Wednesday, December 10, 2008

Global Slump Next Year Will Hit Asia Hard: World Bank

Source : The Business Times, December 10, 2008

S'pore, Taiwan most vulnerable as global trade set for first fall since 1982

WORLD economic growth will slump to just 0.9 per cent next year - the weakest in nearly four decades - and, with global export volumes set to decline for the first time since 1982, trade-dependent East Asian economies will suffer badly, the World Bank predicted yesterday.

In a report, it singled out Singapore and Taiwan - 'where exports are now declining' - as being among the worst hit.

At the same time, East Asia as a whole is suffering from slumping capital flows, falling investment, weaker production, falling household spending, and rising unemployment, the World Bank said.

It balanced this litany of woes by predicting that 2010 could see a rapid turnaround for the better in global and East Asian fortunes, with world economic growth rising to 3 per cent and East Asia benefiting from a projected sharp recovery in exports.

But it also warned that risks are on the downside and that a longer-than-expected recession in advanced economies could precipitate balance of payments and currency crises in this region.

In its latest Global Economic Prospects, the World Bank foresees a situation where the 'pronounced recession' that has begun in Europe, Japan and the US will bring about a 0.1 per cent overall decline in the GDP of these countries next year.

This, in turn, will push developing country growth as a whole down to just 4.5 per cent from the 6.3 per cent expected for 2008.

East Asia will fare better as a whole than other developing regions, with GDP growth (including that in Pacific Island economies) set to reach 6.7 per cent in 2009 (down from a projected 8.5 per cent in 2008). But this only because China is expected to maintain 7.5 per cent growth next year. The rest of East Asia is predicted to grow at a rate of only 4 per cent in 2009.

'China will play a key role in shaping the region's growth profile through 2010,' the bank said. 'A step down in China's import growth will dampen the momentum of intra-regional trade.'

But 'China's buffers against the financial crisis are impressive' and recent policy measures to counter economic slowdown should yield positive effects, it added.

The report contrasts the outlook for East Asia now with that perceived at the start of the current financial and economic crisis when it was expected that the region would escape fairly lightly. Instead, gross capital flows to the region plunged by one half during the first nine months of this year, equity markets collapsed, and debt spreads widened dramatically.

'Slower investment growth in East Asia is now expected to spill over into still weaker production, employment, household spending and GDP growth,' the report said. 'Regional GDP growth is projected to slow to 6.7 per cent in 2009, the weakest since the dotcom recession of 2001 and prior to that, the Easy Asia crisis of 1997-98.'

East Asia will take its biggest hit through the trade route, according to the World Bank. Regional export volumes are expected to grow by just 2.6 per cent in 2009 compared with 8.3 per cent this year, while the growth in fixed investment will fall from 10.5 per cent in 2008 to slightly under 7 per cent next year.

'East Asian export volumes are likely to fall sharply - to negative territory for many countries - with China seeing (only) a modest advance of 4.2 per cent, down form the 10.1 per cent gain in 2008.

'The fall-off in export performance is particularly acute in Singapore and Taiwan, where exports are now declining, affected in particular by a sharp drop in demand for high-tech products,' the report said. 'Export growth is also slowing in Malaysia and Thailand,' it added.

The World Bank is, for now at least, taking a more upbeat view of prospects for 2010, saying that 'recovery in regional growth during 2010 is anticipated to be fairly swift'.

'The downturn in investment should be relatively short-lived as credit and capital flows begin to thaw and expectations for stronger domestic and external demand underpin a revival in regional capital spending.'

Housing Crisis Also Hitting The Wealthy In US

Source : The Business Times, December 9, 2008

(HINSDALE, Illinois) Less than a year ago, few people in this affluent Chicago suburb expected that the US sub-prime housing crisis would hit close to home.

'We thought Hinsdale was virtually immune and we wouldn't see any foreclosures, but we have,' said Dave Hanna, managing partner of Chicago-based Prudential Preferred CRE and president of the Chicago Association of Realtors. 'Nowhere is immune.'

With a pretty red-brick downtown lined with stores, good schools and a railway line to nearby Chicago, Hinsdale has been popular among wealthy doctors, lawyers and executives.

It has also seen a 37 per cent jump in foreclosure filings this year, according to research firm RealtyTrac, and local data shows the average home sale price has fallen to US$1.07 million from US$1.15 million in September 2007.

The consequences of years of devil-may-care mortgage lending during the US housing boom were first felt among America's poorer home owners. But if that is where it started, it did not stop there.

