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Archive for January 5th, 2009

Office occupancy down in Q4 2008 due to economic crunch

Posted by luxuryasiahome on January 5, 2009

Office occupancy in Singapore is down in the last quarter of 2008 due to deteriorating global financial situation.

According to real estate adviser DTZ Research, office occupancy islandwide dropped by two percentage points to 95.6 per cent, compared to the same period last year.

This is because of weaker demand as companies shelved expansion plans or relocated to more cost-effective premises.

DTZ said office rentals have also declined. One example is office rentals at Marina Centre which fell by about 7 per cent to S$13.50 per square foot per month, compared to the same period last year.

DTZ said landlords have lowered their asking rents and offering attractive lease incentives to retain existing tenants and entice new ones.

It added that potential office supply from this year to 2013 is now estimated to be at 11.3 million square feet, compared to the earlier estimate of 12.1 million square feet.

With a larger supply of new office space this year, occupancies and rentals are expected to decline further.

Source : Channel NewsAsia – 5 Jan 2009

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ARA buys China building for $340 mln

Posted by luxuryasiahome on January 5, 2009

ARA Asset Management said on Monday it bought a 51-storey office cum retail building in Nanjing, China, for about S$340 million (US$232.9 million).

The purchase of the 51-storey Nanjing International Finance Center was done through ARA Asia Dragon Fund, the Singapore firm’s flagship private real estate fund.

John Lim, Group CEO of ARA, said:’We are currently seeing many value opportunities in the real estate sector in China as a result of the current liquidity crunch. The Group maintains a positive medium tolong-term view for China and will continue to invest in China via our funds.’

Singapore-listed ARA is an affiliate of Hong Kong property giant Cheung Kong.

Source : Business Times – 5 Jan 2009

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Reit model under pressure

Posted by luxuryasiahome on January 5, 2009

SINGAPORE-listed real estate investment trusts (Reits) are now victims of their own success.

Over the past three years, most Reits here have taken an aggressive growth path, snapping up expensive properties and pushing up rentals in their properties as they took advantage of the property boom. This has allowed them to increase net property incomes and deliver good dividends to their unitholders.

But now, the good times have come to an end, and it is unclear how these Reits will deliver the kind of returns shareholders have gotten used to.

When reporting their Q3 results, the Reits admitted that growth through acquisitions will slow, what with the current credit squeeze making merger and acquisitions (M&As) more difficult and expensive across all sectors. The Reits said they will look to organic growth, such as enhancing their existing lettable space in search of higher rents.

But how much organic growth there can be under these conditions is debatable.

Retail Reits, for example, increase their property incomes in three ways – from acquisitions, through rental increases after they enhance their properties, and increased sales from their tenants, which they typically take a cut of.

But now, all three avenues for property income growth appear to be blocked. Acquisition growth, as mentioned, is no longer as viable. Retail sales are expected to take a beating this year as consumers cut back on spending as concerns over job and wage security take hold. Because of this, landlords, who typically take a percentage of turnover as part of the rent, will also see takings fall.

And rents will fall, as tenants try to bring landlords back to the negotiating table to ask for more manageable rates. ‘A prolonged depression in consumer spending could affect retailers’ ability to service their rents and we think it is possible that more retailers would renegotiate for lower rental rates, and retail mall managers may have to give in to avoid a high turnover in tenants,’ noted OCBC Investment Research in a recent report. As one market observer put it, ‘Reits can’t really squeeze the tenants anymore or they will just simply close shop.’

In 2009, CB Richard Ellis reckons that prime Orchard Road rents could contract 5-10 per cent in just the first half of the year. At prime suburban malls, a 2-3 per cent decline is likely, the property consultancy said. Prime Orchard Road rents fell 1.9 per cent quarter-on-quarter in Q4 2008, while prime suburban rents shed one per cent, the firm’s data showed.

The same trend holds true for the office and industrial sectors. CBRE’s data showed that average Grade A and prime office rental values in Singapore are estimated to have slipped about 20 per cent in Q4 2008. More falls are expected this year. Likewise, rents for industrial space could see double-digit percentage falls, analysts have said.

