Monday, November 17, 2008

Resorts World Confirms IR Opening On Track

Source : The Business Times, November 17, 2008

A Singapore integrated resort (IR) developer confirmed on Monday that its project was on track for a phased opening beginning early in 2010.

'It hasn't changed,' a spokesman for Resorts World at Sentosa told AFP.

The spokesman, who declined to be named, was commenting after a minister said in parliament that the country's Genting International had sought government permission for the progressive opening.

'We've always said we will open in stages,' the spokesman said.

Last Thursday the Singapore Tourism Board said the city-state's other IR developer, Las Vegas Sands, had asked to open its Marina Bay Sands complex in stages instead of in one go at the end of next year.

The government is 'considering these requests by Marina Bay Sands and Resorts World at Sentosa with due reference to what they have committed', Senior Minister of State for Trade and Industry, S. Iswaran, told parliament.

'Even as we do so, our expectation remains that each development will open as an integrated resort, and not just as a stand-alone casino,' he added.

Mr Iswaran said Genting cited 'physical on-site constraints' for its progressive opening.

The development is to include a Universal Studios theme park, which the Resorts World spokesman said will require an on-site storage area while the rides are assembled. That accounts for the site constraints, he said.

But the theme park, casino, four hotels and a dining and shopping area are to open as scheduled in early 2010, he reiterated.

Other features of the project will open later, also as previously announced, he said.

Stephen Weaver, the head of Las Vegas Sands Asia, said last week that his company had run into construction difficulties in Singapore.

Las Vegas Sands has announced a halt to some developments in the southern Chinese gambling enclave of Macau due to trouble accessing credit during the global financial crisis.

But the company said completion of the Singapore project remains its top priority. Marina Bay Sands is to include hotel and convention facilities as well as gaming tables. -- AFP

Writedown Math May Sully Developers' Books

Source : The Business Times, November 15, 2008

Bottom lines have already started to shrink in current reporting season

SMALLER home developers have already started cutting prices and this will raise the pressure on other listed property groups to make writedowns. This will whittle bottom lines, which have already started to shrink during the latest quarterly reporting season.

Back in 2001, developers such as CapitaLand and Keppel Land made massive writedowns on their Singapore residential landbanks. Some were made for sites that had breakeven costs below the achievable selling prices. In short, the provision quantums were based on the the difference between breakeven cost and selling price.

So too, this round, as we see achievable selling prices slipping below breakeven costs at certain sites, the writedowns could follow - although developers may drag their feet through Q4. But next year, they may have little choice as more widespread evidence of falling home prices emerges.

A seasoned valuer told BT that he would peg valuations for selling prices of top-end homes as at end-2008 at about 10-15 per cent below end-2007 levels. However for high-end residential land itself, the decline would be higher, at 15 to 20 per cent.

Past property slumps have lasted at least six to eight quarters - so we are in for a rough ride ahead. High-end sites may need to be written down a lot more than mass market sites. The run-up in home prices in 2006-2007 was much more concentrated on the high-end segment, unlike the bull run in 1995/96 when every segment - mass market, mid and high-end - galloped.

Developers who snapped up land at the market peak in 2007 and early 2008 will face much greater pressure for writedowns than those who bought in the early stages of the bull cycle, say, in 2005.

Developers who sold homes on deferred payment schemes may also worry if they have gone on to recognise profits on such units - beyond the initial 20 per cent payment collected from buyers - based on the extent of the project's completion. What happens if these buyers default and return their units? We could potentially see developers having to un-book some of the sales and and profits on such units - until they find new buyers.

Office revaluations

Evidence of office rents slipping has also begun to emerge. Potential investors also demand higher yields on office acquisitions today than 12 months ago. These two factors point to lower office valuations.

Some believe that valuations of office buildings should not decline much next year even if office rents fall because as leases come up for renewal, the new rental rates will still be much higher than the low rates which were locked in previously.

A seasoned valuer disagrees, pointing out that valuers estimate the capital value of an office block based on current market rents being fetched in the building, and then dividing it by a capitalisation rate (which would be the yield that potential investors demand). Even using a discounted cashflow model for valuation, capital values for office blocks are set to decline because future rents are coming off and an adjustment for higher capitalisation rates has to be made given the riskier economic environment.

His estimate is that end-2008 Grade A office capital valuations would be around 10 per cent lower than the end-2007 level. Bigger drops can be expected in 2009 as the economy deteriorates.

