Wednesday, August 20, 2008

One Big US Investment Bank 'Will Go Under'

Source : The Business Times, August 20, 2008

US economy has not seen the worst, says former IMF chief economist

The worst is yet to come for the US economy, which is likely to see more bank failures, including the collapse of a big Wall Street investment bank, said Kenneth Rogoff, a former chief economist at the International Monetary Fund yesterday.

And as policymakers around the world try to prop up slowing economic growth by keeping interest rates low, inflation will become harder to control, he warned.

The US financial sector has grown 'bloated' and needs to shrink before the broader economy can make a full recovery, he said. As it contracts, more financial firms will fail.

'We're going to see one of the big investment banks go under,' he predicted.

Mr Rogoff, an economics professor at Harvard University, was speaking yesterday at a conference on market liquidity and its implications for the world economy, held here.

With falling house prices, a weakening labour market, and poor consumer confidence, 'the red lights are blinking - the US is going to experience a major financial crisis', he said.

Despite the extensive damage already suffered by the banking sector in the US, the crisis is only 'halfway' through, he said. 'I'd go further and say that the worst hasn't come.'

Banking crises 'don't happen out of the blue, they happen because the economy's slowing down', he added.

Just last month, US Treasury Secretary Henry Paulson led a government rescue of mortgage finance giants Fannie Mae and Freddie Mac, promising that the US Treasury and other government agencies would provide liquidity and capital funding to the firms, if needed, to keep them afloat.

And in March, the US Federal Reserve extended emergency funding to investment bank Bear Stearns, paving the way for its takeover by bigger rival JPMorgan.

'I was very disturbed by Hank Paulson's bailout of Fannie Mae and Freddie Mac,' said Mr Rogoff. Like several other critics, he believes that the rescue has merely delayed a necessary consolidation in the US financial sector, which will see unviable companies collapse. Both firms should be taken over by the government and eventually broken up, he added.

State-owned investment funds, which have poured billions of dollars into US and European banks since the crisis in the US housing market erupted last year, will not be able to stop all banks from failing, he said. 'You can't save them all.'

Unlike some other economists, Mr Rogoff does not believe that the economic slowdown in the US, Europe and Asia will be enough to cap surging price inflation, unless governments and central banks tighten their monetary policy significantly.

'The underlying money growth that's taken place over the last few years is going to lead to sharp inflation in the US, Asia ... many parts of the world are going to have inflation for two or three years at least, until they sharply raise interest rates.'

'I don't think recession is going to make inflation go away - interest rates are just too low.'

Echoes Of Lost Decade Haunt Japan Again

Source : The Business Times, August 20, 2008

Fears of prolonged stagnation back in the frame as BOJ warns of sluggish growth, high prices

IN an attempt to shore up crumbling confidence, Bank of Japan (BOJ) governor Masaaki Shirakawa claimed yesterday that the world's second largest economy is not in immediate danger of recession or stagflation. But the Tokyo stock market was not reassured and the Nikkei 225 average plummeted 349.02 points or 2.7 per cent to 12,816.02 after the BOJ downgraded its official view of short-term prospects for the economy.

Plunging stocks in Asia generally reflected growing fears that the fallout from the US sub-prime mortgage crisis is not yet over and that a global recession is possible with the US, Europe and Japan already slowing and other Asian economies under threat.

The BOJ meanwhile warned of instability in global financial markets and threats to overseas economies, particularly the US. Rising commodity prices could hurt consumer demand, it said.

Japan's economy is being watched closely in the rest of Asia because of its strong trade and investment links with the region and fears that Japan could be sliding back into a prolonged stagnation of the kind that dogged the economy throughout the 'lost decade' of the 1990s. Fears were heightened by news last week that Japanese banks are facing new problems with bad loans, especially to the property sector.

Prime Minister Yasuo Fukuda's government has been sufficiently rattled by the speed and scope of Japan's economic downturn to have ordered ministers to come up with a package of stimulus measures, despite Japan's already precarious fiscal position. The emergency measures are expected to be unveiled some time this week.

'The possibility of a serious downturn (in Japan) in the near future is likely small,' Mr Shirakawa claimed after the BOJ's Policy Board decided to keep the central bank's short- term lending rate at 0.5 per cent. At the same time, however, the BOJ downgraded its institutional view of the economy, saying that growth is 'sluggish against a backdrop of high energy and materials prices and weaker growth in exports'.

The BOJ also predicted that inflation in Japan, which has soared to its highest level in more than a decade, will accelerate in coming months as a result of high energy and food prices. Despite the inflation threat, analysts predicted yesterday that the BOJ will be unable to raise interest rates until well into next year because of the sharp economic slowdown in Japan .

