Don't Buy, Don't Sell

Source : The Straits Times, Dec 6, 2008

ADVICE TO PROPERTY INVESTORS

Sit tight and wait for recession dust to settle, say financial and real estate experts in a survey

PROPERTY investors here might feel like cutting and running but the best advice is to sit tight and hold on, according to a PricewaterhouseCoopers (PwC) report.

The report, now in its third year, asked about 180 experts from across the region - in fields from real estate to banking and property development - for their strategies on whether to hold their investments, buy more or sell.

Mr Stephen Blank, senior resident fellow of finance at the research firm Urban Land Institute, a co-publisher of the report, described the mood: 'Interviewees say that we are in a wait-and-see mode, and everyone's sitting on the sidelines waiting for the dust to settle.'

About 65 per cent of those polled urged investors in Singapore real estate to hold on to their investments in the hotel sector and in rental apartments.

'Visitor numbers have been slipping, and in 2009, the hotel sector might not perform as well as 2008,' said Mr Nicholas Mak, director of consultancy and research at Knight Frank.

'Nevertheless, the mid-term outlook is still positive due to the many new offerings in the tourism and Meetings, Incentives, Conventions and Exhibitions (Mice) market, which resulted in the relatively high hold calls.'

Other sectors here, namely office, retail and industrial/distribution, each attracted hold recommendations from at least 50 per cent of those surveyed.

This was up on last year, when the hold recommendations varied from 29 per cent in the office sector to 48 per cent in the industrial/distribution sector.

The strongest buy recommendations came from the industrial/distribution sector, with 34.8 per cent of respondents urging investors to plough in more cash.

Mr Colin Tan, director of research and consultancy at Chesterton Suntec International, said: 'The industrial sector is pretty diverse. Pockets of industries are doing well. This will help cushion the decline for the industrial sector.'

But there was a strong recommendation to steer clear of the residential rental sector, with only 11.6 per cent of respondents suggesting that now is the time to buy.

'There are many owners whose units are completing in the coming 12 months. As supply outstrips demand, there will be intense competition, which will drive rents down,' Mr Tan said.

The report also stated that the moment of truth has yet to arrive in the Asia-Pacific, indicating more gloom to come.

'The biggest threat to Singapore, other than the squeeze on credit, is the seemingly generous pipeline of development projects which may be completed during a period of sagging interest from foreign investors,' said Mr David Sandison, tax partner of PwC.

'Apart from this, local players in retail and office space are also seeking to cut costs by downsizing and relocating to more affordable parts of the island.

'Acceleration of government infrastructure projects and other measures aimed at buoying the economy should, however, be sufficient to stabilise the market.'

There was one bright spot in the report: Singapore maintained its second position from last year among 20 Asia-

Pacific cities for investment prospects. Tokyo was first.

Best Asia-Pac Property Bets

Source : The Business Times, December 6, 2008

TOKYO, Singapore and Hong Kong have emerged tops in the Asia-Pacific in a recent ranking of cities with the best property investment prospects for 2009.

They were placed first, second and third respectively as investors shifted their attention from emerging cities to mature markets, the survey by America's Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC) showed. Shanghai, which was ranked first in last year's survey, fell to fifth place this time around. Beijing fell from sixth to 12th place and Ho Chi Minh City from eighth to 13th.

Survey respondents said 2009 is the time to be 'picky about markets and partners', ULI and PwC said in the report, which was released here yesterday.

In recent years, many investors who had been elbowed out of deals in major Asian cities by core funds or highly leveraged private equity players sought refuge in secondary locations or products in an effort to find value. In today's environment, however, investors are again focusing on prime assets in major locations.

At the same time, projects in secondary markets or even in less well-positioned prime areas are more likely to run into problems, especially as slowing growth lowers demand for commercial properties.

Respondents were also asked to rate cities according to their riskiness. Tokyo, Singapore and Sydney were the three markets seen as least risky.

But Singapore was ranked seventh for development prospects and has to reconcile itself to slower growth and less demand, the report said. Bangalore, Ho Chi Minh City and Mumbai were ranked the top three cities for development prospects.

In Singapore, the strongest buy and hold recommendations were for the hotel sector - 65 per cent of respondents advised holding, 24 per cent recommended buying and only 9 per cent suggested selling. The residential rental sector was also a strong 'hold' (65 per cent). But 23 per cent recommended selling and only 11 per cent advised buying.

