Sunway keen on more projects in Singapore

Sunway keen on more projects in Singapore

 

Malaysian firm eyes more HDB design-and-build developments

 

By Tan Hui Yee

 

THE recently launched condominium-like public housing project in Boon Keng was a first in many respects, wowing home seekers with city views from extended balconies at new benchmark prices.

 

What is less well-known, however, is the fact that it also marks the first time a foreign company is developing public housing in Singapore.

 

Sunway Concrete Products, a unit of Malaysian-listed Sunway Holdings, owns a 30 per cent stake in City View @ Boon Keng, the second development to be launched under HDB’s Design, Build and Sell Scheme (DBSS).

 

The rest is owned by home-grown developer Hoi Hup Realty – which is owned by Straits Construction – and a Straits Construction-linked investment firm, Oriental Worldwide Investments.

 

Sunway Holdings is one of three listed companies under Malaysia’s giant Sunway Group, whose activities range from construction to property development to quarrying and entertainment.

 

Often, it is confused with Sunway City – its more illustrious, and also Malaysian- listed, sister company – which boasts among its projects the popular Sunway Lagoon Resort and landed homes in the exclusive Kuala Lumpur enclave Kiara Hills.

 

Sunway Holdings has completed the development of a 49ha township in Shah Alam in Selangor state, and is now working on 113ha in Rawang, also in Selangor.

 

The group managing director of Sunway Group, Datuk Tan Kia Loke, told The Straits Times recently that the group aims to make inroads into the Singapore property market through Sunway Concrete Products, which has supplied pre-cast concrete and other building materials to Singapore’s market for a decade.

 

Being new in Singapore, it decided to play safe and team up with Hoi Hup for the DBSS project, which gives private developers a free rein over the design, building and pricing of the homes they build – but within public housing guidelines.

 

Datuk Tan said: ‘Being a new player in properties in Singapore, we do believe in planning our growth in a calculated way…Obviously, the best thing to do is to learn from our big brother.’

 

The caution has paid off – at 3pm yesterday, the project received almost 2,500 applications for its 714 units.

 

Although Sunway Holdings’ expertise lies in landed houses, developing such homes may not be on its immediate horizon because land is relatively more expensive to acquire in Singapore.

 

Still, said Datuk Tan, the firm would not hesitate to look for joint venture partners if it chances on ‘very very prime land’ where it can showcase its strength.

 

Sunway, he said, was eyeing several government land sale sites for further development.

 

It wants more of the DBSS action. A total of 2,500 other such homes are being planned for Ang Mo Kio, Bishan, Toa Payoh, Simei and Bedok in the coming months. The tender for a 1.5ha Bishan plot will close on Feb 19.

 

Asked why Sunway was keen on the Singapore market, Datuk Tan said: ‘Singapore being a small island, the value of property assets over time can only go up.’

 

He acknowledged, however, that Sunway still had some way to go in establishing its reputation in the Republic.

 

‘Most Singaporeans, when you talk about Sunway, relate it to Sunway Lagoon. And I think we are conscious of that, and are making a continuous effort to really promote ourselves,’ he said.

 

Source: Straits Times

Last Sentosa Cove condo plot sold for $1.1b

Last Sentosa Cove condo plot sold for $1.1b

 

By Joyce Teo

 

THE last condominium plot in Sentosa Cove has been awarded to Ho Bee Investment and Malaysia-listed IOI Properties for a whopping $1.097 billion.

 

They put in a land price of $1,822 per sq ft per plot ratio (psf ppr) – slightly above the previous benchmark of $1,799.78 psf.

 

The bid, at just 14 per cent above the reserve, came in below earlier market expectations as the site, with a gross floor area of 602,360 sq ft, is said to be iconic.

 

Called The Pinnacle Collection, it can accommodate a 357-unit condo of up to 20 storeys, which would make it the tallest and largest condo in the enclave.

 

In September – when the 99-year leasehold site was launched for sale – property analysts projected bids of about $2,000 psf. But market sentiment had weakened by the time the tender closed on December 12.

 

Price was not the only factor at play though as the award was also based on the design concept.

 

Said CBRE Research executive director Li Hiaw Ho: ‘The breakeven cost is estimated at $2,500 psf, which suggests a future selling price of around $3,000 psf.’ The latest launch in Sentosa Cove, The Marina Collection, was priced at $2,700 psf to $3,000 psf.

 

Ho Bee and IOI have set up a special-purpose company for the project, with Ho Bee holding 35 per cent and IOI the remainder. The project is IOI’s third foray into Singapore’s property market and Ho Bee’s eighth in the cove.