'Although (Japan's) economy is under no pressure to adjust production capacity and labour, these downside risks to the economy demand attention,' the BOJ said in a statement after the latest two-day meeting of its Policy Board.

Despite the measured language of the BOJ's remarks, and those of the governor, fears of imminent recession in Japan have been growing since last week when the government reported that the nation's economy contracted at its fastest pace in seven years during the second quarter of this year, with gross domestic product (GDP) registering a 2.4 per cent annualised decline.

The Japanese Cabinet Office also offered a bleak assessment in its report for August in which it acknowledged that 'the economy is recently weakening', while warning of weak exports, disappointing corporate profits and capital investment, along with soft private consumption.

The main drivers of growth during Japan's economic recovery from 2002 until the second quarter of this year were exports (especially to China, as well as to the US) and high levels of corporate capital investment based mainly upon external demand. Until recently, these were able to keep the economy growing even while consumer demand was softening, analysts noted.

But exports fell in June for the first time in nearly five years while imports rose sharply, resulting in a near-90 per cent drop in Japan's trade surplus to 139 billion yen (S$1.78 billion) compared with June 2007. While the rise in import costs was inevitable (given surging commodity prices), the fall in exports was unexpected and showed that the global economic slowdown is impacting not only demand from North America and Europe but also that from some Asian destinations that Japan exports to.

Corporate sentiment and capital expenditure plans in Japan have declined, in line with export prospects. The Bank of Japan's quarterly 'tankan' survey of business prospects for June showed sentiment to be at its lowest level in five years across a wide spectrum of businesses, and subsequent surveys have shown conditions to be worsening.

Adding to the gloom, data published this week showed that non-financial companies listed on the Tokyo Stock Exchange's first sector suffered a near 15 per cent drop in consolidated pre-tax profit during the second quarter of this year. This was the second consecutive quarterly decline and reflects the cost squeeze on the corporate sector, analysts said.

Marina Bay Suites May Be Delayed

Source : TODAY, Tuesday, August 19, 2008

Maintaining target price of $3000 psf, project may only launch in 2012

IF THE market for luxury homes fails to pick up, the launch of Marina Bay Suites may be held off until 2012 when the project is completed, Mr Wilson Kwong, the general manager of Raffles Quay Asset Management said in an interview with Lianhe Zaobao yesterday.

Marina Bay Suites was scheduled for launch during Chinese New Year this year but the date has since been put off indefinitely amid softening property market sentiment in the wake of the United States sub-prime mortgage crisis that has sent markets plunging worldwide.

Marina Bay Suites, located near One Raffles Quay, will feature 218 three- and four-bedroom apartments, and three penthouse units.

The project, which is part of the Marina Bay Financial Centre, is a joint venture between three developers — Cheung Kong/Hutchison Whampoa, Hongkong Land and Keppel Land.

Raffles Quay Asset Management oversees the asset management aspects of the project.

Mr Kwong said it would not be lowering prices in order to boost sales. Maintaining its target price of $3,000 or more per square foot for Marina Bay Suites, it will wait for the most opportune time to launch the project.

At present, it is keeping all options open, and these include launching the development after it is completed.

Mr Nicholas Mak, consultancy and research director of property firm Knight Frank, said: “It is a wise and prudent move. The market is going through a period of uncertainty now, but the chances of the market picking up in the next four years is quite high.”

Mr Kwong said the three joint developers have a robust capital base that will allow them to hold back the launch until market sentiment improves.

“They certainly have the capacity to wait it out and the four years gives them the option of working out the best possible strategy,” Mr Mak said.

Marina Bay Suites’ sister project Marina Bay Residences attracted strong interest when it was launched towards the end of 2006 in the midst of the property market boom, with all units sold within three days.

Although some property analysts expect the luxury segment of the market to fall by as much as 40 per cent from its highs last year, Raffles Quay Asset Management points out that there are only three luxury developments — Marina Bay Suites, Marina Bay Residences and The Sail @ Marina Bay — in the area.

So, compared to Districts 9, 10 and 11, prices will remain relatively firm in the foreseeable future.

Units in the Marina Bay Residences and The Sail achieved prices exceeding $3,000 psf at the peak of the market but have since retreated to around $2,000 psf in recent months.

Aust Economy On Track For Sharp Slowdown

Source : The Business Times, August 20, 2008

SYDNEY - Australia's economy is on track to slow sharply in the next three to nine months, burdened by tight financial conditions and evaporating household wealth, a private index released on Wednesday suggested.

