Property analysts say muted property market situation is temporary

Property analysts say muted property market situation is temporary

 

SINGAPORE: Investors have been cautious about the property sector amid expectations that the muted residential property market will weaken further. However, some property consultants are taking a slightly more positive stance, saying that this situation is temporary.

 

Transaction volumes for private homes have been thin, with developers holding back launches or cutting prices. And recently, there have been a slew of bearish reports from the likes of JP Morgan and Nomura, which are further dampening sentiment.

 

They said that private home prices could drop by as much as 35 per cent in the upper-end segments of the private residential property market by 2010 due to excess supply and poor sentiment.

 

They argue that marginal speculative sellers are likely to drive prices lower amid low transaction volumes and higher unsold pre-sale inventories.

 

Lower rental expectations and a large increase in supply are also seen compounding the situation in the longer term. Some also said the middle and low-end segments will not be spared.

 

But there are some property consultants who said that while things are slow now, dynamics will change going forward.

 

While the consensus view is that prices will continue to remain under pressure for the rest of the year and into 2009, some consultants said that the main reasons for falling prices are external.

 

Chua Chor Hoon, Senior Director, Research, DTZ Debenham Tie Leung, said: “It’s mainly the external factor, because of what’s happening in US, so sentiments are really weak now.

 

“(It’s also) partly because prices have gone up quite a lot last year – especially after the deferred payment scheme has been removed that made buyers more cautious. It’s a combination of factors, but I believe it’s the US economy that has a greater impact.”

 

She believes that prices will continue falling for the rest of this year and even into the year ahead, but a glimmer of hope exists.

 

Ms Chua said: “Prices are likely to fall for the rest of this year and they could continue to fall next year depending on how the US economy pans out.

 

“But we have a lot of good things coming up in 2010 – Youth Olympics, integrated resorts. So our fundamentals are quite strong. When the US economy picks up, I believe sentiments will follow suit.”

 

And some point out that the bearish reports are due to an over-estimation of supply numbers.

 

Ku Swee Yong, Director, Marketing & Business Development, Savills (Singapore), said: “The differences arose because of variance in the interpretation of a very basic set of data – the supply numbers – how many apartments will be completed in the next three years.

 

“We believe that the supply numbers have been overstated because there have been many projects filed and we know that these projects have been delayed.”

 

What is clear though is that shares in property developers have been taking a hit amid concerns over the property outlook. Most of them closed lower on Wednesday. – CNA/vm

 

Source: Channel NewsAsia

Tian Hock Properties gets residential site at Choa Chu Kang Drive with $116m bid

Tian Hock Properties gets residential site at Choa Chu Kang Drive with $116m bid 

 

THE Urban Redevelopment Authority (URA) has awarded the tender for the residential site at Choa Chu Kang Drive to Tian Hock Properties Pte Ltd.

 

The company submitted the highest bid of $116 million in the tender for the 99-year-lease site, covering 19,000 sq metres.

 

This works out to $2,180 psm of the gross floor area of 53,200 metres.

 

 

Source: Straits Times

Ho Chi Minh City overtakes S’pore as having world’s fastest growth in office rentals

Ho Chi Minh City overtakes S’pore as having world’s fastest growth in office rentals

 

SINGAPORE: Vietnam’s Ho Chi Minh City has overtaken Singapore as having the world’s fastest growth in office occupancy cost.

 

The cost of renting office space in Ho Chi Minh City grew 94 percent in the last six months, according to a global survey by consultants CB Richard Ellis.

 

Moscow was second at 93 percent, while Singapore took third spot with an 86 percent growth rate.

 

Still, Singapore made its debut among the 10 most expensive markets, coming in 9th, with office rentals averaging US$139 per square foot per month.

 

Dubai was another new entrant, taking tenth spot, with rents hitting US$128 per square foot per month.

 

Despite this, CB Richard Ellis said Singapore’s growth in office occupancy cost is not expected to remain as strong in the coming years. It said the market peak is close at hand and rents could come down with the supply of new office space in the next few years.

