Office Rents In Singapore Showing Signs Of Peaking

Source : Channel NewsAsia, 16 July 2008

Office rents in Singapore are starting to show signs of peaking, said property analysts.

They noted that prime rental costs have generally increased at a far slower pace in the first half of this year, compared to 2007.

Looking ahead, they expect office rents to soften even more towards the end of 2009 and early 2010 as demand for prime space eases.

Donald Han, managing director of Cushman & Wakefield, said: "The market is quite close to the peak, by virtue that we have seen the bulk of the expansion process by users, multinationals."

Chua Chor Hoon, senior director of research, DTZ, said: "Rentals went up quite a lot last year – almost doubled. So there is a lot of resistance to that high level of rental, plus there is more cautiousness in the market now because of what's happening in US and its impact on Singapore."

Last year, Grade A office rents rose 96.5 per cent, compared to just 9.6 per cent in the first half this year.

Consultants said they expect to see more softness as some one million square feet of space may be released once major occupants complete their plans to move out.

"For banks like Standard Chartered, DBS and Citibank, you'll probably see completion of these three portfolios in Changi Business Park in end 2009 and early 2010," said Mr Han.

In addition, about 6.7 million square feet of space will come on-stream by 2011 and more than 60 per cent of it will be Grade A space.

While rentals for prime office space may be peaking, those for fringe locations have been increasing at a faster pace.

Ms Chua said: "The interesting thing we noticed is that for office outside the CBD, like the Harbourfront, Novena, Alexandra or Tampines, we see strong demand over there. Rental growth is slightly higher than in CBD."

In the second quarter, rental growth for these decentralised areas was about 3 to 5 per cent. - CNA/so

The IR Effect On Housing Demand

Source : TODAY, Thursday, July 17, 2008

Up to 75,000 new jobs could help to prop up market

HOMES for the masses have always been the backbone of Singapore’s residential market. And, with the two integrated resorts (IRs) expected to employ some 75,000 people, demand for such housing is likely to go up.

Both IRs are expected to draw a significant influx of “foreign talent”, simply because Singapore does not have enough people with the right skills for the various jobs that will be created.

When the IRs were first announced in 2005, the Government said that the IRs were expected to bring in about$5 billion of total investment and create 35,000 new jobs. Today, the impact is likely to be much larger, after the consortiums behind Marina Bay Sands and Genting Resorts World increased their investments to over $6 billion each.

Up to 75,000 new jobs are expected to be created, of which 30,000 will be from Marina Bay Sands and 45,000 from Genting Resorts World. This figure is more than half of the 140,000 people currently employed in the industry.

Over the past 12 to 18 months, the labour market saw record employment creation on the back of strong economic growth. With the unemployment standing at a low of 2 per cent (54,400 people), the need to attract foreign talent with the right set of skills has become a priority.

As few Singaporeans are trained in this area, it is likely that many of the vacancies would have to be filled by foreigners.Assuming 30 per cent of the jobs (some 23,000 of them) are taken up by locals and the remaining 70 per cent (52,000 jobs) by foreigners, this would generate a substantial demand for housing, especially in the rental market, and to a certain extent, the primary and secondary sales market.

It is estimated that around 44,000 resort workers will most likely reside in the lower tier of the housing market. Hence, it is clear that most of the demand would enter both the HDB, as well as the lower end of the mass private residential housing rental market, as these are more affordable.

According to the 2005 General Household Survey, the average household size is expected to be 3.7 persons. Assuming that five foreigners share one house, the minimum requirement would translate to 8,800 home between 2009 and 2010. The entrance of these foreigners would definitely have a very positive effect in all layers of the housing market.

Although the Urban Redevelopment Authority’s first quarter figures show that there were 14,862 vacant private residential units available in the market, we at Savills Singapore believe that they could include units from condominiums that had been sold en bloc and old apartments in unliveable conditions.

Hence, the current available private units could be as few as 7,500 units.

Moreover, the mass segment will see a moderate supply of only 8,400 units to be completed between 2008 and 2010. This modest supply, coupled with the strong demand in the rental market, is likely to boost homebuyers’ as well as investors’ confidence in the residential mass-market.

More jobs will be created not just from the effects of IRs, but also other ongoing mega-projects from Exxon Mobil and the soon-to-be-completed shopping malls, like ION Orchard, Orchard Central and Somerset Central. This, together with the Government’s efforts to attract foreign investment, will ensure the continued influx of foreigners, which will, in turn, help sustain rental demand, especially at lower tier of the housing market.

With so much potential, we believe that the demand for mass-market homes will remain strong in the coming months, barring any unforeseen circumstances that could rock the global economy.

Ku Swee Yong is director of marketing and business development at Savills Singapore.

Jane Kwa is a senior research and consultancy analyst at Savills Singapore.

‘We Want To Be A Niche Player’

Source : TODAY, Thursday, July 17, 2008

Developer wants to build luxury homes and hotels across Asia and Europe

FOLLOWING the launch of The Hamilton Scotts on Scotts Road, its developer Hayden Properties is now setting its sights on the region and beyond to develop and build similar ultra-luxurious homes.

Hayden has an interesting mix of owners. It is 50-per-cent owned by KOP Capital, founded by 39-year-old lawyer Ong Chih Ching and Leny Suparman, 33, who came from property consultancy CB Richard Ellis (Singapore). The other half is owned by Emirates Tarian Capital (ETC) of the United Arab Emirates.















Together, they plan to go overseas to develop hotels and resorts in Europe and Asia, according to KOP.

Both companies are already talking to potential investors and parties on acquiring land and developing properties overseas. Their interest lies in places such as Bali, Bangkok, Kuala Lumpur, Hong Kong, Japan, Vietnam, India and China.

KOP Capital, previously known as KOP Management Services and which sprung from the law firm of Koh Ong and Partners (KOP, get it?), is already familiar with overseas projects. The firm has been involved with the development of several luxury hotels and resorts in China.

And the two companies have got ultra-rich partners to support their expensive projects, both here and overseas. Its partner in Hayden, ETC, is a subsidiary boutique investment company of the Emirates Investment Group, whose real estate investments include Emirates International Holdings, Palazzo Versace Gold Coast in Australia, Palazzo Versace Dubai, D1 Residential Tower, Emirates Financial Towers, Karachi Financial Towers and White Bay.

In April, KOP sold a 51-per-cent stake in the company to the Dubai Investment Group, which is part of the business empire of Dubai’s ruler, Sheikh Mohammed Rashid Al Maktoum, whose diversified portfolio is valued at over US$7 billion ($9.45 billion).

“Hayden will concentrate on high end luxury properties, while KOP will go into opportunistic investments,” said Ms Ong, who has had 12 years of practice in corporate and property law, and who was a founder of the Singapore Investors Association of Singapore (Sias).

“We want to be a niche player in the high end lifestyle sector where there’s a lacuna (gap) in the market. There are lots of products created without much understanding of the life-style buyers want,” she said.

For instance when Hayden bought the Hamilton site, it did not at first think of putting up a luxury apartment block, instead it was looking at various other things like a serviced apartment which previous owner CapitaLand had planned for, or a hotel.

“But after talking to some people, we decided that what was needed was something iconic.

“The architects Eco-id came up with an innovative and daring design by giving apartment owners the comfort of parking their marques right by their residences, regardless of which level they are in,”Ms Ong said adding that they had to overcome various issues, including fire-safety compliance, et cetera.

Response to the launch of the 30-storey block scheduled for completion in 2011 was “very encouraging” the two said. “Although our launch party was scheduled for 8pm, people were already streaming in at 4pm, and we had more than 400 people turning up with all 500 kits that we had printed snapped up,” Ms Suparman said.

The two partners also disclosed that they received “no less than three offers” to purchase the entire project from parties from Russia, the Middle East and China.

“These people were looking for iconic developments and saw the Hamilton as an entry into the region’s property market. We didn’t mind selling them a chunk of the project but parting with the entire building would have made us appear desperate and looking like we were just in it for the punt,” she added.

Hayden has so far sold about a half dozen of the 56 units at an average price of $3,800 per sq ft or over $10 millionfor a 2,700 sq ft apartment, which doesnot include the 600 sq ft allotted for two cars.

The company has also tied up with the Ritz Carlton on a $300-million project in Cairnhill Road which will feature a 24-hour concierge service, housekeeping, sommelier service, and three sky terraces where residents can entertain, exercise or just lounge around.

