Wednesday, March 19, 2008

It All Depends On Age For Gillman Heights

Source : TODAY, Wednesday, March 19, 2008

THE new laws regulating en bloc sales that kicked in last October may mean controversial collective sale tangles are unlikely to arise again.

But for Gillman Heights, where the sale process started before the rules were tweaked, the 22 minority owners’ attempt to overturn the privatised ex-HUDC estate’s sale now hinges on how the High Court rules the property’s age should be calculated.

The last day of the appeal yesterday saw the lawyers representing the different parties locking horns - mainly over how old the sprawling estate in Alexandra Road is.

Senior counsel (SC) Andre Yeap, who is acting for the sales committee, argued that the estate’s age be pegged to its date of completion in 1984. He said that although a Certificate of Strata Completion (CSC) was issued to Gillman Heights in 2002, it does not mean that “time runs afresh”.

SC Michael Hwang, who is acting for the minority owners, noted that where a CSC or temporary occupation permit was available - like in the Gillman Heights case - the property’s age must rest upon it. He added that a check with the Building and Construction Authority had showed that the 607-unit property’s status was classified as “new erections” as of Oct 23, 2002. All the structures in the estate were issued with CSCs, he emphasized, and not just for the additions to the common areas.

To ignore such certification would cause “huge uncertainty in the market”, he told the court. The approximately $20,000 each owner coughed up when the development underwent conversion into a private property was an investment, he added.

Another bone of contention was the conduct of the sales committee. Mr Hwang said regulations stipulate that the committee’s mandate to sell a property expires after one year from the day the first owner signs on the collective sales agreement.

It is “commonsensical” that the committee does not have “absolute power” to sell at any price at any time, he added.

While they were on different sides of the tussle, the minority owners seeking to scupper the deal and their opposite numbers, sat side-by-side in the packed gallery, without any signs of tension between them.

The only way to tell their allegiance: The minority owners wore T-shirts bearing the words “I love Gillman Heights”, like they had done in the previous days of hearing.

Justice Choo Han Teck will deliver his judgment at a later date.

Macquarie Still Optimistic Over Real Estate

Source : TODAY, Wednesday, March 19, 2008

Even as some market observers are saying that the Singapore property market is weakening, Macquarie Global Property Advisers (MGPA) is still optimistic and sees value in the office, retail and residential sectors.

“There are still some good bargains around, and in the next 6 to 9 months, there might be better pricing value,” said MGPA’s chief executive (Asia investments) Simon Treacy at the signing of the building agreement for the second land parcel at Marina View. The private equity real estate firm won the tender for both Marina View sites last year.

“When completed in 2012, MGPA’s Marina View development will yield about 200,000 sq m of office facilities,” said Ms Grace Fu, Minister of State for National Development. “It will add to the critical mass of prime office space in our CBD and offer more location choices for business and financial services which want to grow their operations.” MGPA said that the development (picture) will include about 250 five-star hotel rooms, and is now in talks with some hotels for a tie-up.

“It will be the first office complex in Marina Bay to be integrated with a luxury hotel,” said Ms Fu. Investors find Singapore attractive, with foreign direct investments to Singapore increasing to $14 billion last year from $6.7 billion in 2006, she added.

“There’s still a lot of latent demand for office space, and there’s limited supply in the next couple of years,” said Mr Treacy, adding that Singapore would follow Hong Kong’s pace where new office building space is taken up very quickly.

He expects office rents in Singapore to rise 10 to 25 per cent this year.

“This reflects strong regional growth in Asia and solid demand for international grade office space. So we’re comfortable and we still see growth in the medium term in Singapore,” said Mr Treacy.

Aussie Firm Inks $5b Marina Bay Contract

Source : The Straits Times, Mar 19, 2008

AUSTRALIAN company Macquarie Global Property Advisers (MGPA) is investing $5 billion in an integrated commercial development in Marina Bay and looking for more investments in Singapore and the region.

MGPA’s chief executive for Asia developments, Mr Michael Wilkinson, said at the development’s signing ceremony yesterday that the company is optimistic about Singapore property .

Mr Simon Treacy, who heads the firm’s Asia investments unit, agreed, saying: ‘Fundamentals are great in the medium to long term.’ He added that MGPA is keen to invest in Singapore’s residential, retail and office sectors.

The $5 billion investment will be the private equity fund management firm’s largest in South-east Asia although it has invested $4.5 billion in Singapore over the past 18 months.

‘MGPA’s participation is a demonstration of the growing interest from foreign real estate investors in Singapore,’ said Minister of State for National Development Grace Fu at yesterday’s signing ceremony for the project.

Ms Fu, the guest of honour, said the Government is committed to supplying adequate land for prime office developments. The new area at Marina Bay will provide about 2.82 million sq m of office space - more than twice the size of London’s Canary Wharf, she said.

MGPA’s Marina View development alone will yield about 200,000 sq m of space.

It had successfully tendered for the first 1.02ha Marina View site with a $2.02 billion bid last September.

The Australia-based firm then won the second 0.9ha site last November at a $950 million bid.

The first office building will be completed in 2011, and the second - which will boast a luxury hotel with at least 220 rooms - will be ready a year later.


‘Fundamentals are great in the medium to long term.’

MR SIMON TREACY, who heads MGPA’s Asia investments unit, explaining the firm’s confidence in Singapore property . He says the firm is keen to invest in the residential, retail and office sectors.

Low Bids, So Landed Plot In Jurong Not Awarded

Source : The Straits Times, Mar 19, 2008

IN A keenly watched move, the Government has decided not to award a landed housing site in Jurong West after only two bids came in - both way below expectations.

The top bid for the site, from Boon Keng Development, came in at $11.8 million, or $78 per sq ft (psf) of land area - less than half of what one consultant had expected.

The only other bid for the site, in Westwood Avenue, came from Sunway Concrete Products, which offered even less at $10.33 million, or just $68.10 psf.

The tender for the 14,098.9 sq m, 99-year leasehold site closed a week ago.

Property market watchers had been waiting with interest to see how the Government would respond to such low bids, given the recent slump in market sentiment.

After the boom times seen last year, sale volumes have fallen significantly as buyers and sellers remain on the sidelines.

