Speculators holding out for higher prices

Speculators holding out for higher prices

 

Subsale activity slows but transacted prices remain resilient

 

By ARTHUR SIM

 

(SINGAPORE) Property prices have been bolstered by speculators in the last year. But now that speculation is on the decline, could prices follow suit?

 

An analysis by Savills Singapore of properties subsold last year after being bought from developers in the same year has revealed that while subsale activity dropped significantly in the last quarter, subsale prices did not, suggesting that speculators are not ready to offload their investments yet.

 

The number of subsales fell by 66.7, 69.1 and 39.1 per cent in the high, mid and mass-market segments respectively in the fourth quarter of last year from a quarter earlier.

 

However, average gains made from subsales over the developers’ sale price remained relatively stable. They came to 34.2 per cent in the high-end segment in Q4, 14 percentage points higher than the full-year average gains. In the mid-tier segment, average gains fell marginally by 2.4 points to 21.1 per cent, while in the mass-market segment, they rose 1.6 points to 17.2 per cent.

 

Savills director (marketing and business development) Ku Swee Yong adds: ‘Speculators appear to be holding out for better prices.’

 

Interestingly, Savills’s analysis also shows that there have been several speculators that have subsold on very thin profit margins of 5 per cent or less, adding credence to market talk that some speculators may be looking to offload properties at bargain prices soon.

 

However, while Mr Ku believes that speculators that cannot manage the mortgage payments – especially after holding for a year or more on the deferred payment scheme – might be letting go at lower profits, he does not think they represent a majority.

 

By his estimation, there are about 6,000 residential units that will receive TOP (temporary occupation permit) this year. ‘While there may be some dumping from those who cannot afford to pay up at the point of TOP, we do not think that it will constitute more than one per cent of the 6,000 units,’ he adds.

 

The situation could change next year.

 

‘We expect around 10,000 units to receive TOP in 2009. Those who bought using the deferred payment scheme in the last couple of years might let go if they are really speculators and cannot afford to pay,’ says Mr Ku.

 

But he is optimistic that the low mortgage rates may mitigate the need to sell. ‘The buyers might go for rental yield instead.’

 

Subsales of major new launches in the high-end sector, which include developments such as Marina Bay Residences, Scotts Square and The Orchard Residences, fell to just four transactions in Q4, compared to 32 for the full year.

 

Two subsales were done at less than 10 per cent above the developer’s sale price.

 

The average gains from subsales over the developer’s sale price were highest in the high-end market, substantiating Mr Ku’s belief that this segment could prove more resilient if the global economic downturn is prolonged. ‘There is a large proportion of buyers in the high-end market that are so rich, they buy properties with cash.’

 

This segment is also largely supported by foreign buyers and Mr Ku says: ‘Foreigners are not speculators.’

 

Last year, the mid-tier segment saw 140 subsales of newly launched developments like Sky @ Eleven, The Rochester and One North Residences.

 

In Q4, one subsale was transacted at just 2.3 per cent above the developer’s sale price.

 

In the mass market, there were 49 subsales of newly launched projects such as The Parc Condominium, Casa Merah and Clementiwoods for the year.

 

In Q4, there were 14 subsale transactions. Three were done at less than 10 per cent above the developer’s sale price.

 

The number of Sky @ Eleven subsales – over 60 – was among the highest in 2007. In July and August, four units were subsold for over 50 per cent of the developer’s sale price.

 

But the days of huge capital gains could be over.

 

Mr Ku says that, based on data for January so far, subsale gains could trend downwards slightly. But he adds that there is no evidence that speculators will find themselves in negative territory yet.

 

Source: Business Times

Casinos, other large projects push up cost of loans: OCBC

Casinos, other large projects push up cost of loans: OCBC

 

SINGAPORE‘S two casinos and other large projects will add S$30 billion to loan demand this year, pushing up the cost of corporate loans in the city-state, said Oversea-Chinese Banking Corp on Wednesday.

 

Las Vegas Sands and Genting International have each borrowed about S$5 billion to build casinos, while developers will need billions to pay for residential sites purchased for redevelopment, OCBC’s head of group investment banking George Lee told Reuters.

 

‘The supply of Singapore dollars is going to get tighter while demand is exceptionally high… Credit spreads are going to rise and those used to borrowing at X must get used to borrowing at X plus something,’ said Mr Lee in an interview.

 

According to Monetary Authority of Singapore data, loans to businesses rose 27 per cent to S$130.5 billion in January from a year ago, spurred by a 46 per cent increase in building and construction loans to S$39.3 billion.

 

Other projects that require funding this year include an estimated S$2-2.5 billion to finance the purchase of electricity generator Tuas Power from government fund Temasek Holdings , and the refinancing of a loan to buy the building housing Singapore‘s biggest bank DBS Group .