The cheapest 2,800 sq ft apartment is expected to fetch at least $11.5 million while a junior penthouse of about 3,500 sq ft will cost about $18 million. Monthly maintenance will come to at least $2,500, the most expensive in Singapore.

Balestier Road Hotel Site Draws Three Bids

Source : TODAY, Thursday, July 17, 2008

THREE companies have entered bids for a hotel-and-park land parcel along Balestier Road, compared to the zero interest for a Little India hotel site tender that closed just two months ago.


Of the three, the top bidder was HH Properties, a unit of Singapore-listed Hiap Hoe. It offered about $172 per-square-foot per plot ratio, or a total of $73.3 million, the Urban Redevelopment Authority revealed yesterday.

The other bids were considerably lower: Garden City Hotel Holdings offered $53.1 million, Park Plaza offered $35 million.

The 99-year leasehold site flanking Ah Hood Road, covers 190,106 square feet and has a maximum permissible gross floor area of about 426,000 square feet.

“This can potentially yield some 675 hotel rooms,” said Mr Li Hiaw Ho, executive director of property consultancy CBRE Research. “A hotel built on the location can capitalise on the Sun Yat Sen Nanyang Memorial Hall that is located nearby.”

Another unique selling point, he said, would be the upcoming 0.46 hectare Zhongshan Park, which will be integrated with the hotel. Part of the space in the public park can be for commercial uses, like outdoor refreshment areas and tea pavilions.

Whichever firm wins the tender will have its proposal reviewed by a design advisory panel to ensure “appropriate quality and standard”, as “the site will be a key development along Balestier Road”, URA had said in March when the tender was launched.

Mr Li said even HH Properties’ top bid was “relatively low” compared to those received recently for other hotel sites.

“However, it is heartening to see several bids submitted for the site in the view that no bids were received for a hotel site at Race Course Road/Bukit Timah Road that closed in May,” he added.

The View From The Malls (Msia)

Source : The Business Times, July 17, 2008

By ALLAN SOO

THE Klang Valley retail market saw a turning point last year as the sector became more mature and saturated. Although the market is not fully saturated in terms of successful centres by number, it is nevertheless now more difficult for retailers to increase turnover by same-store sales. The saturation is in the hot spots and this is where most retailers are worried about the future of retailing in terms of profitability and even sales turn-over.

Recent additions: The KL Pavilion, The Gardens and Sunway Pyramid's extension (left) each have at least 800,000 sq ft of net lettable area

The opening of three major shopping centres, all in September, taxed not only the retailers' expansion capacity and the industry's ability to support it with infrastructure and human resources, but even the consumers' disposable income. The KL Pavilion, The Gardens and Sunway Pyramid's extension each have at least 800,000 sq ft of net lettable area.

All three malls started with high rents nevertheless, and KL Pavilion has had tremendous support from retailers convinced it is the next Kuala Lumpur City Centre (KLCC), so rents have reached RM45 per sq ft for good ground floor space. Occupancies are high in all the new shopping centres but the opening was slow as some brands were still waiting for the spring collection before opening their doors.

There is a general consensus that there is too much of the same thing and that the brands are too highly positioned in some of these centres. Malaysia may not be quite ready for the likes of Takashimaya or Siam Paragon and 4.2 million sq ft of new space in one year is definitely too much all at once.

Last year was Visit Malaysia Year which was expected to boost retail sales. Certainly, KLCC showed a 14 per cent increase in sales in 2007 to RM2.3 billion, up 14 per cent from 2006. In fact, most retailers in KL Pavilion reported better sales to tourists than locals.

Overall, some existing shopping centres continued to do well, with malls like the Curve attracting a consistent two million visitors a month and rents above RM16 psf for food outlets, while KLCC's top rents are now a gross RM80 psf.

By contrast, the results for 2008 have been poor, as anticipated. The first quarter was good, as can be expected of the seasonal sales period, with some retailers, including department stores, reporting improved year on year sales.

But the second quarter has been a major letdown and many retailers have seen double-digit erosion in their sales, particularly fashion items.

March and April have traditionally been quiet months but cosmetics and fashion trades are seeing this stretching to May and June, which is unusual. This is happening in the city outlets of department stores, much to the surprise of the suppliers.

We believe this is due to the dilution of retail in the city with the opening of the new shopping centres coupled with poor sentiment in the market. Some retailers have noticed a considerable drop in sales in the aftermath of the March elections. More worrying now is the impact of the huge increase in petrol prices which has had an almost immediate impact on retailers. The best malls in the city are now reporting at least a 5-7 per cent drop in traffic, with a normal Sunday crowd falling from 120,000 to 112,000 two weeks ago, for instance. Many consumers are already beginning to cut down on eating out and weekly purchases.

The overall market sentiment is weak and the expectation is that this will continue throughout the year. On the brighter side, some outlets are continuing to expand and the entry of food outlets like Krispy Kreme and Food Republic is a boost to the market. Standards are definitely higher now, and with keener competition, most shopping centres are not leaving their promotions and tenant mix to chance.

There are now 111 shopping centres and hypermarkets, with space totalling 37.56 million sq ft. Altogether, there were 10 new shopping centres with 4.2 million sq ft of space added in 2007. This is the largest single addition to supply in any one year. It works out to 6.47 sq ft of net retail space per person in the Klang Valley, which has a population of 5.8 million people.

By 2010, another bunching up will occur, as newer planned shopping centres are completed. Another five million sq ft will be added, and it is possible that even the suburbs will see a dilution of rents and turnover when this happens.

Occupancies rose in 2007, marking a gradual rise in the performance of the sector overall, although the poorer malls would be filled with non-retail trades in many cases. As at Q1 2008 the occupancies were:

# Klang Valley - 91 per cent
# Kuala Lumpur - 92 per cent
# Suburban - 91 per cent

We expect that the new malls will start polarising the trade so that eventually some casualties will show up in the older ones, and as a result, occupancies may drop this year.

There were a significant number of transactions mainly as a result of Reits hunting for retail assets last year in a market depleted of sellers. Three shopping centres were sold to Reits or their precursors and this is an important milepost in that it marks a shift finally towards a more investment-led retail property market. The sale of the Mines to CapitaLand at 7.75 per cent yield shows the market's preparedness to work on potential upsides for less than prime locations.

We believe 2008 will see more off-the-plan transactions and yields falling below 6 per cent as more Reits or fund-driven money come into the market.

The writer is managing director, Regroup Associates Sdn Bhd

Malaysia's Buoyant Office Sector

Source : The Business Times, July 17, 2008

CHRISTOPHER BOYD examines demand and supply trends in the Klang Valley and sees a continued up-cycle for the foreseeable future

THE office sector in Malaysia's Klang Valley saw a number of significant events in the last 18 months, both in terms of rents as well as major sales.

Rising values: By the end of 2007, prices had crossed RM1,000 psf. This year sees the continuation of the positive trend with prices hitting RM1,200

Last year began with the anticipation that rents and values would rise because of the shortage of space for good Grade A buildings. However, it was not until late into the second half that the price of office space broke above RM700 per sq ft, with the sale of the Icon West Wing to Kuwaiti Finance House.

Occupancy has been gradually rising over the last three years as the 1997 freeze on new office buildings over 20 storeys worked its way into the market. Rents have risen as a result and values have been supported by funds in pursuit of good commercial building investments.

By the end of 2007, prices had crossed RM1,000 psf and in one exceptional transaction we saw the yield fall below 5 per cent.

While 2007 was the turning point, this year sees the continuation of the positive trend with rents breaching RM8 psf, prices hitting RM1,200, yields edging below 6 per cent, occupancies continuing to rise and land prices for commercial development crossing RM2,000 psf.

Interest from foreign institutional funds in this sub-sector has not abated and we expect more major transactions being announced this year for prime assets and development projects. This year will also see an increase in absorption rate as more buildings are ready, some of which are already pre-let. Most importantly, the office space market is not over-supplied, and the high occupancy rates and lack of large space in good buildings currently suggests a continued up-cycle for the foreseeable future.

We have also seen healthy growth of rents in the suburbs due to the pressure of traffic jams in the traditional parts of the city. The important major development and transport hub known as KL Sentral has already achieved rents of RM8 psf as a result, and this is likely to continue into 2009.

Likewise, two new buildings in Mid Valley comprising nearly one million sq ft are being completed this year and have leased very well.