Cushman & Wakefield managing director Donald Han, who had tipped that the site could have fetched $200 psf, said the Government had been wise not to award the site.

‘If you award the site, there will be a downward adjustment of the valuation in the area,’ he said.

The price would also be used as a benchmark for future tenders of such sites in the area, consultants said.

Said Knight Frank director (research and consultancy) Nicholas Mak: ‘In a market with thin volume, tenders on the confirmed list could invite opportunistic bids.’

Sites on the Government’s confirmed list are put up for tender on a specific date.

The Government also sells reserve-list sites, which are put up for sale only when a developer commits to bid a minimum price.

‘There are buyers capitalising on the weak property market but there’re no fire sales yet,’ said Mr Han.

Earlier this year, the Government also chose not to award the tender for a transitional office site in Aljunied because the only bid it received was too low.

Mezzo Development had offered to pay $7.8 million - or a unit land price of $38.35 psf per plot ratio.

HDB Launches 576-Unit Yishun Project

Source : The Straits Times, Mar 19, 2008

THE Housing Board yesterday launched 576 build-to-order (BTO) flats in Yishun for sale and also named the sites of upcoming sales projects - a first for the board.

Five more BTO launches - two each in Punggol and Sengkang and one in Woodlands - will be held from now until June. Flats under the scheme are built only when a certain demand is reached.

The HDB also announced yesterday that the application period for all BTO and balloting sales exercises has been cut from three weeks to two with immediate effect.

This is because the ‘vast majority of applications are submitted within two weeks of a launch’, it said.

HDB ’s new launch - Jade Spring @ Yishun Phase 2 - is the second BTO sale this year.

It offers 36 two-room units, priced from $77,000 to $97,000, and 72 three-roomers that will cost between $124,000 and $141,000.

There are also 468 four-room flats, which will go from $189,000 to $253,000.

By 5pm yesterday, the HDB ’s website had recorded 247 applications. Names can be lodged until March 31.

The project is at the junction of Yishun Ring Road and Yishun Avenue 11, and is near Yishun town centre, the MRT station and the upcoming Khoo Teck Puat Hospital.

It is also not far from Lower Seletar Reservoir, which the national water agency PUB has singled out for transformation under its Active, Beautiful, Clean Waters programme.

Last year, the HDB also announced plans to rejuvenate Yishun with a host of new housing, commercial and recreational developments.

Plans include a revamp of the bus interchange, which will be integrated with a shopping complex and new homes.

An exhibition of Jade Spring @ Yishun Phase 2 can be viewed at HDB Hub’s Habitat Forum in Toa Payoh.

The latest launch and the five scheduled over the next three months are in line with HDB ’s previous announcement to launch 4,500 BTO flats in the first half of this year to meet the recent high demand for public homes.

Allco Reit In Court To Fend Off Downgrade

Source : The Straits Times, Mar 19, 2008

It had an injunction to stop Moody’s revision, but this was lifted yesterday.

IN AN unprecedented move, a Singapore-listed property trust has taken legal steps to avoid being downgraded by a credit rating agency for the second time in two months.

Allco Commercial Real Estate Investment Trust (Reit), which owns buildings such as China Square Central and Keypoint in Singapore, last week obtained a High Court injunction to prevent Moody’s Investors Service from revising its rating, sources said.

The injunction was lifted yesterday. This prompted Moody’s to send an e-mail to subscribers saying it would drop Allco’s rating by one notch, from Ba1 to Ba2, with more downgrades possible.

This comes less than two months after Moody’s downgraded Allco one notch from Baa3 to Ba1 on Jan 31.

These ratings gauge a company’s ability to repay its debt. A Ba-rated company is judged to have speculative elements and a future that is not well-assured, according to definitions from Moody’s.

But the drama did not stop there. Allco then filed a last-ditch appeal yesterday against the removal of the injunction - only to withdraw it hours later, according to sources.

Allco Singapore, which manages Allco Reit, declined to comment but issued a statement last night confirming the lower rating.

The company’s huge effort to avoid being downgraded comes amid a worsening global credit crunch that has made it difficult for firms to secure funding.

Stock markets are in turmoil and banks, many of which are in trouble themselves, are holding back on lending money.

Allco’s ultimate holding company, Australian asset manager Allco Finance Group, is struggling with its own problems in repaying debt. Two weeks ago, bankers seized 14 per cent of its outstanding shares as collateral for unpaid loans, according to news agency Bloomberg.

Moody’s lowered rating for Allco Reit could complicate any effort by the firm to raise funds, even as its debt nears maturity.

The trust had intended to raise up to $150 million last year by issuing new units to unitholders, but cancelled the plan in November, citing market conditions.

In its e-mail yesterday, Moody’s said its new Allco rating ‘remains on review for further possible downgrade’.

Among other things, the review will focus on Allco’s announcements earlier this month, which revealed its parent company’s unpaid debts. Allco Reit itself will write off A$1.6 million (S$2.1 million) that its parent company owes it.

The Reit, which also owns properties in Japan and Australia, said it may sell its Australian assets. It has stakes in two office towers in Perth and Canberra, and an interest in a fund that invests in Sydney properties .

Moody’s review will also consider Allco’s debt that is due for refinancing in the coming months.

Its downgrade of the Reit in January was partly due to the trust having $550 million of debt due to be refinanced on July 31.

The agency also said Allco had a weakened credit profile and an ‘aggressive’ financial strategy.

Other Singapore Reits downgraded or placed on review for downgrade this year include Mapletree Logistics Trust and Suntec Reit, according to a Reuters report earlier this month.

By comparison, the CapitaMall Trust Reit was given a A2 rating by Moody’s. This rating, Moody’s sixth-highest, is considered to be upper-medium grade with low credit risk.

What ratings mean

RATINGS gauge a company’s ability to repay its debt. For example, Moody’s defines a Ba-rated company as one that has speculative elements and a future that is not well-assured.

Implications for Allco

MOODY’S had already downgraded Allco one notch from Baa3 to Ba1 on Jan 31, partly because the trust had $550 million of debt due to be refinanced on July 31.

Being dropped a notch further to Ba2 could complicate any efforts by Allco to raise funds, even as its debt nears maturity.

