HDB Demand-Supply Imbalance A Part Of Property Cycle

Source : The Straits Times, Dec 20, 2007

THE phrase 'getting a home is like striking the lottery' is used to describe the Singapore housing scene these days - and it is no wonder.

If the Housing Board's (HDB's) latest sale is anything to go by, it is getting harder to hit the jackpot.

A sale that closed this week for just 316 flats attracted an unprecedented 5,147 applications - and this was for traditionally less attractive estates Hougang, Punggol and Sengkang.

This translates into a one-in-16 chance of securing a flat - far worse than the one-in-four chance for the same estates in June.

In HDB's August sale of 354 flats in popular, mature estates, the odds were an even more unlikely 29-to-one.

But just what lies at the heart of the current shortage? Is the high demand for flats genuine? Is it supported by strong economic fundamentals? Or is it just a manifestation of Singapore's infamous 'kiasu-ism' (the colloquial expression for 'being afraid to lose out')?

Housing experts seem to think it is a bit of both.

Singapore's buoyant economy is expected to grow 8 per cent this year - and 6 per cent next year.

Rising wages and good job prospects fuel the desire for homes. And with 2008 tipped as an auspicious year for marriage, the number of couples rushing to get on the property ladder is increasing.

Then there is the collective sale phenomenon that gripped Singapore this year - with year-to-date deals topping $13 billion. The wrecking ball has displaced many home owners, causing a supply shortage and a spike in demand for homes.

Singapore's spectacular property bull run has also driven private property prices up, pushing cash- rich home owners turned home seekers into the HDB resale market. These buyers have been setting headline prices, driving resale prices up and in turn pricing young couples out of the market.

Suddenly, new HDB homes seem so attractive, almost regardless of location. Couples who previously never considered less central estates such as Punggol, Sengkang, or Woodlands are thinking twice.

Associate Professor Tu Yong of the National University of Singapore's department of real estate blames collective sales for 'distorting the market'. Still, she reckons that as long as the economy continues to perform, demand should be genuine - and sustainable.

Property agency PropNex chief executive Mohamed Ismail agrees, but adds there could be some 'froth' in this current high demand. Many fear prices will move higher so they are jumping on the bandwagon. Whether they really need a new home or can afford to wait, is another issue, he says.

Ultimately, there is no short-term solution - supply requires time to respond. With demand rising unexpectedly fast this year, supply has no chance of keeping up, says Prof Tu. And the painful truth for some couples is: They will just have to wait it out.

Even as many continue to call for immediate solutions, the Government has to be careful to avoid a future supply glut, which usually comes on the heels of high demand.

This might seem ludicrous now, but it happened during the last property peak of 1996 when long queues for flats vanished just as HDB laid the last brick in the massive batch of flats couples had demanded. This oversupply, of tens of thousands of flats, took years to clear and suppressed resale prices.

HDB's current build-to-order system - which builds flats only when a certain percentage of buyers commit - mitigates this risk, but newly-weds argue it is not the ideal solution as the flats will be ready only in four to five years.

For HDB's part, it is not enough to just lift supply but to do so in the right place, at the right time. Flats are still available in Jurong West, for example, but couples shun the area, even more than they do Punggol and Sengkang, due to its farflung location, proximity to industrial estates and perceived lack of vibrancy.

Granted, there is a limit to the number of flats that can be built in more popular areas. But perhaps a closer look at demand patterns will prevent supply and demand mismatches in the future.

Meanwhile, there have been suggestions that Central Provident Fund monies be used for the cash needed upfront in the resale market. But that itself will have larger implications which will require lengthy studies - and will not solve the apparent problem.

Ultimately, demand and supply imbalances are part and parcel of property cycles. The Government is right to ensure there will not be a supply glut repeat - but newly-weds should also learn to understand the market and ride out these demand and supply kinks.

Perhaps it is in their best interests to wait for a clearer market balance before making any decision to commit to a long-term home.

DTZ Head Sees UK Property Readjustment

Source : The Business Times, December 20, 2007

(LONDON) The British real estate industry is in danger of talking up a deeper market correction than is warranted, Robert Peto, chairman of property services firm DTZ said on Tuesday.

'Clearly, we are in the middle of a massive readjustment,' Mr Peto said, referring to a record 4 per cent slump in commercial property capital values in November. 'But the unusually swift speed of this means we will reach a clearing price for UK commercial property much more quickly, and the recovery can begin,' he said.