What's available

As at December 2007, the total number of purpose-built office buildings in the Klang Valley stood at 261 and total space reached 66.5 million sq ft net, a sizeable market by regional standards.

Supply had grown very slowly since 2001 as a result of the freeze on building post-1997, with the additional space each year falling below two million sq ft with the exception of 2006. In KL, growth has been slow, at below one million sq ft a year except in 2006. This compares with an absorption rate of over three million sq ft per year in a good year.

Pre-letting has, for the first time, become a feature of the Kuala Lumpur office market. Of the 3.1 million sq ft of space being completed this year, 71 per cent is already let. Moreover, some 49 per cent of next year's expected supply of 2.4 million sq ft is already booked.

Companies such as Quill are emerging as specialists in the important build-to-let industry. Major companies need to plan carefully for their accommodation needs. Specialist developers, who can deliver a quality product on time, play an important role. Major funds such as the locally listed Reits are ever ready to add such buildings to their portfolios. And so the western model of build-let-sell is taking hold in Malaysia and will bring a greater degree of professionalism to the development industry.

Investment activity

The Kuala Lumpur office investment market has been buoyant since late 2006, growing significantly in 2007 and continuing its strong momentum into 2008. Total investment sales of office buildings located in Kuala Lumpur reached RM3.29 billion in 2007, a hefty 83 per cent increase from the RM1.8 billion worth of deals done in 2006. This January, a record RM2 billion worth of transactions were inked for three upcoming purpose-built office buildings, surpassing the transaction values reported in 2006.

The Malaysian office investment market has seen increased activity in the past 18 months. Interest from both local and foreign investors alike has been strong, largely as a result of the expectation of future rental and capital growth. The market, which used to be tightly held among a small number of domestic landlords, is becoming more institutional in nature and less tightly held. This trend has been driven by the development of the Malaysian listed market and the foreign investment community.

Current concerns

The effect of the sub-prime crisis originating in the US appears to be radiating outwards. In Malaysia, there is considerable uncertainty as to how or when the investment market will be affected. This is understandable when one recognises that the whole business of foreign investment in major Malaysian properties is relatively new.

Locally, liquidity is high. Reits are still active in the market. Much of the overseas buying interest comes from cash funds and regional and Middle Eastern interests and our experience is that buyers still outnumber sellers by a considerable margin.

However, now that it is an international market, it is not impervious to world crises. Undoubtedly, investors are going to take a closer look not only at initial yields but also at prospects of growth offered by specific opportunities. This means a more cautious approach for the year. It also spells a gradual sophistication of the investment market involving a closer and more exact evaluation of an investment in terms of building quality and future cash flows.

The writer is executive chairman, Regroup Associates Sdn Bhd

On The Home Front (Msia)

Source : The Business Times, July 17, 2008

A look at how KL's residential property market is faring in the current economic climate

MALAYSIA'S property market had cruised into 2008 looking to keep its upward trend. But unprecedented results from the country's general elections in March led to new political parties forming state governments on a scale unseen before in Malaysia.

What's hot: Completed projects by more established developers. To combat higher transport costs, there is also more demand for homes that are closer to public transport

In the midst of the changing political landscape, the country was faced with a 41 per cent hike in petrol prices in June, followed by the central bank announcement that inflation would exceed 6 per cent that month. All this, while the US credit crisis unfolded with its effects felt around the globe.

With so much uncertainty, Kuala Lumpur's residential property market is now reeling. The petrol price hike and its domino effect has been arduously debated in the past month and its implications on the property market are far-reaching. Affordability is now of great concern. With daily living expenses taking a bigger bite out of incomes, people are more cautious about big-ticket purchases.

Meanwhile, developers and contractors are faced with significantly higher prices for building materials, with further increases anticipated. These hikes could lead to projects being stalled and the increasing possibility that completion of ongoing projects may not be a certainty.

One upside to this situation would be an increasing demand for completed projects by more established developers as well as demand for accommodation closer to public transport to combat the higher transport costs.

The immediate response has been a slowdown of launches in the first five months of the year. Our findings reveal that between January and May, some 3,333 units were launched in the Klang Valley. These include terraced, semi-detached, detached, town villas and condominiums in areas like Shah Alam, Semenyih, Klang, Bangi, Rawang, Puchong and Putrajaya. (Statistics based on monitoring of major dailies were compiled by WTW). In contrast, about 10,780 residential units were launched between January and June 2007.

The first half of the year generally sees roughly double the number of units advertised compared to the second half. This observation extends to nation-wide launches of all types of properties that are compiled by NAPIC (National Property Information Centre).

The number of residential transactions lodged in Kuala Lumpur and Selangor in the first quarter of this year was also lower than the corresponding period in 2007. Further declines are anticipated for the second quarter.

These are clear warning signs that the property sector has already made adjustments to domestic and external forces affecting the country in 2008.

Good performers

The top-tier condominium market in Kuala Lumpur located at the Kuala Lumpur City Centre (KLCC) and Mont Kiara have performed well over the last two years with selling prices having doubled in that time. In fact, prices have crossed RM2,000 per sq ft at KLCC and RM1,000 psf at Mont Kiara.

Sales have been good with foreigners making up about 30-40 per cent of the buyers, as prices are still considered affordable by regional standards. The exemption of real property gains tax as well as the lifting of the required approval from the Foreign Investment Committee were also factors in attracting foreign investors.

Between June 2007 and June 2008, some 1,855 units were launched in Mont Kiara, among them Lumina Kiara, Seni Mont Kiara, 11 Mont Kiara, Kiara 9, Kiara 3, Sunway Vivaldi and One Kiara. Over the same period, no new projects were launched within KLCC but 238 units were completed in the area, with another 779 units to be completed before the end of the year. This new supply is expected to create further pressure on occupancies and rentals.

Looking ahead, the top-tier luxury condominium market is expected to soften as purchasers become more selective and developers become increasingly cautious about oversupply, leading to slower sales.

In addition, with the global credit crisis still unresolved and Malaysia's current political climate, many are adopting a 'wait and see' attitude.

This article was contributed by CH Williams Talhar & Wong

Australian Markets At A Crossroads

Source : The Business Times, July 17, 2008

By DAVID GREEN-MORGAN

AUSTRALIA'S commercial property markets are very much at a crossroads as we enter the second half of 2008. Investors are increasingly nervous as volatility in credit markets continues, banks of all sizes revaluate their exposure to the property market and new lending rules are imposed.

Within the capital markets, transaction volumes have dropped significantly with figures from DTZ Research showing a 26 per cent drop in Q2 compared to Q1 2008. This reduction in activity is occurring because Australia has yet to go through the mark to market exercise that has happened in the US and more dramatically in the UK.

Indeed, towards the end of 2007, there was a view held by many commentators that Australia was isolated from the tumultuous events overseas, protected by a strong economy based on the growth in commodity prices. However, the turn of the year saw a significant change in sentiment as many Australian funds with overseas exposure started to struggle, and this has now moved into the mainstream market.

The decline in volumes shows that many people are expecting a further fall in values, but with such a quiet market the fall in values could be exa-cerbated the longer the market remains in hibernation. Australia operates a financial year that ends on June 30, so the majority of investors are now going through the revaluation exercise which will show them exactly how much values have moved over the last six months.

This is a particularly difficult job for the valuers as such a quiet market provides little evidence of where prices sit today, but most observers agree that yields have moved out between 25 and 50 basis points for prime stock and even more for secondary stock. The days of yield convergence are over and the debate now revolves around how far the market will fall and when we will hit the bottom.

The salvation for Australian markets could be the low vacancy rates that currently exist in the major CBD office markets. Perth and Brisbane are leading the world with vacancy rates under one per cent, with Sydney, Melbourne, Canberra and Adelaide not far behind. Although leasing activity has slowed since the start of 2008, the fact that there is so little available office space means rental growth will continue in all markets until new supply becomes available.

That new supply may be further away than first thought as tighter credit markets and surging costs of construction make it even more difficult for developers to justify speculative new development. In many markets, unless construction is underway or close to beginning, projects may well be deferred until the market picks up again. The only exception to this is where a significant pre-commitment has been entered into, but many developers will not begin construction until at least 80 per cent of the building has been pre-committed.

Retail markets are holding up surprisingly well despite consumer spending slowing dramatically in response to rising fuel and food prices. High interest rates are also a significant headwind to the consumer and they are likely to remain so while inflationary pressures are prevalent in the economy.