Ripple Effect Of US Economic Woes

Source : The Straits Times, Mar 19, 2008

WHAT is happening in global financial markets? How could US financial markets - the world’s largest, richest, deepest, most sophisticated and supposedly best-regulated - get into such bad shape? Why has this affected global markets? What is the likely impact on the ‘real economy’ in Asia?

The problems we see now have been brewing for many years. Foreign money flowing into the US following the late-1990s Asian financial crisis - famously called a ‘global savings glut’ by current US Federal Reserve Bank Chairman Ben Bernanke - and the Fed’s own cheap-money policy following the tech boom-and-bust of the early 2000s, led to very low interest rates.

Together with financial market deregulations, cheap money led to a wave of financial market innovations, such as the now infamous ’sub-prime’ mortgages. Traditional financial institutions such as banks sought to realise higher-return investments in a low-rate world, including by creating and spinning off hedge funds which could take higher risks.

Sub-prime mortgages are simply mortgages extended to high-risk borrowers with weak credit histories who otherwise would not be able to borrow to buy housing. They are usually offered easy payment terms initially, which can then escalate as a result of ‘adjustable interest rates’ linked to external market events having nothing to do with the individual borrower’s repayment performance.

To limit the risks to themselves of extending these sub-prime loans, US lenders packaged them together with lower-risk ‘normal’ mortgages. They then ’sliced and diced’ the packages into mortgage-backed securities or collateralised debt obligations (CDOs) which they sold to other financial institutions.

The theory behind this was the well-established financial principle of ‘risk diversification’: By mixing high-risk sub-prime loans with lower-risk debt, and then widely distributing the ownership of the new assets through many institutional owners, the risk inherent in any individual asset for any single investor would be minimised.

Even better, the risk of default on these asset-backed securities was insured by insurance companies, including specialised bond insurers - so-called ‘monoline insurers’ like Ambac and MBIA. Credit rating agencies like Moody’s and Fitch usually gave these loan securities the same triple-A (very safe) rating enjoyed by blue-chip banks like UBS, HSBC, Citigroup and Merrill Lynch that issued or purchased them. Such securities - now ’safe’, liquid and tradable - became highly desirable in investment portfolios, and were accepted as collateral for other loans.

So, if only 1 per cent of a loan security is at risk of turning bad, the market belief was that the safety of the other 99 per cent would prevent the whole security from suffering a loss in value if that 1 per cent did turn bad - that is, become uncollectible.

Unfortunately, given the way these securities were structured, there was no way of isolating the potentially defective 1 per cent to assess its risk in the pricing of the entire security.

This uncertainty has led to a loss of confidence in the value of the entire security. The 99 per cent of low- or average-risk loans in the security has now been ‘contaminated’ by the high-risk 1 per cent, instead of diluting it.

A plunge in the value of the loan security (because the 1 per cent does, or is feared might, default) then cascades through other financial instruments, such as derivatives based on the security (traded by hedge funds). Financial institutions which hold or insure the security are also affected.

In addition, fund managers may be required by their own rules and government regulations to rebalance their portfolios to hold less of such ‘contaminated’ securities.

This adds further to their price declines and the capital and income losses of their investors.

The potential ripple effect of monoline insurers defaulting is particularly great, since they insure all bonds, not just sub-primes, leading to the current attempt by some of their largest bank customers to bail them out.

Bonds that lose their insurance are automatically downgraded, forcing some funds to sell them for their rules do not allow them to hold securities with low ratings.

Effect on US economy

A SIMILAR situation in the UK has already led to the collapse and nationalisation of one bank (Northern Rock) and the closure of many investment funds. This is ironic, given that the ‘Anglo-American’ financial system had hitherto been lauded as representing the ‘best practices’ that others should strive to emulate.

If the only problem was US sub-prime mortgages, the damage would be limited and very small. Sub-primes account for only about 5 per cent of US mortgages, and the vast majority of them are being properly serviced, with mortgage holders making their mortgage payments on time.

Home mortgages as a whole are only a minor part of the US financial sector, which in turn is only 12 per cent of GDP, about the same as manufacturing. (Manufacturing has been sluggish for years without dragging down the rest of the economy). The US accounts for only 25 per cent of global financial markets and 20 per of the world economy, while US residential housing contributes only 5 per cent to total US GDP and less than 25 per cent to private fixed investment.

Unfortunately, the problem in the US residential housing market goes beyond sub-prime mortgages. Years of record-low interest rates led to excess demand and overbuilding in this sector. American consumers stopped saving out of current income, believing that the market values of their homes - the single largest capital asset owned by most households - would continue to rise forever, and ‘build equity’ for them without the need to reduce consumption.

Worse, many became addicted to home equity loans, which allowed them to borrow against the (rising) value of their homes, eroding any potential savings! Ballooning credit card debt - undertaken because of the ‘wealth effect’: that is, people ‘felt rich’ because of the growing value of their homes, so were more willing to borrow - added to record indebtedness. With the cheap credit extended to them by foreign savers as well as the US Federal Reserve, Americans rushed out to buy goods and services to fill their large new homes, the economy sucked in imports as it grew, and the US current account deficit (the excess of imports over exports) expanded to record levels.

The sub-prime mortgage crisis was only the first prick in the US housing and debt bubble. The bubble was bound to burst.

Before the crisis that began last July, economists had already expected foreigners to become reluctant to lend more to the US. The interest return they were getting on dollar assets was falling and the value of these assets was declining in foreign currency terms as the dollar fell. Furthermore, the risk for foreign countries concentrating their foreign exchange reserves in US Treasury bonds - issued by the US government to fund its record budget deficits - was increasing

As foreign capital inflow slows, the dollar will fall and inflation will pick up, fuelled by the falling dollar, which raises import prices. In these circumstances, US interest rates should rise, making borrowing more expensive and ‘cooling off’ the economy. A slower-growing economy would then deflate the housing and other asset bubbles, reduce inflation, and shrink the current account deficit, helped by a weaker dollar making exports cheaper and imports more expensive.