Downward revaluations of investment properties like office blocks would hit developers' bottom lines under Financial Reporting Standard 40 for most property groups. The major exception would be City Developments which, upon adoption of FRS 40, has continued to state its investment properties at cost less accumulated depreciation and impairment losses.

Most property groups's bottom lines are likely to deteriorate going ahead, whether they choose to start making residential provisions and downward revaluations of office investment properties in their Q4 2008 report card or delay it till 2009.

However, a seasoned property analyst is not bothered by such writedowns and losses. Property counters are already trading at huge discounts of over 50 per cent to revalued net asset value. The market seems to be pricing in extreme declines of around 50 per cent in property values. The bad news from provisions and writedowns has already been factored in. Developers' indebtedness and cash positions may be the things to watch out for.

Home Loans Harder To Get As Prices Fall

Source : The Straits Times, Nov 16, 2008

Check if bank can meet unit's valuation to avoid overpaying for the property

A couple of telling anecdotes illustrate the unexpected glitches that home buyers can face as property prices start to fall.

A Spring Grove condominium unit owner was denied the chance to take advantage of lower interest rates by refinancing his devalued property without coughing up more hard-earned cash.

The owner had to make up the shortfall because the reduced value of the Grange Road unit meant the bank could not extend a large enough loan.

Another buyer had to cancel his purchase recently after he learnt that banks' valuation of the property was less than what he was supposed to pay.

The banks could not offer him the loan he needed as the collateral was inadequate.

This is the brave new world of home loans as property values fall amid the global financial crisis and banks tighten lending.

Banks are still dishing out home loans but are much more selective these days, mortgage consultants said.

Banks can grant only up to 90 per cent of the purchase price or valuation, whichever is lower. So if the sale price of a property exceeds the valuation - which is determined by an independent professional - the buyer will have to make up the shortfall.

Amid poor demand and falling prices, banks are sticking to lower property valuations in anticipation of further price falls.

'OCBC Bank engages independent, third-party valuers to determine the open market value of properties and there has been evidence of a fairly strong downward trend in property valuation,' said its head of consumer secured lending Gregory Chan.

The buyer who cancelled his property deal realised that the yet-to-be-completed 1,000 sq ft condo unit was worth less than the $2 million he was going to pay.

'No bank can match the property's valuation as there was a recent sub-sale deal done at 15 per cent below the developers' price of $2,000 per sq ft,' said Mr Dennis Ng, spokesman for mortgage consultancy portal

Buyers can avoid overpaying for a property by checking to see if the banks can match the valuation to the property's purchase price, he said.

In today's market, those still keen on taking out a loan for a home they intend to live in should also know that most banks now prefer to offer up to only 80 per cent financing, said Ms Ally Yang, a chief mortgage consultant at

OCBC Bank said it continues to offer housing loan packages for 80 per cent financing. It also offers 90 per cent financing on a case-by-case basis if the applicant meets its credit assessment criteria.

HSBC Singapore's head of personal financial services, Mr Sebastian Arcuri, said: 'Customers can still obtain home loans of up to 90 per cent valuation or purchase price if their financial profile can support it and their application meets the bank's criteria.'

But there are signs that banks are starting to be more stringent in their credit criteria and they are very selective in granting a 90 per cent loan, said Mr Ng.

'A 90 per cent home loan is now more selectively granted to consumers with very good profile who are buying a property as their first home.'

Investors will find it tougher to get a bigger loan these days. Banks used to offer more than 85 per cent financing for investment properties but all of them, except DBS Bank, no longer do so, said Ms Yang.

This means buyers have to be prepared to cough up more cash for investment property buys.

Those looking at refinancing may be in for a surprise if they bought their properties in last year's booming market.

The Spring Grove unit in question was bought by a South Korean expatriate for $2.58 million or $1,442 per sq ft on a floating rate package.

He now pays 3.5 per cent interest on his 80 per cent loan and was looking to halve his interest payments by switching to a package pegged to the three- month Singapore Interbank Offered Rate, said Ms Yang.

But a check with two banks found that the valuation for his property was $2 million or $2.22 million. If he wants to refinance at these valuations, he would need to pay up to $180,000 to top up his loan, currently at $1.78 million.

Consumers seeking a loan for their property purchase should get prior approval or have more cash on hand. 'They should approach a mortgage specialist for a joint assessment if they are unsure whether they can afford the home purchase,' said OCBC's Mr Chan.

