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Property developers in Asia face a ‘double whammy’ of rising credit spreads on loans and banks lending less against the value of new projects, a senior Asian property fund manager said yesterday.

And the wider interest margins that banks have been demanding on loans since the start of the financial market turmoil are likely to be sustained, said Olivier Lim, chief financial officer of CapitaLand, South-east Asia’s largest developer.

Mr Lim and Ng Beng Tiong, the Singapore-based director of operations at ARA Asia Dragon Fund, were speaking at a panel discussion on the last day of a conference organised by Merrill Lynch that started on Tuesday.

Mr Ng said that although benchmark interest rates in Singapore and Hong Kong have fallen, ‘what we’ve seen is that the margins have shot up tremendously - more than double in many cases’.

Before the US sub-prime mortgage crisis broke, property companies in Asia could borrow at spreads of less than 100 basis points or one percentage point above interbank lending rates, Mr Ng said.

‘Now banks are quoting 200, 300 and for some smaller developers we understand that they’re being quoted 400′ basis-point spreads.

Besides paying higher interest rate spreads on loans, developers are also finding that the proportion of a project’s value that banks are willing to fund - the loan-to-value (LTV) ratio - has shrunk, he said.

‘In the bullish days, we were seeing 70-80 per cent LTV. Now banks are quoting 50-60 per cent, so it’s a double whammy for project financing.’

ARA Asia Dragon Fund is the flagship private real estate fund of ARA Asset Management, an affiliate of Hong Kong’s Cheung Kong Group. At the end of last year, the fund, which invests in major cities throughout Asia, had more than US$1.5 billion of capital from institutional investors worldwide, including Calpers, the largest US public pension fund.

CapitaLand’s Mr Lim said the first quarter saw ‘the worst credit market situation I’ve seen in my 19-year career’.

Although spreads have since narrowed slightly, ‘I think the blow-out in the credit margins will be sustained’, he added. ‘I don’t see it compressing to where it was last year.’

At CapitaLand, ‘we’re seeing, on average, rates go up by between 60 to 100 basis points, depending on whether it’s corporate risk or project risk’.

‘But we are sensing a flight to quality, so for us we’ve been able to raise about S$4 billion overall of credit debt from multiple sources in the first quarter alone. We still have access, but we do have to adjust to a higher margin. Thankfully, the cost of money is much lower, so the overall cost is about the same as it was last year.’

Last month, the firm raised another S$2 billion of bank funding for its new condominium development at Farrer Court. ‘Banks are still lending,’ he said.

In Asia, outside its main markets of Singapore, China and Australia, CapitaLand has been ‘probing many other markets’ including Thailand, Malaysia and the Middle East, ‘but it’s becoming much clearer to us that two countries are at the top of the list - Vietnam and India’, he said. ‘We’re starting to accelerate our investments in both of those countries.’

Meanwhile, despite suggestions that property prices in Singapore have risen too far too fast, ‘I think the market is a lot healthier than people indicate’, Mr Lim said.

Source : Business Times - 17 May 2008

CAPITALAND unveiled a green mascot called Capitafrog as it launched its Building a Greener Future programme at Raffles City on Thursday. The property group is looking at making the mascot into a soft toy and will unveil further green initiatives in the coming months.

To drive home the green message, some 100,000 green shopping bags will be distributed to shoppers via CapitaLand mall tenants. Shoppers get one stamp on a loyalty card each time they use the bag. They can exchange three stamps for a limited edition Building a Greener Future umbrella adorned with Capitafrog. In addition, 168 customised recycling bins for paper, metal and plastics will be strategically placed in CapitaLand malls, offices and Ascott service residences to encourage the green habit.

The company will also invite architectural students in China to participate in a design competition for a Green CapitaLand Hope Foundation school as part of a corporate social responsibility (CSR) and green campaign.

Source : Business Times - 17 May 2008

CITY Developments Ltd (CDL) yesterday launched its first annual report focusing on the property developer’s impact on the environment, such as energy usage and carbon emissions.

The 54-page voluntary report, one of the first of its kind for a Singapore public-listed company, also details CDL’s activities and performance on various social and environmental issues, including efforts to improve the efficiency of energy and water use at its property projects and to reduce the amount of waste it generates.

But profits still come first, managing director Kwek Leng Joo said at a media conference to launch the report yesterday.

‘Businesses are for profit. Companies are out there not primarily to do charity work, think about how they should protect the environment or how they should repay kindness to society,’ he said. ‘The primary obligations are to the shareholders and investors.’