This process is already under way, but it has been complicated by problems in the financial markets. The inability to assess risk and correctly price mortgage-based and other ‘innovative’ securities has led to a serious ‘credit crunch’. Lenders are demanding much higher risk premia (interest rates) for their loans - or worse, becoming reluctant to lend at almost any price.

Unchecked, this could restrain new investment and consumption, and push even otherwise healthy borrowers into default, worsening the downward spiral of debt write-downs and falling asset prices.

In parts of the US, housing prices have already fallen below the value of home-own-ers’ mortgages. Meanwhile, the adjustable rates on these mortgages have shot up. As a result, many people are simply walking away from their properties . This has led to record foreclosures and further housing gluts and price falls - not to mention, hits to the balance sheets of banks which issued the mortgages.

The credit crunch and associated loss of consumer and investor confidence also hurts the stock market. Falls in the value of individuals’ and households’ stock portfolios, as well as of their homes, create a ‘negative wealth effect’. Feeling poorer, people reduce their spending, further slowing down the economy and threatening a deeper and longer recession than would result from a pure ‘business cycle’ downturn.

Ostensibly to forestall a recession, the US Federal Reserve and some other central banks have pumped credit into the system by providing commercial banks with access to more loan funds, and by lowering interest rates - aggressively and repeatedly in the case of the US.

These policies have been criticised for several reasons:

They delay the necessary deflation of asset bubbles by prolonging the easy-money conditions which led to the bubbles in the first place;

They worsen price inflation, which is already being pushed up by the falling dollar and rising commodity prices;

And they create ‘moral hazard’ by bailing out financial market actors from the consequences of their own risky behaviour, which they are then more likely to repeat in the future.

Such loose monetary policy - and the associated fiscal stimulus that has been enacted by the US government - can be justified only if a severe and prolonged recession is otherwise likely.

Until recently, such a severe recession - as opposed to a mild and short-lived one, such as was experienced in 2001 - was considered unlikely unless conditions in the financial markets get much worse.

This possibility cannot yet be determined with any certainty. But the US Fed is sufficiently worried that it has taken the unprecedented step of bailing out one financial institution - Bear Stearns - and offering to buy up to US$400 billion (S$550 billion) of the mortgage-backed securities that none in the private sector want to hold right now.

If one looked at the broad numbers, the US economy is not doing too badly. Though it has slowed down and housing is in a serious slump, unemployment remains relatively low and the weak dollar has led to an export boom, reviving the previously moribund manufacturing sector. Moreover, US corporate profits are likely to be at least partially sustained by continued rapid growth in emerging markets, led by China and Asia. Europe outside of the UK is also not doing badly.

Effect on Asia

A US recession - two quarters of negative GDP growth - is probably inevitable now, but it would not be all bad, including for Asia. A reduction in American consumer spending, while it would hurt growth, would have salutary effects in reducing inflation and debt burdens, and the current account deficit. A fall in US imports from Asia would encourage Asian governments and businesses to move more quickly away from their hitherto neo-mercantilist (export-promoting) policies toward serving domestic Asian markets.

Asia’s banks and other financial institutions are relatively insulated from the problems of the US and UK financial markets, since their ‘less sophisticated’ banks were not allowed by regulators to buy offshore CDOs.

Asian economies also have ample supplies of capital from their high domestic savings; hefty foreign exchange reserves; continued, if shrinking, current account surpluses from commodity and manufactured exports (which go increasingly to each other rather than to the US); and flows of portfolio capital leaving the credit-risky and slow-growth US for Asia. A credit crunch is not likely here.

The bigger economic risk for Asia is probably not imported recession from the US, but rather accelerating homegrown inflation and asset bubbles. These are fed in part by domestic monetary authorities continuing to favour low exchange rates, in their attempts to preserve exportcompetitiveness by trying to keep pace with the sinking US dollar. This policy aggravates imported inflation, whereas more rapidly strengthening currencies would reduce it.

Allowing currency appreciation would also ease the necessary and inevitable transition away from export dependence towards production structures more focused on the expansion of Asian domestic consumption and investment. That would help fulfil the much-vaunted ‘de-coupling’ of Asia from the troubled US economy.

We are not there yet.

The writer, a Singaporean economist, is professor of strategy as the Ross School of Business, University of Michigan

How the current financial crisis developed

Cheap money led to low interest rates, which encouraged sub-prime mortgages and consumer debt.

Sub-prime loans were packaged with lower-risk ‘normal’ mortgages into mortgage-backed securities. Such securities became highly desirable in investment portfolios. But market uncertainty has led to a loss of confidence in the value of such securities.

A plunge in their value has cascaded through other financial instruments like derivatives.

Financial institutions which insure such securities - monoline insurers - have also been affected.

The potential ripple effect of monoline insurers defaulting is particularly great, since they insure all bonds, not just sub-primes.

The ensuing credit crunch affects businesses and households - the ‘real economy’.

Mapletree Logistics Buys Two Warehouses For $56m

Source : The Business Times, March 19, 2008

MAPLETREE Logistics Trust (MapletreeLog) is acquiring two warehouses in Singapore for a total consideration of $56 million.

MapletreeLog, through its trustee, HSBC Institutional Trust Services (Singapore) Ltd, has signed two put and call option agreements to acquire the two warehouses from Cougar Holdings Pte Ltd, a wholly owned subsidiary of Menlo Worldwide LLC, the global logistics unit of New York- listed Con-way Inc.

The two properties , located at Boon Lay Way and Benoi Road, cost $48 million and $8 million, respectively. The properties will be leased back to Menlo’s Cougar Express Logistics for an initial term of 10 years with an option to renew the lease for further consecutive periods of five years each.

The acquisitions will be accretive to MapletreeLog’s distribution per unit (DPU). The proforma financial effect of the acquisitions on the DPU for the financial year ended Dec 31, 2007 is an additional 0.13 Singapore cent per unit.

Said Chua Tiow Chye, chief executive officer of Mapletree Logistics Trust Management (MLTM), the manager of MapletreeLog: ‘The properties are well located in established industrial areas and are within close proximity to Jurong Port and the larger Jurong Industrial Estate. . . These accretive assets will add to the trust’s stable core of long-term leases which generate stable returns to our unitholders.’

Menlo and its subsidiaries are also MapletreeLog’s tenants in two of its existing properties and the acquisitions will further strengthen the partnership, Mr Chua added.

