Prices Of Homes Drop Worldwide

Source : The Straits Times, April 15, 2008

As effects of US housing slump spread...

Global slowdown could become wholesale collapse, warn analysts

DUBLIN - THE collapse of the housing bubble in the US is mutating into a global phenomenon, with real estate prices swooning from the Irish countryside and the Spanish coast to Baltic seaports and even parts of northern India.

This synchronised global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes but jobs as well.

GOING DOWN: Average house prices in Britain dropped by 2.5 per cent in March, the biggest monthly decline since 1992. -- PHOTO: REUTERS

In Ireland, Spain, Britain and elsewhere, housing markets that soared over the past decade are falling back to earth.

Property analysts predict that some countries will face an even more wrenching adjustment than the United States, including the possibility that the downturn could become a wholesale collapse.

To some extent, the world's problems are a result of American contagion.

As home financing and credit tightens in response to the crisis that began in the sub-prime mortgage market, analysts worry that other countries could suffer the mortgage defaults and foreclosures that have afflicted California, Florida and other American states.

Citing the reverberations of the US housing bust and credit squeeze, the International Monetary Fund last Wednesday cut its forecast for global economic growth this year and warned that the malaise could extend into next year.

'The problems in the US are being transmitted to Europe,' said Mr Michael Ball, professor of urban and property economics at the University of Reading in Britain who studies housing prices.

'What is happening now is an awful lot more grief than we expected,' he said.

For countries like Ireland, where prices were even more inflated than in the US, it has been a painful education as home owners learn the American vocabulary of misery.

'We know we are already in negative equity,' said Ms Emma Linnane, a 31-year-old university administrator.

She bought a cosy one-bedroom apartment in the Dublin suburbs with her fiance, Mr Paul Colgan, in May 2006 at the peak of the market.

They paid US$575,000 (S$780,000) - at least US$100,000 more than it would fetch today. 'I sometimes get shivers thinking about it,' Ms Linnane said. 'But I will let the reality hit me when I go to sell it.'

That reality is spreading.

Once-sizzling housing markets in eastern Europe and the Baltic states are cooling rapidly as nervous western Europeans stop buying investment properties in Warsaw, Tallinn, Estonia and other real estate Klondikes.

Further east, in India and southern China, prices are no longer surging.

With stock markets down sharply after reaching heady levels, people do not have as much cash to buy property.

With low interest rates helping to inflate housing bubbles in many countries, economists said the confluence of falling prices was predictable, if unsettling.

This is not the first housing downturn to cross borders, but its reverberations have been amplified by the integration of financial markets.

When faulty American mortgages end up on the books of European banks, the problems of the US aggravate the world's problems.

Consider Britain, which had one of Europe's most robust housing markets, with less of an oversupply than in Ireland or Spain. Then last summer came the sub-prime crisis across the Atlantic.

Within two months, mortgage approvals dropped 31 per cent, compared with the previous year. And in March, average housing prices had fallen 2.5 per cent, the largest monthly decline since 1992.

'The boom in house prices was actually much bigger here than in the US,' said Mr Kelvin Davidson, an economist at Capital Economics in London.

'If anything, people should be more worried than in the US.'- NEW YORK TIMES


Hard-hit countries

# Britain: Halifax, a mortgage lender, said recently that March house prices had dropped 2.5 per cent, the sharpest fall in nearly 16 years.

# Spain: The nation is one of the hardest hit in Europe. Prices have tumbled 8.8 per cent in a year.

# India: In New Delhi and other parts of northern India, prices have fallen 20 per cent over the past year.

# Australia: New housing loans have suffered their biggest drop in four years, recent data shows.

Some Upside In Failed En Bloc Deals

Source : The Business Times, April 15, 2008

LOOKING for a silver lining when nothing looms but storm clouds may seem a futile exercise.

But recent events surrounding the failed collective sales of Tulip Garden and Makeway View to Bravo Building Construction may just be a ray of hope in an increasingly gloomy property market.

To be sure, when Bravo decided it could no longer proceed with the collective-sale deals, some considered it yet another in a series of ominous events signalling the end of 'irrational exuberance' in the property market here.

Another was the pullout of Kuwait Finance House from a deal to buy 97 units at Goodwood Residence.