 

London remains the most expensive office market, with rents hitting as high as US$300 per square foot per month, followed by Moscow at US$232 and Tokyo at US$220. – CNA/ir

 

Source: Channel NewsAsia

Boustead Singapore’s FY2008 profit rises 46% to S$51.5m

Boustead Singapore’s FY2008 profit rises 46% to S$51.5m

 

SINGAPORE: Infrastructure company, Boustead Singapore, said its FY2008 net profit rose 46 percent to S$51.5 million, while its revenue rose about 28 percent to S$438 million – the sixth straight year of record profits and revenues.

 

Boustead said its better showing was due to the buoyant environment and strong global demand for infrastructure projects in developing nations.

 

Three of its four divisions performed well, especially the real estate solutions division. The water and wastewater engineering division, however, continued to drag.

 

Going forward, the outlook appears bright. Boustead has a current order book exceeding S$500 million.

 

The company said it is poised to improve on its record financial performance for the current financial year even though performance varies from quarter to quarter, given the nature of the group’s businesses.

 

The firm’s board has proposed a final cash dividend of 5 cents per ordinary share and a special cash dividend of 2 cents per ordinary share.

 

Source: Channel NewsAsia

Govt awards CCK site to Tian Hock at $116m

Govt awards CCK site to Tian Hock at $116m 

 

The government has awarded the tender for the residential site at Choa Chu Kang Drive to Tian Hock Properties, which submitted the highest bid of 116 million dollars.

 

This works out to about 203 dollars per square foot of gross-floor area.

 

Five bids were submitted in total for the 99-year leasehold site.

 

Sim Lian Land submitted the next highest bid with 108 million dollars while HHA Properties put in the lowest bid of 80 million dollars.

 

Based on Tian Hock’s bid price, Executive Director of CBRE Research Li Hiaw Ho estimated the breakeven cost of the new project to be between 580 to 600 dollars per square foot.

 

This, he said, would translate to a selling price of about 650 dollars per square foot should the project be launched in a year’s time.

 

 

Source: 938Live

Metro’s FY08 net profit slips 4%

Metro’s FY08 net profit slips 4%

 

SINGAPORE – Metro Holdings on Wednesday reported net profit for the full year ended March 31, 2008 fell by 4 per cent to about $66 million (US$48 million).

 

Revenue for the year rose 4.78 per cent to $224.41 million driven mainly by its property development and investment division, whilst its retail operations saw a marginal decline.

 

The weaker net profit was attributed to a higher tax charge which rose from $10.8 million to $20.2 million and a prior year exceptional gain of $29.1 million from the sale of about half of the group’s investment in Shui On Land’s shares in FY2007.

 

However, these were offset by a gain of $31.9 million from the disposal of Gurney Plaza in Penang and higher gains of $14.9 million from fair value adjustments on investment properties in FY2008 compared to $2.9 million recorded the previous year.

 

Profit from operating activities increased by 12.3 per cent from $49.5 million in FY2007 to $55.6 million in FY2008. This increase was partly attributed to premium rental rates attained as a result of good demand for its properties in China.

 

The group’s property development and investment division, which had been built up since it first entered the property sector in China in 1988, continues to be the key contributor to Metro’s bottom-line.

 

In FY2008, this division contributed $75.6 million representing 87.4 per cent to the group’s pretax profit.

 

The property unit also saw the maiden contribution from Metro City Beijing, which was fully opened in September 2007, higher rental income from Metro City Shanghai.

 

On the retail front, Metro Tampines was closed on August 2007. Its closure was mitigated by a well-supported closing down sale and improved sales at the group’s remaining Metro outlets in Singapore.

 

Metro reported total shareholders’ equity of $879.6 million, a cash position of $173.7 million and relatively low net gearing of 0.2 times.

 

It is proposing an ordinary final dividend of one Singapore cent per share.

 

Together with the interim and special dividends paid out in December 2007, the total dividend for FY2008 is five Singapore cents per ordinary share.

 

Going forward, Metro expects its properties to generate a steady flow of rental income. On the retail front, plans are underway to open two new stores in Singapore and Indonesia in 2009.

 

It plans to work with strategic partners to expand its business in China and explore new opportunities when they arise. — BT newsroom

 

Source: Business Times

UOB stays upbeat about future

UOB stays upbeat about future

 

Wee Ee Cheong thinks there are bright spots such as Singapore’s domestic fundamentals, and its regional efforts, writes CHOW PENN NEE

 

A LOOMING US recession, turmoil in the financial markets, high inflation and staff costs, compressed margins. This is the scenario facing banks this year.