The property market veteran told Reuters in an interview that valuers were re-rating the asset class at a surprising pace and those revaluations had already whetted the investment appetite of equity-rich sovereign investors and pension funds poised to re-enter the market.

'The sharp correction is a good thing and increases probability of a 5-6-month downturn, instead of a 5-6-year one,' said Mr Peto.

He said positive market fundamentals such as strong tenant demand had also been overlooked, since the real estate investment market went into hibernation because the industry tended to exaggerate weakness in times of market stress.

Mr Peto also said talk of a hefty spike in property industry redundancies in 2008 was premature. 'DTZ has not made any forecasts on reduction in head counts across the industry, because our experience is that when you start making those sorts of predictions, they precipitate,' he said.

'We need to be cognisant that we're accelerating very quickly towards that clearing price and it's far too early to say jobs will need to be cut,' said Mr Peto. -- Reuters

One Year On, Anson House Sold Again At 73% Profit

Source : The Business Times, December 20, 2007

It's December and Anson House is changing hands again - for a much heftier price.

Hot property: GE Real Estate has sold Anson House to a private property fund managed by Australia's Macquarie Bank for $129.5m. This works out to $1,701 psf of the building's net lettable area.

GE Real Estate has sold it to a private property fund managed by Australia's Macquarie Bank for $129.5 million - about 73 per cent more than what it paid for the 13-storey office block last December.

The price paid by the Macquarie-managed fund works out to $1,701 per square foot of the building's existing net lettable area (NLA) of 76,127 sq ft. This is slightly higher than the 72,122 sq ft NLA reported earlier as the building's efficiency has been improved - for instance, by converting some of the common areas to lettable space.

The latest sale was brokered by Jones Lang LaSalle's Asia Capital Markets Group and shows that office blocks continue to be traded by foreign institutional investors.

Based on current leases in the building, the $129.5 million reflects an initial net yield of about 3.6 per cent, but this is set to increase with about half of the building's NLA coming up for lease renewals by end-2009.

The 13-storey building, completed nine years ago, includes about 5,300 sq ft NLA of retail space on the ground floor. Anson House also has 98 carpark lots. It stands on a site with a remaining lease of about 89 years. Last year's sale of the building to GE Real Estate was by a company owned by former Singapore Land chairman SP Tao and his Indonesian partner, Mackmoor Pte Ltd.

Nearby, 78 Shenton Way was sold recently for $650.78 million to Germany's Commerz Grundbesitz Investmentgesellschaft (CGI) group. This works out to $1,857 psf based on a total NLA of about 350,000 sq ft, inclusive of six levels of new offices that are being built above the carpark podium by the seller, a joint venture between Credit Suisse and CLSA funds.

The deal is said to include income support as well as a return on the new office extension while it is being built amounting to about $16 million in total to be paid by the seller to the buyer.

Excluding this sum, the effective price being paid by CGI works out to about $635 million or around $1,814 psf. The property is on a site with a balance lease term of about 75 years.

US Housing Crisis Reverberates Worldwide

Source : The Straits Times, Dec 19, 2007

Banks, investors could lose hundreds of billions as lending is scaled back drastically

WASHINGTON - FEW people knew at the start of this year the meaning of 'sub- prime' home loans or how they might affect the United States and global economies.

Today, worries are growing that the crisis that began with mortgage failures and spread to banks and brokerages may push the US economy into a downturn and put the entire global economy at risk.

Sub-prime loans flourished at the end of the US housing boom, as lenders offered mortgages to people with shaky credit in an effort to cash in on surging prices.

These loans were packaged into securities that were sold to investors around the world, with little regard to what would happen when low 'teaser' rates were reset to increase payments from home owners.

When a wave of defaults began to hit, US and global banks began to see billions of dollars in losses on their balance sheets. The lenders had to tighten credit, crimping consumer and business spending and threatening the overall economy.

Goldman Sachs economist Jan Hatzius says his 'back-of-the-envelope calculation' now suggests 'losses of around US$400 billion (S$582 billion)' for global banks and investors.

Although this may not seem large in the overall economy, he says the effect is magnified because banks need to scale back their lending to keep capital ratios intact after accounting for the losses. As a result, he says, lending could be cut by US$2 trillion.

'Even if this occurs gradually, and even if there are some offsets from reduced credit demand and increased lending by other sectors, the drag on economic activity could be substantial,' said Mr Hatzius in a note to clients.

Adding to the woes from housing are near-record energy prices and a weak US dollar that could fuel inflation and hurt business confidence. Some experts say a recession is a possible scenario.