'People think this is just a lower-income problem,' said Mabel Guzmann, a Century 21 realtor in Chicago. 'It's not.'

Ms Guzmann was recently called in to try to sell a US$1.2 million home in foreclosure, but found it riddled with mold. 'There are few buyers for properties like that,' she said.

Along with their less moneyed fellow citizens during the housing boom, many wealthy Americans leveraged their home equity to buy anything from a car to stocks.

'High income does not necessarily mean smart or responsible,' said Michael Lefevre, head of the National Association of Mortgage Professionals (NAMP), a trade group. He argues for financial literacy classes at US high schools.

Now the market is awash with excess properties, depressing prices so much that many Americans owe more than their homes are worth. A sinking US economy and huge job losses - more than 10 million out of work by December - have not helped.

Observers forecast it will take the overall market a long time to recover. In the meantime, it could be difficult to sell expensive homes: buyers may find getting a mortgage tough.

'I think it's going to get worse,' Mr Lefevre said. '2009 is going to be ugly.'

Many of America's wealthier homeowners are already feeling the pinch. According to research firm First American CoreLogic, in August, 5 per cent of US jumbo prime mortgages - those over US$417,000 - were behind payments 60 days or more.

That was higher than the 3 per cent of normal prime mortgage loans 60 days or more behind, but well below the 29.5 per cent delinquencies seen for sub-prime loans, or the 15.4 per cent rate for Alt A mortgages, which are a step above sub-prime.

But that 5 per cent rate for jumbo delinquencies was more than three times the 1.4 per cent rate in August 2007.

'Jumbo prime mortgages have seen the biggest increase in delinquencies of any category over the past year,' said Sam Khater, chief economist of First American CoreLogic. 'The worst affected areas are states like California that have seen sharp price declines. But few areas are unaffected.'

The squeeze that many wealthy Americans find themselves in is that they borrowed far too much against those homes.

'People bought the boom on the assumption that property values would continue to rise and they leveraged their homes to increase their wealth,' said Dennis Hedlund, founder of iEmergent, a forecaster for mortgage and real estate companies. 'People have seen the value of their assets, including stocks, decline. But their debts haven't.'

That has left many affluent borrowers trying to off- load homes via a bank-approved short sale - taking an offer for their home below what they paid to avoid foreclosure. But that process has been criticised in recent months as being too slow, or because banks insist on unrealistically high offers.

'Many banks still have no effective system in place to deal with short sales,' said Ron Rosen, a realtor in Lighthouse Point, Florida. -- Reuters

UK Commercial Property Slump To Last Till 2011

Source : The Business Times, December 9, 2008

(LONDON) The UK commercial property market is in the middle of its worst slump on record and won't recover for at least another two years, a report by the Royal Institution of Chartered Surveyors (RICS) showed.

Values for offices, stores and industrial properties may fall 25 per cent by the end of 2010 as the economic recession causes rental growth to slow and property vacancies to increase, the London-based firm said.

That would bring the decline from the market's peak in June 2007 to about 50 per cent, said the Coventry, England-based association of real estate professionals.

The declines will exceed those of the commercial property slumps in the 1970s and the 1990s, according to RICS. Office property values will lose the most as job cuts carried out by banks and other financial services firms add to the amount of unoccupied space.

'We are only halfway through the price correction in the commercial property market with values set to fall through 2009 and 2010 as rental declines gather pace,' said Oliver Gilmartin, senior economist at RICS.

Commercial property values will fall 16 per cent next year and another 10 per cent in 2010, the report said.

The falling values will be exacerbated by a lack of buyers as rising loan defaults and more expensive debt curbs the recovery of the investment market, RICS said. Lower interest rates and an improving economy should lift the market in 2011.

'The rapid re-pricing across the market has pushed UK yields to among the highest in the developed world with a very wide gap emerging compared to finance costs,' Mr Gilmartin said. -- Bloomberg

Hong Kong Home Prices May Fall More On Tighter Credit

Source : The Business Times, December 9, 2008

Memories revived of 1997-98 Asian crisis, when prices slumped two-thirds from peak

(HONG KONG) Hong Kong home prices, down almost a quarter from their five- year high in March, may drop further as the credit crisis drives up joblessness and threatens to spark defaults.

