Saturday, May 3, 2008

Prime Buys Are The Best Bet

Source : TODAY, Weekend, May 3, 2008

Cushman and Wakefiled's Donald Han (picture) offers his views on the property market in the Channel NewsAsia programme, When The Bears Are Out – Invest Wise, hosted by Lin Xueling.

What are your favourite locations at the moment? And for which categories?

It all depends on your investment profile and investment criteria. I always say that you should go into a project or property sector that you are most familiar with.

For someone who is looking at residential properties, you might want to go into the first-tier residential market where you can get fairly good returns for your investment.

The more sophisticated ones are banding their investment dollars to create a larger quantum and investing in markets where we've seen substantial depreciation in asset values.

And one of the more common routes would be to go to the United States. This could present an opportunity, in terms of going in to buy US40 cents (54 cents) out of US$1 and getting what we call the deep-sea fishing expedition prices.

So it's a question of waiting for the right time. But generally, you're still pretty bullish about the market?

I'm still pretty bullish. I think everyone says it's all about location, location, location. I think you need to put another important doctrine to that. It's also about timing, timing, timing.

In fact, history has shown that one can make more money from timing than just from location over a short period of time.

We Asians tend to be really keen on property. Do you think that's going to continue?

If you're looking at the market right now, it's a perfect opportunity for investors who have missed out over the last one or two years and have cash.

This is the investor whose money in the bank is earning interest rates of less than one per cent, considering that inflation is going to be four, or even six per cent.

At the end of the day, you're better off hedging that and putting your money in asset location — with part of it being in property. This can help because as an asset class, it's a hedge against inflation.

Also, owners and buyers are now more realistic in terms of pricing. If they were quoting a price 10 to 20 per cent higher than the market value last year, they're now willing to sell at, or below market value.

You've been talking about time being everything. Do you think that the timing is right now?

I think the timing could be anything from the next six to 12 months. A lot depends on what unfolds from the sub-prime and, more importantly, the banking mess. It will affect the demand and sentiment.

At the end of the day, the Singapore property market is affected by sentiment — what you hear and what's in the headlines tomorrow.

The headlines recently have been pretty much stellar economic growth for the first quarter — 7.2 per cent. That's excellent. If the stock market doesn't go down from current levels, that would help sentiment again. And we'll have to wait for some of the Urban Renewal Authority data in terms of the analysis of the first quarter. We'll make a decision at that point of time and over the next six months.

What would be your top tips for surviving the next six months?

Go for prime properties … it's probably the first to go up in any recovery and the last to come down, so it's very defensive. And measure your investment on the kind of yields that you can get and prime properties typically would be able to be leased out very quickly. Always look into prime properties wherever you go. It works in Singapore, Tokyo and US, too.

The programme is shown on Channel NewsAsia every Thursday at 9.30pm.

Beyond A Recession

Source : The Straits Times, May 03, 2008

GOVERNMENT and business leaders in Asia are in a tizzy over the behaviour of the American economy.

They can manage a brief recession there, but stagflation will be trouble. A lengthy period of stagnant growth, inflation and job losses coming three decades after the last one could spin the globe out of kilter. Asia endured reasonably well Japan's decade-long stagnation starting in the early 1990s because prices were stable. During that period, America was prospering under President Bill Clinton's budget surpluses. A combination this time of two factors - financial corrosion and a credit drought in America hurting businesses, plus a worldwide food and non-food commodities spiral stoking inflation - is causing concern about how United States policymakers will fight two fires in one go.

Oil prices that keep climbing are busting growth projections all over, just as the oil embargo and price spike of the 1970s introduced the world to the stagflation phenomenon. Asian leaders were watching the US Federal Reserve Board's rates move this week for leads on which its governor Ben Bernanke saw as the greater danger. They were liable to have been as confused as American economists and business leaders said they were, not by a further cut in the federal funds rate by a quarter-point to 2 per cent, but by his fudging about what the Fed regarded as the greater immediate threat to the economy. One wished the Fed's regional governors had powers of divination.

The US economy grew 0.6 per cent in the first quarter annualised. In the view of analysts, only inventory stocking stopped a contraction. But rising inventories coupled with weak sales often indicate economic distress ahead. The Fed signalled it was focused on bolstering growth confidence as consumers cut spending in tandem with declines in property value, business investment and employment.

The Fed's growth bias is comprehensible, but the matter of the correct policy balance is confounding. Opinion in America tends towards the Fed making another cut later in the year. What would the ripple effect around the world be if US growth remained sluggish after that, with interest rates having been brought to the floor on top of a loans handout to Wall Street firms?

Many Asian governments have signalled they have factored in a short US recession in their contingency planning while battling to regain price stability. The worry is whether the Fed is under-weighting the inflation risk in growth recovery cycles. Energy and food prices have not peaked, many experts counsel. By the time the Fed turns its full attention to fighting inflation with rate hikes when business activity is flat, a perfect storm could be brewing.