During all this turmoil, it is the cashed-up private investor and equity buyers who are increasingly active in the market. Many of these investors have been priced out in recent years as values soared and listed property trusts expanded their asset base significantly. However, now that the tide has turned and debt is difficult to obtain, these investors who don't need access to debt and credit markets are increasingly active, especially at the smaller lot size. In Q2 2008, private investors made up over 50 per cent of the purchasers during the quarter, while listed and unlisted property trusts were net sellers.

It may be well into 2009 before we see any improvement in the market in Australia, as investors wait for the market correction to occur and stay on the sidelines until they are convinced that true value has returned to the market. Occupiers are also more cautious in their expansion plans, waiting to see if the worst is over before planning on any new space.

The writer is Asia Pacific research director, national research director, DTZ Australia

Who's Who In Property (Overseas Edition)

Source : The Business Times, July 17, 2008

THE global financial crisis has taken a toll on property markets worldwide, with buyers now calling the shots in many places. And because the turmoil in the US financial sector is far from over, it remains to be seen when a recovery will get under way.

But developers - in Singapore and elsewhere - are not sitting on their haunches. Many are offering private housing at attractive prices to lure potential buyers back into the market.

In recent weeks, some Singapore residential projects have received an encouraging response, and developers are hard at work trying to woo possible customers who are sitting on the fence.

Elsewhere in the region, a similar scenario is being played out. Developers have lined up projects ranging from mass market to luxury - and are waiting for the right time to launch.

In this supplement we focus on major developers in neighbouring countries, particularly in Malaysia, their track records and what they have to offer by way of new and upcoming projects.

The Malaysian market has often attracted strong interest from Singaporean buyers. And while Malaysia's real estate sector has not been immune to the effects of the global financial crisis, some property consultants say there are bright spots in the market.

Those keen to pick up a value buy now will do well to study these next few pages carefully.

CapitaLand Sets Up $1.4b Raffles City China Fund

Source : The Business Times, July 17, 2008

Fund will invest in prime mixed-use commercial assets in key gateway cities

CAPITALAND has set up a $1.4 billion Raffles City China Fund (RCCF) to invest in prime mixed-use commercial properties in key Chinese gateway cities.

Raffles City Shanghai: The new fund - RCCF - will purchase CapitaLand's 55.9% stake in the project which opened in 2003. It will also buy 100% of the Raffles City projects in Beijing, Chengdu and Hangzhou

The fund's seed assets will be the property group's Raffles City-branded developments in China.

RCCF is CapitaLand's first integrated development private equity fund in China, and is also the largest originated and managed by the group to date.

CapitaLand has subscribed for a 50 per cent sponsor stake in RCCF. Leading financial institutions and pension funds from Asia, Europe and North America took up the remaining interest. RCCF has the option of a final closing by end-December and could grow to $1.8 billion.

CapitaLand may reduce its stake in the fund to 45 per cent if there is strong investor demand for the option.

Through its indirect wholly owned subsidiary RCCF Management, CapitaLand will also undertake the role of fund manager and manage RCCF-owned properties.

The fund will purchase CapitaLand's 55.9 per cent stake in Raffles City Shanghai, which opened its doors in November 2003. It will also purchase 100 per cent of Raffles City Beijing, Raffles City Chengdu and Raffles City Hangzhou.

The three are under various stages of development and will be ready between 2009 and 2012.

'Currently, the assets are valued at a total of about US$2 billion (about S$2.7 billion) comprising CapitaLand's stake in Raffles City Shanghai and the three Raffles City projects on a completed basis,' said CapitaLand.

Funds raised will be substantially invested with the acquisition of these four assets.

'The strong investor response to the fund is an endorsement of our expertise and delivery track record in the entire real estate value chain,' said CapitaLand's president and CEO Liew Mun Leong.

'The successful close of the fund is a boost for our expansion plans for Raffles City to achieve the eventual goal of 10 such iconic developments globally.'

RCCF is CapitaLand's eighth real estate private equity fund in China.

'We will continue to develop unique real estate products to cater to an increasingly sophisticated consumer market and establish new real estate funds for investors who share our confidence in China's growth,' said Lim Ming Yan, CEO of CapitaLand China Holdings Group and CapitaLand Financial Limited (China Development).

Co-head of Asian real estate research at UBS, Alastair Gillespie, sees benefits for CapitaLand in setting up RCCF. Not only would the fund free up capital for the property group to pursue new opportunities in China, it would boost market confidence in the company's ability to grow its fund management business.

CapitaLand shares fell six cents to close at $5.54 yesterday.

Hiap Hoe-SuperBowl Top Bid For Hotel Site Below Forecast

Source : The Business Times, July 17, 2008

Group is aiming to build 3-star hotel that caters to China, India markets

A JOINT venture between Hiap Hoe Ltd and its sister company SuperBowl Holdings Ltd yesterday placed a lower-than-expected top bid for a hotel site in the Balestier area opposite the Sun Yat Sen Nanyang Memorial Hall.

Park and hotel: Hiap Hoe expects to spend another $120m in construction cost, if it is awarded the site

HH Properties bid $73.3 million or about $172 per square foot of potential gross floor area for the 99-year leasehold plot. This is lower than the $350-470 psf per plot ratio (psf ppr) that analysts had indicated for the site when it was launched by the Urban Redevelopment Authority in late March.

Industry observers noted that yesterday's top bid was also significantly below the $420 to $805 psf ppr at which the government awarded 99-year hotel sites last year.

Still, they were not too disappointed with the outcome of yesterday's tender. Property investment sentiment has worsened significantly in recent months, and especially in the past week following negative newsflow from the US.

So the observers were generally relieved that yesterday's tender attracted three bids - instead of a repeat-show of an earlier state tender for a hotel site at Race Course Road that closed in May without drawing a single bid.

Some analysts also suggested that stringent requirements for the latest plot in Balestier, including having to maintain a park that occupies about a quarter of the 1.77-hectare site, may have tempered bids yesterday.

'It's heartening to see several bids submitted,' CB Richard Ellis executive director Li Hiaw Ho said.

Jones Lang LaSalle executive vice-president Chee Hok Yean said: 'I think the government should consider making an award. Even with the stringent requirements, there were three bids. Awarding the site will help contribute to the supply of budget hotels in Singapore, a segment where more supply is needed to cater to regional travellers.'

The two other bidders at yesterday's tender were Garden City Holdings (S) Pte Ltd (controlled by the Tew family), and Park Hotel Group unit Park Plaza Pte Ltd, with respective bids of $53.13 million and $35 million.

Teo Ho Beng, managing director of both Hiap Hoe and SuperBowl (the two listed companies are part of Hiap Hoe Holdings group) told BT that if the companies are awarded the Balestier site, the plan is to develop 'probably a three-star hotel catering to businessmen as well as tourists, especially from China and India'.

The hotel may have about 500 rooms, and there will also likely be some retail (probably a small shopping centre) and office space.

'We expect to spend another $120 million or so in construction and fitting-out costs, so our all-in investment would be around $200 million,' Mr Teo indicated. At least 60 per cent of the gross floor area has to be for hotel and hotel-related uses.

Hiap Hoe group is no stranger to the Balestier area. Its headquarters are located there and last year, SuperBowl sold two adjoining freehold plots at Balestier Road slated for hotel development for $39.8 million, more than double the $17.8 million it had paid for the property a year earlier.

'That was an attractive offer on the table and we'd found the sites a little too small. So we disposed of them and decided to try bidding for alternative hotel sites,' Mr Teo said yesterday.

The group last year bid unsuccessfully at state tenders for hotel plots located at Tanjong Pagar, Rangoon Road, Upper Pickering Street, and New Market Street/Merchant Road.

CapitaMall Trust Q2 Income Up 20% On Retail Rents

Source : The Business Times, July 17, 2008

CapitaMall Trust, Singapore's largest property trust by market value, reported on Thursday a 20 per cent rise in quarterly distributable income, and projected continued growth in retail rents.

The property trust said in a presentation that it projects retail rentals to rise 17.5 per cent by 2012 in Singapore's main Orchard Road shopping district, and for for rents to go up 16.1 per cent in suburban areas over the same period.

CapitaMall, 27-per cent owned by Southeast Asia's largest developer CapitaLand , said it will continue to grow its assets in Singapore through acquisitions, and boost income by enhancing its malls.