With retail, office, and – to a lesser extent – industrial Reits, having raised rentals quickly over the last few years, tenants are finding themselves in a tough spot during these trying times. Office rents, for example, nearly doubled in 2007, rising 96 per cent in the Grade A category and 92 per cent for prime space. That was on top of gains of 53 and 50 per cent respectively posted in 2006.

What this means is that tenants, who have been paying jacked-up rentals over the past two years, will in some cases lack the reserves to withstand the current crisis. They are also more likely to push for substantial rental decreases, which could affect the Reit model.

Jannie Tay, president of the Singapore Retailers Association, called for a drop in retail rents – in light of weaker sales – as early as September last year. Recently, she again asked retail landlords to cut rents by between 30 and 50 per cent. Reits are going to face pressure to give in.

Source : Business Times – 5 Jan 2009

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Pillar of strength in a wilting economy

Posted by luxuryasiahome on January 5, 2009

Cost and pricing advantages and public spending set to put construction industry in a good spot

The construction sector looks to be the only pillar of growth in the Singapore economy this year, especially if there are significant increases in public infrastructure spending.

Latest official flash estimates reveal that the sector continued to grow in Q4 2008, albeit at a slower 13.3 per cent.

While this is down from 18.6 per cent in the previous quarter, a recent survey of financial analysts conducted by the Monetary Authority of Singapore revealed that the general sentiment was that construction activity is expected to expand relatively strongly in 2009 – although at just around half the pace in 2008 – of about 7.5 per cent.

‘The construction sector will lead GDP growth in the next two years, but it only accounts for about 5-7 per cent of 2009/2010 GDP,’ said CIMB-GK analyst Song Seng Wun.

Still, Mr Song reckons the sector could grow by about 15 per cent year-on-year over the next two years, which is about as optimistic as one can get about any sector.

It is also notable that forecast growth is nowhere near trough levels in Q3 ‘99 and Q1 ‘03, which fell to minus 11.9 per cent and minus 14.9 per cent year- on-year respectively.

The executive chairman of contractor Lian Beng Group, Ong Pang Aik, is sanguine about this year’s prospects. He expects to see an increase in the number of public sector projects starting in the first half of 2009.

As chance would have it, Mr Ong believes the likely fall in construction costs will also accelerate the pace of new projects and possibly even fatten profit margins of contracts inked earlier.

‘We had to bear the cost of materials going up before. So when they come down, we will also make a bigger profit,’ he added.

United Engineers’ group managing director and CEO Jackson Yap is also optimistic about the year ahead.

‘Thanks to the relatively long project cycles – as most construction projects will take about two to three years to complete – construction contracts secured during the industry boom over part of this and last year will keep many construction companies busy for at least the next two years,’ he said.

According to property and construction consultancy Rider Levett Bucknall (RLB), steel export prices started to fall in the second half of 2008 with the average supply price of steel reinforcement now down by about 30 per cent from about $1,500 per tonne to $1,100.

RLB managing partner Winston Hauw said that based on current demand and cost trends, the tender price escalation is anticipated to decline, averaging in the order of minus 10 per cent to minus 15 per cent year-on-year for 2009.

But while traded prices for base metals are currently much lower compared to the first half of 2008, Mr Hauw says that prices of mechanical and electrical (M&E) services for building developments have not as yet moderated.

‘The limited pool of specialist subcontractors in the local market is for now pre-occupied with the large existing workload,’ he added.

RLB also noted that notwithstanding the general decline in many base construction materials, the average supply prices for cement and granite aggregates have actually increased as at November 2008, although he believes the impact of this on building tender prices is insignificant.

Mr Hauw said: ‘We see the forthcoming year as a period of consolidation for the construction sector, with the management of costs and cash flows as key priorities, while positively looking ahead to opportunities, both locally and regionally.’

How low construction costs fall could be influenced by monetary policy too.

National University of Singapore economist Tilak Abeysinghe said that a weaker Singapore dollar will increase the import cost of building materials and will have a negative effect on residential property construction.

‘Unlike the export sector where you get an offset of the import cost from increased export revenue, the construction sector has to bear the import cost resulting from the weaker dollar,’ he said.

Tempering expectations some more, construction consultancy Hill International’s senior vice-president and managing director (Asia-Pacific) John Brells foresees developers deferring more projects. ‘Such delays consequently would give rise to more construction-related disputes,’ he said.

