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EARLIER this year, the asset markets, namely those related to property and stocks, were among the star performers of the Singapore economy. But the outlook for these markets is less clear in the coming months as risk aversion among investors lingers amid the global financial market turmoil.

Despite the uncertainty, the Monetary Authority of Singapore (MAS) is still keeping to previously announced forecasts for broad economic growth. It expects the gross domestic product (GDP) to expand at the upper end of the 7 to 8 per cent range this year, before moderating to 4 to 6 per cent this year. The MAS assumed higher oil prices and the possibility of more volatility in the global financial markets in its forecast.

The economic projections were contained in the MAS’ Macroeconomic Review, released yesterday. The report, issued twice a year, provided the economic backdrop to the recent decision by the MAS to allow the Singapore dollar to appreciate faster.

The MAS said that while many of Singapore’s economic sectors are “poised for healthy growth in 2008″, the overall economic outlook for next year “is more uncertain, as it hinges on the severity of the weakness in the United States’ housing sector”.

The de facto central bank said the wealth advisory, capital and property-related markets accounted for close to 30 per cent of GDP growth in the first half this year because of the buoyant investment climate. However, the third quarter saw growth slowing as a result of the US sub-prime loan crisis, which spooked financial markets around the world in August.

“Stock market volumes have recovered somewhat since mid-September,” the MAS said. “There has been renewed interest in Asia equities and particularly in Chinese stocks, some of which are listed on the local bourse.”

But it said that 2008 trading volumes are unlikely to match this year’s high stock market activity. Among other uncertainties, “latest data suggests that a full recovery in equity fund flows to Asia has yet to materialise”, although investors could rebalance their portfolios towards Asia to mitigate potential downturns elsewhere, it said.

The MAS offered a more optimistic outlook for property-related industries, given that most of the large infrastructure and housing projects were entering the stage where the largest payments occur. “Projects in the pipeline should be sufficient to support fairly robust growth for the construction sector next year, even if new launches are held back by the recent financial market turmoil,” the MAS said.

In other areas of the economy, the IT-related sector has seen nascent signs of recovery in the second half of this year, and is expected to pick up further next year. The expected rise will serve as an important boost to the overall economy, given the sector’s share and extensive linkages with the broader economy.

Indeed, the slump in this sector shrank its contribution to GDP to just 4 per cent in the first half of this year, from about the annual average of 31 per cent between 2000 and 2006.

Except for electronics production, which shrank 5.7 per cent during the second quarter, there was broad-based growth across various sectors of the economy.

Standard Chartered economist Alvin Liew agrees with the MAS’ assessment of the financial sector. “If we are factoring a slowdown in external markets next year, we would probably see some easing of growth in the sector, for example, asset management.”

Looking further ahead, Mr Liew added that “the sector is poised for long-term growth because of various factors that allow it to thrive,” including a good tax and legal infrastructure, and a relatively stable currency.

He isn’t too concerned about the economy’s shift in reliance from the IT sector. “There is a conscious effort by the Government to reduce reliance on any single industry, which is a prudent approach for economic development,” Mr Liew said.

Source : Today - 31 Oct 2007

PROPERTY stocks were sent reeling yesterday following the government’s announcement to discourage speculative buying in the real estate market. In contrast, bank stocks rose. The divergence in stock performance between the two market sectors comes down to this: what is bad news for speculators may prove to be good news for banks.

The scrapping of the scheme which allows homebuyers to delay payments on new property may turn out to be a positive for the financial institutions giving out housing loans, as the measure weeds out punters from genuine buyers. The deferred payment scheme introduced 10 years ago allowed buyers to make as little as a 10 per cent downpayment, and pay the rest upon completion - sometimes after a time lag of three years. This encouraged many to enter the property market. Speculators did not even take the trouble to get a loan - merely coming up with the downpayment, and selling before completion of the property.

In the last few quarters, when the market turned red hot, some observers were surprised by what appeared to be muted home loans growth. The reason was that the deferred payment scheme, which discourages the early draw-down on loans (or even taking up a loan in the first place), had diluted the impact of the booming market on housing loans. Indeed, it was common to hear, at the results briefings of the local banks, the deferred payment scheme put forward as one of the main factors for the slower-than-expected pace of home loans growth.

With deferred payment now no longer an option, more buyers will be driven to take up home loans. And loans will be drawn down progressively, with borrowers paying a certain percentage of the purchase price at various stages of completion of the property. This should be positive for the loan books of the banks.

Take DBS Bank, for one. Singapore’s biggest bank had felt the ‘lag’ impact of the deferred payment scheme - it said a few months ago that it was expecting a sharper spike in home loans only in future quarters, due to investors taking out loans to pay for homes purchased using deferred payment schemes. With the scheme gone now, the bank told BT that the impact of the latest measure would be positive on its books - since, without the option of the deferred payment scheme, buyers have to seek financing and draw down the loans, if they don’t want to use a lot of their own cash.