It announced in May that it will pay S$850 million to parent CapitaLand for office-and-mall complex AtriumzOrchard.

CapitaMall will pay S$58.6 million (US$43 million) in distributable income for the April to June period, or 3.52 cents per unit. That compares with S$48.8 million a year ago.

CapitaMall competes with other Singapore-listed real estate investment trusts that own offices and retail malls, including Suntec Reit , Macquarie Prime and Frasers Centrepoint Trust. -- REUTERS

CapitaLand, Others Get US$1.5b Loan For Condo Project

Source : The Business Times, July 17, 2008

CapitaLand, Southeast Asia's top developer, said on Thursday it and Morgan Stanley, Wachovia and Hotel Properties would borrow S$1.99 billion (US$1.5 billion) for a residential property project in Singapore.

The company said the deal was made up of a S$1.362 billion term loan, a S$500 million revolving credit and S$133.9 million in bank guarantees.

CapitaLand in June 2007 agreed to pay S$1.34 billion for a site on Singapore's Farrer Road, in a joint venture with Hotel Properties, Wachovia's wholly-owned subsidiary Wachovia Development Corp, and a Morgan Stanley real estate fund. -- REUTERS

High Court Dismisses Horizon Towers En Bloc Appeals

Source : The Business Times, July 17, 2008

Hotel Properties Limited on Thursday said Singapore's High Court has dismissed the appeals by the minority sellers in Horizon Towers' en bloc sale.

The minority sellers had made the appeal in January 2008 against the Strata Titles Board's decision delivered on December 7, 2007 which would allow the en bloc sale of the condominium to proceed.

HPL, Morgan Stanley Real Estate and Qatar Investment Authority agreed to pay $500 million for the condo located in the prime district. The deal was inked in January last year, before the property prices shot up.

But the closure of the collective sale was delayed after a group of minority owners put up an appeal saying the sale was carried out in bad faith. -- BT Newsroom

Bursting Of US Bubble Will Be Long And Painful

Source : The Business Times, July 17, 2008

By ANTHONY ROWLEY

SIX weeks ago, when financial markets were relatively calm, I suggested here that we were 'in the eye of a typhoon' following the sub-prime mortgage crisis, and that worse was still to come. Then came the 'crash' at Fanny Mae, Freddie Mac, and Indymac Bank plus the threat of multiple bank collapses in the US.

Yet, even this appears to be only the start of a perfect financial storm that will be followed by an equally fearful period in the economic doldrums.

The US Treasury has appeared - for the moment, at least - like a merciful deity in the raging storm to save two of the nation's biggest financial institutions that are regarded as being too important to fail. But this rescue will be bought at the risk either of a crippling government debt burden in the US over the coming decade or of hyper-inflation if new money is printed.

The former is most likely and it points to a long period of deflation thereafter in the US and other Anglo-Saxon cultures where finance has been given its head to a point where it has become an all-devouring monster. Needless to say, the rest of the world, including the emerging economic giants in Asia and elsewhere will suffer as the inflated global demand that fuelled their growth collapses.

Most people still fail to comprehend the awful deflationary threat that faces the global economy now. This is a result of over-accommodative monetary policies pursued over the past decade in a misguided attempt to anaesthetise the financial system against the pain of financial shocks, and also because of the fact that governments are being forced to bail out financial institutions that were conduits for this dangerous largesse.

To put it simply, the whole structure of inflated prices for assets, goods and services that was supported by mega credit creation has to adjust back to levels consistent with sustainable economic growth. This process is called deflation and it is the biggest threat the global economy faces today, notwithstanding the recent surge in energy, food and other commodity prices.

What happened to Japan during and after the bubble economy period from 1985 to 1990 is of relevance now. If we do not 'learn from Japan' now, we will be forced to do things in the 'Japanese way' - and it may already be too late to do anything about it anyway, because the truth is that there is no easy way out of the current dilemma. Japan expanded its money supply massively during the bubble economy, not to keep financial markets afloat as the US did following the collapse of the IT bubble and other crises (the so-called 'Greenspan put'), but to compensate for a massive appreciation of the yen after the Plaza Accord of 1985. But the effect was the same in both cases and that was to inflate the price of financial and 'real' (property) assets exponentially. Then came the crash in Japan after the Bank of Japan began a monetary squeeze in 1989.

Over the next few years, the Japanese government was forced to mount massive and very costly rescues of banks and other financial institutions as well as to pump trillions of yen into the economy by way of general fiscal stimulus. Between 1990 and 2007, the amount of outstanding Japanese government bonds soared from 166 trillion yen (S$2.15 trillion) to 550 trillion yen. As a proportion of GDP, it has tripled from around 60 per cent to nearer 180 per cent now.

Japan (household sector, banking sector and state bodies) is stuffed full of this public debt which obviously has a crowding-out effect on productive investment - a fate which now appears to threaten the US, Britain and other Western jurisdictions where the government has to come to the rescue of a profligate private sector.

This portends long-term economic stagnation of the kind that Japan suffered for more than a decade after its bubble burst.

The US bubble has not burst because of rising interest rates but rather because the sheer weight of credit creation and debt within the system became too great. Something had to give.

First, it was the sub-prime mortgage sector and then Bear Stearns and other investment banks that ran cap in hand to sovereign wealth funds. Now it is Fanny Mae and Freddie Mac. And tomorrow, who knows?

Meanwhile, there is no escaping the fact that the prices of everything from property and stocks to consumer and capital goods and services that were forced skywards on a jet of financial liquidity have to sink slowly and sickeningly back to earth in the Western world.

Just how far emerging economies can escape this return to reality is still hard to gauge, and likewise how far demand from these economies can sustain the commodity boom. But be sure that the bust will be long and painful for many.

Hiap Hoe Puts In Top Bid Of S$73.3m For Balestier Road Hotel Site

Source : Channel NewsAsia, 16 July 2008

Property developer Hiap Hoe has put in the top bid of S$73.3 million for a hotel site at Balestier Road and Ah Hood Road.

The price works out to S$172 per square foot per plot ratio for the 99-year leasehold site.

Consultants CB Richard Ellis said the bid is relatively low compared to other hotel sites.

The site has a maximum gross floor area of 425,942 square feet, which can potentially yield some 675 hotel rooms.

A hotel built on the location can capitalise on the Sun Yat Sen Nanyang Memorial Hall which is located nearby.

An upcoming Zhongshan Park, spanning 4.6 hectares, will be within the proposed development.

4,844 square feet of space in the public park can be used for outdoor refreshment areas and tea pavilions.

All in, there were three bids for the hotel site, with Garden City Hotel bidding S$53 million, while Park Plaza put in an offer of S$35 million.

The Urban Redevelopment Authority will announce the award of the tender later. - CNA/ms

Singapore Home Sales In June Up 80% From May

Source : Channel NewsAsia, 16 July 2008

June was the best performing month in terms of home sales since the property market tumbled last September, according to numbers released by the Urban Redevelopment Authority (URA) on Tuesday.

Altogether, 801 private homes were sold, a jump of 80 per cent from May.

But there were also more units launched. The number of units launched in June leapt 125 per cent from May to 1,069 units, meaning that there were more unsold properties in the market.

However, analysts said this would not deter developers from launching even more units in July to capitalize on the momentum, before the arrival of the Hungry Ghost month.

Colliers International expects around 1,300 units to be launched in July, as developers pre-empt the traditionally slow-moving 7th lunar month in August.

In June, most transactions occurred in the suburban regions, while prime locations saw some weakness in sales. No units valued at S$4,000 per square foot or more changed hands last month.

Nicholas Mak, director of Knight Frank, said: "The pick-up is predominantly in mid-tier mass market, because the buyers are owner occupiers. Residents in HDB estates around private condos for sale are forming the backbone of the demand."

Tay Huey Ying, director for research and advisory at Colliers International, said: "In the current uncertain economic climate, developers are going to continue to delay launches of higher-end projects and likely to focus on mass-market tiers."

With the suburban market being a price-sensitive one, analysts see developers continuing to employ pricing strategies.

Knight Frank's Nicholas Mak said: "Developers must price their products quite attractively to generate sales. Any increase in prices, especially a sharp increase, will chase away buyers."