 

Wee Ee Cheong, chief executive of Singapore’s second largest lender, United Overseas Bank, thinks there are bright spots though – Singapore’s strong domestic fundamentals, the bank’s regionalisation efforts bearing fruit, as well as good lessons to be learnt from the sub-prime crisis.

 

Bank executives are cognisant of the challenges that lie ahead for the banks. ‘Certainly for now, there are challenges in the global environment, ‘ noted Mr Wee. ‘The last few years’ excesses and mis-pricing of risks are catching up with the system. It is a slippery road as the system cleans up.’

 

But, he said, a distinction must be made between ‘fundamental losses’ and ‘accounting adjustments’ due to short-term volatilities and mark-to-market reporting, due to the fallout from the sub-prime crisis and credit crunch.

 

With or without sub-prime issues, he said, there are always challenges facing banks. ‘We are in the business of managing risks and are prepared to operate in volatile or uncertain markets,’ he said, adding, ‘The credit crunch is – to put it in perspective – one of those volatile situations.’ He explained that the whole episode is a lesson on how to manage risk.

 

With most Asian banks having relatively lower direct exposure to these toxic assets, the negative impact is more likely to come through the real economy, he said. He noted too that the US looks headed for a slowdown but it is not clear yet whether it would be long drawn. ‘At this stage we think it won’t be.’ The bank’s total exposure in CDOs is S$315 million, which constitutes less than 0.2 per cent of its total assets. ‘We continue to monitor the situation. But hypothetically, even if we write it all off, it’s immaterial,’ Mr Wee explained.

 

The good new is that Asian economies, he said, are still fairly resilient to the sub-prime crisis. ‘Unlike the Asian crisis when liquidity dried up significantly, there is currently money waiting to enter the system,’ he said. ‘Much as there are risks, there are opportunities as well.’

 

He elaborated, ‘We must not lose sight of the fact that globalisation is bringing enormous opportunities in trade and investments across the region and we have our Asian franchise to capture those opportunities. There is a lot going for Singapore and Asia.’

 

To capitalise on the Asian growth story, the bank has been actively looking at diversifying its earnings, and garnering more revenue from outside Singapore. ‘Ten years ago, we were still a predominantly Singapore bank, now there is more diversified earnings and risk,’ he said. ‘Our diversified portfolio serves us well in different stages of development and business cycles.’

 

Mr Wee said that his vision is for UOB to be a regional bank. ‘South-east Asia is key,’ he stated. ‘If we can’t be successful even in our own backyard, how to expand further?’ he questioned. Currently, Malaysia accounts for about 12 per cent of total profit. China and Vietnam are also very important, he said. ‘We hope to get 40 per cent of our profit from outside Singapore by 2010; now we are at about 30.5 per cent.’ He noted that the situation in Thailand is improving a little but believes it can do better. ‘We take a more cautious approach there, we’re invested for the long term,’ he said.

 

The bank has also over the past three years expanded in Thailand, Indonesia, Vietnam and China, adding new branches in Malaysia and received the licence to open a branch in Mumbai, India within a year.

 

As for capitalising on current volatile conditions to buy into a bank, Mr Wee said that the price is still not right. ‘If want to buy a bank in Asia today, the premium is still high.’ The bank’s year-long tango with China’s Evergrowing Bank has yet to come to fruition. ‘We are still romancing,’ explained Mr Wee. ‘We want to make sure we get the right bank, right target.’

 

Operationally, in terms of the core business of loans, he – like the rest of the bank head honchos – is expecting a slowing down from last year’s exceptional growth. ‘This year, growth will moderate, and will be lower than the 20 per cent last year,’ he noted. But he quickly added that positives such as the strong corporate sector and improving Asian spreads will prop up loans growth. ‘So it’s not just the volume but the quality of the spreads. Borrowers are finally paying the right margins for the risks in the market.’