The acquisitions are expected to be completed by Q2 2008. MLTM said it is confident that at their completion, MapletreeLog will have sufficient debt capacity to fund the acquisitions wholly by debt. It will explore alternative means of funding should the need arise.

Allco Reit Fails In Legal Bid To Head Off Ratings Downgrade

Source : The Business Times, March 19, 2008

Moody’s lowers rating after court sets aside injunction.

Allco Commercial Real Estate Investment Trust (Allco Reit) has failed in its attempt to obtain a court injunction to head off a downgrade by Moody’s Investors Service.

And the ratings agency has gone ahead to downgrade the Reit, as well as signal the possibility of a further cut in ratings.

Allco Reit, represented by Senior Counsel Alvin Yeo of Wong Partnership, had applied for an injunction from Singapore’s High Court to prevent Moody’s from issuing a downgrade on the trust.

It is believed the Reit sought the injunction as it felt that a ratings downgrade would have interfered with its fund-raising efforts.

The application for the injunction had been initiated by British and Malayan Trustees on behalf of Allco Reit.

But the Reit’s injunction was set aside yesterday morning by Justice Choo Han Teck. Allco Reit had intended to appeal the decision, but the High Court announced several hours later that the trust had decided to withdraw its appeal.

Moody’s subsequently went ahead with its downgrade of Allco Reit, announcing its rating yesterday afternoon. The agency lowered the trust’s corporate family rating to ‘Ba2′ from ‘Ba1′ - and retained the ratings on review for further possible downgrade.

It said that the review would focus on issues raised by Allco Reit’s announcement on March 9, the progress and terms of its refinancing efforts for debt maturing in coming months and other material developments affecting Allco Reit.

Representatives from Allco Reit, when contacted, declined to comment on the court proceedings. But the Reit’s manager, Allco (Singapore) Limited, subsequently issued a statement on the Singapore Exchange’s website, confirming the ratings downgrade and ongoing review of that rating by Moody’s.

Allco Reit’s concerns about the impact of a ratings downgrade on its fundraising efforts were heralded by Fitch Ratings last week. Fitch had signalled that the credit ratings of Singapore property trusts may change because of expected mergers and acquisitions.

Fitch had expressed concern that the global credit crunch sparked by US mortgage defaults may impact the ability of Singapore Reits to take advantage of any acquisition opportunity and that it would certainly limit the number of any interested parties in any asset disposals.

Allco Reit had earlier this month said that it may sell its Australian assets - properties valued at A$483 million (S$617 million) - which include its 50 per cent interests in Perth’s Central Park office tower and Centrelink Headquarters in Canberra. The Reit is also invested in Allco Wholesale Property Fund which in turn has interests in several properties in Sydney.

Its three key properties - China Square Central and 55 Market Street in Singapore, and Central Park in Perth - had a combined value at the end of December of $1.13 billion, based on the latest revaluation.

Analysts Still Upbeat On Reits But Investors Wary

Source : The Business Times, March 19, 2008

FOR some time now, analysts have been saying that realestate investment trusts (Reits) are a good shelter in stormy markets, given their attractive and steady yields. But investors are still not biting, as concerns remain about Reits’ ability to raise capital or refinance debt.

The FTSE ST Reit Index closed yesterday at 735.96, about 13 per cent down since the index was launched on Jan 10. It has slumped this month since hitting 798.91 on Mar 4.

Even so, analysts have continued to issue positive calls. In a report released on Monday, DMG & Partners said Singapore Reits (S-Reits) were good value given the widening yield spread against the 10-year SGS (Singapore Government Securities) bond. S-Reits offer on average yields of 6.4 per cent, compared with 2.08 per cent for 10-year bonds, the report said.

An earlier report by Goldman Sachs also put an ‘overweight’ call on the sector. Analyst Leslie Yee said that mergers and acquisitions are likely to be positive for Reits. Large Reits will have another avenue for growth, and investors in those Reits bought out can cash in on premiums paid for an acquisition.

And last Friday, Credit Suisse initiated coverage on three retail Reits, saying that growth in that sector will be supported by strong consumption expenditure and buoyant tourism. ‘Central retail supply can be readily absorbed while suburban supply is not excessive,’ Credit Suisse said.

But Reit share prices suggest that investors are still skittish. DMG analyst Terence Wong said: ‘Right now cash is king. In a bear-like situation, it’s not unusual that people are selling everything they can,’ he said. ‘But our calls are mid to long term.’

Although their reports were generally upbeat, analysts said that worries remain. Despite falling Sibor (Singapore interbank offered rates), corporate spreads are widening, making it more difficult for Reits to fund expansion by issuing debt, or to refinance existing debt. Allco Reit was downgraded yesterday by Moody’s to Ba2 from Ba1, following an earlier cut in January from Baa3.

Credit Suisse acknowledged in its report that ‘Reits have not been defensive, as investors have previously factored in exuberant growth expectations that were disappointed by slowing acquisition growth. The consequent high required yields are a paradox of their own’.

The house said it preferred domestically focused plays with large market caps, strong sponsors, high asset quality and low gearing. It has ‘outperform’ calls on CapitaMall Trust and Frasers Centrepoint Trust and is ‘neutral’ on Macquarie MEAG Prime Reit (MMP Reit).

Kim Eng Research in a report earlier this month noted that investors seem happy to stomach premium valuations for domestic-focused Reits that focus on retail and office space like Frasers Centrepoint, CapitaCommercial and CapitaMall.

DMG’s report recommended Suntec Reit, Frasers Centrepoint Trust and Cambridge Industrial Trust. ‘We would prefer to go for low-geared Reits (20 per cent to 50 per cent) which have lower holding costs and are more able to wait for credit markets to improve.’

MGPA’s Marina View Project To Cost $5b

Source : The Business Times, March 19, 2008

Devt to have over 2.6m sq ft in two towers of more than 40 storeys each.

MACQUARIE Global Property Advisors (MGPA) will spend about $2 billion building a commercial complex on two development sites at Marina View that it clinched last year.

On the drawing board: Artist's impression of MGPA's Marina View project which will have a 250-room hotel

With the sites having cost close to $3 billion, the total investment will be around $5 billion.