 

Turning to neighbouring Malaysia, which companies are looking to for lower-cost borrowings, Mr Lee said firms planning to tap the corporate bond market will see this as viable only if they have projects in Malaysia.

 

For companies hoping to take the borrowings overseas, any savings would be offset by the sharp rise in the cost of swapping ringgit into dollars or other foreign currencies.

 

While the cost of borrowing in ringgit remains extremely attractive, the swap premium has widened from 20-30 basis points late last year to about 100 basis points now, he said.

 

Malaysia opened its ringgit bond market to foreign corporate issuers in October, coinciding with the outbreak of the global credit crisis that has raised the cost of dollar-denominated debt.

 

On Monday, Export-Import Bank of Korea (KEXIM) became the first foreign firm to take advantage of the new rules by selling a total of RM1 billion (S$437.8 million) in five- and 10-year bonds.

 

The deal, which KEXIM said shaved 20-30 basis points off its borrowing cost, was handled by OCBC along with Malaysia‘s RHB and CIMB.

 

OCBC, Singapore‘s third largest bank, is also in the process of selling up to RM2.5 billion in lower Tier 2 bonds to augment its capital base.

 

Mr Lee said it made sense for OCBC to borrow in ringgit as it had operations in Malaysia and did not intend to exchange the proceeds from the bond issue to Singapore dollars .

 

‘For those with natural ringgit assets without the need to swap, it still makes sense,’ he said. — Reuters

 

Source: Business Times

Rise and rise of the SGD

Rise and rise of the SGD

 

Local currency at its strongest against the US dollar since 1995

 

Friday • March 7, 2008

 

The Singapore dollar rose to its highest level against the US dollar since June 1995 on speculation that inflation would encourage the Monetary Authority of Singapore (MAS) to let the currency keep gaining.

 

The Singapore dollar was at its strongest in almost 13 years for a second day after a Government report last week showed consumer prices rose at their fastest since 1982.

 

MAS deputy chairman Lim Hng Kiang said last week the Government is seeking to maintain growth by allowing a stronger currency to lower import prices.

 

“Inflation continues to rise in Singapore and as a result, the market continues to focus on the MAS policy of gradual currency appreciation,” said Mr Callum Henderson, head of global currency strategy of Standard Chartered Bank in Singapore. “A combination of local and foreign flows are attracted by a very clear fundamental story of relative strong growth, high inflation and a need to damp down inflation.”

 

The Singapore dollar rose as high as $1.386 yesterday, its strongest since June 1995, from $1.3911 the previous day. The MAS aims to keep the Singapore dollar within a so-called policy band.

 

StanChart has raised its forecast for the Singapore dollar to $1.37 for the end of June, from $1.44 previously, Mr Henderson said.

 

“This reflects the view that the MAS will leave monetary policy unchanged at the April policy meeting,” the bank said in a note.

 

“Another factor favouring the gain of the Singapore dollar is it has generally been considered a local safe-haven in the Asia-Pacific,” said Mr Samarjit Shankar, director of global strategy at Boston‘s Bank of New York Mellon. Singapore is the only Asia-Pacific country that has been given the highest investment-grade rating by agencies. — Bloomberg

 

Source: TodayOnline

More landed-home owners installing lifts

More landed-home owners installing lifts

 

Many do so to help elderly family members with mobility problems get around the house

 

By Tay Yi Wen

 

OFFICES, shopping malls and high-rise apartments are not the only places with lifts zipping people up and down the different levels.

 

More Singaporeans in landed properties are coming round to the idea of installing them in their homes as well.

 

While they are generally those who are better-off, having a lift at home is not always about sloth or showing off: Many have at least one family member with mobility problems.

 

Take 52-year-old Mr Harold Tan, an air-cargo businessman. His four-storey house in the Braddell area has a carpeted lift servicing the four levels.

 

He already had the lift in mind when the house was being designed, primarily because his mother – now 82 and who goes over to stay once a month – has a knee problem.

 

‘Now, with a lift, she and her friends can come over and they can go to any floor they want. It is not a problem like before,’ he said.

 

The others in the house are his 40-year-old wife, their 20-year-old daughter and a maid.

 

He added: ‘Home lifts are going to become more common as people start to live longer.’

 

Those in the business of making lifts confirm the trend.

 

Otis Elevator and Hitachi Asia said they have noticed an increase in home lift installations in the past few years. And architectural firms like Interdesign Berakan started designing homes with lift shafts in 2006.

 

Mr Siew Yat Hung, a senior sales manager at Hitachi, said the company has seen a 50 per cent jump from 2006 in lifts installed in homes.

 

He put the trend down to the economy doing well and people getting older and needing help negotiating the stairs.