Prices may be seen softening, but analysts say there will not be a free-fall as underlying demand will put a cap on how far prices may dip. - CNA/ir

价格吸引人上月私宅买气旺

Source :《联合早报》July 16, 2008

今年6月新登场的一些中档和大众私宅项目，以吸引人的价格，刺激了市场买气，也带动6月份私人住宅销售数字上涨了77％，从5月份的453个单位，增加到6月份的801个单位。

市区重建局昨天发表的数字显示，由发展商直接卖出的新私宅单位上涨了将近一倍，同时，在这个月份也有不少新单位登场，新单位总数是1069个，而5月份登场的新单位只有476个（涨幅为125％）。

其中，和美投资在6月中推出达高轩（Dakota Residences）单位，到了月底，就以每平方英尺978元的中位数价格，卖出所推出的210个单位中的144个。

森联集团则以每平方英尺765元的中位数价格，卖出197个Clover by the Park的单位（推出308个单位）。

虽然今年6月份的表现依然及不上去年8月的高峰期，发展商当时可在一个月内卖出1720个私宅单位，但分析师指出，以季度来看，今年第二季的销售数字已达到1542个单位，比第一季的762个单位多一倍以上，也带动上半年的销售量达到2304个单位。这显示市场交易量已逐渐开始回弹。

这也是自去年9月份，因次贷问题导致市场陷入寒冬以来，销售量最高的月份。

发展商这个月推出更多中档和大众私宅，除了上述两个项目，一些在这个月份卖得好的项目，还包括The Amery（28个单位），Kovan Residences(29)和一些拥有小型单位的项目，例如Parc Sophia（61）、Suites 123（37）、Citigate Residences（28）和Vutton（25）。

高档市场相对疲弱

莱坊研究部主管麦俊荣指出，这个月并没有尺价超过4000元的项目成交，最高价是华业集团的Nassim Park Residences，中位数价格是每平方英尺3000元，卖出了15个单位，显示高档市场在6月份相对疲弱。

第一太平戴维斯（Savills）行销与业务开发主管邱瑞荣说，本地股市在6月份下滑了约8％，但私宅市场还有那么强的买气，算是不错的。然而，在售出的单位中，65％其实是属于尺价低于每平方英尺1000元的项目，显示一些组屋提升者开始进场。

但分析师也指出，市场情绪其实还是非常谨慎，买家对价格尤其敏感。

高力（Colliers）国际研究部主管郑惠匀指出，发展商逐渐放弃高价竞争的策略，采纳更具有竞争力的价格策略，累积起来，将导致市场出现房价开始放软的情形。豪华项目的价格就在压力下屈服，这一季的3049元平均尺价，就比第一季的3174元，跌了3.9％。

但世邦魏理仕（CBRE）执行董事李晓和指出，从6月份的交易数据来看，新项目并没有出现统一的价格下调，这一季3个月份的价格下滑，可能是受到楼层和面向的影响。

卓登国际(Chesterton)研究部主管陈瑞谨却持不同看法。

他认为：“要让发展商以更合理的价格为项目定价似乎是一场“长久战”，而现在只是第一个阶段。若发展商接下来对进一步削价感到抗拒，我估计，热卖的情形将只是昙花一现，过后又回到停滞不前的局面。”

郑惠匀相信，更多发展商会赶在农历七月前推出更多项目，而价格估计会相当诱人，因此7月份的销售数字可能会达到1000个单位。　

李晓和也指出，在过去四个星期，市场买气更旺，或许会鼓励手头上拥有新项目的发展商推出更多新项目，在下两季进一步刺激买气，这或许也会成为预示价格上涨的序曲。

在7月初热卖的莉雅苑（Livia，平均尺价650元）项目，并未加入6月份的计算中，因此，分析师认为，下来几个月的销售数字会更出色。

US Economy To See A Painful Correction

Source : The Business Times, Jul 15, 2008

FOR a while it seemed as though there were some signs of light at the end of the long economic tunnel. In Washington and on Wall Street, one could sense that both officials and investors were contemplating the possibility that the worst of the financial meltdown was perhaps behind us, that we were going to see indications of economic rebound around the corner, and that from now on, the Fed would have to focus on dealing with the expectations of inflation.

In fact, former Senator Phil Gramm, who is serving now as the top economic advisor to presumptive Republican presidential candidate John McCain, explained to reporters last week that the American economy was basically doing quite well. He said that the US country was not in a true recession but in a 'mental recession', adding that Americans 'have sort of become a nation of whiners' when discussing the state of their economy.

'You just hear this constant whining, complaining about a loss of competitiveness, America in decline,' Mr Gramm said.

Mr Gramm, who is an economist, was probably correct in arguing that based on the common definition of a recession - two consecutive quarters in which the economy contracts - the American economy which grew last quarter was not in a recession, and it's not clear if it is soon to enter into one.

But this is a week in which the headlines in US newspapers were screaming about rising concerns over the financial stability of housing finance giants Fannie Mae and Freddie Mac and whether they might need a federal bailout. Shares of the two companies are sinking and perpetuating the bearish mood on Wall Street. And did we mention the rising oil prices?

So, sounding bullish about the American economy and suggesting that the American people needed to see a psychiatrist, places Mr Gramm, and by extension his boss, in the company of the French queen Marie Antoinette, who after being told that the French peasants had no bread to eat, said in jest: 'Let them eat cake.' In fact, the latest news about Fannie Mae and Freddie Mac are just the latest in a stream of depressing reports about the American economy.

Indeed, the reports that the federal government was preparing emergency steps to rescue Fannie Mae and Freddie Mac came on the same week that federal regulators were forced to seize California-based IndyMac Bancorp, a major home lender, after a run by depositors led to the second-largest failure ever of a US financial institution. The bank, which was taken over by the Federal Deposit Insurance Corp, became the first major bank to shut down since the savings and loan crisis of the 1980s. That the troubles facing Fannie Mae and Freddie Mac have been sending shockwaves among investors is not surprising. The two firms are the largest buyers of home loans in the US.

These companies are chartered by Congress to help make money for home mortgages more readily available. Together they hold or guarantee about US$5 trillion worth of mortgages which is equivalent to about half of all the mortgage debt in the US.

And in addition to being leading players in the housing market, their quasi-governmental status explains why their problems acquire a political significance for both the Republican administration and the Democratic-controlled Congress as well as for the two leading presidential candidates. Unlike the somewhat shady sub-prime mortgage lenders, Fannie Mae and Freddie Mac have had the reputation of being the gold standard of the US housing market. But they have been suffering from the current problems facing the entire mortgage industry, posting combined losses of about US$11 billion and their shares have been dropping for months and raising questions about their ability to raise more capital to sustain their operations.

While the law doesn't stipulate that the federal government should guarantee their loans, the fact that the two are guaranteeing trillions of dollars' worth of loans is the reason why their fate is perceived to be so critical in both Washington and on Wall Street. Hence, the two institutions are seen too financially big (by investors) as well as too politically-connected (to politicians) to fail. It just ain't going to happen. Period.

But at the same time, any move by the federal government to help the two firms could end up creating a moral hazard, in which investors who expect the government to bailout the institutions are provided with incentives to continue making decisions that would be considered irresponsible based on pure free market considerations.


State rescue plan

And indeed, even the current Republican administration which has continually stressed its commitment to free market principles concluded that it had no choice but to the come to the aid of Fannie Mae and Freddie Mac, announcing on Sunday that it would ask Congress to give it the authority to inject billions of dollars into the two struggling firms. The rescue package could come to more than US$300 billion.

Congress and the two presidential candidates are set to support the rescue package for the two companies based on the rationale that their collapse could result in huge losses throughout the global financial system and devastate the entire American economy. The US federal government move falls short of full takeover of the companies but it means that the American tax-payers will have to cover the huge losses on the mortgages that Fannie Mae and Freddie Mac guarantee or own. And no one is sure this move alone would solve the companies' long-term problems.

In short, the American economy is now entering a long and painful correction that will affect more than just the 'mental' faculties of American businesses and consumers who will probably continue 'whining' for quite a while.

Fed Chief Sees Gloomy Prospects For US Eeconomy

Source : The Business Times, Jul 16, 2008

(WASHINGTON) Federal Reserve chairman Ben Bernanke offered a gloomy assessment yesterday of any immediate prospect for improvement in American economic difficulties, including energy prices and instability in financial markets.

In prepared testimony at the Senate Banking Committee, Mr Bernanke warned that the US economy was facing the dual risks of a further slowdown and higher inflation.