'Things are quite fluid these days so buyers should re-check their loan eligibility after one month,' said Mr Ng.

Wheelock Takes $85m Impairment Loss On SC Global

Source : The Straits Times, Nov 15, 2008

WHEELOCK Properties' losing bet on niche high-end developer SC Global Developments has left the firm with an impairment loss of $85 million.

It bought a 10 per cent stake in SC Global in June last year at $6 per share or $112.1 million then, and purchased more on the open market this year. The share price of SC Global, which has since done a two-for-one stock split, closed one cent down at 57 cents yesterday.

Wheelock's share of SC Global is now 16.05 per cent. Its chief executive, Mr David Lawrence, had in April apologised to shareholders for buying it at the top of the market last year.

For the third quarter ended Sept 30, Wheelock reported a net profit of $133 million, down 39 per cent from the three-month period ended Dec 31.

The comparison is such because the group changed its financial year end from March 31 to Dec 31.

Revenue rose 21 per cent to $229.53 million, as the firm commenced recognition of the sold units in Scotts Square. It was partially offset by lower revenue recognition from its earlier projects such as The Sea View and lower dividend income from Hotel Properties and SC Global.

The firm said its investment property, Wheelock Place, was revalued from $700 million to $790 million based on increased rental reversion.

Looking ahead, the group aims to launch the 30-unit Orchard View for sale next year.

It said that it is in a strong financial position to take advantage of opportunities which may arise as it already has $800 million cash in hand.

Earnings per share reached 11.09 cents, down from 18.18 cents at the end of last year. Net asset value per share was at $1.83, as at Sept 30, up from $1.82 at the end of last year.

Shares of Wheelock climbed two cents to close at 91.5 cents yesterday.

Japan Is In Recession

Source : The Straits Times, Nov 17, 2008

TOKYO - JAPAN'S economy, the second largest in the world, has entered its first recession in seven years as the global financial crisis batters exports and business investment, official data showed on Monday.

The contraction confirmed that the global financial crisis has sabotaged growth in yet another major economy. -- PHOTO: ASSOCIATED PRESS

Japan joins Germany and Italy on the list of major economies that are officially in recession, despite emergency steps by world powers to try to shield the global economy from months of turmoil on financial markets.

The Japanese economy unexpectedly contracted by 0.1 per cent in the three months to September, after shrinking 0.9 per cent in the second quarter of the year, according to figures from the Cabinet Office.

The data 'showed that the economy is in a recession phase. There are risks it may worsen further', said Economic and Fiscal Policy Minister Kaoru Yosano.

It is the first time since the third quarter of 2001 that Japan has entered a recession, which is usually defined as two or more consecutive quarters of negative economic growth.

Gross domestic product (GDP) contracted at an annualised rate of 0.4 per cent.

Analyst forecasts, on average, had been for modest growth of 0.1 per cent quarter-on-quarter. Tokyo's Nikkei stock index fell 1.3 per cent in early trade.

Business investment slumped 1.7 per cent in the third quarter while exports were worse than expected, as the financial crisis triggered by a US housing slump squeezed other major economies.

'Japan was dragged down by the weakness in the global economy,' said Mr Kyohei Morita, chief Japan economist at Barclays Capital, who expects the recession to last for four quarters in total.

Although Japan has not suffered financial turmoil on the same scale as the United States or Europe, its trade-dependent economy remains highly vulnerable to global downturns.

'Japan is as export-driven as ever. So as long as exports are slowing due the weakness of the global economy, we cannot escape,' said Mr Morita.

After suffering a series of on-off recessions in the 1990s, Japan had been slowly recovering on the back of brisk exports and business investment.

Corporate profits, however, are now sliding as exports suffer from the global slowdown, prompting companies to slash investment in new equipment and factories, which had been a key driver of economic growth.

Consumer spending rose 0.3 per cent in the third quarter helped by a hot summer and demand for televisions ahead of the Beijing Olympics.

But analysts said Japanese consumers are likely to tighten the purse strings as the economy worsens and companies shed workers.

'We are already seeing the start of a vicious cycle in which a worsening labour market leads to slack consumption,' said Mr Naoki Murakami, chief economist at the Monex brokerage firm.

Analysts see little prospect of a recovery any time soon. The Japanese economy is expected to contract 0.1 per cent in 2009, according to the Paris-based Organisation for Economic Cooperation and Development. -- AFP