Thursday, October 9, 2008

IMF Rules Out Great Depression; World Economy To Grow 3%

Source : The Business Times, October 9, 2008

But this is provided the right policy actions are taken, says official

THERE are 'tough times ahead' for the world economy in the wake of the financial crisis, but the risk of another Great Depression is 'virtually nil' provided the right policy actions are taken, IMF economic counsellor Olivier Blanchard declared yesterday.

The global economy should grow by 3 per cent this year, with continuing expansion in China and other emerging markets offsetting zero or negative growth in advanced countries, he said.

The 3 per cent growth is 'on the borderline of recession' and things could turn out much worse if coordinated monetary and fiscal actions are not taken by leading economic powers, he added. He described the 50 basis point coordinated interest rate cut announced yesterday by major central banks as a 'step in the right direction', but emphasised that more needs to be done on the monetary front.

Among the coordinated policy actions needed are recapitalisation of banks, using public funds, and also the public purchase of impaired assets from the financial system, the IMF official added. Fiscal steps should also be directed mainly at shoring up the financial system.

Countries in Asia with large foreign exchange reserves, such as China and South Korea, are expected to draw on their holdings to offset problems in their economies. This is 'proper use' of such reserves to buffer against domestic shocks and should not have any major adverse impact on the US government debt market where the bulk of those reserves are invested, Mr Blanchard said.

In its latest World Economic Outlook released yesterday, the IMF said that the world economy was entering a major downturn in the face of the 'most dangerous financial shock in mature financial markets since the 1930s'.

Global economic growth will slow sharply this year and even a modest recovery is unlikely before the second half of 2009, the IMF said, adding that 'the situation is exceptionally uncertain and subject to considerable downside risks'.

The report came as finance ministers and central bank governors gathered in Washington for this week's annual meetings of the IMF and World Bank. The meeting is their first chance to hammer out joint policy action since the financial system crisis gained dramatic momentum last month. Hope is particularly focused on this weekend's meeting of G-7 finance ministers.

IMF officials said yesterday that concerted action by governments is essential to contain a crisis that has taken a huge toll on banking and financial systems and could trigger a global economic crash.

IMF managing director Dominique Strauss-Kahn has said that 'the time for piecemeal solutions is over', and has called on governments to 'coordinate efforts to bring about a return to stability in the international financial system'.


'You change the cost of liquidity for the banking system, but are banks going to pass this on in terms of Libor? The full 50 basis points is not going to be passed on to the rest of the economy. Will the quantity of lending change? - probably not.'

- Willem Sels, head of credit strategy, Dresdner Kleinwort, London

'Coming in combination with the UK Treasury announcements this should be enough to assist equity markets, at least for now.'

- Geoff Kendrick, strategist, UBS

Pending Home Sales Jump On Pent-Up Demand

Source : The Business Times, October 9, 2008

(NEW YORK) Pending sales of existing US homes unexpectedly jumped in August to the highest in over a year, data from a real estate trade group showed yesterday.

The National Association of Realtors (NAR) Pending Home Sales Index, based on signed contracts, rose 7.4 per cent in August to 93.4 from an upwardly revised 87.0 in July on pent-up demand as affordability improved.

The jump may be fleeting, however, as global financial-market chaos has since escalated, some analysts said.

August's reading was 8.8 per cent higher than a year earlier and was the highest since 101.4 in June 2007. Economists polled by Reuters had expected sales to drop by 1.8 per cent.

'What we're seeing is the momentum of people taking advantage of low home prices,' the association's senior economist Lawrence Yun said.

'Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie' in early September, he said. 'August shows some unleashing of pent-up demand before the credit crisis accelerated in September.'

Home funding giants Fannie Mae and Freddie Mac, the largest buyers of US mortgage bonds, were taken under government control on Sept 7.

Mr Yun said it is unclear how contract activity will be disrupted by the crisis on Wall Street, 'but we're hopeful most of the increase will translate into closed existing-home sales'.

'The pending home sales data is not a signal of where we are going. Foreclosed homes at bargain prices have probably been supporting it,' said Nigel Gault, chief US economist at Global Insight in Lexington, Massachusetts.

'We shall see if these sales close and if those people will go through the transaction because people's finances have worsened since that time,' he added. 'Housing at first impacted the economy and the economy is now impacting housing in a vicious cycle.'

The 30-year fixed mortgage rate will average 6.1 per cent in the fourth quarter, rising to 6.6 per cent by the end of next year, the NAR predicts.