'The US is on the precipice of its first consumer recession since 1991, which was the last time the market suffered from a confluence of high energy prices, weakening employment conditions, real estate deflation and tightening credit,' said Mr David Rosenberg, Merrill Lynch's chief North American economist.

While debate is raging on whether the US economy will avert a recession, another question is how much a slowdown will affect the global economy.

Some experts say there has been a 'decoupling', meaning the rest of the world is less dependent on the US. But any slump in the US is still likely to have a global impact.

'We think 2008 will be the year of recoupling,' said Mr Peter Berezin, a Goldman Sachs global economist.

'The mortgage meltdown in the US has clearly affected global financial markets,' he noted, adding that 'the weakness in the US housing market is starting to raise concerns that the global housing market may suffer a similar fate'.

Mr Paul Sheard, an economist at Lehman Brothers, is guarded, saying: '2008 is shaping up to be more challenging for the global economy than 2007 was. We expect growth to be lower.'

'If the US slows and other developed economies follow, these economies will not be able to escape knock-on effects via the trade channel in particular, but also via financial and confidence channels,' he said.

'We expect growth in Asia ex-Japan and in emerging markets to decelerate but to maintain a healthy clip, given strong growth momentum, particularly in China and India.'

In a more upbeat outlook, Societe Generale global economist Brian Hilliard in London says the worst may be over for the US and global economies, even if the impact from housing and credit was bigger than initially expected.

'We remain more optimistic about the ability of the world economy to withstand the shock from this liquidity event,' he said.

'Our forecast for US growth of 2.6 per cent in 2008 is higher than consensus. The Fed has signalled that is less keen to make further rate cuts because the real economy looks in relatively good shape but it is flexible.'

AGENCE FRANCE-PRESSE

St Regis Picks 3 Bentleys To Ferry Guests

Source : The Business Times, December 19, 2007

Luxury hotel says British marque complements its brand

THE St Regis Singapore has chosen three Bentley luxury limousines to grace its driveway.

At your service: St Regis expects the three cars to meet guests' needs for a start but will monitor demand and increase the fleet if necessary

The five-star hotel on Tanglin Road opens this Saturday and its well-heeled guests will be chauffeured to and from the property in the customised Bentley Continental Flying Spur saloons.

Only one other hotel here uses a Bentley - The Raffles. The single Continental Flying Spur joined the iconic hotel's classic Daimler and long-wheelbase BMW 7 Series models in May 2006.

The St Regis fleet comes with customised details, with the cars having paintwork to match the unique gold/bronze shade that is the St Regis brand's corporate colour.

Other features include discreet St Regis badges on the door pillar and St Regis embroidered monograms on the back of the front headrests. There are also deep-pile carpets for guests to bury their feet in and a wine cooler tucked away in the centre armrest of the spacious rear seats to store chilled drinks and towels.

The hotel says it chose Bentley because the British marque complements the St Regis brand.

'With matching beliefs in the importance of heritage, prestige and the promise of providing a memorable lifestyle experience, Bentley was the perfect choice for the hotel's limousine service,' explains St Regis Singapore's general manager, Yngvar Stray.

The hotel is the first St Regis to open in south Asia and the first new internationally branded luxury hotel to open in Singapore in 11 years.

Apart from its bespoke service with personal butlers, another distinctive feature of the St Regis Singapore will be its artwork, said to be one of the largest private collections in Asia.

Over 40 original pieces by world famous artists such as Joan Miro, Marc Chagall, Fernando Botero, Le Pho, Fernand Leger, Gu Gan, Chen Wen Hsi and Georgette Chen have been selected to complement the hotel's elegant interiors.

Mr Stray says the Bentley fleet will be used to chauffeur guests to the hotel as well as for other transportation requests.

He believes that the three cars will be able to cater to his guests for a start but 'we will monitor the demand and increase the fleet if necessary'.

St Regis Singapore has declined to reveal the cost of the luxury limousines but the price of a standard Flying Spur is about $730,000. With the special options, the final price tag could come up to as much as $800,000.

For now, the St Regis Bentleys will be the most expensive cars to be used by a hotel here. Later next year, that honour will go to the Capella Singapore resort.

When it opens its doors in the fourth quarter of 2008, the Norman Foster-designed resort on Sentosa will have a pair of Rolls-Royce Phantom ultra-luxury limousines. The standard-wheelbase models cost $1.5 million each and will be used to ferry guests of the Pontiac Land Group hotel.