The removal of the deferred payment scheme is not just positive on the loan books. For some time now, there has been growing concern that the scheme shifted the banks’ risk exposure from households to corporates. With buyers paying nothing in the early stages of a project with deferred payment, developers had to borrow more from the banks - or raise funds in the debt market - to finance their projects. This increased the banks’ exposure to property developers, and there is past evidence to suggest that corporates are more likely to default, should the market turn bad, than households.

According to MAS data, as at end-June, housing and bridging loans as well as loans to the building and construction sector made up nearly half of the more than $200 billion loan portfolio of commercial banks here. This has been a steady increase from the 33 per cent from about a decade ago, around the height of the last property boom. In absolute terms, housing and bridging loans were worth some $64 billion in June, compared with about $63 billion six months ago. As the Monetary Authority of Singapore had also previously said, the use of the deferred payment scheme by property developers introduces additional risks to the developers (and to the banks which finance these developers) because property purchasers under this scheme are not subject to credit checks by developers.

‘This is unlike property purchasers who apply for housing loans and are subject to credit assessment by banks. MAS expects banks to exercise prudence in their financing to the property developers and be fully cognisant of the additional risks from the use of deferred payment schemes,’ MAS had said then. The removal of the scheme will restore some balance, and the banks should have their exposure to households raised while lessening their exposure to developers.

The government’s removal of the deferred payment scheme - and expectations of further cooling measures - could keep the property market cautious in the near term. Buyers may adopt a wait-and-see approach, and new projects could see a slower take-up rate. That could crimp home loans growth in the short term. But in the longer term, doing away with deferred payment will put home financing on a far healthier plane. ‘Flippers’ who buy property to resell quickly to make a fast buck will be deterred, the speculative froth will be taken out of the market, and pricing will come to levels more in line with economic fundamentals. For banks, this means genuine homebuyers and investors as customers - and that cannot be a bad thing.

Source : Business Times - 30 Oct 2007

Developers with inventory in prime districts may face pricing pressure.

PROPERTY analysts were still busy yesterday predicting how the market will be affected by the end of the deferred payment scheme (DPS) as property shares received their expected drubbing when trading opened.

A report by OCBC Investment Research forecast tough times for the residential sector - but not everyone was gloomy.

The OCBC researchers said: ‘The significance of the current government move is that it is targeting at the demand side of the equation while previous measures (since end-2006) were mainly supply side . . . Demand-side measures historically tend to have severe repercussions on demand and hence pricing.

‘We thus see the latest action (and subsequent action if speculation continues) to be negative on the residential sector.’

A seasoned property consultant said: ‘The withdrawal of DPS will affect speculators, who have been focusing mainly on high-end homes but who have also filtered into mid-market projects as seen in One North Residences and The Rochester. However, even genuine home buyers and investors whose budgets are stretched by the rapid price appreciation will be affected. Sales volumes will come off.’

CIMB-GK Research said: ‘We believe developers with inventory in the prime districts could face pricing pressure as punters retreat. Developers are also likely to bear the brunt of greater financial prudence exercised by genuine home buyers as they no longer have the luxury of time to build up funds for repayment.’

The government’s announcement on Friday of the immediate withdrawal of the DPS means an end to the system in which private property buyers could buy units in uncompleted developments with just a 10 or 20 per cent downpayment, with the payment for the rest of the purchase price in some cases postponed until the completion of the project.

CIMB said in its research note yesterday: ‘We believe this move is aimed at discouraging speculative activity and is also a preventive measure to keep mass-market price escalations in check.’

There will be no new DPS developments available, although developers which have already obtained approval to offer the scheme for a project may continue to do so.

One development that seemed to be benefiting over the weekend from its approval for DPS was United Industrial Corporation’s (UIC) Park Natura, a five-storey freehold condo in the Toh Tuck area near the Bukit Batok Nature Reserve. The condo has an average price of about $1,000 per square foot. UIC is said to have sold more than 60 units over the weekend in the project, which has 192 units in total.

The developer is offering a partial deferred payment scheme where buyers pay an initial 10 per cent, with progress payments needed only after one year.

On the stock market yesterday morning, the Singapore Properties Equity Index fell as much as 2.1 per cent from Friday’s close to 1,545.16 points. It later recovered to end at 1,557.52 points - just 1.3 per cent lower than Friday’s finish.

City Developments lost 50 cents to close at $15.80, followed by SC Global Developments which eased 35 cents to finish at $5.50. Singapore Land lost 25 cents, closing at $9.85.

‘Purer developers with sizeable residential inventories are likely to be the most affected,’ CIMB said.

‘Stocks under our coverage with revalued net asset values that are particularly sensitive to asset price changes include Allgreen, Bukit Sembawang, City Developments, Ho Bee and UOL. We estimate that every 10 per cent change in residential prices will result in 5-10 per cent changes in stock valuations for these companies.

‘The sector is currently under review . . . we expect to lower our residential selling price assumptions by 10-15 per cent in the upcoming results season in view of mounting uncertainties in the property market,’ CIMB said.