 

‘If the sub-prime problem blows over, as it should, they would have landed a good deal,’ said Mr Ku Swee Yong from Savills Singapore.

 

With this sale, there are just three unsold bungalow plots left at Sentosa Cove.

 

Source: Straits Times

Foreign funds break inflation, interest rate cycle in S’pore

Foreign funds break inflation, interest rate cycle in S’pore

 

FOREIGN capital inflows to Singapore are disrupting a self-adjusting relationship between the rising prices of assets such as homes, and borrowing costs, economists say.

 

Typically, rising asset prices are curtailed by an accompanying rise in interest rates.

 

As investors borrow more to pay for more expensive homes, for instance, that soaks up available cash in the system, so borrowing costs rise.

 

United Overseas Bank (UOB) economists said yesterday that overseas investors in Singapore are helping to drive up property and stock prices. But as they bring in funds from abroad, they are effectively adding to the already ample liquidity in the Republic, keeping rates low.

 

‘Because of this, there are some people in the market who believe that the central bank should target interest rates instead of the foreign exchange rate as the domestic economy rises in importance,’ said UOB treasury research head Jimmy Koh. ‘But we feel that, as it is a small, open economy that is still dependent on exports, Singapore should stay with its current choice of monetary policy.’

 

This self-correcting mechanism has been in place since 2000, as the benchmark interest rate has generally tracked the private residential price index, said Mr Koh. But the trend has broken down in the past 18 months as housing prices surged while interest rates fell.

 

While this might suggest that the Monetary Authority of Singapore could do better by controlling interest rates instead of the local currency, Mr Koh noted that Singapore is still an export-based economy. Apart from the sizeable manufacturing sector, the services sector is also export-oriented, he said.

 

‘Interest rates are not helpful in stimulating economic growth if much of this is determined by external demand,’ said Mr Koh.

 

For the year ahead, foreign funds are expected to continue to be a key factor in the local economy, said Mr Koh. The credit crunch might curtail global liquidity, but this will be countered partly by expected United States rate cuts.

 

As well, global investors looking for places to park their money could pick developing economies, which seem to be the bright spot in a year when rich nations are expected to languish.

 

‘But if the US sinks into a recession, investors may become too risk-averse to put their money in anything apart from US Treasuries,’ said Mr Koh.

 

BRYAN LEE

 

Source: Straits Times

Mountbatten Road office site draws top bid of $15m

Mountbatten Road office site draws top bid of $15m

 

THREE bids were lodged yesterday for a transitional office site in Mountbatten Road released to ease the current tight supply situation in the office market.

 

The modest result was still a better showing than the single bid placed for a transitional office site put up for tender in Tampines recently.

 

Mezzo Properties, a small real estate development and construction firm controlled by directors Lim Kim Hong and Lim Huixing, topped the Mountbatten Road tender with a bid of $14.89 million or $69.2 per sq ft (psf) of gross floor area. Superbowl Land came just behind with $14.8 million or $68.7 psf, with Soilbuild Group Holdings well back at $10.93 million or $50.77 psf.

 

Mezzo’s bid is below the Tampines bid of $80.65 psf.

 

Knight Frank director of research and consultancy Nicholas Mak said the price was lower mainly because the site does not boast facilities nearby while Tampines is a regional business centre.

 

Cushman & Wakefield managing director Donald Han said the lower price reflects the short window of six to 12 months in which to get the building rented before a large office supply comes onstream in 2010.

 

The site has a 15-year lease and a maximum permissible gross floor area of 20,000 sq m or 215,278 sq ft.

 

The Mezzo directors also participate in the property market via other firms. Last October, they topped a public tender for an industrial site in Sin Ming Lane with a bid of $68.9 million.

 

Source: Straits Times

Plunge in key interest rate may lead to cheaper home loans

Plunge in key interest rate may lead to cheaper home loans

 

Interbank lending rate drops to lowest in three years and is expected to fall further by mid-year

 

By Alvin Foo

 

HOMEBUYERS could be in for some cheer in the coming months after a recent plunge in a crucial interest rate that indirectly determines how banks set mortgages.

 

The three-month Singapore interbank offered rate (Sibor), as it is called, has hit its lowest level since February 2005 and is expected to sink further by the middle of the year.

 

It is significant as the Sibor is the rate at which banks lend cash to each other and thus influences what consumers pay on loans such as mortgages.