Mr Bernanke avoided the word 'recession' in characterising the current economy, noting instead that consumer spending and exports were keeping growth 'at a sluggish pace' while the housing sector 'continues to weaken'.

'The economy has continued to expand, but at a subdued pace,' he said. But he added that spending for personal goods had 'advanced at a modest pace so far this year, generally holding up somewhat better than might have been expected given the array of forces weighing on household finances and attitudes'.

He said that while the risks to the overall economy were still 'skewed to the downside', inflation 'seems likely to move temporarily higher in the near term'. The Fed, Mr Bernanke said, needed to guard against higher prices spreading throughout the economy.

This mixed assessment appeared to signal that the Fed would not be lowering interest rates further in spite of the economic sluggishness, as it did earlier this year, out of concern that lower rates would spur more inflation.

In June, the Fed declined to lower rates and instead suggested it might raise rates later in the year.

Mr Bernanke was especially pessimistic about any easing of energy prices, dismissing suggestions that they were being driven by speculation in futures markets. Instead, he said high energy costs reflected the markets' recognition that demand was outstripping supplies.

'Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil,' Mr Bernanke said. 'On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years.'

The Fed chief's testimony yesterday came at an unusually turbulent time in financial markets, since it followed on the heels of the Fed's announcement that it would temporarily open its discount window to the two troubled mortgage giants, Fannie Mae and Freddie Mac.

The actions to stabilise Fannie and Freddie occurred over the weekend as US Treasury Secretary Henry Paulson also called for Congress to approve emergency legislation giving the federal government power to inject billions of federal funds through investments and loans.

The actions announced on Sunday echoed similar actions in mid-March, when the Fed moved to avert a financial collapse of the investment bank Bear Stearns by offering an emergency loan to facilitate its sale to JPMorgan Chase. At the same time, the Fed set up emergency lending facilities for major investment banks hit by the credit crunch.

Mr Paulson, testifying before the Senate Banking Committee yesterday, said the US administration had no immediate plans to extend emergency loans to mortgage giants Freddie and Freddie or to purchase the stock of the two companies.

The rescue proposed for the two mortgage finance giants is 'needed to respond to market concerns and increase confidence' in the government-sponsored firms, Mr Paulson said. He urged lawmakers to give speedy approval to a plan to allow the Treasury to buy equity in the two firms to boost their capital along with other measures to raise confidence.

'These steps to address liquidity pressures coupled with monetary easing seem to have been helpful in mitigating some market strains,' Mr Bernanke said.

But despite the 'positive effects' of the Fed's actions, he said that the problems of unstable markets continued because of 'declining house prices, a softening labour market and rising prices of oil, food and some other commodities'. -- NYT, AP, AFP

Economic Sentiment In The US Getting Gloomier

Source : The Business Times, July 17, 2008

Bernanke says growth could be slower, inflationary pressures could continue mounting

US FEDERAL Reserve chairman Ben Bernanke was a bearer of bad economic news during his testimony before the Senate Banking Committee on Tuesday, suggesting that the problems facing the American economy were actually more severe than they have been for several years.

Credibility on the line: The argument made by critics in Washington these days is that the public is not going to tolerate the current conditions that allow big financial institutions to make profits in good times while making it necessary that their losses be 'socialised' through government assistance during bad times

Economic growth would probably be slower than expected while inflationary pressures could continue mounting. And the notion that inflation is up while growth is down isn't going to improve the mood of officials and lawmakers in Washington.

American consumers and investors may have already concluded that the Fed, believing inflation could get higher than expected in the coming months, is not going to lower interest rates anytime soon.

'Over the remainder of this year, output is likely to expand at a pace appreciably below its trend rate, primarily because of continued weakness in housing markets, elevated energy prices and weak credit conditions,' Mr Bernanke said during the semi-annual testimony on the US economy.

While the Fed chief predicted that the economy would improve 'gradually' in the next two years as a result of a slow recovery in the housing market, and some improvement in credit conditions - in practical terms, that means that housing may level out around the end of 2008 and that overall inflation will slow in 2009-2010.

But he also stressed the 'considerable uncertainty' regarding these more optimistic forecasts. And America's central banker emphasised that 'many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain'.

With the stock market dipping, inflation rising, oil prices soaring, the US dollar falling, and the continuing mess in the housing market coupled with the tightening financial crunch, there is clearly a growing sense of concern among Americans about their economic future.

As it is, at least 81 per cent of Americans have negative views about the economy, according to a recent Gallup poll. Other opinion polls show that more than half of the voters consider the economy to be the most important issue in the presidential election campaign. Against the backdrop of the collapse of IndyMac Bancorp, the large lender that was seized by federal regulators on Friday and the huge federal rescue plan of Fannie Mae and Freddie Mac, Mr Bernanke's depressing testimony was bound to raise the anxiety of Americans over the condition of the economy and highlight the problems that would be facing either Democratic president Barack Obama or Republican president John McCain next year.

And it is unlikely that the comments made by President George W Bush on Tuesday that 'there's a lot of positive things for our economy' are going to help change the depressing mood around the country.

While it would be an exaggeration to call some of the measures proposed to deal with the current economic crisis as 'creeping socialism', these plans provide government assistance to the two federally chartered agencies that are the biggest players in the residential mortgage market; consider legislation that will strengthen public oversight of financial institutions; discuss new ways that the government could stimulate the economy; and reflect a growing willingness among both Democrats and Republicans to encourage the government to play a more activist role in the process. In fact, some mainstream pundits have proposed in recent days that the government nationalise Fannie Mae and Freddie Mac. Many Democrats are pushing for legislation against 'speculation' in the energy market, which could lead to government curbs on the futures market.

And if more banks and financial institutions collapse in the coming months, triggering demands for more federal assistance, including bailouts, Congress is expected to demand that the government have more supervision and even control over the operation of these private companies.

The argument made by critics in Washington these days is that the public is not going to tolerate the current conditions that allow big financial institutions to make profits in good times while making it necessary that their losses be 'socialised' through government assistance during bad times.

This 'statist' economic mood in Washington explains why some investors in Washington are worried that Mr Obama, together with a Congress controlled by a larger Democratic majority, could take steps to impose new regulations on the financial industry.

While that could happen under worsening economic conditions, most political analysts, pointing to the close ties between the top financial houses on Wall Street and the Democratic leaders, believe that Mr Obama would continue pursuing policies friendly to the business community.

In any case, one of Mr Obama's main tasks during the last months of the election campaign would be to convince American voters that there is a connection between the war in Iraq, and in particular the gigantic increase in defence spending, and the worsening economic conditions. It remains to be seen if he will succeed.

The growing economic anxiety does pose a major challenge to Mr McCain and other Republican leaders who seem to be committed to the policies of the current Bush administration that is seen by most Americans as responsible for the current economic problems.

The combination of more job losses and rising inflation coupled with falling consumer confidence could prove to be politically deadly for any Republican running for office this year.

It is worth noting that it was the same kind of economic environment that prevailed in the US in the late 1970s, and it helped bring to power Republican presidential Ronald Reagan.

Property Transactions With Contract Dates Between 30th June - 5th July, 2008

LaSalle Fund Says Aussie Reits Are Good Buy Now

Source : The Business Times, July 17, 2008

Trusts hit by fears of rising financing costs arising from global credit crisis

(SYDNEY) Now is the time to pick up cheap Australian property trusts because the country's economic fundamentals are strong, according to a securities fund manager at property specialist LaSalle Investment Management.

Uncertainty: Office buildings and commercial towers stand in the CBD of Sydney. Australian Reit investors are bracing for earnings reports due to be delivered next month

Concerns are mounting about the future prospects for Australian real estate investment trusts (Reits) ahead of their earnings reports, as the global credit crisis hits financing costs for the highly leveraged industry.

Australia's property sector has dropped 45 per cent this year and Australian Reits are traded at an average 24 per cent discount to net asset value, compared to an average of an 8 per cent premium in the past.

That implies a rise in capitalisation rates - annual rent as a proportion of a building's value - of more than 150 basis points for commercial property.

'The market is concluding that there's (a cap-rate) expansion, which is far greater than what we believe or see in the market place,' said Todd Canter, chief executive for LaSalle Investment Management Securities Asia-Pacific. 'Here, we have a unique opportunity to buy some of the world's best real estate companies at an incredible discount to NAV,' said Mr Canter, noting that US Reits are trading at a narrower, 19 per cent, discount to NAV.