It forecasts US existing home sales at 5.04 million this year, rising to 5.41 million in 2009, and new home sales of 503,000, falling to 471,000 next year. -- Reuters

Office Capital Values Down 2-3% In Q3

Source : The Business Times, October 9, 2008

Easing of potential supply expected as 30% of projects have yet to start

OFFICE capital values fell 2-3 per cent quarter on quarter in the third quarter of this year in areas such as Marina Centre and Anson Road/Tanjong Pagar as demand softened, according to a report released yesterday.

The report by DTZ also points out that some redevelopment projects in the pipeline, such as International Factors Building, Robinson Tower and Marina House, have been deferred and the space put back in the market for leasing.

'There could be more delays in completion, or easing of potential supply, as construction on about 30 per cent of projects in potential supply has not commenced,' it says.

As the government's ban on redeveloping office buildings in the central area for different uses will be lifted by end-2009, DTZ believes some planned office projects could be redeveloped for other purposes.

The cutback in potential supply comes as the financial sector, which has been largely responsible for the spike in demand for office space in the past two years, scales back expansion plans.

Many occupiers have shelved expansion plans amid economic uncertainty and are renewing leases at existing premises to avoid relocation costs, said DTZ executive director Cheng Siow Ying.

'Office occupiers have become more cautious, with many adopting a wait-and-see approach,' she said. 'While negotiations for space are still going on, they are taking longer to conclude.'

Average office rents peaked in Q3, with no rental growth during the quarter. Although most landlords are maintaining their asking prices, they are now more flexible with lease packaging, resulting in lower effective rents.

Many tenants continue to relocate to cheaper decentralised offices and converted state properties, while those that qualify for hi-tech industrial and business parks are relocating there, Ms Cheng said. As a result, the island-wide average office occupancy rate eased 0.6 of a percentage point quarter on quarter to 96.3 per cent in Q3.

On the other hand, demand for industrial space, particularly in business parks, remained healthy. Business park occupancy averaged 92.5 per cent in Q3, up 2 percentage points from Q2.

DTZ says how far the office market will fall depends largely on how the global financial crisis plays out. There could be an increase in office sub-letting if companies start consolidating their operations and rationalising their use of space, it says.

Merrill Reduces Singapore To Underweight

Source : The Business Times, October 9, 2008

Move follows downgrades in property and banking sectors

US bank Merrill Lynch has reduced Singapore to underweight following downgrades in the property and banking sectors here.

Building trap: Merrill expects residential prices to fall by 10% this year and 25% in 2009

Based on forecast valuations next year, its favourite stocks are SingTel, Sembcorp Marine and Singapore Petroleum Company.

In a report, the investment house said it has cut the portfolio weighting for Singapore to 4.27 per cent - below the benchmark weighting of 5.14 per cent.

'Although Singapore initially scores well in our model, our Singapore property and banking analysts have downgraded their respective sectors. As these two sectors account for around half of market cap, we are overriding the model to bring Singapore to a heavy underweight.'

For example, its banking analyst Andrew Maule believes a protracted slowdown in the property market will impact profits in 2009.

Specifically, loan growth is expected to slow to mid-single digits from the current 26 per cent year-on-year, while weaker capital markets and reduced appetite for wealth management products will likely hurt market-sensitive revenues.

As for real estate, the research house thinks any chance for a recovery in the second half of this year has disappeared with the deterioration in the economy. For example, it expects residential prices to fall by 10 per cent this year and 25 per cent in 2009.

With demand weak and high inventories, it does not see property stabilising before 2010. Meanwhile, office capital values have peaked due to rising debt cost and lower rentals ahead.

Furthermore, Singapore is exposed to the global slowdown more than other countries, as its exports-to- GDP ratio is the highest in the region, the report adds.

In August, non-oil domestic exports from the city state worsened - sinking 14 per cent from a year ago - the fourth straight monthly drop and the biggest decline since December 2006.

Similarly, factory output shrank 12.2 per cent year-on-year in August on a 35.7 per cent contraction in the pharmaceuticals segment.

The analysts felt that Singapore stocks are not backed by earnings, where 12-month forward earnings from June are up just 4 per cent year-on-year and valuations are not especially cheap either. Least preferred stocks are Singapore Exchange, CapitaLand and Keppel Land.

Elsewhere in the region, Merrill issued mild underweights on India, Taiwan and the Philippines, but has a heavy overweight on China, Hong Kong and Australia.

Kallang/Jellicoe Hotel Site Gets $51m Bid: URA

Source : The Business Times, October 9, 2008

The Urban Redevelopment Authority closed the tender for the hotel site at Kallang Road/Jellicoe Road on Thursday, receiving a sole bid at $51 million.