 

Ballooning staff costs are set to be a problem, he said, but managing them is the key. ‘Looking ahead, staff costs are the biggest expenses,’ he said, but added: ‘I’m not overly concerned about the amount of money we spend, but it must be quality spending.’ He explained that the bank will leverage on technology to cut down on work done by people.

 

‘It is about productivity and value-adding. Even as absolute expenses increase as we continue to invest, we watch the expense/income ratio, which has been well managed.’ Money which had to be spent included a revamp of UOB’s branches. ‘We modernised, and changed the layout of the branches. We will upgrade our branding,’ said Mr Wee. ‘We cannot be status quo.’

 

He remains sanguine about Singapore’s overall banking outlook. ‘Generally, Singapore banks are healthy, the three Singapore banks are in a good position, from a capital standpoint, capital adequacy ratio (CAR) is more than adequate,’ he said.

 

There is much to cheer about on the domestic front, he noted. ‘With the integrated resort projects and other initiatives to boost tourism and create jobs coming on stream, we are positive on the outlook.’

 

Source: Business Times

 

 

Matriarch displaces son in Kwok family fight

Matriarch displaces son in Kwok family fight

 

She is taking over as chairman of Sun Hung Kai Properties

 

By JANE MOIR

IN HONG KONG

 

THE 79-year-old mother of the battling Kwok brothers has been appointed chair of Sun Hung Kai Properties, replacing her eldest son following a family dispute over control.

 

The board announced that Kwong Siu-hing would replace Walter Kwok Ping-sheung as chairman. This follows a failed legal bid by Mr Kwok to prevent his ouster and marks the end of an 18-year stint as chairman.

 

A court this week declined to grant an injunction preventing the board from exercising its right to strip Mr Kwok of his position. It revealed details of a bitter feud, which is also reflected in defamation proceedings launched by the elder brother against his siblings.

 

Brothers Thomas Kwok Ping-kwong and Raymond Kwok Ping-luen are both vice-chairmen and managing directors of the company. During the injunction proceedings, Mr Walter Kwok accused the pair of breaching the terms of his resignation from the board.

 

Mr Walter Kwok took sudden leave of absence from the company in February. According to a judgment on the injunction proceedings, it was agreed that according to a letter and an agreement he would return after three months if medical evidence on his mental health was satisfactory.

 

Judge Susan Kwan stressed: ‘I am not concerned today with whether Walter is suffering from any kind of mental illness, and I express no views on this. Nor is it for me to say whether Walter is a fit and proper person to remain as chairman and CEO of the company. This is a matter for the board of the company to decide.’

 

The judge said that there was nothing in the agreement to stop the company from using its powers to remove Mr Walter Kwok as chairman. ‘All the directors who have taken part in this application have stated firmly and clearly they are fully aware of their duties and powers as directors of the company and will exercise their powers at board meetings in the best interest of the company. I see no reason why I should question their good faith and assume they would not carry out their duties conscientiously, ‘ she ruled.

 

Cracks first began appearing in the family when a friendship between Mr Walter Kwok and a woman became the source of discontent among family members over her role in the company and the advice that she was giving the elder sibling.

 

The ongoing saga and airing of the Kwoks’ personal lives in public have put an otherwise modest family on the front page of every tabloid in the city. The family is well known for its conservative public profile and values, as well as its good standing in the community.

 

Mr Walter Kwok took over as Sun Hung Kai group chairman in November 1990 following the death of his father, Kwok Tak-seng. Today, the Kwok brothers rank third on Forbes’ list of the richest people in Greater China, with an estimated net worth of US$14 billion.

 

It had previously been reported that the brothers were unhappy that although daily operations are mainly overseen by the younger siblings, Mr Walter Kwok had been taking an aggressive stance over business matters recently.

 

The family friend of Mr Walter Kwok had never been employed by the company, but started to show ambition in certain parts of Sun Hung Kai’s business.

 

According to sources, this involved a desire to be put in charge of the company’s China operations.

 

The tycoon was reportedly one of several billionaires kidnapped by notorious gangster Cheung Tze-keung, otherwise known as ‘Big Spender’, in 1997. These reports have never been confirmed by the family.