The bright spot again is infrastructure and public sector construction. In his discussions with contractors, Mr Brells said some who have not previously bid on government works are now looking to do so with more ‘looking at areas of construction outside their normal comfort zone’.

Job prospects in the sector could also be hit.

Construction information services provider BCI Asia estimates the value of projects under construction will contract by 20-30 per cent and its managing director Thor Kerr said: ‘Unemployment will rise quickly as the construction volume declines.’

He added that construction companies should survive provided their existing contracts have appropriate fee structures and payment schedules, and that ‘contractors do not quote below market price in order to maintain sales volume’.

To this, Lian Beng’s Mr Ong says that ‘undercutting’ is unlikely, because of the volatility of construction material prices.

On the jobs front, Mr Ong said that the sector is still reeling from poaching of staff over the past year. ‘Salaries have been frozen but we will not cut because the staff will leave,’ he said.

Source : Business Times – 5 Jan 2009

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Home loans: No interest savings despite falling market rates

Posted by luxuryasiahome on January 5, 2009

I REFER to last Wednesday’s letter, ‘Bank unfair to existing home loan clients’, and would like to share my experience with another bank.

I took a mortgage loan with OCBC Bank in May 2007 to finance the purchase of a property. Predicting that the interest rate was on a downward trend, I signed up for a floating rate package. There was no option then for a more transparent variable interest rate loan package pegged to the Singapore Inter-Bank Offered Rate, which I would certainly have taken up had it been available.

I had expected to see some interest cost savings when the rates went down. I also had the mistaken belief that banks will act in good faith to adjust the interest rates downwards for customers on a floating rate package when the market rate falls.

The interbank interest rates have seen a sustained and meaningful drop since August 2007. In April last year, I requested that the bank reduce the interest rate on my loan since it was on a floating-rate basis. I was told that the bank was still monitoring the situation and that I could enjoy a lower interest rate only if I re-financed the loan by signing up for a new package and paying the repayment penalty on the existing loan. With the prohibitive penalty costs, there would be no gains from re-financing the loan.

It has been 14 months since the market interest rates started falling significantly from the 3.08 per cent interest rate on my home loan and, instead of receiving good news from OCBC that it will be adjusting the interest rate on my loan downwards, I have been told that it has been increased to 3.78 per cent, a princely premium over the rate new mortgage loan customers are paying.

I am sure I am not the lone borrower facing such unfair bank practices. My brother had the same experience with his mortgage loan from United Overseas Bank. Is there any form of redress or help that borrowers like us can expect from the Consumers Association of Singapore or the Monetary Authority of Singapore?

Toh Hai Joo

Source : Straits Times – 5 Jan 2009

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Property counters shine

Posted by luxuryasiahome on January 5, 2009

DESPITE news that private home prices dropped by a sharp 5.7 per cent last quarter, shares of property developers shone on Friday which helped the related warrants to post strong gains.

CapitaLand and City Developments rallied on 2009’s first day of trading. CapitaLand hit an intra-day high of $3.30 on Friday, eventually closing 16 cents higher at $3.27 with 8.3 million shares traded. City Developments was also 3.6 per cent higher at $6.60 with two million shares traded.

Analysts believe there are still buyers out there and some expressed confidence that developers will likely weather the storm.

A warrant issued by Macquarie Securities on CapitaLand rose one cent to six cents with 44,000 units traded. It has an exercise price of $3.90 and a conversion ratio of one share to three warrants.

Another warrant issued by Macquarie on CapitaLand gained nearly 10 per cent or three cents to close at 34 cents, with 4.1 million units changing hands. It has an exercise price of $2.90 with a conversion ratio of one share to two warrants.

Oil prices rose on the first day of trading of the new year, with crude briefly touching US$46 a barrel after fog delayed Gulf Coast tankers. This may have reignited buying interest in rig builders, whose shares have slumped in recent months.

A warrant issued by Macquarie on Keppel Corp surged nearly 10 per cent to close 1.5 cents higher at 17.5 cents with 935,000 units traded. The warrant offers an exercise price of $4.90 and a conversion ratio of one share to four warrants.

The rise was in line with the Keppel counter which rose 18 cents to $4.51 with 4.8 million shares traded.