Based on the site area of 45,415 sq ft and a maximum permissable gross floor area of 204,363 sq ft, the unit land price works out to be $249.56 per square foot per plot ratio.

The bidder, Citywide Land Pte Ltd, is thought to be linked to the Hotel 81 chain.

Property Transactions With Contract Dates Between Sept 22nd - 27th, 2008

Dubai Developers, Lenders May Merge As Growth Slows

Source : The Business Times, October 9, 2008

This may be the only option given the pull-back of public market credit

(DUBAI) Dubai property developers and lenders may seek mergers as credit tightens and home price growth slows, said Zahed Chowdhury, head of Middle East research at Deutsche Bank.

Towering aspirations: Visitors looking at the model of a tower to be built in a proposed new city by Dubai government firm Meraas Development; the model was displayed at the opening of the Cityscape exhibition in Dubai on Monday

'Given the apparent pull-back of public market credit, this is probably the only option for some companies,' Mr Chowdhury said on Tuesday. 'Size obviously matters and a large balance sheet will certainly help.'

Deyaar Development PJSC, a state-owned real estate company based here, may take advantage of falling asset prices to make acquisitions in the region, chief executive officer Markus Giebel said in an interview on Oct 6. He declined to comment on a Zawya Dow Jones report that Deyaar might merge with Union Properties PJSC, another developer based in the emirate.

Home-prices in Dubai may start falling in the second half of 2009 after quadrupling in five years, according to a September report by EFG-Hermes Holding SAE, an investment bank. The global credit crisis has made construction more expensive and harder to finance as Dubai pushes forward with plans for projects including three palm-shaped islands and a tower with a height of one km.

'There is no easy money in the real estate industry any more,' Kamel Lazaar, chairman of Saudi Arabia- based financial advisory firm Swicorp and head of Dubai's Cityscape conference, said in an interview on Tuesday.

Amlak Finance PJSC and Tamweel PJSC, the biggest mortgage lenders in the United Arab Emirates (UAE), are in talks that may lead to a merger, according to a statement on Oct 4. Both are based in Dubai, one of seven sheikhdoms that make up the UAE.

'They need to reach a critical size to service the market here and expand outside the emirates,' said Mr Lazaar of Swicorp.

Zaid Ghoul, chief financial officer of Union Properties, is not aware of any talks to combine his company with Deyaar, he said in an interview here on Tuesday. 'There may be discussions going on at the government level,' he said.

'If things are going to get tough, it definitely makes sense for Deyaar and Union Properties to merge because their businesses and their portfolios are relatively similar,' Robert McKinnon, managing director of equity research at Al Mal Capital PSC, said in an interview on Tuesday.

The UAE is carrying out projects valued at about US$658 billion, according to a report last year by ING Bank NV. Dubai plans to build a 350 billion dirham (S$140 billion) development called Jumeirah Gardens that will be home to as many as 60,000 people, Gulf News reported on Tuesday. The newspaper cited Meraas Development, the company that is managing the project. -- Bloomberg

Growth In Dubai House Prices Slows To 16% In Q2

Source : The Business Times, October 9, 2008

(DUBAI) Dubai house prices rose 16 per cent in the second quarter from the previous three months, when they leaped 42 per cent, as prices neared as much as people are prepared to pay, Colliers CRE plc said yesterday.

House prices increased an annual 76 per cent in the second quarter. The average price per square foot for all types of Dubai homes was 1,833 dirhams (S$732). 'This was a natural slowdown,' said Ian Albert, regional director of Colliers for the Middle East.

'We are heading toward a natural price barrier beyond which people do not want to pay.' Dubai property stocks have plunged 51 per cent in the past six months on concern that the emirate's property boom is coming to an end. Property prices will be flat through 2010 after they quadrupled over the past five years, Colliers said on Oct 5.

'The global liquidity crisis did not come into this report,' said Mr Albert. 'How that has affected the Dubai property market will be shown in the third quarter.' Dubai apartment prices increased an annual 83 per cent in the second quarter, while villas increased 73 per cent, Colliers said. Townhouses as a sub-category demonstrated the slowest increase with a 38 per cent gain. -- Bloomberg

Housing Recession Hits New York As Prices Drop

Source : The Business Times, October 9, 2008

Biggest drop in Queens, with median property price sliding 17%

(NEW YORK) New York City apartment and house prices fell in every borough except Manhattan in the third quarter, according to the Real Estate Board of New York, as the national housing recession came to Brooklyn, Queens, the Bronx and Staten Island.