Yang Huiwen

Swiss Hotelier To Open 50 Properties In S-E Asia

Source : The Business Times, May 03, 2008

International hotelier Golden Tulip Hospitality Group has chosen Thailand as the centre of its one billion euro (S$2.11 billion) South-east Asian expansion plan under which it will open up to 50 properties over four years.

The Swiss-based company, which now operates 324 hotels in 54 countries including China and India, opened its Golden Tulip South-east Asia office in Bangkok last October.

Regional operations are based in the city due to its strategic location, and because more than 20 properties will be opened in Thailand.

'We have over a billion euros committed to this expansion in the next four to five years,' said Golden Tulip chief executive officer and president Hans Kennedie. 'We plan to create around 5,000 jobs in the region in that time.'

The first properties will be in Thailand, Cambodia, Vietnam, Indonesia and Malaysia, before others are opened elsewhere in the region, he said.

The economy-business Tulip Inn brand will spearhead the growth plan by targeting Asian travellers in the region's key urban centres, and will represent 60 per cent of the company's South-east Asian portfolio.

Room rates will range between US$105 and US$130.

The company has taken this initiative because of 'saturation' at the luxury end of the region's hospitality market, said Golden Tulip's South-east Asia managing director Mark van Ogtrop.

'We want to enter the economy business segment because that is not saturated yet,' he said. 'There is not much competition, plus there are much healthier returns on investment with this model.

'Our unique selling point will be a heavy emphasis on high technology. All rooms will feature Wi-fi, personalised music access, VOIP and more.'

The four-star Golden Tulip and the five-star Royal Tulip brands will also be launched, accounting for 35 and 5 per cent of the portfolio respectively.

The company will partner local developers in each territory to accelerate growth.

'We are a marketing and management company,' said Mr van Ogtrop. 'We see that the fastest and best way to grow is to leave the development to local experts.'

The first Tulip Inn is scheduled to open in Bangkok this July, followed by other properties in the city, as well as in Phuket and Koh Samui, plus another in Phnom Penh, Cambodia.

The company plans to open hotels in Singapore, but high land prices and short-term leases are creating a temporary barrier to investment.

'You can't just walk into Singapore and do a deal,' said Mr van Ogtrop. 'Real estate is typically expensive there. You are also often dealing with very short government leases. If you want to invest in a hotel, you can't use a short-term lease model.

'The opportunity is in finding a property to acquire, then you don't have those barriers,' he said, adding that the group is in talks and hopes to make an announcement soon.

The company also plans to lure investors by launching a Golden Tulip South-East Asia Capital property investment fund later this year.

This article was first published in The Business Times on May 1, 2008.

Not Feasible To Raise En Bloc Consent Level To 99%

Source : The Straits Times, May 03, 2008

I REFER to the letter 'Raise en bloc consent level to 99%' by Ms Susan Prior (April 19) .

Her letter seems to me to be a way of asking the relevant government authorities to revert to the 100 per cent consent ratio for collective sales. How so?

For apartment buildings and condominiums with 50 units or fewer, a 99 per cent consent ratio means that 49.5 units have to agree to the collective sale.

As this is absurd, rounding up to the nearest whole figure means 50 units, that is, 100 per cent. Similarly, for developments with 99 units or fewer, a 99 per cent consent ratio means 98.01 units. Rounding up means that 99 units have to agree, or 100 per cent again. Over the years, how many projects that had been sold collectively had 99 units or fewer each?

I would say a significant number, going from my clippings of such reports published in the papers.

If Ms Prior's suggestion is adopted, these developments would not have succeeded in being sold collectively.

However, I do agree that fairly new condominiums should not go under the en bloc hammer. My proposal is for the relevant authorities to consider disallowing buildings less than 20 years old from being demolished, unless there are extenuating circumstances, like a structural defect.

This does not prevent developers from buying and refurbishing them via a collective sale if they find that option financially viable.

Secondly, to allow for urban renewal to continue but at a more gradual pace, the consent ratio could be amended as follows: Buildings 20-24 years old (80 per cent); 25-29 years old (75 per cent); 30-34 years old (70 per cent); 35-39 years old (65 per cent); more than 40 years old (60 per cent).

Ace Matthews



'Why not put an immediate stop to this entire flawed, resource-wasting, socially divisive process and revert to a... supply-and-demand property market situation?''

MR DENNIS BUTLER, responding to a letter by Madam Ong Boot Lian calling for an end to the collective property sale mediation process

That Condo Is Moving Out Of Reach

Source : The Straits Times, May 3, 2008

By Tilak Abeysinghe & Gu Jiaying, For The Straits Times

THERE have been several episodes of residential property price escalations in Singapore that may have overshot income levels. But just how do we determine if private property prices have become more or less affordable?