But putting a positive spin on the failed deals, Bravo has actually helped the market by withdrawing almost 400 potential units from future supply. If the Bravo deal to acquire another en bloc site (Pender Court) falls through, the number of potential units removed from future supply could be closer to 500.

This may be less than 3 per cent of the 17,800 new units CB Richard Ellis estimates could be launched this year, but if more developers were to follow Bravo's move, enough potential units could be removed from the future market to mitigate a more serious oversupply situation - especially in the light of drastically falling sales; only 185 new private homes were sold in February.

Emergency exit

Any developer considering the emergency exit that Bravo took will have to ask itself - as Bravo probably did - whether it has the holding power to build and hang on to units until it is profitable to sell them.

Perhaps the pivotal number to emerge in the failed Tulip Garden deal is the $25.8 million figure representing the 5 per cent deposit on the $516 million transaction that Bravo will now forfeit.

While $25.8 million is no small sum to lose, it is probably less than what Bravo could have lost had it proceeded.

Based on a loan quantum of 60-70 per cent of the land price, the loan for the Tulip Garden project would have amounted to $310-$360 million.

While it is not unusual for a bank to extend loans to preferred developers at interest rates close to Sibor, an interest rate of 5 per cent per annum would have been more likely, considering the times. In which case the cost of the loan could have been between $15.5 million and $18 million for the first year alone. This, also allowing that banks still feel comfortable extending loans of over 50 per cent.

Another loan the developer would have had to take would have been for construction costs. And based on a cost of $400 psf, this would have amounted to about $200 million for the Tulip Garden project. The quantum a bank will lend a developer varies. Assuming Bravo were to have taken a 50 per cent loan, the cost of this would have been around $5 million for the first year based on a 5 per cent interest rate.

Bravo's interest payments for the first year could have totalled $20.5-$23 million.

Developers do not generally borrow more because they expect progress payments from the initial sale of units, which go into a project account, to cover some of the costs.

But falling sales volumes would have made it difficult for Bravo to depend on the project account to finance construction.

Lower selling prices would have been a concern too.

Breaking even

When the market was at its most bullish last year, Bravo had hoped to launch the new development on the Tulip Garden site at around $2,000 psf.

However, the US sub-prime crisis has taken its toll on the market, with neighbouring developments Duet and The Cornwall peaking at around $1,500 and $1,700 psf respectively last October.

It was estimated earlier that Bravo would have to sell all the new units at Tulip Garden for at least $1,500 psf just to break even.

Developers who are likely to be swayed by this line of reasoning to reconsider developing en bloc sites are more likely to be the smaller, newer players in the field.

Based on available data, an estimate by Savills Singapore puts the number of new units from en bloc sites bought by construction companies in 2007 at more than 800, excluding Tulip Garden and Makeway View.

If some of these potential units were to be removed from the future market, supply pressure would be eased.

It would, of course, be much simpler if the potential units from a large en bloc site like Gillman Heights or Tampines Court were removed from the market.

But this is unlikely as it has become almost a mantra that big developers have holding power, even if they are losing money at the same time.

Crossroads For Real Estate Investment Opportunities

Source : The Business Times, April 15, 2008

Cityscape Asia is drawing a great deal of interest from major western developers

THE global real estate sector is going through big changes and this could not be more apparent at this year's Cityscape Asia 2008.

While Cityscape Asia is an Asia-focused real estate exhibition and conference, several major western developers are offering developments to Asian investors seeking to take advantage of favourable exchange rates to buy US real estate.

And MGM Mirage's CityCenter being developed on the Las Vegas strip will be difficult to miss.

Costing over US$7.8 billion, CityCenter is a mega hotel, casino and condo development. It is the largest privately financed development in the US and is now on show in Asia too.

Rohan Marwaha, managing director of Cityscape, said: 'Two months ago, we found that many real estate players were watching global events unfold with a sense of unreality. Now they are already moving on with their plans and actively looking at the new opportunities to emerge since the upheaval, with deal-making strongly back in the frame.'

The importance of identifying the latest trends in real estate, architecture, urban planning and design from around the world is underscored by the state of flux in many property markets today.

Kwek Leng Beng, executive chairman of Singapore-based City Developments Ltd, which is exhibiting as part of the Green Pavilion at Cityscape Asia 2008, said: 'Today, the mood is not one of panic, unlike the Asian financial crisis of 1997.