Capitalisation rates for Australian Grade A office buildings may widen by 50 to 75 basis points, but no more, Mr Canter said.

'We think that there is great value to be found globally, specifically places like Britain and Australia,' he added during a media briefing here.

Australian Reit investors are bracing for earnings reports due to be delivered next month. Last week, GPT Group saw its shares tumble as it slashed its 2008 earnings and dividend forecasts by more than a quarter. Other Reit prices also fell as the likes of Mirvac Group followed suit with grim forecasts.

Debt spreads for the best borrowers have widened to 110 basis points from 50 basis points six months ago, according to JPMorgan analyst Rob Stanton.

He says higher borrowing costs would cut compound annual growth rate for Reit distributions per share to 1.5 per cent from a previously forecast 2.8 per cent over five years. -- Reuters

M'sian Real Estate Sector May Face Rocky Road Ahead

Source : The Business Times, July 17, 2008

Developers currently relying on more resilient higher-end segment

in Kuala Lumpur SINCE real estate is a natural hedge against inflation, buying property in Malaysia would seem a capital idea, with inflation running at its highest level in more than 20 years. But in these uncertain times, other variables have to be considered.

Property players say the sector was quieter in the first half of 2008, with significantly fewer launches. But the real test will be seen in the coming months when US economic problems hit home - America is one of Malaysia's biggest trading partners - and the recent huge jump in fuel and energy prices starts to bites.

Building contractors are under stress, with many turning down government jobs that they say they will lose money on because of the soaring cost of materials.

The Master Builders Association of Malaysia has warned that more projects could be abandoned. So buyers will have to exercise care. As of January this year, Selangor, which sees the most launches, had 100 abandoned residential projects involving almost 34,500 units and 29 commercial projects involving some 4,500 units, the Selangor chief minister revealed recently. Many of these projects are poorly located or were started by parties with suspect track records.

Developers not confident of passing on higher construction costs to buyers are opting not to launch new projects for the time being. Those confident they have a niche market are willing to proceed, even if take-up rates are slower - which may well be the case given asking prices have doubled in the past two or three years in popular areas such as the KL City Centre (KLCC).

For the past five or six years the property market has enjoyed brisk sales. But with plenty of supply in the pipeline, investors are wary of a mismatch in future supply and demand.

Most players think properties costing up to RM300,000 (S$125,288) are likely to be hit hardest, as lower to middle income earners find it harder to cope with the soaring cost of living.

Developers are relying on the higher-end segment, which appears more resilient. iProperty.com Group says there are some indications of fewer transactions even at the high end, but that this is not significant - unlike in Singapore.

'There are still buyers at the same prices as before and nobody is desperate to sell,' says iProperty.com executive chairman Patrick Grove. Foreigners continue to look in the elite areas of KLCC, Bangsar and Mont Kiara.

Indeed, The Star newspaper recently quoted developers as saying properties priced at more than RM1 million are snapped up fastest, usually in a week, whereas those priced below RM300,000 take more than nine months and those costing RM300,000 to RM800,000 take six to 12 months.

Mr Grove believes prices will have to rise because costs have gone up, but says developers can only pass on cost increases bit by bit and will have to absorb as much as they can for the time being.

Prices will ultimately be determined by demand, rising costs notwithstanding, says PPC International executive director Thiruselvam Arumugam. 'Developers can increase the prices, but demand will just not be there,' he reckons. 'This will result in an overhang, and eventually prices will have to come down.'

The commercial sector in the Klang Valley remains a bright spot, with particularly strong interest among Korean and West Asian investors, according to property consultants, who point to new benchmarks being set, especially in the city centre.

Mr Grove pinpoints Johor's Iskandar Malaysia zone as an area to keep an eye on 'as we start to see more progress with what is being built there and the take-up in general'.

In Penang, however, there is a reported 2.8 million sq ft glut of office space, with the occupancy rate only 74 per cent.

Niche retail projects appear to be attracting strong investor interest. SP Setia recently announced plans for a joint venture with the Singapore-based Lend Lease Asian Retail Investment Fund 2 for a RM750 million retail mall in Shah Alam, Selangor, where the Malaysian developer has a township.

Besides the relatively weak ringgit, Malaysian real estate is still some of the region's cheapest and entry points are good, say Lend Lease executives, who are on the lookout for other retail projects in the Klang Valley where they can add value and differentiate from those that already exist. Another international mall operator is expected to announce a tie-up later this year with iBhd on its RM2 billion iCity mall, also in Shah Alam.

Analysts expect the going to be tough over the next 12 months and are underweight on property counters, saying most developers are already posting lower profits. According to UBS, the sector has fallen by an average of 45 per cent. Government-linked MRCB has posted the sharpest decline in share price of about 60 per cent.

KLCC Properties, which has most of its assets in the city centre, where occupancy remains high, registered the lowest loss of about 20 per cent. Sime Darby Property was quick to move last month before times get rougher, selling more than double its target over a 10-day home fair involving real estate in its nine townships.

Forced Sales Loom Over UK Real Estate Scene

Source : The Business Times, July 17, 2008

Wave of commercial property sales may cause 1990s-style market crash

(LONDON) Britain's economic slowdown heralds a wave of forced commercial property sales that could yet tip a downturn in real estate markets into a 1990s-style property crash.

Hardest hit: The biggest casualties in the UK to date have been mid-sized and regional residential property developers such as City Lofts and Chase Midland

Some new buildings could be left empty, while others could be taken over by creditors, causing the all too familiar drag effect that haunted the industry for more than a decade last time around.

It took almost 13 years for UK commercial property values to regain their 1989 highs, according to Investment Property Databank.

Far fewer new offices are going up in London than was the case almost 20 years ago, and creditor banks have learned that foreclosure can make a bad property situation worse, but property derivative traders sense trouble ahead as occupier demand begins to wilt.

Much like UK housing index derivatives, commercial property index derivatives have priced in expectations of a total drop in values of about 35 per cent from last summer peaks to 2010/11.

Insolvency analysts are also gearing up for an expected surge in commercial property-related business, even though any debt-related distress has so far been limited to overstretched buy-to-let speculators and regional residential developers.

'Many borrowers are reliant on income from tenants to meet interest commitments to their debt providers,' said Jon Gershinson, who heads the insolvency team at property services firm Allsop. 'As the economy continues to weaken, this carries the inherent risk of tenant default and therefore those borrowers having difficulty meeting interest payments.'

The speed of the correction in property prices since the market peaked a year ago has been far faster than the last property crash nearly 20 years ago, with commercial real estate values down by a fifth and house prices almost 10 per cent down.

Soon after the 1989 property price peak the UK economy was in deep recession - recording five straight quarters of negative growth in 1991-92. With growth weakening, mortgage lending is being reined in.

Job losses are mounting and consumer spending power is being eroded. The Bank of England is unable to cut interest rates for fear of stoking inflation, so that 'r' word is again on some economists' lips in 2008.

UK economic growth decelerated to 0.3 per cent quarter-on-quarter in the first three months on 2008 and is expected to have ticked lower again in the second quarter.

The ensuing damage has been manageable to date, partly due to the lessons learned during Britain's last property crash.

Tighter regulation and changed attitudes mean UK banks are less aggressive than they used to be when it comes to clamping down on problem home loans.

'Lenders have learned a lot from the last crisis,' said Sarah Robson of the Council of Mortgage Lenders. 'It is not in their interest to take possession of properties . . . It is far better for them to work to find a repayment arrangement with the borrower and keep them in the property, repaying the loan.' News last week that British housebuilder Barratt Developments had secured easier terms on a £400 million pounds (S$1.08 billion) loan also showed indebted housebuilders had some wiggle room, even as land values and new home sales sank.

The biggest casualties to date have been mid-sized and regional residential property developers such as City Lofts and Chase Midland, who called in administrators earlier this month.

Property developers have also been more disciplined than in the early 1990s, leading to a greater balance between supply and demand that reduced the potential for a massive overhang of new buildings that might take years to work off.

There is no mega-commercial project to compare with the emergence 20 years ago of a new financial district at Canary Wharf, notwithstanding London's 2012 Olympics site.

About 29 million square feet of new office space was built in central London in 1989-1991 - a little less than double what is expected in 2008-2010, according to Peter Damesick, head of UK research at property services firm CB Richard Ellis . -- Reuters