We have developed a housing affordability index thatmight add an additional indicator to help answer policy questions on housing affordability. Standard measures that link property prices to annual incomes are not enough. Here we present a more meaningful index that we developed primarily to assess the affordability of private residential housing in Singapore.

Buying a residential property is a long-term decision. We need, therefore, a measure of a household's long-term income. For this we obtained unpublished data from the Department of Statistics on median household income since 1990 by age of household head at five-year intervals from age 20 to 64. The raw data shows income peaks occurring at age groups 30-34 and 55-59. If we remove the effect of different birth cohorts from the data, we can see that income peaks around age 50.

From the above income data, we used statistical techniques to estimate the income of different birth cohorts over their working age. From this, we computed a time series of lifetime incomes as the discounted present value of future income streams - that is, calculating future incomes in terms of today's dollars.

Chart 1 plots the lifetime income of middle-income earners by birth year. Significantly, the lifetime incomes of those born before the 1960s were stagnant. As can be seen from the chart, whether one was born in 1926 or 1956, the lifetime median income hovered around $500,000 in 2000 prices. (Most of these cohorts were in their old age during our observation period.)

The lifetime median incomes of those born after 1960 were significantly higher, coinciding with the rapid economic growth of Singapore at that time. But the lifetime median incomes of those born after the mid-1970s taper off. This is because these people began their working lives after the mid-1990s, when the economy entered a turbulent period beginning with the 1997-98 Asian financial crisis.

Having developed a chart tracking the lifetime median incomes of different cohorts, we linked this to property prices to derive an index. We divided long-term income for any chosen age group by the price of a selected type of property. This gives us a housing affordability index, which in essence measures property price against the median lifetime income of a household.

Chart 2 plots the income-price ratio for the 30-year-old group each year considering buying private residential property. We focus on this age group because that is roughly the age at which people might begin to buy private residential property. One graph on the chart looks strictly at this income-price ratio.

The other graph 'with HDB upgrader effect' tries to capture the wealth effect generated by rising HDB resale prices. We assume that the 30-year-old had bought a subsidised HDB flat, resold it, and directed all cash proceeds from the sale into the purchase of a private property. In practice, not all HDB resale proceeds accrue to the seller, but for lack of available data, we assume that it does. This means the 'HDB wealth effect' as represented on the graph is an overestimate, but it provides a useful indicator nevertheless.

Chart 2 is instructive. In 1975, a 30-year-old's lifetime income was nearly five times the amount he would have paid for a private property. But with prices rising, by 1983, his lifetime income would have sufficed to purchase only one private property. This trend continued: By 1997, a 30-year-old's lifetime income would have been enough to pay for only about 60 per cent of the price of an average private property.

In other words, as a result of the rapid increase in property prices in the early 1980s, private housing affordability dropped rapidly. After recovering somewhat in the late 1980s, affordability further declined in the 1990s when property prices escalated to unexpected heights. Last year, affordability moved in the downward direction.

Generally, since 1992, the index has hovered around unity - that is, lifetime income has just about equalled the price of one property. The pattern is the same even for HDB upgraders, though their affordability is somewhat better.

An income-price ratio of unity means that a middle-income household that buys an average-priced private property would be locking up its entire lifetime income in that property. The price escalation in the mid-1990s pushed the income-price ratio below unity, indicating a scenario of perpetual debt if a middle-income earner had committed to an average- (or higher-) priced private property.

The same computations using the data available since 1990 for average-priced HDB resale flats show a much better picture. The HDB affordability index dropped from eight in 1990 to three in 1996 and then recovered to five between 2001 and 2006. The price hike last year led to a slight drop in the index to 4.5, which means lifetime earnings were equal to 4.5 times the price of an HDB flat.

An optimal rate for property price inflation should be one that does not erode housing affordability. The long- term growth rate of our lifetime income measure is about 4-5 per cent, which has also been the long-term growth rate of per-capita disposable income. But the long-term increase in property prices has been much higher.

There are serious implications when housing affordability is eroded to the point where higher prices do not translate into higher wealth for property owners. For example, if affordability sinks below unity, this generation's lifetime income would not be enough to pay for the property, so the wealth from higher prices cannot accrue to the property owner today. Housing wealth may end up being transferred to the children of the current owners.

If this occurs, a question would arise: How to balance the cost of private property to the current generation against the benefits that might accrue to their children of having higher-valued properties?

On this point, our colleague Professor Basant Kapur thinks that a system of intergenerational transfers may work, whereby children can compensate their parents for such properties once they start earning. The complex of issues this raises would require another detailed research paper to examine.

Tilak Abeysinghe is the deputy director of the Centre for Applied and Policy Economics, Department of Economics, National University of Singapore.

Gu Jiaying is a research fellow at the centre.