Singapore's office sector was rated a 'hold' by 54 per cent of respondents, while 23 per cent advised buying and 21 per cent recommended selling. For the industrial/distribution property sector, 52 per cent of respondents gave 'hold' recommendations, 34 per cent advised buying and 13 per cent said 'sell'.

The survey, based on 180 respondents ranging from global investors, property developers and brokers, looked at the investment and development prospects of 20 metropolitan markets in the Asia-Pacific region.

'Asia shares the same liquidity crisis that the rest of the world is facing,' said Stephen Blank, ULI's senior resident fellow for finance. 'Financial institutions - whether international or national, regional or local - are reluctant to extend credit as deleveraging reduces balance sheet lending capacity.'

And for Singapore, besides the credit squeeze, another problem is the seemingly generous pipeline of development projects which may be completed during a period of sagging interest from foreign business investors, said PwC tax partner David Sandison.

S'pore May Face 'Worst Quarter' In Early 2009

Source : The Straits Times, Dec 6, 2008

First quarter economic output expected to shrink by 7% to 8%

SINGAPORE could face its worst quarter of economic contraction early next year in year-on-year terms, an economist has warned.

Dr Chua Hak Bin, head of equity research at financial giant Citigroup, said yesterday that next year's first-quarter economic output could shrink by 7 per cent to 8 per cent compared with the first quarter this year.

He was speaking at the Singapore Press Club's seminar on the financial crisis held at Singapore Press Holdings' News Centre in Toa Payoh North.

'The worst quarter of contraction we have faced has been minus 6.5 per cent during the tech bust. But we are likely to see minus 7 to 8 per cent in the first quarter next year. This would be the single worst contraction ever,' he said.

Dr Chua was using year-on-year figures; Singapore has suffered worse quarter-on-quarter contractions.

He also predicted that Singapore could suffer five straight quarters of contraction, again in year-on-year terms. The Republic has never had more than four consecutive negative quarters and suffered three during the Asian financial crisis.

The economy here shrank by 0.6 per cent in the third quarter. Dr Chua said five quarters - that is another four quarters including the current quarter - is his worst-case scenario and would be caused by further weakness in the regional economies such as Malaysia and Indonesia as the crisis moves closer to home.

'It's not too hard to imagine our neighbourhood also falling into a recession, which also questions whether Singapore can hold up,' he said.

For those countries, oil constitutes the bulk of their trade, but with plunging oil prices - it has now fallen below US$44 a barrel - as well as commodity prices in general, the risks to those economies have escalated, Dr Chua said.

Global demand for exports such as Singapore's has taken a beating, and the Republic's exchange rate has not weakened dramatically. Therefore, it is hard to see Singapore exporting its way out of recession, he said.

But he said the Singapore dollar is likely to see further weakening to $1.60 to $1.65 against the US dollar in the next six months. It is now trading at $1.52.

However, there is some light at the end of the tunnel. Debt levels among Singaporeans are not high, he said, and the Republic, as a net importer, will find some relief from lower oil prices.

The country is also in a better position to use fiscal policy to help the economy. He said some $3 billion to $4 billion could be used in the upcoming Budget to support a substantial cut in both corporate and personal income tax rates.

The Government may also restart $4.7 billion worth of deferred construction projects that will create jobs and stimulate the economy, he added.

Mr Manu Bhaskaran, head of economic research at the Centennial Group, who also spoke at the seminar, echoed similar sentiments when he predicted that the global economy would get a lot worse before things got better.

He said that there would be a lot more corporate bankruptcies with iconic names going down and also more bad news coming out of China as it faced problems of its own financial system as well as weakness in underlying demand.

'There will be a much worse downturn than what many have forecast. The next six months are going to be particularly painful. By the end of next year, we could see many economies with bad deflation,' he said.

He predicted a recovery in late 2010 and said Asia will do better post-crisis than the rest of the world.


WORST IS YET TO COME

'The worst quarter of contraction we have faced has been minus 6.5 per cent during the tech bust. But we are likely to see minus 7 to 8 per cent in the first quarter next year. This would be the single worst contraction ever.'

Dr Chua Hak Bin, head of equity research at financial giant Citigroup

PM Does Not Eexpect Global Depression

Source : The Straits Times, Dec 6, 2008

Instead, he sees a long downturn, then years of slow growth

PRIME Minister Lee Hsien Loong does not foresee a global depression despite the current financial storm sweeping the world.

'I think that global depression is not on the cards. Governments have learnt the lesson of the 1930s and they will not repeat the same mistakes,' he said.

'So this is not the end of the world.'