Citigroup said that the DPS withdrawal has ‘probably removed the champagne from the party’ since property prices have been fuelled to some extent by the availability of deferred payments, which account for more than 70 per cent for some projects.

‘Sentiment will likely weaken in the short term, particularly in the luxury segment. Longer term, fundamentals, including strong economic growth, immigration and low interest rates will likely be supportive of property prices,’ the report said.

But other analysts, like JP Morgan’s Chris Gee, said that he was recommending investors to be underweight on the sector even before Friday’s announcement.

‘Pricing power is shifting very firmly away from developers because they now have more products to sell,’ he said. ‘But they’re not just competing among themselves for buyers but also with specu-vestors who’ve bought properties since 2005 and who can offer buyers properties that will be physically completed sooner than those that will be launched by developers in the near future.’

Source : Business Times - 30 Oct 2007

SUNTEC Reit has reported fourth-quarter income available for distribution of $30.4 million, an increase of 22.2 per cent from $24.8 million a year ago.

For the same July 1-Sept 30 period, Suntec Reit recorded gross revenue of $51.1 million, an increase of 13.7 per cent year-on-year. Net property income was up 12 per cent up at $36.6 million while distribution per unit (DPU) was 2.122 cents, up 11.3 per cent.

The Reit’s stake in Suntec City Mall and Office Towers contributes 87.4 per cent of its net property income (NPI) and it reported that Suntec office leases were secured at higher rental rates of between $11 and $13 per square foot (psf) per month, and the committed office occupancy at Suntec City is at 99.8 per cent.

Suntec Reit also reported that the committed retail passing rent at Suntec City Mall hit a new high of $10.46 psf per month.

The Reit, which also owns Park Mall and Chijmes, reported that the passing rents there rose to $6.60 psf per month and $10.68 psf per month respectively.

Suntec Reit also recognised a revaluation surplus of $677.5 million for the quarter after independent valuations of its porfolio was valued at $4.57 billion (as at Sept 30).

On a full-year basis (Oct 1, 2006 to Sept 30, 2007), income available for distribution was $115.4 million, up 21.6 per cent from $94.9 million in the corresponding period a year ago. Net property income was up 11.8 per cent at $140.6 million and DPU was up 11.8 per cent at 8.15 cents.

Based on the closing price of $1.84 on Oct 26, Suntec Reit’s distribution yield was 4.4 per cent, up 11.8 per cent compared to the previous year.

Yeo See Kiat, CEO of Reit manager ARA Trust Management said: ‘On the acquisition front, we have entered into an agreement to acquire one-third interest in One Raffles Quay which will be completed shortly.’

Suntec Reit’s other income revenue from A&P, pushcarts and kiosks for FY07 grew 10.2 per cent year-on-year, surpassing the $6 million mark.

For its current office portfolio, 26.8 per cent of leases are expected to expire next year, with 42.6 per cent expiring the following year.

For its retail portfolio, 30.4 per cent of the leases are expected to expire next year, with 23.4 per cent expiring the following year.

Suntec Reit ended the trading day yesterday at $1.84 per share, unchanged.

Source : Business Times - 30 Oct 2007

TENDERS for collective sales continue to be launched. The latest offerings include Dunearn Gardens near the Newton/ Scotts roads area, The Village in Pasir Panjang, and Riviera Point along River Valley Road.

CB Richard Ellis, which is marketing Dunearn Gardens, says the guide price for the 95,443 sq ft freehold site, is $578.5 million, which translates to about $2,288 per square foot per plot ratio, inclusive of an estimated $32.9 million development charge (DC). A new condo on the site would break even at about $2,900 to $3,000 psf, market watchers say.

The site is zoned for residential use with a 2.8 plot ratio (ratio of maximum potential gross floor area to land area). The maximum height allowed for the site is about 33 storeys. The plot can be redeveloped into a new condo with about 134 units averaging 2,000 sq ft each.

Credo Real Estate, the marketing agent for The Village, expects the freehold 102,642 sq ft site to fetch $75 million to $80 million. This reflects a unit land price of $646 to $680 psf per plot ratio, including an estimated DC of $17.75 million. Credo pointed to the possibility of the developer buying up to 20,000 sq ft of adjoining state land parcels, thus potentially enhancing the land size to 122,642 sq ft. In such a scenario, the developer’s unit land price would be lowered to $578 to $607 psf ppr - based on the $75 million-$80 million price tag set by The Village’s owners.

The site is zoned for residential use with a 1.4 plot ratio and five-storey maximum height.

Newman & Goh is marketing a few small sites. One of them is Riviera Point, a 14,580 sq ft plot at River Valley Road with a 2.8 plot ratio and 36-storey maximum height. Its owners are asking for $73.5 million, which works out to $1,800 psf ppr. No DC is payable.

Off Thomson Road, the property agent is marketing View Point and the nextdoor Shiba Apartments with asking prices of $20.5 million and $16.9 million respectively. These work out to around $792 psf ppr including DC.

Source : Business Times - 30 Oct 2007