No US Economic Recovery This Year: IMF Chief

Source : The Straits Times, May 3, 2008

WASHINGTON - INTERNATIONAL Monetary Fund chief Dominique Strauss-Kahn said that he does not see the United States economy recovering from its current doldrums this year.

Describing a US government labour report on Friday that showed fewer than expected job losses as a 'flash in the pan', the IMF managing director said on Friday 'the medium-term trend remains what has been forecast and the US economy would not be on the road to recovery before the end of the year'.

The IMF has forecast a 'mild recession' in the United States, with annual growth a paltry 0.5 per cent.

Mr Strauss-Kahn, speaking to reporters after meeting with French Prime Minister Francois Fillon at IMF headquarters, cautioned that 'one must wait to see the next US data'.

The US Labor Department reported US employers cut 20,000 nonfarm jobs in April, far fewer than private economists' forecasts of 75,000.

The jobless rate fell a tenth of a percentage point to 5.0 per cent, the department said, instead of the expected rise to 5.2 per cent.

While still a weak number, it reinforced the view that the US economy is stabilising and that the Fed may therefore take a pause in its rate-cutting campaign.

Mr Strauss-Kahn, a former French finance minister who took the top IMF post in November, said the numbers were 'not bad but I fear that is only a flash in the pan'. The US Commerce Department this week estimated the economy grew at an annual 0.6 per cent in the first quarter, the same pace as in the fourth quarter.

The expansion was stronger than economists' consensus forecast and helped ease fears that the world's largest economy was slumping amid a severe housing downturn and credit crisis. -- AFP

Upcoming Cruise Centre In Marina South Drawing Interest From Industry Players

Source : Channel NewsAsia, 02 May 2008

The upcoming cruise terminal in Marina South is drawing a lot of attention from industry players.

With the appointment of the new terminal operator expected by the third quarter of this year, some in the industry are wondering if they could have a piece of the pie.

Cruising is becoming more popular nowadays. And with the new cruise terminal scheduled to be up by 2010, Singapore is expected to double its capacity to cope with the increasing number of cruise passengers.

But industry players are wondering who the new terminal operator will be. According to them, one likely contender is the Singapore Cruise Centre - which is currently operating Singapore's cruise terminal at HarbourFront.

Cheong Teow Cheng, President, Singapore Cruise Centre, said: "We want to do our best and be recognised as the cruise terminal operator of choice, so hopefully whatever we do, for example, upgrading the current terminal, would put us in good stead when the tender for the new operator is out."

The Singapore Tourism Board is expected to announce its decision by the third quarter this year.

Some industry players, like cruise liners, said they are open to opportunities to be involved in the running of the new cruise centre.

Dario Rustico, Director, Sales and Marketing, Costa Crociere, said: "It is important to involve cruise operators in managing the terminal, because they can bring their expertise and experience from all over the world."

Jackson Loy, VP, Sales and Marketing, Star Cruises, said: "If it's not the Singapore Cruise Centre operating it, then probably some joint venture between operators of cruise lines, cruise liners, cruise line operators themselves together with shipping related enterprises. It could be a joint venture."

The new terminal will help Singapore achieve its target of 17 million visitor arrivals by 2015. - CNA/ms

Mandarin Gardens' Management Panel Steps Down Over Enbloc Disputes

Source : Channel NewsAsia, 02 May 2008

Enbloc sales woes and unhappiness at Mandarin Gardens have left the condominium without a management committee for the past week.

The previous committee refused to be re-nominated for elections at its Annual General Meeting last Sunday.

Since then, no one is taking charge of the day-to-day management at the condominium on Siglap Road.

Channel NewsAsia understands that the entire management committee stepped down because of disputes with the estate's enbloc sales committee.

Apparently, the enbloc sales committee pushed through resolutions which are unfavourable to the entire estate, through its control of proxy votes.

When contacted, the Strata Titles Board said such cases are rare, but it is unable to do anything at this point.

Under the law, all residents are jointly responsible for any liabilities incurred by the condominium during this period. - CNA/ms

S&P's 'AAA' Rating Affirms Singapore's Stable Outlook

Source : Channel NewsAsia, 02 May 2008

Standard & Poor's Ratings Services affirmed on Friday its 'AAA/A-1+' sovereign credit ratings on Singapore.

In a statement, Standard & Poor's said the outlook is stable.

The ratings reflect Singapore's enduring fiscal and external strengths and competitive economy, while taking into account the challenges it faces as a small and open economy.

Singapore's general government surplus is estimated at 8.8 percent of GDP in fiscal 2007 and averaged 8.0 percent of GDP between 2003 and 2007.

Standard & Poor's added that this level of surplus – one of the highest in the world – provides strong fiscal flexibility, which is needed for structural reforms such as the ongoing efforts to diversify the economy so that it would be less reliant on electronics exports and be more cost competitive. - CNA/so