The annualised growth rate of the Westpac Institutional Bank-Melbourne Institute leading index of economic activity slowed to 2.0 per cent in June, from 2.4 per cent in May and 4.0 percent at the start of the year.

The June pace was the slowest since July 2001 and well below the long term trend of 3.9 percent.

Westpac's chief economist, Bill Evans, said the slowdown was mainly due to sharp falls in the local share market, tighter financial conditions, weak dwelling approvals and soft data for US industrial production.

Mr Evans said the slowdown only added to the case for the Reserve Bank of Australia (RBA) to cut its 7.25 per cent cash rate at its next policy meeting on Sept 2.

Indeed, Mr Evans argued that a hefty cut of 50 basis points was needed, rather than the 25 basis points widely expected.

'Our view is that the first move in an easing cycle should be larger than the average once the case has been made to move,' said Mr Evans.

'With rates well into the contractionary zone and global liquidity conditions deteriorating there is a strong case for a larger first cut.' The level of the leading index rose 0.3 points in June to 256.3, while the coincident index also firmed by 0.3 points to 243.1. Annualised growth in the coincident index, which tries to take the pulse of the economy right now, slowed to 2.4 per cent, from 2.7 per cent in May. -- REUTERS

US Mortgage Applications At Lowest Since 2000: MBA

Source : The Business Times, August 20, 2008

NEW YORK - Applications for US home mortgages last week fell to their slowest pace since December 2000, hurt by refinancing loan requests that are now just a quarter of March levels, an industry group reported on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity declined 1.5 per cent to 419.3 in the week ended August 15.

The MBA's seasonally adjusted index of refinancing applications dropped 3.7 per cent to 1,034.5 last week, marking the fourth drop in five weeks. The measure has roughly followed a rise in interest rates, which stand nearly three-quarters of a percentage point above March levels.

Average 30-year fixed mortgage rates last week fell to 6.47 per cent from 6.57 per cent.

Applications for mortgages mirror the slump in US housing that is now in its third year, according to the drop in home prices as measured by the Standard & Poor's/Case Shiller indexes. In addition to rising rates, lenders have sharply tightened requirements for obtaining a loan, squeezing out borrowers without strong credit ratings.

Fannie Mae and Freddie Mac, the largest providers of mortgage financing via lenders, have steadily boosted the cost of selling loans into the bond market, forcing lenders to boost costs or turn away borrowers.

The MBA's index for loan requests for home purchases also bumped along near historic lows, falling 0.4 per cent to 314. -- REUTERS

Hoi Hup-Led Group Top Bidder For DBSS Site In Toa Payoh

Source : The Business Times, August 20, 2008

Its bid of about $198.82m works out to about $160 per sq ft per plot ratio

A CONSORTIUM led by Hoi Hup Realty has emerged as the top bidder for a Housing & Development Board Design, Build and Sell Scheme (DBSS) site at Lorong 1A Toa Payoh.

Its bid of about $198.82 million works out to about $160 per square foot per plot ratio (psf ppr). Market watchers estimate that the breakeven cost could be around $430-500 psf of saleable area.

The breakeven cost will depend not just on construction costs but also whether Hoi Hup succeeds in making its formal application to the Urban Redevelopment Authority in time to secure provisional permission before Oct 7.

After that date, bay windows and planter boxes will no longer be exempt from Gross Floor Area calculations, industry players noted. If Hoi Hup manages to get the exemption, its breakeven cost will be lower.

ERA Asia-Pacific associate director Eugene Lim reckons the selling price for the new HDB flats Hoi Hup can build on the site may be around $550 psf of saleable area.

Currently, in the HDB resale market, four-room flats (90 sq metres or 969 sq ft) are selling for about $540 psf while five-room flats (110 sq m or 1,184 sq ft) are selling for about $530 psf in the location, Mr Lim added.

'As far as pricing is concerned, the threshold for HDB buyers of flats in Toa Payoh should not exceed $650,000 for five-room flats and $550,000 for four-room flats,' according to Mr Lim.

He also commented that the top bid at yesterday's tender was bullish - he had been expecting about $130 psf ppr - considering that it came from Hoi Hup, which is also developing City View @ Boon Keng DBSS flats.

These were launched earlier this year at an average of $520 psf. More than 80 per cent of the total 714 units have been sold so far.

The DBSS site at Lor 1A Toa Payoh, which is being offered on a 103-year leasehold tenure, can accommodate about 1,200 HDB flats comprising a mix of three-, four- and five-room flats, analysts estimate.

The consortium that entered the top bid at yesterday's tender also includes Sunway Developments and Hoi Hup JV Development (whose shareholders include Straits Construction and Hoi Hup Realty).