MGPA bid for the two sites at separate public tenders just three months apart. It paid $1,409 per square foot per plot ratio (ppr) for the first parcel in September 2007 and $952.90 psf ppr for the second in November that year.

The second parcel does come with a requirement to provide a hotel component.

Speaking at the building agreement signing ceremony yesterday, MGPA CEO (Asia Investments) Simon Treacy said that there could be more bargains in the offing here.

‘The next six to nine months will have even better pricing available,’ he said.

Mr Treacy did not give details of future acquisitions here but was bullish on the office sector, where he believes rents can rise between 10 and 25 per cent this year.

MGPA’s Marina View development is expected to have a total gross floor area (GFA) of more than 2.6 million sq ft in two 40-storey-plus towers with a 20-metre-high podium.

According to the conditions of the tender, at least 70 per cent of the GFA of the first site must be developed as office space. The second site must have at least 60 per cent office space.

Also speaking at yesterday’s ceremony was MGPA CEO (Asia Developments) Michael Wilkinson, who revealed that there will be a 250-room luxury hotel. He also said that the retail podium is likely to have a significant number of F&B outlets to support the offices.

While a residential component is allowed, Mr Wilkinson said that this is not likely at the moment. However, he said that the design has not been finalised and MGPA is having ‘extensive discussions’ with the authorities to settle this.

MGPA has invested about $4.5 billion in Singapore over the last 15 months. Other major acquisitions include Temasek Tower, which it bought for $1.04 billion in March 2007.

Jurong West Landed Plot Not Awarded

Source : The Business Times, March 19, 2008

THE government yesterday said that it’s not awarding a landed housing parcel in Jurong West - because the bids were too low.

When the tender for the 151,759 square foot site closed this month, there were just two bids. And the higher of the two was a low $11.8 million - or just $77.80 per square foot - in what was taken as a sign of an uncertain property market. That bid, from Boon Keng Development, was significantly below the $200-$250 psf of land area that analysts reckoned the site could fetch.

The other bid came from Sunway Concrete Products, a unit of Malaysia-listed Sunway Holdings. It offered $10.3 million, or $68.10 psf of land area.

Property analysts said then that there was a chance the government would not award the site, as has happened before when the highest bid was too low.

In January, for example, the government decided not to sell a short-term office site at Aljunied because the sole bid was too low. The move followed a string of lower-than-expected offers for state land.

‘The decision is expected on the Jurong site, as the top bid was well below the market rate,’ Cushman & Wakefield managing director Donald Han said yesterday. ‘It would not have been justifiable to award the site, as it would have been a shockwave in terms of market value in that area.’

It is estimated that 50 to 60 landed homes can be built on the 99-year leasehold site in Westwood Avenue.

HDB ’s 2nd BTO Project Takes Off

Source : The Business Times, March 19, 2008

THE Housing and Development Board launched its second build-to-order (BTO) project yesterday.

Jade Spring @ Yishun (Phase 2) will have 576 flats for sale. With 494 flats launched last month, HDB has made available a total of 1,070 flats so far.

It says five more BTO projects will be launched by June and they will make available 3,430 flats, taking the total number to 4,500 for the first half of 2008.

At the end of the first day of the Jade Spring @ Yishun (Phase 2) launch yesterday, HDB had received 247 applications.

Cushman & Wakefield managing director Donald Han said that demand for BTO flats is expected to remain firm despite volatile economic conditions worldwide. ‘ HDB buyers are different from those in the private market,’ he said.

And because there are few launches at the low end of the private residential market, he reckons that that sector is not likely to be affected by new BTO projects.

Mr Han said that while the top price for a four-room flat at Jade Spring is around $250,000, a low-end mass market private home costs at least $500,000. ‘At these prices, the HDB market still has room to grow,’ he said.

Jade Spring will comprise mostly four-room flats, costing $189,000-$253,000 for unit sizes of 92-97 square metres.

Three-room flats will cost $124,000-$141,000 for unit sizes of 67 sq m. Two-room flats will cost $77,000-$97,000 for unit sizes of 47 sq m.

The monthly household income ceilings for purchasing the flats are $2,000 for a two-room unit, $3,000 for three-room and $8,000 for four-room.

ERA Realty Network assistant vice-president Eugene Lim said that the flats should appeal to first-timers and those with lower budgets, as little or no cash is needed to buy them.

He estimates that the median cash-over-valuation (COV) for a four-room Yishun resale flat is about $18,000. Current resale prices of four-room flats of about 20 years old at Yishun Avenue 11 are around $230,000-$260,000.

Mr Lim said that the HDB resale market is still active despite the global economic bad news. ‘Any flat that has a COV of $50,000 and below sells relatively quickly, usually within a month or less.’

Singapore Can Help Market IDR: MP

Source : The Business Times, March 18, 2008

The federal and Johor state governments should forge a smart partnership with Singapore and use the Republic's international trade links in marketing the Iskandar Development Region (IDR).

Pulai MP Nur Jazlan Mohamed, whose constituency is located in the IDR, said that as many multinationals were based in the Republic, Singapore's international trade links could also be used to thwart negative reports from foreign media.

'We have to accept the fact that Singapore is more highly regarded by the international community than Malaysia. Its trade links are enormous. What is wrong with Johor using Singapore's international links? If the Singapore government can work with us, it can help promote the IDR and we can together develop the IDR,' he told Bernama in an exclusive interview yesterday.

Mr Nur Jazlan, son of former information minister and former Umno secretary-general Tan Sri Mohamed Rahmat, is the director of several public-listed companies.

According to Mr Nur Jazlan, Singapore is a hub for several foreign companies and the Government of Singapore Investment Corporation (GIC), was active in the international financial market. GIC had recently made several high-profile investments in UBS and Citigroup.

He said that the frequent negative reporting by foreign media sent the wrong message to foreign investors. He cited as an example the foreign media report on the 12th General Election, which focused on racial tensions and the street demonstrations organised by an unregistered group, the Hindu Rights Action Force.

'We have to find ways to reach the international trade community in Singapore to convince foreign investors to invest in the IDR, and to put an end to the foreign media's negative perceptions of Malaysia,' he said.