'We are not in recession today, but rather we are the victims of our own success. Because we did not anticipate that our economy would be firing on all cylinders, we have a shortage of almost every type of property today.'

Dubai International Capital's announcement that it intends to invest US$5 billion in Asia over the next three to four years gives clear indication of where the action would be in the future.

Emerging markets

Cityscape Asia 2008 exhibitions director Theresa Gan expects interest to focus on emerging regional markets such as Malaysia, Indonesia and Vietnam.

'There will be a thorough debate of 'where to next' for the mature but still dynamic Singapore market where the Urban Redevelopment Authority and the Building and Construction Authority will spearhead a strong government sector contingent educating the market,' Ms Gan said.

Real estate consultancy CB Richard Ellis recently reported strong demand in all sectors of the Vietnam real estate market and estimates that around US$5 billion - much of it from foreign direct investment - was invested in Vietnam property in 2007.

Graham Wood, Cityscape Asia exhibition director and organiser, added that Middle Eastern investors will continue to make their presence felt, both in offering major Middle Eastern developments to Asian investors, and investing their own capital to increase their own portfolios across Asia in 2008.

'This year's Cityscape Asia will effectively provide a crossroads for these inter-regional investment trends to play out.'

Over three days, Cityscape Asia will give an insight into both the emerging and mature property markets in Asia by being the only international property event in Asia to combine a conference and exhibition that maximises both learning and networking opportunities with more than 6,000 international and regional real estate professionals.

It will feature more than 50 speakers including CEOs, managing directors and government officials, and will examine the opportunities in Asia including real estate investment trusts, derivatives and even an Asian investment property databank.

Leaders in their fields will also deliver presentations on clusters and hubs for financial institutions, and investment opportunities in airport cities.

Closer to home, the impact of integrated resorts on the Singapore market will be examined.

Building on the success of the inaugural Cityscape Asia 2007 that saw more than 100 exhibitors from 35 countries sell out 6,000 square metres of exhibition space, Cityscape Asia is a showcase of opportunities and iconic architecture from Malaysia, Thailand, Indonesia, Vietnam, Singapore, Japan and the surrounding Pacific region.

But this year, the notion of 'the sustainable city' is set to be a key theme for discourse.

Going green

Apart from the Green Pavilion, Cityscape Asia will host the World Architecture Congress where techniques to reduce the ecological footprint of modern buildings and cities in Asia will be introduced.

In addition to this, there is a Building Green Seminar where key exhibitors will share their vision of a sustainable future.

Mr Wood highlighted that a recent Jones Lang LaSalle survey of 414 companies revealed that 12 per cent in Asia said that they were willing to pay premiums of over 10 per cent for 'sustainable' buildings, compared to just 3 per cent in North America and Europe.

'Asian countries, led by Japan, Singapore, Hong Kong and India, are introducing green building ratings along the lines of systems operating in Britain and the United States and the concept is catching on,' added Mr Wood.

Record $8b Worth Of Govt Tenders Up For Grabs

Source : The Business Times, April 15, 2008

Lion's share goes to building projects but boom could add to cost pressure

It may have pushed back building projects worth $3 billion to ease the crunch, but the government is still calling for tenders to the tune of a record $5.8 billion in the construction sector this fiscal year.













In all, its tenders for FY2008 will touch $8 billion - surpassing the previous record set in FY2006 when it called for some $7.5 billion worth of tenders.

The bulk, this year, will be splashed out on building and construction projects. This includes moves to improve traffic on the Central Expressway and the Gardens by the Bay project that will keep the Marina Bay area development on schedule, the Ministry of Finance (MOF) said yesterday.

The bumper $6.4 billion budget surplus has allowed the government to spend generously, economists said.

'We had a very healthy budget surplus last year and essentially, that provides some deep pockets for the government to embark on a more robust expansion policy,' said DBS economist Irvin Seah.

Economists also noted that the record amount of tenders involving building and construction projects reinforces the government's long-term goal to beef up its infrastructure to boost the country's competitiveness.

'I tend to see this building and construction project as a long-term effort to improve the competitiveness of our economy,' Citi economist Kit Wei Zheng said, pointing to the strains that the rising population and growing economy have imposed on infrastructure.

'In terms of construction, it's all well and good because it supports our thesis that demand remains very healthy,' he added.