 

Often, they have a wheelchair-bound family member, and can afford the cost of this convenience.

 

Installing a lift costs less than people think, said Mr Siew.

 

‘It costs less to install a home elevator than to own a car – and many in Singapore own more than one car.’

 

Mr Tan, for example, spent $45,000 for his lift, which he reckoned was ‘not much’ when compared to the cost of the house. He also does not consider the yearly maintenance cost – $1,000 for four servicings – too much to pay.

 

Instead of moving to apartments, owners of landed properties can consider installing a lift when their weak, ageing knees start giving problems.

 

Mr Tan said his neighbour has already retrofitted his home with a lift shaft in anticipation of such a day.

 

Mr Peter Fong, a semi-retired oil and gas consultant, has also decided to install a lift so he can continue to enjoy his space as he ages.

 

His house in Bukit Timah is now being fitted with a $70,000 Otis lift, which he said will ‘help me keep track of my active grandchildren when they run up and down’.

 

Already, the three, aged from two to five, run him ragged whenever they visit, which is often.

 

Of course, the pragmatic Singaporean who installs a lift in his home looks far ahead as well.

 

Mr Tan said: ‘A home with a lift will be a draw for three-tier families if the house is ever put up for sale.’

 

While the lift is now a boon for his mother, he also plans to spend his own golden years in the house, without needing to worry about navigating those stairs.

 

Source: Straits Times

$40m Orchard Road facelift put off till next month

$40m Orchard Road facelift put off till next month

 

Talks between malls, tourism board drag on over impact of works on businesses

 

By Tessa Wong & Lim Wei Chean

 

THE great $40 million Orchard Road makeover has stalled because some mall owners are objecting to some aspects of the works.

 

The revamp of Singapore‘s premier shopping street was supposed to have begun in the middle of last month, after Chinese New Year, but will now not go ahead till next month at the earliest.

 

The Straits Times understands that the delay is the result of talks between the Singapore Tourism Board (STB) and Orchard Road businesses dragging on for longer than expected.

 

One sticking point appears to be in the details of the makeover, although most of the mall owners believe the revamp is overdue.

 

The makeover, announced last October, involves introducing new plants and flowers, as well as new street furniture and lighting along the thoroughfare, which will be divided into three sections themed along the lines of fruit, flower and forest.

 

Sections of the pedestrian walkways from Tanglin Mall to Le Meridien hotel will be repaved, and the right-most road lane will be closed to create a wider walkway in front of Ion Orchard, Wisma Atria, Ngee Ann City and the Meritus Mandarin hotel.

 

This one-lane closure is among the mall owners’ chief concerns.

 

A spokesman for a major shopping mall who did not want to be identified called the closure a ‘double whammy’ for the area, which already experiences frequent vehicular- and human-traffic jams.

 

‘There’s a bottleneck at the Paterson Road area because of massive work being done for Ion Orchard, and lots of congestion at Somerset too. The problem of pedestrian traffic will be compounded with the widening works,’ said the spokesman.

 

The owners of some other malls and hotels are also upset that they have not been given details such as when, where and for how long hoardings will be erected.

 

Ms Lau Chuen Wei, executive director of the Singapore Retailers Association, said these businesses are worried because not knowing these details, and also how high the hoardings will be, means they do not know how traffic into the area will be impeded – or how their businesses will be affected.

 

But at least two malls – Ngee Ann City and Ion Orchard – have been given details of the works.

 

Another concern is how the upgrading works will affect July’s Great Singapore Sale (GSS) and the Christmas shopping season.

 

Businesses have also been reported as saying that although the $40 million budget for the works is not small, the makeover will still fail to address major issues such as the lack of sheltered connectivity between buildings and down the entire strip.

 

When contacted by The Straits Times, the STB confirmed that works have been pushed back till next month, but added that they will still end on schedule, in April next year.

 

Mr Andrew Phua, its director for cluster development (tourism shopping and dining), said in a statement: ‘These plans have been communicated to Orchard Road stakeholders as part of the STB‘s ongoing dialogue and engagement with its industry partners.’

 

The statement also assured mall owners that the GSS and Christmas shopping season will go ahead, but made no mention of whether they will be disrupted by the works.

 

This is not the first time mall owners have disagreed with the STB over plans to add polish to the area.

 

One suggestion last year for a glass canopy running down the stretch of the road was immediately shot down by mall owners, who said it would require too much maintenance.

 

Source: Straits Times

Falling prey to herd mentality

Falling prey to herd mentality

 

By Robert J. Shiller

 

ONE great puzzle about the recent housing bubble is why even most experts didn’t recognise the bubble as it was forming.