Not buying: A billboard advertising new HK properties. The number of housing units changing hands fell 79% in November - the biggest decline in at least 12 years

'There's a real lack of funds,' Leland Sun, chairman of Hong Kong-based Pan Asian Mortgage Co, said at a Bloomberg forum last Thursday. 'Banks are unwilling to lend to other banks, let alone individuals and small and medium businesses.'
HSBC Holdings Plc, the city's biggest bank by branches, raised mortgage rates as much as 75 basis points last week - the most in a decade.

Increased risk has prompted banks to tighten credit even as benchmark borrowing costs fall worldwide, reviving memories of the 1997-98 Asian financial crisis when Hong Kong home prices slumped by two-thirds from their peak.

'Mass market home prices will ease down the curve rather than falling off the cliff,' said Nicholas Brooke, chairman of Hong Kong- based Professional Property Service Ltd. 'The fundamentals are so different this time' compared with the Asian crisis, he said.

Mortgage rates in Hong Kong have climbed even as the de facto central bank has cut benchmark borrowing costs in line with the US Federal Reserve.

Higher mortgage rates make it more expensive for homebuyers to borrow. This could trigger a further drop in home prices, already down 22 per cent since March, according to Centaline Property Agency Ltd.

Banks in Hong Kong are raising mortgage charges after having tracked six of the Fed's past nine benchmark rate cuts.

HSBC cut its best rate to a four-year low of 5 per cent on Nov 7.

The Hong Kong University Property Derivative Index shows investors expect a drop of as much as 30 per cent in property prices in the next year, Richard Wo, head of product services and training at Sun Hung Kai Financial Ltd, said in an interview with Bloomberg Television.

The number of homeowners with apartments worth less than their mortgages surged 174 per cent in the third quarter, the Hong Kong Monetary Authority (HKMA) said last month.

The number of housing units changing hands fell 79 per cent in November, the biggest decline in at least 12 years, according to the government.

Mr Sun at mortgage originator Pan Asian said 'negative equity' homeowners in Hong Kong might rise higher than in 2003, though he said people will keep paying their mortgages, as long as joblessness doesn't spiral. Homebuyers and banks may be concerned both about Hong Kong's economy, which contracted 0.5 per cent in the third quarter to put the city in its first recession since 2003, and the jobless rate - which rose to 3.5 per cent in October.

A further 6,000 jobs have been lost in the past six weeks, the South China Morning Post newspaper reported on Dec 1.

Sun Hung Kai Properties Ltd, Hong Kong's biggest developer by market value, had its target price cut by Citigroup Inc on expectations that prices will fall further.

Still, Sun Hung Kai told shareholders last Thursday that prices had stabilised in the past two weeks.

In 1997-2003, home prices had periods of stability, then fell further.

HSBC itself, which employs more than 21,000 people in Hong Kong, said last month that it is cutting 450 jobs in the city.

Standard Chartered Plc said on Dec 2 that it will fire 200 people, 4 per cent of Hong Kong employees.

'This aggressive rate hike comes across to us as severe risk aversion, unlike previous hikes, which were aimed at regaining a reasonable spread for the mortgage product in light of a rising Hibor,' Citigroup Inc Hong Kong-based analysts Tony Tsang and Marco Sze wrote in a Dec 2 research note.

Rising unemployment rates can mean an increase in people who can't service mortgages. With prices of some homes lower than the value of the loans they secure, banks may not be able to recoup the money they are owed when they sell apartments on which they have foreclosed.

'The latest rate hikes in mortgage interest rates, more job losses and weak retail sales figures suggest that the outlook for the property markets in Hong Kong will remain difficult,' Citigroup's Mr Tsang and Mr Sze wrote.

The Hang Seng Property Index, tracking the share of the city's biggest developers, has fallen 61 per cent in 2008, more than the 50 per cent drop in the benchmark Hang Seng Index.

Still, the mortgage delinquency ratio was unchanged at 0.05 per cent in October, the HKMA said last month. That compares with a ratio of 0.78 per cent in October 1998.

Peter Wong, an executive director at HSBC's Asia-Pacific unit, said economic conditions may dictate further mortgage rate increases.

Hong Kong mortgages carry interest at a discount or premium to the benchmark cost, the so- called best lending rate.

'We have not decided whether we will raise interest rates again,' Mr Wong told reporters in a briefing last week.

'That depends on the operating environment, and also on the credit and risk profile in the economy. We have just increased,' he said. -- Bloomberg

DTZ Sees HK Office Rents Falling Next Year

Source : The Business Times, December 9, 2008

(HONG KONG) Hong Kong office rents may fall in 2009, as the global financial crisis hurts the city's economy, property adviser DTZ Holding plc said.