He said that the IDR would not succeed if the media and foreign investors continued to hold negative perceptions of Malaysia. The IDR, launched by Prime Minister Abdullah Badawi in November 2006, covers an area of 2,200 sq km in Southern Johor.

Recently, Johor Menteri Besar Abdul Ghani Othman, who also chairs the Iskandar Region Development Authority (IRDA) jointly with the PM, said that the IDR had so far received a total of RM22 billion (S$9.5 billion) in investments.

The IDR was on the right track to achieving its investment target of RM47 billion by 2010. Mr Nur Jazlan was also asked about the lukewarm response from Singapore investors in the IDR, compared to the enthusiastic response from Middle East investors.

'Maybe the Singapore investors do not feel welcome,' he said. Maybe society as a whole should be more open-minded to all investments in the IDR and Johor,' he added. - Bernama

Mapletree Logistics Buys Two Warehouses For S$56m - CNA

Source : Channel NewsAsia, 18 March 2008

Mapletree Logistics has bought two warehouses in western Singapore for S$56 million.

The deal was signed with Cougar Holdings, a unit of the global logistics firm Menlo Worldwide, and covers warehouses at 30 Boon Lay Way and 22A Benoi Road.

The properties are located close to Jurong Port and the larger Jurong Industrial Estate.

Under the deal, the warehouses will be leased back to Cougar Express Logistics unit for 10 years initially. There is an option to renew for further consecutive periods of five years each.

Menlo says the sale of the warehouses is in line with its asset-light strategy.

The acquisitions are expected to be completed by the second quarter of this year. MapletreeLog says the acquisitions will be funded wholly by debt. - CNA/ch

Macquarie Global Property Unveils Plans For Marina View Land Parcels

Source : Channel NewsAsia, 18 March 2008

Macquarie Global Property Advisors (MGPA) says it expects office rentals in Singapore to remain hot, jumping by 10 to 25 percent this year.

The Australian private equity real estate fund management firm is converting two plots of land at Marina View into twin office blocks. The two towers, expected to be completed in 2012, will also house a luxury five-star hotel.

These land parcels drew top dollars from Macquarie Global Property last year. Costing a total of S$3 billion, the sites will soon enjoy a S$5 billion makeover.

Site B, which Macquarie won last December for just under S$953 million, and Site A, for S$2 billion in September - are both on a 99-year lease.

Formerly known as Marina View Parcels A and B, the two-hectare site will be transformed into twin luxury office buildings, one of which will also house a 220-room five-star hotel.

Macquarie expects to announce in the next 3 to 4 months who they will be working with on the hotel.

It says the towers, due to be completed between 2011 and 2012, are well-timed to catch the growing demand for office space.

Simon Treacy, CEO, Asia Investments, MGPA, said: "I think around Asia, we are extremely busy - we see good value emerging around the region. In Singapore, we also think that there will be increased demand in the office sector - rents are likely to grow 10 to 25 percent this year.

"I think over the medium term, people will be surprised because they've underestimated the demand in Singapore for modern international grade office space.

"And we've seen that in Japan for 2003 and this year in Hong Kong. And, I think it's a reflection of the solid economy of Singapore and the ongoing growth in a lot of the financial service sectors and wealth management in particular."

The towers will be more than 40 storeys high and designed by Australian architect Denton Corker Marshall, who also designed the Melbourne Museum and the Australian Embassy in Beijing.

About 60 percent of both buildings will be set aside for office use: Tower A will house 130,000 square metres, and Tower B, 113,580 square metres.

Besides this project, Macquarie Global Property says it is looking out for other bargains.

Mr Treacy said: "I think over the last two years, a lot of investors have probably overlooked and undervalued Southeast Asia. I think now people are seeing very good fundamentals down here, and I think our timing was very good in making a number of acquisitions. We still think there is a very good value in buying... over the next 6-9 months."

Office rentals in Singapore have been surging because of growing demand and a lack of supply. But more office space is expected to enter the market.

The government is targeting to double office space in the Central Business District to an estimated 2.82 million square metres. - CNA/ch

HDB Launches 576 Build-To-Order Flats In Yishun

Source : Channel NewsAsia, 18 March 2008

The second batch of flats under this year's Build-To-Order project was launched on Tuesday.

Called Jade Spring, HDB is offering 576 two-, three- and four-room flats.

The site is located at the junction of Yishun Ring Road and Yishun Avenue 11.

It is also near the town centre where the MRT station, Northpoint Shopping Centre and the future Khoo Teck Puat Hospital are located.

The prices of the units range from S$77,000 to S$253,000. Interested applicants have until 31 March to apply for a flat there.

By the end of the day, Jade Spring received 241 applications, while applications for the HDB's first batch of Built-To-Order Flats at Punggol Spring have closed.

Only one in 6 applicants will get a flat at Punggol Spring as there were 2,765 applications for its 494 four-room flats. Units there cost between S$200,000 and S$260,000.

HDB says the public can look forward to five more Build-to-Order launches from now till June. - CNA/ch

Landlords Look For Bargains In US Housing Market

Source : The Business Times, March 18, 2008

Rental market looking up as mortgage rates rise

(LOMBARD, Illinois) The US housing crisis and credit crunch may end the American dream of property ownership for millions of people, but for landlords seeking bargain investment properties the market is looking up.

'There will be a lot of product hitting the street in the coming months and it should be pretty cheap,' said Mike Bacza, watching the bidding at a foreclosure auction last month in this western suburb of Chicago. 'This year I expect I'll buy at least two multi-family units in a decent neighbourhood.' The 48-year-old union carpenter is not ready to purchase today, but observes from the back of a large crowded conference hall where hundreds of people - most of them investors - are looking to snap up one of some 170 foreclosed homes.

'I'm on a reconnaissance mission,' Bacza said, jotting down bids. 'I want to know what's selling and for how much.' Building contractor Chad Blankenbaker seeks foreclosed homes to 'flip' - buying at well below market value, refitting then selling them at a hefty profit. 'I'm shocked at how low the prices are here,' he said. 'There's so much inventory that no one has to fight to buy anything.' Around the country the housing crisis represents both a business opportunity for landlords and a huge shift in the rental market.