Still, it could be a long downturn followed by several years of slow growth, he said, during an hour-long forum with members of the Foreign Correspondents' Association.

'The recession, to the best of the experts' judgment, may last a year, maybe if we're lucky, three-quarters (of a year),' he noted.

'But the recovery...is likely to be weaker than from previous recessions and we must be prepared for several years of slow growth.'

Mr Lee, however, noted that experts had been wrong many times before and they could be wrong again.

In a speech before the question- and-answer session, he noted that events had turned out worse than expected.

'Governments are improvising, making policy on the fly, venturing into uncharted territory, throwing every possible measure into the mix to try and restore confidence, restore stability, maintain employment and get growth going again,' he said.

Such swift action by countries such as the United States and China to counter the recession could prevent the world from sliding into a depression.

China's 4 trillion yuan (S$886 billion) stimulus package is 'a plus for the rest of the world', he said, but its impact is also marginal.

In the US, President-elect Barack Obama has assembled the 'strongest possible economic dream team'.

'But even with the best team and the best policies, it's not possible to turn things round overnight,' he said.

That is because it takes time to change habits. The Americans have to save more, consume less, and invest more in infrastructure, while Asian countries have to continue to save but also consume more.

'It will be some time before the world goes back to sustained growth again.'

Meanwhile, Singapore, which has suffered recession in the second and third quarters of this year, is taking steps to help workers and businesses cope, with a training programme and easier access to loans.

These measures precede the Budget next month. 'The most important thing we should try to do is to keep our businesses afloat and keep our people in jobs,' he said.

Lower-income families can look forward to aid in the Budget, Mr Lee added.

Economist Choy Keen Meng from Nanyang Technological University agreed with Mr Lee, saying that a long-lasting depression can be averted as policymakers worldwide produce a coordinated response and the right fiscal policies.

He said Singapore needed a 'substantial stimulus' Budget package, with cash handouts and rebates to encourage people to spend.

Singapore Faces Its Longest Recession: Analysts

Source : The Business Times, December 6, 2008

THE current recession here will last till at least the middle of 2009, making it Singapore's longest recession ever, according to Chua Hak Bin, Head of Equity Research, Citigroup. Speaking at a forum organised by the Singapore Press Club yesterday, he added however that there could be a few silver linings for Singapore.

At the same forum, Manu Bhaskaran, CEO of economic consulting and advisory firm Centennial Asia Advisors, painted a gloomy outlook for the economy, noting that trade financing has been badly affected, with shipping rates falling over 90 per cent from their peak. This would have a significant impact on Singapore's trade-dependent economy, he noted. Monetary and fiscal easing by governments around the world, while appropriate, would take around 12 months to start having positive effects, he said. 'But we need more demand right now,' he added.

In the local context, Mr Bhaskaran pointed out that banks are being extremely cautious about approving loans, and thus foreign investors - even if they are interested in coming into Singapore - might have problems getting the funding they need for projects here. Many large projects have already been postponed, and more are likely to suffer the same fate, which would put further downward pressure on growth. He added that the IMF's forecast of 2 per cent growth for Singapore next year was 'highly optimistic'.

Mr Chua pointed out that up to 60 per cent of the world - China and India being the exceptions - is now in recession, which points to the slowest global growth since the global recession of 1981. He pointed out that in the US, asset values are still dropping, with housing prices set to fall about 33 per cent from their peak before bottoming out. He estimated this would happen by around the end of 2009.

With the sharp cutbacks in spending by Americans as well as Europeans, Asia would inevitably be affected. There would also be downward pressure on some Asian currencies, including the Singapore dollar, he said, which could go to 1.60-1.65 to the US dollar next year.

However, not all is gloomy for the Singapore economy, according to Mr Chua. The dramatic fall in the price of oil - from a high of over US$147 a barrel in July to less than US$50 at present - has benefited Singapore, which is a net importer of oil. Cheaper oil has led, for instance, to lower electricity prices, a trend which Mr Chua projected would continue next year.

Furthermore, Singapore is in a much better fiscal position than many countries to respond to the crisis, he felt.

Mr Bhaskaran called for greater global co-ordination in dealing with the crisis. Asian countries also need to coordinate more, he said, adding that Asean is the best platform for this. 'That is why China, Japan and Korea come to Asean, because they cannot do it themselves,' he pointed out.

Mr Chua and Mr Bhaskaran were guest speakers at the forum on 'The Global Financial Crisis: How Will It Play Out?' held at the SPH auditorium. The forum was moderated by BT's Associate Editor Vikram Khanna.