Still holding up: The Lower Manhattan skyline as seen from Brooklyn; New York City apartment and house prices fell in every borough except Manhattan in the third quarter

Queens had the biggest drop, with the median price of apartments and one to three-room family homes falling 17 per cent to US$400,000 in the three months ended Sept 30. In the Bronx, prices declined almost 12 per cent to US$389,000; in Brooklyn, they dropped 11 per cent to US$500,000; and on Staten Island they fell 8.2 per cent to US$390,000.

'The storm is going to engulf Manhattan,' said Mark Zandi, chief economist for Moody's 'It has held up well to this point for two reasons: one, global investor demand for everything New York; and second, the problems on Wall Street have only now really begun to impact jobs.'

Prices in Manhattan have continued to rise even as sales have dropped and inventory has climbed for the past three quarters. City real estate brokers are bracing for a possible drop in property values after the collapse of three of New York's five largest investment banks since March.

'New York City's residential market is feeling the effects of the national real estate slowdown,' REBNY president Steven Spinola said in a statement distributed by e-mail. REBNY is a real estate trade group.

New York and six surrounding counties are projected to lose 64,000 financial services jobs by the second quarter of 2010, according to Moody's In Manhattan, third-quarter apartment transactions fell 24 per cent to 2,654 from a year earlier and the number of apartments on the market increased to 7,003, New York-based real estate appraiser Miller Samuel Inc and broker Prudential Douglas Elliman Real Estate said in an Oct 3 report. The median price of a condominium and co-op jumped 7.4 per cent to US$928,263, the second highest on record, they said.

Falling sales and rising inventory preceded price declines across the US in 2005 through 2007, according to data from the Chicago-based National Association of Realtors.

Two other price gauges of New York real estate show declines for the greater New York City area. The S&P/Case-Shiller home-price index for New York dropped 9.1 per cent and Radar Logic Inc reported that prices per square foot fell 7.8 per cent in July from a year earlier. Both measures include New York's outer boroughs as well as surrounding suburban counties and exclude data on co-operative apartments, which account for about two-thirds of owner-occupied units in Manhattan. -- Bloomberg

IMF Sees Major Downturn

Source : The Straits Times, Oct 8, 2008

# IMF says coordinated rate cuts step in right direction
# IMF says more action needed, especially in Europe
# O

WASHINGTON - THE International Monetary Fund, in its bleakest forecast in years, said on Wednesday the world economy was set for a major downturn with the United States and Europe either in or on the brink of recession.

The IMF said a still-developing financial upheaval - the most violent since the 1930s - would exact a heavy economic toll as markets wrestle with a crisis of confidence and global credit is choked off.

The IMF's assessment was written before a coordinated interest-rate cut of half a percentage point delivered by the US Federal Reserve, European Central Bank, Bank of England, Switzerland, Canada and Sweden on Wednesday.

China also cut its key rate 27 basis points and its reserve requirements for banks by half a percentage point.

The IMF's new chief economist, Mr Olivier Blanchard, said the coordinated drive was a step in the right direction but more action may be needed as the world economy slows.

'Fifty basis points is nothing,' Mr Blanchard told a news conference, adding that monetary policy was only part of the answer and further measures were needed to clear up clogged credit markets.

'More is needed, in particular in Europe, at this point,' he said.

In its twice-yearly World Economic Outlook, the IMF slashed its 2009 forecast for world growth to 3 per cent, which would be the slowest pace in seven years, from a July projection of 3.9 per cent, and warned that a recovery would be unusually slow.

It said growth this year would come in at 3.9 per cent, a touch below the 4.1 per cent it projected in July.

While it was unusually weak, Blanchard stayed clear of calling the 3 per cent forecast for global growth a recession.

'Our position is that it is not useful to use the word recession when the world is growing at 3 percent. That being said, 3 percent is a very low number,' he said.

Mr Blanchard also said there was little chance of a global depression, provided that leaders quickly adopt coherent policies to address market distress.

'If the right policies are in place, then the probability of a 'Great Depression' is extremely small,' he said.

Mr Blanchard said leaders in Europe were having 'some difficulty' agreeing on how to deal with the crisis but the financial markets were forcing them to move quickly.

If they succeed, 'the risk of a 'Great Depression' is nearly nil,' he added.

Crisis spread; emerging economies hit
The IMF blamed lax economic and regulatory policies for the current global woes, saying they probably allowed the global economy to 'exceed its speed limit'.

At the same time, market flaws combined with policy shortcomings to allow stresses to build.

Now, the global economy is about to pay the price.