 

It hit 1.7625 per cent yesterday, down about 0.8 percentage point in a fortnight, and the lowest since the 1.75 per cent level nearly three years ago.

 

With banks getting cheaper money, it is expected that homebuyers could benefit in turn from cheaper mortgages, although there is usually a lag between Sibor and consumer loan rate movements.

 

Citigroup economist Chua Hak Bin said: ‘Mortgage rates could head lower in two months.’

 

But a Sibor fall is bad news for savers as fixed deposit rates could drop too.

 

Economists say the Sibor’s sharp dip is due to recent interest rate cuts in the United States – with more likely to come later this month, huge capital inflows into Singapore and poor stock market sentiment, which have prompted investors to leave more money in the bank.

 

CIMB-GK economist Song Seng Wun said: ‘The Sibor’s plunge corresponds with the recent sharp decline in US interest rates and the expectation of more cuts.

 

‘People have started 2008 with plenty of uncertainty, and are holding on to more cash and being more risk-averse.’

 

OCBC economist Selena Ling added: ‘It’s due to foreign funds coming in, seeking refuge from the weakening US dollar, and the recent plunges in the equity market.’

 

The US Federal Reserve has cut key interest rates from 5.25 per cent to 4.25 per cent in recent months.

 

Market experts predict a further 50-basis point cut later this month as part of moves to avert a possible recession.

 

Economists expect the Sibor to remain soft, due to the likelihood of further rate cuts and the cautious equity market sentiment.

 

Dr Chua said: ‘We expect the Sibor to fall by a further 30 to 50 basis points by mid-year, especially if the Fed cuts rates by 75 basis points by the end of the second quarter.’

 

While home owners welcome a Sibor fall, banks dread it.

 

It affects their net interest margins because most of their Singdollar corporate and small business loans are linked to the Sibor.

 

A Deutsche Bank analyst report noted: ‘This plunge is of concern, as we estimate that a 25 basis point fall in the Sibor will eventually lead to a fall in earnings per share of 4 per cent for DBS Group Holdings, 2 per cent for United Overseas Bank and 1 per cent for OCBC Bank.’

 

And savers will get belted too. Low interest rates combined with the high inflation now building up in Singapore spell ‘negative real interest rates’ – the interest earned on savings will not be able to offset the rise in prices.

 

Mr Song said: ‘It’s a sign for people not to keep money in the bank, as savers lose out.

 

‘It’s a good period to borrow, as there is more incentive for people to take money out rather than put it in.’

 

Thus, Dr Chua advocates that ‘some diversification away might be prudent’.

 

He suggested alternative instruments such as real estate investment trusts, utility stocks and foreign currency fixed deposits, which offer higher rates, to hedge against inflation risk

 

Source: Straits Times

9 tenants, developer in legal dispute over Square2 mall

9 tenants, developer in legal dispute over Square2 mall

 

Retailers sue over empty pledges; Novena Point counter-sues for unpaid rent

 

By Selina Lum

 

SLUGGISH business in the shopping mall sitting above the Novena MRT station has led to a legal tussle between a group of disgruntled tenants and the developer.

 

The nine tenants of Square2 have sued the developer for misrepresentation, claiming that they were made several promises, such as the scale of advertising and promotion campaigns, which have remained unfulfilled.

 

Novena Point, which is under the Far East Organization umbrella, has denied making misrepresentations and is counter-suing the tenants for rent and other charges.

 

The mall, conceptualised as a Korean-themed one, has 150,000 sq ft of retail space on five levels. It has more than 200 retail tenants.

 

The nine tenants, including a gift shop, a hair salon, a fashion retailer and an eatery, opened for business in the first two months of last year.

 

Depending on shop size, they pay rents ranging from about $1,900 to over $12,000 a month.

 

Last month, the nine, represented by lawyer Leonard Loo, filed a lawsuit in the Subordinate Courts against Novena Point.

 

The claim did not specify the quantum of damages, as the plaintiffs are asking the court to assess the amount they deserve if they win the case.

 

Alternatively, the plaintiffs are asking that their tenancy agreements be rescinded and for the rents they have paid to be refunded. In their statement of claim, they say they took up their shop spaces based on oral representations made to them by the developer’s representatives and its brochures.

 

The promises, the tenants claim, include:

 

·  That there would be specific shopping zones such as a ‘digital world’ selling electronic gadgets in the basement and Korean-themed shops on Level 3, where shop staff would wear traditional Korean costumes;

 

·  That Korean artistes like K-pop star Rain would be brought in monthly to promote the mall;

 

·  That $6 million would be spent on advertising and promotion.