 

Source: Business Times

 

 

Local banks slow down loan activity

Local banks slow down loan activity

 

Foreign banks step in to fill the gap as their local counterparts become more circumspect in extending loans due to industry limits, writes SIOW LI SEN

 

A CURIOUS thing is happening among lenders in Singapore. The local banks are slowing down their loans activity while foreign banks have taken up the slack and are increasing their market share.

 

Latest data from the Monetary Authority of Singapore shows that industry loans at the end of the first quarter grew 6.9 per cent from the previous quarter and 23.9 per cent from a year ago.

 

Ng Wee Siang, BNP Paribas analyst, has projected that 2008 will see a robust 18 per cent in loans growth, led by building and construction loans.

 

Loans growth for March was fuelled by broad-based business loans driven by building and construction, up 54 per cent from a year ago and financial institution loans, up 23.3 per cent. Consumer loan growth, however, seems to have peaked.

 

DBS Group Holdings was the only bank which kept up with the buoyant system growth with loans up 8.5 per cent in Q1 from the previous quarter. ‘This means foreign banks are winning share,’ said Matthew Wilson, an analyst with Morgan Stanley.

 

Even DBS is expected to see its loans growth moderate for the rest of the year and is unlikely to repeat its 25.2 per cent increase in 2007, said Mr Ng.

 

‘While the loan pipeline remains healthy, (DBS) management has guided that loan growth is set to moderate,’ said Mr Ng. ‘Management indicated that a 10-20 per cent loan growth is within reach,’ he added.

 

United Overseas Bank said its first quarter 2008 loan growth was only 1.8 per cent. Its management said that the bank has reached its internal limits for some exposures, and risk management guidelines are curtailing loan growth.

 

OCBC Bank reported quarter-on-quarter loan growth of 4 per cent and 19 per cent year-on-year. Its chief executive David Conner noted that the industry loans growth – which has been in the above 20 per cent range – is expected to come down. ‘It is bound to taper off,’ he said, adding: ‘It will come down to a low double-digit range.’

 

It is not surprising that the local banks would become more measured in selling loans given the economic uncertainties.

 

But this wasn’t supposed to happen. Late last year, some observers thought that 2008 would be the year of the local banks as they would gobble up loans and other banking business at the expense of the foreign banks which had been nipping at their heels.

 

The thinking was that foreign banks – nursing massive losses at home, and facing diminished capital bases at the group level – would have to pull back on their activities.

 

Local banks did have some exposure to the US sub-prime loans and collateralised debt obligations but their losses were very small and did not impact their capital.

 

Local bankers had another reason why they were looking forward to strengthening their position this year in spite of sliding interest rates as central banks eased. Foreign banks are typically able to sell more customer loans in Singapore when interest rates fall as they can borrow cheaply on the interbank.

 

This time round, local banks thought they would face less competitive pressure from the foreign banks which may be constricted by their smaller capital bases.

 

But not all foreign banks have been hurt by the sub-prime losses. Even those which have taken hits cannot afford to pull back in Asia which is showing strong growth.

 

Maybank, Malaysia’s largest bank, which recently released its nine months’ results, said loans growth at its Singapore operations grew 19.2 per cent. And Standard Chartered Bank said its Singapore operations will be expanding by nearly 11 per cent in 2008. Some 500 people will be hired in Singapore across the consumer and wholesale banking and support functions, mainly in sales and risk management positions. The bank employs some 4,700 people here.

 

In Singapore, liquidity is plentiful and local banks take in more deposits than they can lend out, but they have become more circumspect in extending loans as they are facing industry limits.

 

Section 35 of the Banking Act restricts property exposure to 35 per cent. Banks also have their own internal exposure limits. The local banks in the past couple of years have increased their loan books mainly by lending to the real estate sector.

 

Singapore continues to have some mega construction projects over the next few years but it looks like the foreign banks may get a bigger share in financing them.

 

Two local banks and 13 foreign banks participated in last month’s loan syndication of $4 billion credit facilities for the Sentosa integrated resort development, one of the largest loans ever undertaken in Singapore.

 

‘The bulls point to the very buoyant Singapore loans growth but only DBS is keeping up with system growth. Foreign banks are increasingly participating, as Asia has never been more important and the local banks are approaching their exposure limits,’ summed up Mr Wilson.