During the property boom, mortgage rates were low and people could buy a home with little or no money down, so there was no incentive for many Americans to rent.

'The US rental market was nearly flat between 2000 and 2005,' said Ken Fears, an economist at the National Association of Realtors. 'Some landlords were so desperate to get tenants that we saw cases where they would offer three months free rent and other promotions to fill vacancies.'

'Now mortgage rates have risen and it's harder to gain access to credit, allowing landlords to jack up rents for the first time in years,' he added.

What is good news for small-time landlords, however, may not be good for publicly traded US real estate investment trusts as the extra supply is expected to push prices down.

Some real estate analysts also worry that many landlords will turn their units into government-subsidised rental housing and stifle the rebirth of some US inner city areas.

For many people, the housing market is all bad news now. The Mortgage Bankers Association (MBA) said on March 6 that in the fourth quarter of 2007 a record 0.83 per cent of US home loans entered the foreclosure process. The US mortgage delinquency rate of 5.82 per cent was the highest since 1985, the MBA said. Officials added that they didn't expect foreclosures to peak until mid to late 2008.

Dave Webb at Texas-based firm Hudson & Marshall, which held the auction in Lombard on behalf of lenders, said he expects business will be brisk all year, nationwide.

'Last year we sold 7,000 units, in '08 we should sell 15,000,' he said. 'If we had the capacity we could do 40,000.' Even markets like Chicago, which has not experienced the same boom-and-bust intensity of states like Florida or California, have seen many foreclosed homes hit the market.

According to real estate data company RealtyTrac, Chicago was the 30th ranked US city for the percentage of homes with foreclosure filings in 2007. In absolute terms, its 73,469 filings put it in fourth place.

Auctions are often the last resort for lenders to offload foreclosed properties they could not sell using real estate agents. At the Lombard auction, most prices were around 60 per cent to 70 per cent off the list price - itself well below market value. Projection screens showed photos of properties boarded up in inner city areas, but there were also many higher-end houses in wealthy suburbs.

'There's no emotion here,' said real estate agent Greg Fisher, looking around the conference hall. 'These investors know what to bid, what it will cost to get these properties into reasonable shape and what to sell or rent them for.' The lack of easy credit following the credit crunch means that there will be no shortage of renters in most markets.

'The housing crisis has removed the ability of people to get out of the rental market and onto the property ladder,' said Van Johnson, president of the Georgia Association of Realtors. John Vranas of Vranas & Chioros Realty Group, which owns rental properties throughout the Chicago area, said the 'rental market has been firming since the first quarter of last year'.

'We're now seeing normal vacancy rates of 3 per cent to 5 per cent compared with double digits during the property boom.'

BMO Capital Markets analyst Rich Anderson said he expects that 'an unprecedented flow of rental properties hitting the market could be a negative for multi-family Reits over the next few years'.

He said the influx of properties could especially be a 'thorn in the side' for Reits like Apartment Investment and Management Co and Camden Property Trust with exposure to hard-hit areas like Florida, Texas or California. -- Reuters

Investment Sales Could Hit $25b This Year: CBRE

Source : The Business Times, March 18, 2008

This would be about half of the record $54.5b of deals done last year

DESPITE the current subdued mood, property investment sales this year could be substantial - about half of the record $54.48 billion clocked last year, CB Richard Ellis estimates.

It bases the estimate on a tally of $5.91 billion of investment sales deals struck in the first two-and-a-half months of this year.

'Assuming Q1 2008 ends with $6 billion, the full-year figure could be around $24-25 billion. That would still be the third most active year on record, after $54.48 billion in 2007 and $30.59 billion in 2006,' says CB Richard Ellis executive director (investment properties) Jeremy Lake.

Investment sales are seen as a gauge of major players' confidence in the sector's mid- to long-term prospects.

CBRE's definition of investment sales includes those with a value of at least $5 million, comprising government and private sales, buildings and land, strata and en bloc. It also includes change of ownership of real estate via share sales.

Mr Lake reckons momentum this year will be generated by the sale of income-producing completed properties like malls, office blocks and industrial buildings, as well as the sale of sites through the Government Land Sales Programme, while the collective sales market has stalled.

'Continued strong growth in Asia, coupled with Singapore's position as a financial services hub and popular business destination for MNCs, will help maintain a healthy level of investment activity in the Singapore property market,' CBRE said in a report issued yesterday.

CBRE's analysis shows the private sector made up 55 per cent or $3.27 billion of the $5.91 billion investment sales deals sealed in the first two-and-a-half months of 2008.

Land sales by the public sector contributed the remaining 45 per cent or $2.64 billion.

The biggest land deal so far this year was the award of a hospital site at Novena Terrace/Irrawaddy Road to Parkway Holdings for $1.25 billion ($1,600 per square foot per plot ratio).

Splitting deal value by sectors, CBRE said the residential sector accounted for $2.23 billion or 38 per cent of total investment sales.

'Compared with the heightened investors' interest in en bloc acquisition witnessed in 2007, investors' demand for private residential land continued to be lukewarm in the first quarter of 2008,' it said.

'Developers are no longer as keen to acquire more sites compared to last year as most of them have built a relatively strong inventory of freehold residential sites from the robust collective sales market in 2007.

'Developers have already taken the cue to act cautiously. The buying of sites has been so far limited to specific choice sites since the response to recent new launches has been subdued.

'In addition, the release of more affordable 99-year leasehold residential sites by the government for sale in the first half of 2008 may sway some buying interest away from prime freehold residential sites in the private sector.

'The only successful collective sale deal in Q1 08 was Ban Guan Park, which was acquired by Link THM Holdings for $31.10 million ($870 psf per plot ratio).'

The office sector accounted for 34 per cent or $2.01 billion of investment sales so far in 2008, on the back of big transactions like Hitachi Tower for $811 million or $2,901 psf, Singapore Power Building ($1.01 billion or $1,820 psf) and One Phillip Street ($99.02 million or $2,749 psf).

'Going forward, strong office demand and potential for further rental escalation would lead to more acquisitions of office properties in 2008.' CBRE said. 'The sustained influx of foreign investors should continue to lead to steady activity in the office investment market.'