 

But the defendant failed to deliver on these, the tenants said.

 

The shops have not been zoned, but are scattered, and no ‘digital world’ has been created. They added that Korean artistes did not grace the mall every month, and that the defendant had not spent $6 million on promotions.

 

Some tenants claimed they have been locked out of their shops and that their rent cheques have been rejected without reason.

 

The defendant, represented by Allen & Gledhill, is denying these claims. In its defence filed last week, it said that while it had approached electronics retailers to take up shop units, it never set out to pitch Square2 as an IT mall like Sim Lim Square or Funan.

 

It added that while Level 3 has a Korean theme, it never said operators would wear Korean costumes. Korean artistes have come to the mall, but it was never promised that such appearances would happen every month.

 

As for Rain, it said that all that was said was that it would try to bring him in.

 

The developer also claimed to have put in considerable effort into promoting the mall, but never committed to spending $6 million on this. It has so far spent $2.9 million.

 

It asserted that six of the tenants were in rental arrears despite reminders, so their leases were terminated. Their cheques were returned because partial payments were not accepted.

 

It is contending that the tenants each owe between $1,800 and $51,000 in rent.

 

Source: Straits Times

Eng Wah properties put up for sale

Eng Wah properties put up for sale

 

Portfolio worth around $190m; bulk of proceeds may go to shareholders

 

By KALPANA RASHIWALA

 

(SINGAPORE) Eng Wah Organisation, the subject of a reverse takeover, has put a portfolio of five cinema, retail and office properties up for sale, which sources suggest could be worth about $190 million.

 

The five are Toa Payoh Entertainment Centre and Jubilee Theatre at Ang Mo Kio – both of which are shopping/entertainment complexes anchored by Eng Wah cineplexes – as well as the former Mandarin Theatre in Kallang Bahru and Empress Theatre in Clementi (which have been shut down) and the 16th floor of Orchard Towers.

 

The space in Orchard Towers comprises offices spread across three units – one occupied by Eng Wah and the other two leased out. There are plans for a collective sale of Orchard Towers, which stands on a freehold site in the prime Claymore area.

 

The other four properties are on sites with remaining leases ranging from 61 to 70 years.

 

Of the four cinema/retail assets, the ones in Ang Mo Kio and Toa Payoh (both close to MRT stations) can be refurbished and repositioned for a higher yield, while the other two properties at Clementi and Kallang Bahru, which are currently vacant, are candidates for redevelopment, said Jones Lang LaSalle’s regional director and head of investments Lui Seng Fatt. JLL is marketing the portfolio through an expressions of interest exercise that closes on Feb 14.

 

‘Eng Wah is open to selling the entire portfolio of five properties or any one or more of these properties individually,’ he added.

 

Eng Wah is prepared to lease back the cinema space in Toa Payoh and at Jubilee Theatre in Ang Mo Kio if the buyer offers it at a mutually agreeable rental rate. However, leaseback is not a condition for the sale, Mr Lui added.

 

The cinema-cum-entertainment group is in the midst of a reverse takeover by Japanese pharmaceutical firm Transcutaneous Technologies (TTI).

 

Eng Wah has said that upon completion of the deal, the group’s operations would be discontinued and substantially all its assets would be disposed of.

 

An earlier BT commentary pointed out that except for $10 million which will go to TTI, Eng Wah will distribute all proceeds from the sale of assets, together with cash in hand, to its shareholders.

 

At the time that the RTO was announced in May last year, Eng Wah managing director Goh Min Yen said the group was studying various options, including selling the entertainment businesses to the Goh family.

 

On the stock market yesterday, Eng Wah closed unchanged at 68.5 cents. It stood at 40.5 cents just before it made its RTO plans public.

 

Source: Business Times

Bad news yet to reach the economists’ ivory towers

Bad news yet to reach the economists’ ivory towers

 

By ANTHONY ROWLEY

TOKYO CORRESPONDENT

 

READING recent reports by the World Bank and the Organisation for Economic Co-operation and Development (OECD) on prospects for the global economy, one is inclined to wonder whether economists in these two institutions inhabit not so much an ivory tower as a parallel universe. Theirs is a universe where the laws of economics operate quite differently from the way they do in ours, and where logic can be stood on its head with impunity.

 

In this Panglossian other world, economists do not need to base a forecast on likely outcomes and then explain their reasoning; they simply choose a desired outcome and then shuffle off into footnotes any awkward facts that intrude upon the illogic of this approach. The ‘best case’ becomes the central scenario while the most likely outcome becomes the worst-case scenario.