The tender attracted two other bids - from TP Development Pte Ltd (a joint venture between Chip Eng Seng and AIG) which bid about $160.3 million or $129 psf ppr and Sim Lian Land ($130 million or $104.64 psf ppr).

More Land, Buildings For Foreign Schools

Source : The Business Times, August 20, 2008

4 state buildings, 3 land parcels tagged; government inviting FSS proposals

THE government wants more foreign schools in Singapore to provide places for children of the growing number of expatriates moving here to work.

Four more state buildings and three land parcels have been identified for use as Foreign System Schools (FSS).

The buildings are the former Upper Serangoon Secondary School in Upper Serangoon Road, Nan Chiau High School in Kim Yam Road, Fuchun Primary School in Woodlands Centre Road and Jurong Town Primary School in Hu Ching Road.

Except for the Upper Serangoon Road property, the buildings will be leased for an initial three years, with the option to renew for two further three-year terms. The land parcels - at Yishun Avenue 1, Hougang Avenue 1 and Bukit Batok Road - have lease periods of 30 years.

These seven sites will add to the 19 international schools that already use state property, such as the Canadian International School, United World College of South East Asia, and the Avondale Grammar School.

The seven additional sites were chosen based on locality, convenience, availability, space and ease of adaptability.

In a joint statement yesterday, the Economic Development Board and the Singapore Land Authority (SLA) said that they are inviting proposals via a request-for-interest exercise.

Proposals will be assessed on such factors as quality, ability to meet market demand, investment commitments and, crucially, a commitment to start classes by next year.

'Singapore's strong economic growth over the years has attracted an influx of foreign talent,' the two agencies said.

'In recognition of increasing demand for FSS in Singapore, there is keen interest among existing FSS and new players to expand and set up new operations.'

The woes of many expatriates trying to secure places for children in international schools here have been reported many times recently. Most FSS are full and have long waiting lists.

In 2006, there were 875,500 expatriates in Singapore, up sharply from 798,000 the year before.

Interested FSS are invited to submit proposals for specific sites and can do so for more than one site.

SLA's director of land operations (private) Teo Cher Hian, said: 'We recognise that FSS are important infrastructure to attract global talent to live and work in Singapore. Adapting former vacant schools for use as FSS not only optimises land resources but also provides immediate solutions to cater to growing demand, since they are purpose-built with playing fields and other facilities.'

EDB said that the exercise is not one-off and that more schools will be attracted to the island in line with market demand.

For more information on the available sites, visit

URA Launches Transitional Office Site At Mohamed Sultan Road

Source : Channel NewsAsia, 19 August 2008

The Urban Redevelopment Authority (URA) has launched a transitional office site at Mohamed Sultan Road for sale by public tender.

The site is one of three commercial parcels to be sold through the confirmed list under the Government Land Sales Programme for the second half of this year.

It has a land area of nearly 0.62 hectare and a maximum permissible gross floor area of about 9,200 square metres.

A low-rise development of about four storeys can be built on the site, which has a lease of 15 years.

Tender for the site will close at noon on October 14.

Consultant Knight Frank expects the bids to range between S$10 million and S$13 million. This translates to S$100-S$130 per square foot per plot ratio.

Rents in the Mohamed Sultan Road area are currently hovering between S$5 and S$7 per square foot.

Separately, two other parcels on the reserve list are expected to be put up for tender.

The URA said a developer has committed to bidding at least S$10.8 million for a land site at Kallang Pudding Road.

A developer has also agreed to offer at least S$21.6 million for another site at Ubi Avenue 4. - CNA /ls

Few Bids For Mohd Sultan Site?

Source : The Straits Times, August 20, 2008

RESPONSE is likely to be tepid for a tender for a transitional office site in Mohamed Sultan Road, given the large supply of space coming onstream in 2010.

The 0.62 ha site has a maximum gross floor area of 9,265 sq m and is being sold on a short-term lease of 15 years with a price tipped at anything from $10 million to $18 million. A block of about four storeys could be built in around a year, said the Urban Redevelopment Authority (URA) yesterday.

But Mr Nicholas Mak, Knight Frank's director of consultancy and research, said the development period for such projects could take up to two years.

This would mean the development will be completed in 2010, just when a large supply of about four million sq ft of office space will be ready. 'This would result in a significant amount of competition in the office property market,' said Mr Mak.

He thinks the uncertainty will mean a cautious approach by developers with fewer than five bids likely, including the opportunistic ones. Mr Mak said the land price for the site is expected to come to between $10 million and $13 million, or from $100 to $130 per sq ft (psf) of potential gross floor area. Office rents in the Mohamed Sultan area are now going at $5 psf to $7 psf.