The IMF had believed developing economies could largely steer clear of any painful spillover from the credit mess stemming from the deep US housing slump. But no longer.

In its latest report, the global economic watchdog warned emerging and developing economies are also slowing, in some cases to rates well below trend.

At the same time, the combination of soaring food and fuel prices has pushed inflation to levels unseen in a decade, the IMF said, exacting an especially heavy toll in the developing world where families' spending on food is high.

In advanced economies, oil price increases have also been felt, but underlying price pressures appear to be contained.

The immediate challenge for policy-makers is to stabilize credit markets, while nursing economies through the global downturn and keeping inflation under control, the fund said.

It sees the US economy screeching to halt and warned a recession was increasingly likely.

For all of next year, it projects US growth of just 0.1 per cent. The near-term course of the US economy, the IMF said, will largely depend on the effectiveness of recent government initiatives to combat the spreading credit crisis.

In Europe, the crisis has stalled growth, and interest-rate cuts and decisive government action to restore confidence to prevent a lasting slowdown are needed, the report said.

The fund said growth in the euro zone was set to slow to 1.3 per cent in 2008, easing to a scant 0.2 per cent in 2009.

Asian powers China and India will also experience slower growth on weaker exports, but should continue to be supported by solid private consumption, it said.

Growth in China is likely to come in at 9.7 per cent this year and 9.3 per cent in 2009 - compared to 11.9 per cent in 2007, the IMF said. India will grow 7.9 per cent this year and slow to 6.9 per cent in 2009, it said. -- THOMSON REUTERS

US August Pending Home Sales Jump 7.4% pct

Source : The Business Times, October 8, 2008

NEW YORK - Pending sales of existing US homes unexpectedly jumped in August to the highest level in over a year, data from a real estate trade group showed on Wednesday.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in June, rose 7.4 per cent in August to 93.4 from an updwardly revised index of 87.0 in July.

The August reading was 8.8 per cent higher than a year earlier, and the highest level since 101.4 in June 2007.

Economists polled by Reuters ahead of the report were expecting pending home sales to drop by 1.8 per cent.

The association's senior economist, Lawrence Yun, said home buyers responded to improved affordability, with home prices low and mortgage rates down after the government takeover of Fannie Mae and Freddie Mac. -- REUTERS

2 New Flyovers For CTE

Source : The Straits Times, Oct 9, 2008

Elevated roads will separate traffic going in and out of highway.

TWO new pairs of flyovers will be built along the most congested stretches of the Central Expressway (CTE).

When all is done by 2011, 7.5km of the CTE from Bukit Timah to Yio Chu Kang will have four lanes each direction - up from three today. -- PHOTO: COURTESY LTA

The Land Transport Authority said on Thursday one flyover will allow northbound motorists from the Pan-Island Expressway (PIE) to continue their journey on the CTE without competing with those taking the Braddell exit.

The proximity of the PIE entry and Braddell exit has long been a thorn in the side of CTE users.

Another flyover will offer motorists north of Braddell an uninterrupted link to the exit leading to Changi and Serangoon. With that, the bottleneck faced by motorists entering the CTE from Braddell should be eased.

The flyovers are part of the mammoth CTE-widening project, which will take up to end-2011 to complete. Widening between Ang Mo Kio Ave 1 and 3, started in June and is due for completion some time next year.

It costs about $17 million. Tenders will be called soon for another four stages of widening, which include the pair of flyovers.

When all is done by 2011, 7.5km of the CTE from Bukit Timah to Yio Chu Kang will have four lanes in each direction.

LTA chief executive Yam Ah Mee on Thursday said the expansion is expected to cut travelling time by 15 per cent on either direction.

Mr Yam said it is not in the interest of the public to estimate how much the remaining widening works will cost as it might influence bids for the tenders.

However, going by the cost of the widening project between Ang Mo Kio Ave 1 and 3 (a 1.5km stretch), the sum could be more than $70 million.

Works are expected to start next February, and will involve minor acquisitions of state land.

Punggol resident Sam Chong, 46, said the two flyovers are 'very good steps'.

'The problem has always been the exits to Braddell and the PIE,' the chief executive of a private telecomms-linked company said. 'Cars filtering causes the slowdown.'

The project will have one downside for some Potong Pasir residents, though. It will bring the highway closer to flats just before the St Andrew's Village.

At the closest point, the road will be only 12m away, from 15m to 16m now.

Mr Yam said LTA will plant thick foliage along the stretch to cut down on noise and dust. He claimed that planting is a better option to erecting sound barriers, which are common in countries like Japan, Australia and Europe.