'Office rents in Hong Kong, especially those for grade A offices, would be mostly affected as their tenants such as investment banks and finance companies are badly hit in the global financial turmoil,' Leung Chun Ying, chairman of DTZ in Asia-Pacific, told reporters in Hong Kong yesterday.

The credit market seizure that has left global financial companies with almost US$1 trillion in writedowns and credit losses has led to banks such as Citigroup Inc and DBS Group Holdings downsizing their businesses and cutting jobs in the city.

Hong Kong has slipped into its first recession since the severe acute respiratory syndrome epidemic in 2003 as the economy shrank a seasonally adjusted 0.5 per cent in the third quarter from the previous three months, after contracting 1.4 per cent in the second quarter.

CLSA forecast a 60 per cent decline in rents in the city's central business district in the next two years, while UBS forecast a 25 per cent drop by Sept next year, the South China Morning Post reported on Nov 19, citing property analysts. Central office rents surged to a peak of HK$120 (S$23.61) per square foot this summer, the report said.

'It's difficult to predict the magnitude of the consolidation in office rents as the impact of the financial turmoil hasn't been fully reflected,' said Mr Leung.

Separately, Hong Kong ranked third, after Tokyo and Singapore, in the top five cities in terms of investment prospects, says a survey by Urban Land Institute and Pricewaterhouse Coopers.

The rankings implied that those markets have long-term investment values, though many see volatilities in the short term, said Mr Leung, who is also the institute's Asia chairman. -- Bloomberg

More Gloomy Outlook

Source : The Straits Times, Dec 10, 2008

WITH just weeks left till the end of the year, economists are predicting that the Singapore economy will fare worse than the Government has forecast.

A Monetary Authority of Singapore (MAS) poll of 17 economists and analysts found that they expect economic growth to ring in at only 2.2 per cent this year, below the official tip of 2.5 per cent.

This is significantly bleaker than the 4.2 per cent growth they predicted in a similar MAS survey just three months ago. No sector has been spared the pessimism, although manufacturing and trade are the only segments that economists believe will go into negative territory this year.

Coming: A New Media Hub

Source : The Straits Times, Dec 10, 2008

SINGAPORE is setting the stage - literally - for special effects movies like Frank Miller's acclaimed 300, with a new 19-hectare media hub to be built at 1 North.

When completed in 2020, the park, which is about the size of 23 football fields, will feature digital media schools, production companies, 24-hour food and entertainment outlets, business hotels, service apartments, and Singapore's biggest and most high-tech film production set.

Mediapolis, as the park is called, will 'add significant scale and depth to Singapore's media infrastructure,' said Dr Lee Boon Yang, the Minister for Information, Communications and the Arts, at the annual Asian Media Festival on Wednesday.

HK Developers In Denial As Home Prices Slide

Source : The Business Times, December 10, 2008

HONG KONG - Hong Kong's big developers have been in denial mode for the last week, countering grim forecasts of more property price slides with upbeat messages.

But faced with recession, looming job cuts and rising mortgage rates, few in the city believe them - although some analysts think their share prices reflect too much pessimism.

In property agency shop windows across the city, slashes of red marker pen and newly scribbled prices suggest apartments have already dropped 20 per cent in value in the last month.

Growing public expectations of a repeat of a 2003 slump, when the Sars respiratory disease ravaged Hong Kong's economy, prompted Sun Hung Kai Properties to predict last week that prices would rebound 5 per cent in 2009.

And Henderson Land Chairman Lee Shau-kee, nicknamed Hong Kong's Warren Buffet for his savvy investing, ventured that the worst for the city's property market was past. He then added that the worst of the global economic slowdown was yet to come.

Many disagree with that property outlook, including Stephen Riady, president of Indonesia's Lippo Group, which invests in property across Asia, including in Hong Kong and mainland China.

'I doubt that,' Mr Riady said of the upbeat predictions. 'I think Hong Kong will probably go down much more. It's a very volatile market. It'll go down more than Singapore.'

A Reuters poll of analysts at the end of last month showed Hong Kong apartment prices were expected to drop 20 per cent by the end of next year and Singapore prices would fall 21 per cent.

Brokers GFI Colliers say indicative property derivative levels suggest investors are betting Hong Kong prices will reach a bottom in December 2009, falling at least 25 per cent from now.

'Struggling to sell'
Chris van Beek, vice president at GFI Colliers, said landlords, with anywhere between five or six apartments to portfolios worth US$65 million, were keen to switch to cash.