Mr Donald Han, managing director of Cushman & Wakefield here, is tipping higher bids of $150 psf to $180 psf. He believes there will be interest in the site as it is just outside the Central Business District.

The land is one of three commercial plots slated for sale through the confirmed list in the second half of the year. Confirmed list sites go up for tender at scheduled dates, regardless of developer interest.

When the availability of this and another transitional site was announced in June, some market watchers questioned the need for them.

Colliers International's director of research and consultancy, Ms Tay Huey Ying, said at the time that the market was already seeing dwindling interest in such transitional sites in the wake of subdued sentiment in the economy and property market.

The URA also launched tenders for two industrial sites on the reserve list yesterday. This came after developers applied for the 60-year leasehold sites. The firm that is keen on a Kallang Pudding Road site committed to bid at $10.8 million or above while the party eyeing the Ubi Avenue 4 site will bid $21.6 million or more.

Transitional Office Sites Seek Niche As Market Cools

Source : The Business Times, August 20, 2008

Analysts expect lukewarm response as fresh site is rolled out at Mohd Sultan

Sentiment in the Singapore office investment market is worsening, but Urban Redevelopment Authority yesterday rolled out another 15-year leasehold transitional office site as scheduled, this time in the pubbing district of Mohamed Sultan Road.

This is the seventh transitional office site URA has launched since July last year.

CB Richard Ellis executive director Li Hiaw Ho expects few bidders for the site and predicts bids of about $80 to $100 per square foot per plot ratio (psf ppr). 'The site's location in a mixed neighbourhood may appeal to businesses that don't require a CBD location, and to businesses in the creative line,' he said.

Knight Frank director Nicholas Mak projects a slightly higher price range of $100-$130 psf per plot ratio for the site, which is one of two transitional office plots slated for release in second half 2008. The other, at Mountbatten Road, will be launched next month.

Mr Mak reckons the Mohamed Sultan Road plot 'may receive cautious or a few opportunistic bids', citing that the expected completion time of the project on the plot could be close to 2010, when a large supply of office space from other projects is also slated for completion.

CBRE's Mr Li, like some other industry watchers, said it may be timely for the Government to review the necessity of launching yet more transitional office sites in the near future given that the economic situation and outlook for the office market have changed since last year, when transitional office sites were first released.

The concept of these short-leasehold office sites outside the financial district, capable of being developed into low-rise office developments within a year, was devised to help ease the immediate-term office shortage last year. Prime and Grade A office rents nearly doubled in 2007 but the pace of increase has since eased with gains of around 7 to 10 per cent in the first-half of this year from end-2007 levels.

Morgan Stanley said last week it expects Singapore office rents to peak earlier, by end-2008 instead of end-2009, due to lower expectations for office demand, which will be below upcoming office supply (including business parks).

CBRE data shows that some 645,000 sq ft net lettable area of offices would be coming on stream in 2008-2009 from the five transitional sites awarded so far. Market watchers say that any further projects on transitional office sites sold today will be completed closer and closer to 2010, from which point several major office developments are slated for completion, including Marina Bay Financial Centre (MBFC) and Mapletree Business City.

About 10.1 million square feet of new office space will be completed between Q3 2008 and 2012, inclusive of the 645,000 sq ft of transitional offices, CBRE's numbers show.

When contacted, a URA spokeswoman said: 'We've received market feedback that there's demand for transitional office sites at suitable locations from businesses which don't need a city centre location and need office space urgently. The two sites at Mountbatten Road and Mohamed Sultan Road under the H2 2008 Government Land Sales (GLS) Programme are at the fringe of the city centre and are suitable for such developments. The supply of office from major office developments such as MBFC (Phase 1) in 2010 will go towards alleviating the current tight office market. Together, these different sources of office supply in the pipeline will help meet the overall demand for office space.

'The Government will evaluate the market response to the tenders for the Mohamed Sultan Road and Mountbatten Road sites and decide on the release of such sites as part of the planning of first-half 2009 GLS Programme.'

The tender for the Mohamed Sultan Road transitional office site closes on Oct 14.

Separately, URA yesterday said it has accepted applications from parties (which it did not name) for the release of two 60-year leasehold industrial sites at Kallang Pudding Road and Ubi Avenue 4 in the reserve list. In both instances, the minimum price that the successful applicant has committed to bid is almost the same - $69.88 psf ppr for the Kallang Pudding plot and $69.85 psf ppr for the Ubi site, leading market watchers to guess the same party probably made both successful applications.