 

Mr Alan Greenspan, a very serious student of the markets, didn’t see it, and, moreover, he didn’t see the stock market bubble of the 1990s either. In his 2007 autobiography, The Age Of Turbulence: Adventures In A New World, he talks at some length about his suspicions in the 1990s that there was irrational exuberance in the stock market. But in the end, he says, he just couldn’t figure it out: ‘I’d come to realise that we’d never be able to identify irrational exuberance with certainty, much less act on it, until after the fact.’

 

With the housing bubble, Mr Greenspan didn’t seem to have any doubt: ‘I would tell audiences that we were facing not a bubble but a froth – lots of small local bubbles that never grew to a scale that could threaten the health of the overall economy.’

 

The failure to recognise the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world.

 

If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.

 

Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble. In this connection, it is helpful to refer to an important bit of economic theory about herd behaviour.

 

Three economists, professors Sushil Bikhchandani, David Hirshleifer and Ivo Welch, in a classic 1992 article, defined what they call ‘information cascades’ that can lead people into serious error.

 

They found that these cascades can affect even perfectly rational people and cause bubble-like phenomena. Why? Ultimately, people sometimes need to rely on the judgment of others, and therein lies the problem. The theory provides a framework for understanding the real estate turbulence we are now observing.

 

Prof Bikhchandani and his co-authors present this example: Suppose that a group of individuals must make an important decision, based on useful but incomplete information. Each one of them has received some information relevant to the decision, but the information is incomplete and ‘noisy’ and does not always point to the right conclusion.

 

Let’s update the example to apply it to the recent bubble: The individuals in the group must each decide whether real estate is a terrific investment and whether to buy some property. Suppose that there is a 60 per cent probability that any one person’s information will lead to the right decision.

 

In other words, that person’s information is useful but not definitive – and not clear enough to make a firm judgment about something as momentous as a market bubble. Perhaps that is how Mr Greenspan assessed the probability that he could make an accurate judgment about the stock market bubble.

 

The theory helps explain why he – or anyone trying to verify the existence of a market bubble – may have squelched his own judgment.

 

The fundamental problem is that the information obtained by any individual – even one as well-placed as the chairman of the Federal Reserve – is bound to be incomplete.

 

If people could somehow hold a national town meeting and share their independent information, they would have the opportunity to see the full weight of the evidence. Any individual errors would be averaged out, and the participants would collectively reach the correct decision.

 

Of course, such a national town meeting is impossible. Each person makes decisions individually, sequentially, and reveals his decisions through actions – in this case, by entering the housing market and bidding up home prices.

 

Suppose houses are really of low investment value, but the first person to make a decision reaches the wrong conclusion (which happens, as we have assumed, 40 per cent of the time). The first person, A, pays a high price for a home, thus signalling to others that houses are a good investment.

 

The second person, B, has no problem if his own data seems to confirm the information provided by A’s willingness to pay a high price. But B faces a quandary if his own information seems to contradict A’s judgment. In that case, B would conclude that he has no worthwhile information, and so he must make an arbitrary decision – say, by flipping a coin to decide whether to buy a house.

 

The result is that even if houses are of low investment value, we may now have two people who make purchasing decisions that reveal their conclusion that houses are a good investment.

 

As others make purchases at rising prices, more and more people will conclude that these buyers’ information about the market outweighs their own.

 

Prof Bikhchandani and his co-authors worked out this rational herding story carefully, and their results show that the probability of the cascade leading to an incorrect assumption is 37 per cent. In other words, more than one-third of the time, rational individuals, each given information that is 60 per cent accurate, will reach the wrong collective conclusion.

 

Thus we should expect to see cascades driving our thinking from time to time, even when everyone is absolutely rational and calculating.

 

This theory poses a major challenge to the ‘efficient markets’ view of the world, which assumes that investors are like independent-minded voters, relying only on their own information to make decisions.

 

The ‘efficient markets’ view holds that the market is wiser than any individual: In aggregate, the market will come to the correct decision. But the theory is flawed because it does not recognise that people must rely on the judgments of others.

 

Now, let’s modify the Bikhchandani-Hirshleifer-Welch example again, so that the individuals are no longer purely rational beings. Instead, they are real people, subject to emotional reactions.

 

Furthermore, these people are being influenced by agencies like the National Association of Realtors, which is conducting a public-relations campaign intended to show that putting money into housing is a reliable way to build wealth.

 

Under these circumstances, it is easy to understand how even experts could come to believe that housing is a spectacular investment.

 

It is clear that just such an information cascade helped to create the housing bubble. And it is now possible that a downward cascade will develop – in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels.

 

The writer is professor of economics and finance at Yale University and co-founder and chief economist of MacroMarkets LLC.

 

Copyright: New York Times

 

 

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BLINDED BY GREED

 

The failure to recognise the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.

 

Source: Business Times