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Allco Commercial REIT has been given the green light to build a 10-storey hotel with about 350 rooms at China Square Central.

The Urban Redevelopment Authority (URA) has granted Allco REIT permission to add 16,000 square metres of gross floor area to the development in the central business district.

The development currently consists of a 15-storey office block and 38 conservation shop house units.

Allco REIT has also been granted permission to convert some existing car parks into office space.

The URA approval is valid for six months starting from the end of June. - CNA/ms

Source : Channel NewsAsia - 30 Jun 2008

Suntec REIT has secured a S$400 million loan to refinance its bridging loans.

It will be carried out through an unsecured club loan facility from a panel of banks.

The facility is for a period of three years.

The loan will help Suntec refinance an outstanding loan after its acquisition of one third of the One Raffles Quay building in the central business district.

With this new deal, Suntec REIT will not need additional refinancing until financial year 2009. - CNA/vm

Source : Channel NewsAsia - 30 Jun 2008

In a welcome departure from the generally quiet market so far this year, the latest property launch - of the 616-unit Clover by the Park - has generated sales of 195 units so far.

Sim Lian Group, which is developing the condo, said that as at 8pm last night, it had sold 195 out of the 308 units that were released for sale since last Friday’s official launch.

The 99-year leasehold condominium has large units, suites and penthouses.

The eight suites, of 3,057 sq ft each, were all snapped up, indicating that buyers were keen on larger units.

Buyers were mostly families upgrading from HDB flats. They picked up units priced between $907,000 and $2.68 million, or $599 per sq ft (psf) to $858 psf, said Sim Lian Land’s executive director, Ms Diana Kuik.

The average price worked out to be about $750 psf.

Ms Kuik said potential buyers thronged the showflat and some stayed so late that the developer closed the showflat only at midnight on Saturday and around 10pm last night.

However, about 100 units had already been sold by Thursday, following the development’s soft launch on Wednesday.

The property market has largely been quiet recently, as sentiment dipped drastically early in the year. Sales volume has plunged dramatically from the numbers registered during the boom times of last year. While the mood is still cautious, a few recent launches have registered encouraging sales.

Savills Singapore’s director of marketing and business development, Mr Ku Swee Yong, said: ‘Serious buyers were probably spoilt for choice this weekend, shopping among the few launches which are attractively priced.’

A week ago, the 99-year leasehold Dakota Residences in Dakota Crescent and the freehold The Amery in Telok Kurau were released for sale.

Source : Straits Times - 30 Jun 2008

One of the most striking things about the past couple of months is how quickly the phrases ’sub-prime crisis’ and ‘credit crunch’ have disappeared from mainstream consciousness, both replaced by ‘inflationary worries’ and ‘oil crisis’ as the stock market’s main bogeymen.

In its ‘Third Quarter Strategy Outlook’ dated June 27 for instance, BCA Research said the outlook will be greatly influenced by how oil prices behave: ‘The sustained advance in oil is choking off growth in the G-7 universe and could send equities to new lows. A reprieve in the oil crisis is needed for global equities to regain traction but there is no guarantee that such a reprieve will come anytime soon.’

As a result, the research outfit recommended going defensive and that ‘portfolio managers should further reduce their equity weightings below benchmark’.

There was virtually no discussion as to whether there could be more sub-prime shocks to come or whether the financial system has really recovered from the huge losses caused by a still-collapsing US housing market.

Similarly, most other outlook reports and stock market updates have assumed that the Bear Stearns bailout and the Fed’s actions in March/April have been sufficient to ensure that the sub-prime crisis is a thing of the past.

Readers would do well to ask themselves this question: how likely is it that a credit bubble that was about six years in the making (when the US Federal Reserve started an aggressive rate cutting campaign after the Internet bubble burst) can be so quickly and gently deflated in the space of two to three months?

Although most of the headlines over the past few weeks have focused on oil’s relentless climb and the inflationary-cum-growth implications, it is the complacency surrounding the sub-prime crisis that could well be the main problem equities will face over the next few months.

In fact, Wall Street may well be now waking up to this possibility - Bloomberg on Friday reported that it was sharp drops in financial stocks AIG and Merrill Lynch that dragged the S&P 500 to its five-year low and that the reason for the selling was mounting realisation that there are more sub-prime losses to come.

Bloomberg also reported that Lehman Brothers analyst Roger Freeman increased his second-quarter loss estimate for Merrill on expectations that sub-prime-related writedowns will be more than twice as big as previously projected.

The concerns over oil, inflation and growth are of course justified. BCA’s ‘Emerging Markets Strategy’ dated June 27 said these economies will witness a period of slower growth in the months ahead as inflationary pressures rise.

Although a major slump is unlikely, BCA said near-term risks are high and recommended investors ’stay on the sidelines’.

Interestingly, US newspaper Barron’s June 23 issue reports (in the ‘Up & Down Wall St’ column) that fund manager Dewey Kessler from SDK Capital believes that the sub-prime crisis is now moving into its second phase, a phase that will see emerging markets transformed into ’submerging markets’.

The process is said to have only just begun, starting with China, which although it is 50 per cent off its all-time highs, has still a long way to go.

