rapidly into a full-fledged operation with marketing, operations, products and research banking functions in Singapore. Its turnover over the past three years has grown by a compound annual rate of 170 per cent.
This earned the bank the title of Singapore's fastest-growing finance-banking services company in an annual certification by DP Information Group last year.
The bank, which has about 240 employees in Singapore and Hong Kong, wants to add another 100 staff in the next three to four years.
Bank Julius Baer, its private banking group, intends to hire 50 to 60 relationship managers globally this year. 'But we may hire more than that if we find good quality bankers,' said Mr Widmer.
He expects 2008 to be challenging as the United States recession is likely to affect the growth momentum of all financial sectors including wealth management.
But he still expects Bank Julius Baer to attract net new money of above 6 per cent. It will also continue to invest in talent, information technology and infrastructure to support its growing client base.
Julius Baer, a 'pure-play' private bank without an investment banking arm, has avoided the massive US sub-prime mortgage write-downs that have hit rivals such as Citigroup.
'Being a pure-play bank helps us to focus on what we do best. We cannot dance on too many dance floors. We focus on being a dominant player in just one or two areas,' said Mr Widmer.
Jim Rogers Is Downbeat On Investment Banks
Source : The Business Times, March 6, 2008
Also says he's not buying S'pore property for now for several reasons
Commodities bull Jim Rogers says he is taking long positions on commodities and going short on investment banks, which are likely to lose more money.
'It grieves me to see what Singapore is doing,' he said, referring to the investments that the Government of Singapore Investment Corp (GIC) and Temasek Holdings have made in banks.
GIC and Temasek have made significant investments in Citigroup, Merrill Lynch and UBS.
'(They) are going to lose money,' he said. Banks have been rocked by losses arising from exposure to sub-prime debt and some have seen their share prices go down - even though the shareholders may be sitting only on paper losses.
Mr Rogers was speaking to the press yesterday at a briefing on the impending launch of zero strike participation certificates (zero certs) linked to enhanced Rogers International Commodities Index (RICI) and related sector indexes.
Miles Ashton, ABN Amro head of sales and public distribution (Asia) for private investor products, said a listing date for the cert is yet to be finalised.
The bank has so far issued US$1-2 billion worth of products linked to RICI. The RICI Enhanced Index is an optimised version of RICI, and produced in partnership with Mr Rogers. So far, some US$250 million worth of products have been issued linked to the RICI Enhanced index. 'There is considerable interest,' he said.
The enhanced version seeks to overcome the underperformance that has been seen in commodities indexes in the last few months. Large inflows of capital into the indexes have caused a 'distortion' in the prices of one-month futures contracts, said Mr Ashton. Most indexes automatically invest in one- month futures contracts. The enhanced index seeks to vary the roll schedule, taking into consideration seasonality, liquidity and other factors.
So far, based on backtesting, the enhanced RICI would have generated a cumulative return of 519 per cent between 1998 and October 2007, had it existed since 1998.
It would have outperformed the RICI total return index's 411 per cent return, and the DJAIG index's 234 per cent.
Mr Rogers said the bull market in commodities is probably about one-third of its way through the cycle - which, based on history, could last between 15 and 23 years. He is particularly positive on agriculture.
'Inventory of food is at the lowest it has been for 40-50 years; we may face mass starvation. The world is in a precarious position. Commodities prices will go higher, no matter what the US dollar does,' he said.
Mr Rogers, who has moved to Singapore with his family, said he is not buying Singapore property for now for a number of reasons. 'I expect there to be a slowdown, if not a decline; it is happening already.'
Slower growth, for one, may cause a drop in the number of foreigners here, which could dampen home prices, he said.
Also says he's not buying S'pore property for now for several reasons
Commodities bull Jim Rogers says he is taking long positions on commodities and going short on investment banks, which are likely to lose more money.
'It grieves me to see what Singapore is doing,' he said, referring to the investments that the Government of Singapore Investment Corp (GIC) and Temasek Holdings have made in banks.
GIC and Temasek have made significant investments in Citigroup, Merrill Lynch and UBS.
'(They) are going to lose money,' he said. Banks have been rocked by losses arising from exposure to sub-prime debt and some have seen their share prices go down - even though the shareholders may be sitting only on paper losses.
Mr Rogers was speaking to the press yesterday at a briefing on the impending launch of zero strike participation certificates (zero certs) linked to enhanced Rogers International Commodities Index (RICI) and related sector indexes.
Miles Ashton, ABN Amro head of sales and public distribution (Asia) for private investor products, said a listing date for the cert is yet to be finalised.
The bank has so far issued US$1-2 billion worth of products linked to RICI. The RICI Enhanced Index is an optimised version of RICI, and produced in partnership with Mr Rogers. So far, some US$250 million worth of products have been issued linked to the RICI Enhanced index. 'There is considerable interest,' he said.
The enhanced version seeks to overcome the underperformance that has been seen in commodities indexes in the last few months. Large inflows of capital into the indexes have caused a 'distortion' in the prices of one-month futures contracts, said Mr Ashton. Most indexes automatically invest in one- month futures contracts. The enhanced index seeks to vary the roll schedule, taking into consideration seasonality, liquidity and other factors.
So far, based on backtesting, the enhanced RICI would have generated a cumulative return of 519 per cent between 1998 and October 2007, had it existed since 1998.
It would have outperformed the RICI total return index's 411 per cent return, and the DJAIG index's 234 per cent.
Mr Rogers said the bull market in commodities is probably about one-third of its way through the cycle - which, based on history, could last between 15 and 23 years. He is particularly positive on agriculture.
'Inventory of food is at the lowest it has been for 40-50 years; we may face mass starvation. The world is in a precarious position. Commodities prices will go higher, no matter what the US dollar does,' he said.
Mr Rogers, who has moved to Singapore with his family, said he is not buying Singapore property for now for a number of reasons. 'I expect there to be a slowdown, if not a decline; it is happening already.'
Slower growth, for one, may cause a drop in the number of foreigners here, which could dampen home prices, he said.
Poh Lian Wins S$202m Building Contract From UOL Development
Source : Channel NewsAsia, 06 March 2008 2008
Poh Lian Construction, a unit of United Fiber System, has won the building contract to redevelop a site formerly known as Green Meadows condominium along Upper Thomas Road.
The contract, awarded by UOL Development, is worth about S$202 million.
The award of the project has boosted Poh Lian's order book to a new record of S$550 million, up 58 percent since January 31.
Poh Lian said the latest contract is expected to contribute positively to the group and is expected to have a material impact on its current year's results.
Details of the contract are still being finalised.
Poh Lian said it will disclose the financial impact on the group's net tangible assets and earnings per share at a later date. - CNA/ms
Poh Lian Construction, a unit of United Fiber System, has won the building contract to redevelop a site formerly known as Green Meadows condominium along Upper Thomas Road.
The contract, awarded by UOL Development, is worth about S$202 million. The award of the project has boosted Poh Lian's order book to a new record of S$550 million, up 58 percent since January 31.
Poh Lian said the latest contract is expected to contribute positively to the group and is expected to have a material impact on its current year's results.
Details of the contract are still being finalised.
Poh Lian said it will disclose the financial impact on the group's net tangible assets and earnings per share at a later date. - CNA/ms
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