 

Source: Business Times

Lessons from the sub-prime debacle

Lessons from the sub-prime debacle

 

Use the best available tools to uncover risks that are not discovered by mathematical means, write WINSTON NGAN and CHEN JEE MENG

 

WHAT started out as a domestic US mortgage problem spread across the globe like a tsunami. Notwithstanding that Asian financial institutions, compared to their US and European counterparts, had more limited exposures to the US sub-prime market, the crisis reverberated in the Asian markets, triggering sell-offs in equity markets.

 

The chief perpetuator of the sub-prime debacle was collateralised debt obligations (CDOs). CDOs are pools of debt instruments, for instance, bonds or loans, which are repackaged into different tiers carrying various levels of risk. These are then sold to investors based on their risk appetite. These seemingly benign debt instruments, which were bought and sold on the premise that they diversified risk, were masking large exposures to highly risky debt, ie, loans to sub-prime borrowers.

 

In the case of the sub-prime debacle, the defaults were rapidly progressing into the higher quality tranches that are supposed to be buffered by diversification of the basket. The issue was that all the parties concerned grossly under-estimated the amount of losses that would occur on the CDOs’ assets. Given the ever-increasing delinquencies, investors quickly realised that many CDOs would not be able to pay back their own bond holders in full and liquidity in credit markets started to evaporate.

 

Despite millions being expended on implementing risk management systems in preparation of Basel II, what went wrong? If we are looking at perhaps uncovering some new-found risk insights, we will probably be disappointed, as the lessons learnt seemed to carry a strong flavour of plain old common sense.

 

To build up business volume, lax lending rules superseded the sine qua non of credit risk controls. From banks to investment houses to fund managers, the institutions involved did not pay attention to the quality of the loans. Amid the intricate structure of the whole supply chain, the inherent credit risk was virtually obscured, as the ‘I thought you had performed the due diligence’ mentality perpetuated from one layer to the next. In short, there is no substitute for fundamental credit analysis.

 

The risk management tools may not have factored in the requisite correlation factors along the passage of time. Indeed, was it not possible that the banks involved could have (i) applied the same credit analysis tools, (ii) originated loans through the same brokers, etc? What was perceived originally as one of low correlation may turn out to be highly correlated especially in times of market upheaval. Also, consider the possibility that the financial institutions could be using the same risk management/valuatio n models. Inadvertently, in times of market volatility, all the institutions read the same exit signals!

 

In addition, the risk professionals might have, in framing their analyses, considered only actual events due to data availability. As such, distressed scenarios that were reasonably possible based on market conditions but which had never actually occurred before, may not be considered. Any novice financial risk practitioner would tell you: ‘Be careful of the valuation of illiquid OTC instruments. ‘ Not surprisingly, the crisis re-highlighted the chasm between marked-to-model and marked-to-market.

 

Risk management practitioners must recognise that market valuations may be unreliable for certain types of structured finance instruments. This can be attributed to a host of reasons such as market illiquidity, and system limitations. Perhaps, instead of using point estimates of value, the risk practitioner could engage risk management strategies using ranges, to address and quantify the degree of uncertainty associated with the valuations.

 

In essence, financial engineering may not unveil all the inherent risks. Certain risks lie outside the radar of mathematical tools. Accordingly, risk practitioners should equip themselves with the best available mathematical tools and also techniques for uncovering latent risks that are not discovered by mathematical means.

 

Impact on Singapore financial sector

 

Singapore has come away from the sub-prime crisis relatively unscathed. Local banks have publicly disclosed that their total investment in CDOs amount to S$2.3 billion, of which 28 per cent contain some US sub-prime mortgages. The local banks’ exposure to US sub-prime mortgages is, therefore, small in relation to their capital base. In addition, the impact on the banks’ profitability might be limited in view that the positions are intended to be held to maturity. The final loss may be much smaller than the current market discounts.

 

Even amid current uncertainties, some believe that CDOs remain sound investment instruments if they are properly structured to achieve the desired returns and risk profile.

 

From an investment perspective, investors will probably have to contemplate increased market volatility in 2008, where solid returns are harder to come by. In the risk management arena, while we may see enhanced risk control practices, the issue, ie, whether we will learn from it will continue to linger on for a long time to come.

 

Source: Business Times