 

The latest example came this week in the shape of the World Bank’s annual Global Economic Prospects report. While stock markets were wallowing in New Year gloom, the dollar plunging, gold and oil prices soaring and recession watchers groaning, along came the Bank’s economists with happy tidings from the other world, to the effect that all is well and will stay that way. Yes, they said, global growth did ease back a fraction last year (to 3.6 per cent from 3.9 per cent in 2006) and, yes, it might ease slightly again this year to 3.3 per cent. But before we know where we are, the good times should be rolling again and global growth will hit 3.6 per cent in 2009.

 

As for Asia, the party goes on and the likely economic slowdown here will be so slight as to be almost unnoticeable.

 

The latest report is similar in tone to the East Asia & Pacific Update of last November, where the World Bank actually upgraded its economic forecasts for Asia while remaining steadfastly bullish about the global economy.

 

We might expect an institution to be consistent, even in misplaced optimism, but when the OECD too became infected with euphoria about global economic prospects in its December Economic Outlook, that was alarming.

 

Life is good, it seems, in the parallel universe of Washington and Paris-based economists, where economic systems are very forgiving of the follies of mankind. But what about life here in the real world? Let us take a look at events of the past few days to see whether things here on earth bear more than a passing resemblance to the idealised situation imagined at the World Bank and the OECD.

 

According to the Energy Information Administration, a US government forecasting agency, the US economy contracted at a 0.1 per cent annual rate in the last three months of 2007 and will grow at an annual rate of just 0.3 per cent during the first quarter of this year. This is not (yet) recession, but it makes the 2 per cent growth forecast for the US economy in 2008 by the OECD sound more than a little over-ambitious.

 

The Japanese economy, meanwhile, is showing an increasing tendency towards recession while Europe’s prospects are hardly bright either.

 

No matter, say the voices from the parallel universe, the economies of Asia and other economically emerging regions of the world have largely decoupled from those of the G-3 (US, Japan and the EU) and should be able to act as new locomotives, even in the unlikely (they claim) event of slowdown among the most advanced economies. Again, this does not correspond to what we here on earth perceive as economic reality.

 

At the Asian Development Bank, where views seem more grounded in reality than is the case elsewhere, chief economist Ifzal Ali replies to the decoupling argument as follows: ‘That is absolute nonsense. After netting out for all the exports that go to each other and if you focus on final demand, 79 per cent of Asian exports end up in the G-3 countries. So if (one of) the G-3 sneeze, Asia will catch a cold, and if they sneeze together Asia is likely to catch pneumonia.’

 

With feet planted firmly on this earth, Bank of Japan governor Toshihiko Fukui observed too this week that globalisation means shocks that hit one country immediately spill over into other financial markets, which is exactly what we have been witnessing of late. There are many channels through which such shocks can be transmitted other than the trade one, which seems to receive most attention.

 

If the US is likened to ancient Rome, trade routes may no longer all lead back to the imperial city and colonies may be trading among themselves more actively than they once did. But the dollar is still the coin of the realm and as it becomes increasingly debased, so confidence in trading between the far-flung outposts of empire is eroded. The old order changes but a new one has yet to take its place. This news has yet to reach the ivory towers.

 

Source: Business Times

Ho Bee-IOI tie-up wins Sentosa’s Pinnacle site

Ho Bee-IOI tie-up wins Sentosa’s Pinnacle site

 

Bid of $1.1b seen as relatively low as US sub-prime crisis dampens market

 

By ARTHUR SIM

 

IT was the last chance for a bite of the sweet Sentosa Cove pie, but only three developers tendered for The Pinnacle Collection site with Ho Bee Investment and Malaysia’s IOI Properties partnering to put in the winning bid of $1.1 billion.

 

In a joint statement released yesterday, the joint venture partners said its bid for the largest and last condominium development site works out to $1,822 per sq ft (psf) per plot ratio (ppr).

 

In July 2007, SC Global won the tender for The Beachfront Collection condominium site with a bid that works out to $1,800 psf ppr. Not only were five bids received, but SC Global’s winning bid also set a new benchmark price for Sentosa Cove, topping the highest bid of $1,361 psf ppr for The Seaview Collection tender held in March 2007 – also won by Ho Bee/IOI – by over 30 per cent.

 

The Pinnacle Collection was, however, awarded based on price and design concept.

 

Ho Bee has a 35 per cent stake in the project and news of the win, with what appears to be a relatively low bid, was greeted by investors positively yesterday. Its share price rose 3 per cent to end the trading day four cents higher at $1.39.