Source : Straits Times – 5 Jan 2009

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Time again for interest-only loans

Posted by luxuryasiahome on January 5, 2009

SIGNS of the credit squeeze are emerging everywhere in Singapore.

After a final, Christmas sales spending binge, consumers are really starting to tighten their belts. This has cast a shadow over the traditionally joyous mood before each Chinese New Year.

News of job cuts at multinational firms such as Philips and in the financial sector by Citibank and DBS Bank are fuelling fears of more job losses.

This, in turn, is leaving consumers worried about their ability to repay housing loans, for example.

The cycle of fear and caution is causing them to scale back on their spending drastically, even though it may ultimately prove unnecessary to do so.

Conspicuous consumption is out and austerity is in, as people switch from eating at restaurants to hawker centres and food courts.

Overseas travel is also taking a hit. Fewer Singaporeans are booking tour packages for the Chinese New Year holiday at the end of the month.

Investors, meanwhile, are extremely reluctant to take a punt on the market, preferring to hoard cash instead. As a result, daily traded volumes on the Singapore Exchange have fallen to their lowest levels since the Sars crisis six years ago.

Some of this may be an over-reaction but there could be valid reasons for adopting a wartime belt-tightening mentality.

Take a typical working couple with school-age children, paying off a hefty mortgage and servicing car loans. If either one loses that monthly pay cheque, they would face hardship – and if both are retrenched, it would spell financial calamity.

But widespread belt-tightening can cause an economy to literally collapse from fear.

One priority, therefore, is to find ways to put cash back into Singaporeans’ pockets as they grapple with possible job losses or a cut in their pay.

For many Singaporeans, their home is their key financial asset, while home loans form an integral part of many banks’ core assets, making up 28.4per cent of the lending which banks make to companies and individuals.

So far, the spotlight in the weakening property market has focused on a potential over-supply crisis, should cash-strapped buyers fail to complete transactions on flats on which they have deferred most of their payments until the projects are built.

But it is crucial to keep the rest of the property market healthy, too.

In Britain and the United States, the rotting housing market has devastated their economies. Singapore should take heed to avert a similar fate.

There are precedents from previous economic crises to offer a blueprint on how the credit crunch can be tackled.

In 2003, as Sars struck Singapore, fears emerged that the economy might sink into a deep recession.

Against this grim backdrop, DBS Bank came to the rescue of cash-strapped Singaporeans with a home loan package which allowed them to pay only the interest for the first three years.

Then-chief executive Jackson Tai said the deal was good for customers and shareholders alike. It allowed home-owners to free up their cashflow and the bank to maintain the quality of its loan book.

And why not? So long as the interest is serviced, the loan is healthy and there is no need for the bank to make any provision in its books for bad loans.

For consumers struggling to make their monthly mortgage payments, DBS’ move was a boon.

Take a $500,000 20-year home loan pegged at an interest rate of 3per cent. If a borrower had to service both interest and principal, he would have to pay a monthly instalment of $2,778. By servicing the interest only, his monthly payment drops to $1,250, putting an extra $1,528 back into his pocket.

Therefore, even if a working couple were deprived of one income, the fear of losing their home would be considerably reduced. They could pay their monthly housing instalment using Central Provident Fund cash if they were only servicing the interest on the loan.

We are now six years on from the Sars crisis.

Although DBS has received flak for selling worthless products linked to failed investment bank Lehman Brothers, it still retains its status as the people’s bank, mainly because of the acquisition of the much-loved and widely-patronised POSB in 1998.

As current chief executive Richard Stanley has said, the bank would never knowingly do anything that could hurt its customers.

At a time of crisis, it is in the position of being able to help Singaporeans. As the largest local bank, it is a big lender to HDB flat-owners via its extensive POSB network. It is also a key player in private housing loans.

It would be good if DBS could again display the leadership shown six years ago by offering interest-only loans to help consumers here through the inevitable tough times ahead.

This would enable Singaporeans to set aside less cash for their monthly housing instalments. It would also remove fears of a collapse in the residential housing market in the event that cash-strapped owners could not keep up their mortgage payments.

Fresh from a successful $4billion fund-raising exercise, DBS can lend Singaporeans a helping hand from a position of strength. Such a loan scheme would be the best Chinese New Year present it could give to the people of Singapore.

Source : Straits Times – 5 Jan 2009

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