Here, investors may derive some consolation from the relative resilience the Straits Times Index displayed last week, largely thanks to strong support for the banks (OCBC and UOB actually rose over the five days while DBS only lost 2 cents).

However, it is possible that this support came via window-dressing activities ahead of the end of the first half and if so, the start of the second half could see this support withdrawn.

Moreover, US financial stocks are now being sold off as the realisation grows that the sub-prime credit crunch has not yet run its course. If the same realisation and selling spreads to the local banks, the STI will not be able to display the resilience it did last week.

All told, it looks like the worst is still not over yet. Forecasts earlier this year that the second half will be better than the first may well have to be revised.

Source : Business Times - 30 Jun 2008

Tiptoeing gingerly around the sector, think specialised, short and selective

They say there’s no business like show business; right now, they are also saying there’s no worse business than the construction business.

The construction industry is being battered from every angle: margins are being squeezed; sand, concrete and steel prices have been taking turns to take off; and residential property sales have turned anaemic.

Steel suppliers further tightened the screws by cutting the lock-in period for steel prices from six months to three months early this year, leaving contractors even more vulnerable to price fluctuations.

It isn’t surprising then that some pundits are ironically predicting the destruction of the construction business.

‘This is a very bad time to be looking for bargains in the construction industry. It’s in bad shape and is the worst hit by inflation,’ says an analyst who does not want to be identified.

Other analysts, however, are decidedly bullish on the industry and insist that all builders cannot be tarred with the same brush.

‘Investors are not able to differentiate between specialised and integrated construction firms. The former have a lower risk profile,’ explains CIMB analyst Lawrence Lye.

Investors should bear in mind the three S’s when tiptoeing around the minefield of construction stocks: think specialised, short and selective.

Specialist companies involved in specific parts of a construction project may be better placed to stay out of the crossfire between suppliers and the main contractors that attempt to do everything.

‘We would recommend investors reduce their exposure to integrated construction companies,’ Mr Lye says. ‘These companies have large order books and stand a higher risk of margin erosion.’

Instead, he suggests specialist firms with low exposure to construction material costs, like Tat Hong and Tiong Woon, both of which are crane-leasing companies.

With commodity prices being contractors’ Achilles heel, firms with shorter- term contracts are better bets, like foundation engineering firm CSC Holdings, according to Mr Lye.

‘CSC’s average contracts are short at three to six months, which limits its exposure to fluctuating prices,’ he says.

And while trite, it pays to remember the adage, ‘location, location, location’. Selective locations, in particular.

‘Wealthy buyers tend to be more discriminating, and they will be looking for property in areas like Districts 9, 10 and 11 which are not overbuilt,’ says Mr Lye.

Contractors with projects in such areas will be safer bets, as prices are expected to remain relatively higher.

BBR, a contractor working on a development in Nassim Hill, would appear to fit the bill, especially since the estimated benchmark sale price of a similar unit was $2,200 per square foot in June, far exceeding BBR’s breakeven price of $1,304 psf on the project.

One particular firm that has struck out on all three counts is Lian Beng Group, a main contractor saddled with a large order book of $800 million extending till 2010 and unsold residential properties.

Order books provide an indication of both future revenue and costs. The larger and longer a firm appears to be committed to an order, the larger and more risky its exposure to raw material price increases.

While Lian Beng’s latest projects in Bukit Timah and Emerald Hill are estimated to have higher gross margins, its overall development portfolio remains a risky bet.

‘We are cutting our FY08-10 forecasts for Lian Beng by 11-60 per cent to account for risks in its property development profits, which stem from projects such as Lincoln Lodge and Kovan Road, where benchmark transacted prices have fallen below breakeven costs,’ Mr Lye said in a report this month that downgraded Lian Beng from ‘outperform’ to ‘neutral’.

Kim Eng analyst Wilson Liew begs to differ on Lian Beng, citing the contractor’s advantage in controlling raw material costs because it owns a batching plant for ready-mixed concrete, and maintaining a ‘buy’ recommendation.

Even so, the writing on the wall cannot be ignored. The valuation of the company has been lowered from $1.12 to $0.68 per share by Mr Liew, based on an expected shrinkage of all-important margins.

In addition to its three strikes, Lian Beng also falls into a category of firms that now fancy themselves as property developers as well.

This category also includes the likes of investment holding company Eastern Holdings and is dismissed by CIMB’s Mr Lye as ‘Johnny-come-lately firms that snapped up land in the middle of 2007 when property prices had peaked, right before the meltdown in July’.

‘Reduce exposure to contractors that have turned opportunistic property developers late in the cycle,’ he says. ‘These are likely to be saddled with unsold inventory or expensive land.’

And if you must invest in a giant, go for one that has fluctuation clauses to manage raw material prices, like main contractor Chip Eng Seng.

‘Gross margins for public projects are likely to remain stable at around 5 per cent, as increases in raw material prices will be protected by fluctuation clauses,’ Westcomb analyst Wong Say Tian said in a report this month on Chip Eng Seng. ‘We estimate that public projects account for about 60 per cent of the group’s existing order book.’

While the bottom line may take a beating for some builders this year, it is still clear: investors should avoid construction companies built on sand if they want a solid portfolio.

Source : Business Times - 30 Jun 2008