Of the government tenders announced yesterday by MOF, some $1.2 billion will go towards the purchase of goods and services, such as the supply of equipment, appliances and the operation of the automated toll system at the checkpoints.

Tenders in information and communications technology (ICT) projects are also expected to be worth at least $1 billion. The Infocomm Development Authority of Singapore (IDA) will be announcing further details on the upcoming ICT projects during their annual industry briefing next month.

The plan for public sector procurement was first introduced in 2003 by MOF to inform suppliers about the public sector's indicative purchasing plan for the financial year between April and March. Its objective is to make the government marketplace more attractive and transparent to suppliers and purchases exceeding $200,000 are listed in the plan.

While economists believe that the large government tenders for building and construction projects are generally good for the industry, some felt there was still a need to address tightness in construction resources and rising costs.

'The growth is still there for the construction sector but it has to be measured against rising building costs,' Standard Chartered economist Alvin Liew said. 'Although we see that the $3 billion of deferred projects will mitigate some of the building costs pressures, a lot of the demand is global, whether it is steel or cement and construction workers. These are all globally priced.'

Mr Kit of Citi noted that the industry has already been squeezed by supply-side tightness in the first quarter, when the construction sector grew at an easier pace of 14.6 per cent year-on-year after growing by 24.3 per cent in the preceding quarter.

'It does suggest that supply-side constraints are already beginning to bite into construction growth,' he added. 'Growth would have been faster if not for the supply-side constraints.'

MOF said yesterday that it will continue to monitor the construction industry closely with BCA and other relevant agencies and make appropriate adjustments when necessary.

The timing of the large government tenders against the backdrop of a global demand slowdown could also alleviate any potential shortfall of investments in the private sector.

In response to a BT query on this, MOF said these government tenders are only based on the actual requirements of the government agencies.

Said Mr Kit from Citi: 'This move is probably quite timely but how effective it will be in boosting the economy is a question mark.

'I think the government will have to do more to ease the supply-side constraints if they want this to contribute fully to GDP growth... and prevent prices from spiralling upwards,' he added.

On a more positive note, Mr Seah of DBS said a bigger outlay from the government 'will certainly be helpful to businesses, especially when external demand is weakening.'

CityDev Declines 5.2% After UBS Downgrades Stock To 'Neutral'

Source : The Business Times, April 15, 2008

UBS analyst Regina Lim cites falling home prices in city-state

City Developments Ltd, Singapore's second-largest real estate company, led declines in developers after UBS AG downgraded the stock to 'neutral', citing falling home prices in the city-state.

CityDev, controlled by billionaire Kwek Leng Beng, fell 62 Singapore cents, or 5.2 per cent, to S$11.30 at the 5:05pm close in Singapore, a two-week low.

UBS analyst Regina Lim cut City Developments from 'buy' and reduced her price estimate to S$12.30 from S$14.12.

'UBS economists expect 2008 and 2009 growth to be 3.5 per cent and 5.9 per cent, respectively,' Ms Lim said in a report yesterday. 'We downgrade our residential price forecasts for 2008 and 2009 by up to 20 per cent. We remain cautious on developers with substantial exposure to Singapore.'

Singapore private home prices gained 4.2 per cent in the first three months of this year, the slowest pace in more than a year, after gaining 31 per cent in 2007, according to data from the Urban Redevelopment Authority released on April 2.

New home sales fell to 170 units in February, the lowest in at least nine months, the authority's data showed last month.

The FTSE Straits Times Real Estate Index, consisting of 43 companies on the Singapore stock exchange, has declined 13 per cent this year and the benchmark Straits Times Index has fallen 12 per cent.

Prime property prices could fall by 20 per cent this year and 2009, Ms Lim said in the report, with so-called middle-segment homes declining 10 per cent, and mass-market dwellings unchanged.

SC Global Developments Ltd, a builder of luxury homes in the city-state, fell five cents, or 3.6 per cent, to S$1.35, the most since April 9, when it plunged 4.9 per cent.

Keppel Land Ltd, the third-largest developer, fell 26 cents, or 4.4 per cent, the most since March 17, to S$5.66. UBS said both were vulnerable to slowing home sales in Singapore.

Ms Lim said UBS estimates for Singapore's economic growth indicate home prices may decline this year before recovering in 2009.

'In previous corrections, home prices recovered one to three quarters after GDP picks up,' she noted. -- Bloomberg