But they were dropping prices because buyers are scarce, partly because banks are demanding 30-40 per cent downpayments rather than 10 per cent before the financial crisis.

'Some are offloading at 30 per cent discounts, but struggling to sell,' Mr van Beek said. 'Many buyers think they might as well wait another four or five months for prices to come down more.'

Hong Kong property transactions fell to a 17-year low in November, down 87 per cent in value from a year earlier.

The territory is in recession, with exports hit by weakening global demand and consumers jolted by falling asset prices.

Dependent on the financial industry, people are now bracing for large-scale job cuts at investment banks and hedge funds.

Although Sun Hung Kai reported strong public interest at one of its projects last week - where buyers were given discounts of upto 13 per cent - the firm has cut its target for apartment sales this financial year by a fifth.

Mortgage rate hikes by HSBC Holdings and Bank of China (Hong Kong) last week did not help, with the banks keen to address concerns over higher lending risks.

However, analysts do not expect a repeat of the negative equity on mortages seen in the early 2000s, because property prices have almost doubled since the beginning of 2004.

CLSA analyst Nicole Wong expects residential prices to fall 15 per cent in the next year, but believes investors have been too bearish on Hong Kong property stocks - pricing in a Sars-like scenario when that was unlikely.

She noted that property stocks outperformed the Hang Seng Index when home prices slid in 1998 and 2001, and pinpointed Sun Hung Kai, Henderson Land and Sino Land as good value. The stocks are trading at discounts of 48-62 per cent to net asset value. -- REUTERS

Weakness Seen In Bangkok Luxe Condo Market

Source : The Business Times, December 9, 2008

Analysts forecast 10-20% price fall in H109 as foreign buyer pool dries up

THE luxury condominium market will dive next year as the global economic downturn continues to dry up the much-needed pool of cash-rich foreign investors, local property analysts said.

Condo blues: Thai law prevents foreigners from buying land, but they are allowed to purchase up to 49 per cent of the saleable space in a condominium, hence the sector's dependence on overseas investors

They predict that luxury condominium prices would drop by 10-20 per cent in the first half of 2009. Current high prices will stifle local demand, as the domestic political turmoil undermines investor sentiment, they said.

Despite Bangkok's luxury condominiums being relatively cheap - at around 100,000-150,000 baht (S$4,300-6,500) per square metre (psm), 8-12 times less than a similar property in Singapore or Hong Kong, according to Jones Lang LaSalle Research - demand has dropped off, analysts said.

'Luxury condos depend on foreign buyers. With the global downturn, there are no buyers left,' said Thaninee Satirareungchai, property analyst, KGI Securities (Thailand).

'The price of the physical property should be corrected down by at least 15-20 per cent next year.'

UOB Kay Hian (Thailand) expects sector prices to drop by 10-15 per cent to stimulate demand from Thai buyers, who tend to opt for luxury single-detached houses rather than condominiums.

Thai law prevents foreigners from buying land, but they are allowed to purchase up to 49 per cent of the saleable space in a condominium, hence the sector's dependence on overseas investors.

A fall will provide investment opportunities for bargain hunters, said Veena Naidu, head of research, UOB Kay Hian (Thailand).

'I think the prices will bottom out before Q2 next year,' she said. 'Projects that were launched 18-24 months ago are being completed and coming onto the market now, so investors still have time to survey the market.'

CB Richard Ellis (Thailand), a leading realtor, said that predictions of an across-the-board sector drop were inaccurate, and that it had seen no evidence of falling prices in existing luxury properties.

It said that current resale values at projects such as the TCC Capital Land Athenee Residence remained at 125,000- 150,000 baht psm.

Projects being sold off-plan will be affected by the decreasing pool of foreign investors and are likely to lower their prices, said James Pitchon, executive director, CB Richard Ellis (Thailand).

'Some luxury projects increased their notional prices after units at the Sukhothai Residences sold at an average of more than 200,000 baht psm. But a number of those developers were not able to sell at the recalibrated prices.

'We expect a return to the pre-Sukhothai prices, where developers that upwardly adjusted their prices revert to what they were six months ago.'

The biggest factors in Bangkok's surging luxury property prices were rising land and commodity costs, he said. While the price of crude has dropped, said Mr Pitchon, the value of Bangkok's CBD land was not contracting, adding that plunging commodity prices were unlikely to affect the sector in the next two years.

'Commodity prices have fallen, so in theory new construction costs will also fall. There will be very few, if any, new projects launched in the next 24 months, so we are not going to have competing products with the new lower construction costs.'