 

Ho Bee Investment executive director Ong Chong Hua said: ‘The US sub-prime crisis has in our view helped us to secure what we believe to be the best site, not only in Sentosa but also in Singapore, at a price level which would otherwise be much higher for such an iconic site under normal circumstances’.

 

Factoring in higher construction cost for a luxury development, Ho Bee expects the breakeven cost to be about $2,600 psf.

 

The 231,676 sq ft site has a 2.6 plot ratio and a total permissible gross floor area of about 602,360 sq ft. Mr Ong said it will build 280 units comprising a mix of three- and four-bedroom units as well as penthouses.

 

The development is targeted for launch in the first quarter of 2009.

 

Upbeat about the high-end market, Mr Ong said that while the sub-prime crisis has created some market uncertainty, the Singapore real estate market is fundamentally ‘very healthy’, backed by solid demand and robust economic growth.

 

‘We think the sub-prime crisis provided a very healthy consolidation to the market. It is a good reality check on the ‘irrational exuberance’ which we had experienced especially in mid-2007,’ he added.

 

He also believes the high-end market will consolidate in the next three to six months after which he expects a steady growth of 5-10 per cent.

 

This will be Ho Bee’s eighth project at Sentosa Cove and IOI Properties’ third foray into the Singapore property market.

 

On the tender price, CB Richard Ellis (Research) executive director Li Hiaw Ho noted that the winning bid was only 14 per cent above the reserve price of $1,600 psf ppr. ‘When the site was opened for tender in September 2007, market sentiment was more upbeat and it was widely expected that the winning bid would be in the region of $2,000 psf ppr,’ he added.

 

He noted that the latest launches in Sentosa Cove, the Turquoise and Marina Collections, were priced at an average of $2,600 psf and $2,700-$3,000 psf, respectively. He also expects The Pinnacle Collection to sell at around $3,000 psf.

 

Source: Business Times

Oil shock, recession top global risks in ’08: report

Oil shock, recession top global risks in ’08: report

 

(GENEVA) A sharp downturn in the global economy is the most likely and the most serious threat to the world in 2008, according to a report released yesterday by the World Economic Forum (WEF).

 

Fears of a US recession coupled with a sudden spike in oil prices replaced terrorism, pandemic disease outbreaks and short- term disasters resulting from climate change as the issues global business leaders are most worried about, said the Global Risks 2008 report.

 

The report, which is based on workshops involving corporate leaders, professors and risk analysts, also listed dwindling food supplies as a growing concern.

 

‘A recession in the United States cannot be excluded in the year ahead,’ the report said, adding that ‘economists are divided on whether domestic-led growth in Asian markets can drive the global economy.’

 

The report coincides with a World Bank study released yesterday that expressed concern about the faltering US housing market and its impact on global financial markets.

 

The WEF report said changes in the global financial system over the past years may have made it more susceptible to instability during periods of crisis.

 

‘The complexity and near infinite feedback loops of the modern financial system have exposed it to a small risk of very large systemic shocks,’ said the 54-page report, which was published by the Forum in collaboration with Marsh & McLennan Companies, Citigroup, Swiss Reinsurance, Zurich Financial and the Wharton School at the University of Pennsylvania.

 

Losses to banks in markets such as Germany and Britain as a result of the US sub-prime mortgage crisis showed how vulnerable the global financial system now is to sudden, unforeseen risks, the report said.

 

The world economy is also threatened by the high cost of oil, particularly if prices rise sharply as a result of political crises or natural disasters, it said.

 

‘Over the 10-year horizon of this report there are few reasons to believe that energy prices will fall significantly and there are several reasons to believe that energy prices may rise,’ the report said.

 

The third major risk – dwindling food supplies – has become an issue not just for developing nations but also for rich countries, the report said, citing steep price increases for staple foods over the past year.

 

‘There is considerable uncertainty as to whether food insecurity in 2007 is the result of short-term conditions . . . or whether a more fundamental change is taking place,’ the report said.

 

‘Policy-makers may have to return to thinking about food as a strategic asset,’ it said, adding that ‘the resilience of the world’s food system will be severely tested in the next few years’.

 

The report, released two weeks before the Forum’s annual gathering in the Swiss resort of Davos, also cited a slowing of economic growth in China to 6 per cent, the cost of chronic diseases in the developed world, and the uncertain political situation in the Middle East as major concerns for 2008. — AP

 

Source: Business Times