A company needs to be profitable first ‘before it can even put itself in a position to talk about CSR (corporate social responsibility) or anything else’, Mr Kwek said.

Just a day earlier, CDL reported a 31 per cent jump in net profit to $165 million in the first quarter from a year earlier. And last year saw record revenue and profit for the second-largest developer here amid the boom in property prices.

But a public-listed company must also be sure that ‘whatever kind of business it is in is sustainable’, which is where CSR issues are relevant, Mr Kwek said.

As a major property developer, paying attention to environmental conservation and protection issues is necessary to ensure that its core business of developing and managing new projects is sustainable in the long term, he added.

According to the report, CDL invests 2-5 per cent of the construction cost of a project in environmentally friendly ‘green’ design and features.

The company said it aims to track and measure its social and environmental efforts and performance against international benchmarks, and is setting up a formal CSR committee comprising senior management that will report directly to Mr Kwek.

Zoe Knight, head of socially responsible investment research at Merrill Lynch, said the report is a ‘breakthrough’ for Singapore.

Other Singapore-listed companies that have published separate environmental impact reports include Singapore Airlines and Chartered Semiconductor Manufacturing.

Source : Business Times - 16 May 2008

Property tycoon Kwek Leng Beng has warned that most property investors follow the herd instinct and wait too long in a cautious market - then make a wrong move.

The executive chairman of City Developments (CDL) said he remains upbeat about prospects for the real estate scene in Singapore, despite recent weak sales volumes.

Mr Kwek, who was a panellist at the Financial Times Asia Property Summit held at his St Regis Hotel yesterday, said the property market is just consolidating.

The mood in the Singapore property market is cautious in the wake of the United States sub-prime crisis, with many buyers and sellers preferring to remain on the sidelines.

He said he was waiting for the opportunity to ‘go in and buy at the right time, be a bottom fisher’.

But most people will do the opposite, he said. ‘You notice (people) will keep on waiting… until it’s too late,’ he said.

‘It’s the herd instinct… the majority will be wrong.’ A shrewd investor will act on his own, he said.

If the casino-led boom in Macau’s luxury homes market is anything to go by, Singapore will do even better as it will have two casinos and other major events, he said.

‘We are victims of our own success,’ Mr Kwek.

‘In the old days, we had only regional investors from Indonesia, Malaysia, Taiwan… But today, we have big investors like Morgan Stanley, hedge funds.’

Mr Christopher Fossick, Jones Lang LaSalle’s managing director for South-east Asia, who was on the same panel, said there is now a higher proportion of investors than before, compared with occupiers.

Investors tend to be more sensitive to market sentiment, he said.

CDL, which has held back the launch of four residential projects because of poor sentiment, said in its recent earnings announcement that it plans to release them once sentiment improves and when pent-up demand can be realised.

‘In the first place, we were sick,’ said Mr Kwek of the property market before its recent boom. ‘But today, we have shifted to another platform. Instead of relying on technology, we are relying on our status as a global city.’

He also told reporters yesterday that hotel rates will continue to rise this year because of short supply.

The office market will also do well, though rent increases have moderated. As for the much talked-about office oversupply situation come 2010 or 2011, Mr Kwek thinks supply will not pose a problem then because the current construction boom will check that.

Source : Straits Times - 16 May 2008

It will offer re-usable shopping bags in its malls, recycling bins at all its properties

Property giant CapitaLand has launched a new campaign to encourage users of its malls, offices and serviced apartments here to adopt a green lifestyle.

It is starting the initiative with 100,000 re-usable shopping bags that come with a novel incentive programme.

CapitaLand president and chief executive officer Liew Mun Leong said that, while the idea of re-usable shopping bags is not new, the company has added a new twist.

‘It will have a mini loyalty programme to further influence our shoppers to adopt a greener way of shopping.’

Those who pick up one of the bags - to be given out at CapitaLand malls - will be able to collect stamps when they use the bags. Three stamps will entitle them to a limited edition umbrella.

CapitaLand’s ‘Building a Greener Future’ programme kicked off yesterday, with a ceremony at the Raffles City shopping centre officiated by Dr Yaacob Ibrahim, Minister for the Environment and Water Resources.

The programme will comprise a series of further initiatives over the next few years.

Mr Liew said that, from today, 168 customised recycling bins will also be placed at the company’s 22 malls, offices and Ascott serviced residences.

‘We hope this will encourage the recycling of paper, metal and plastic by making it more convenient for our shoppers, tenants and residents to do so at our CapitaLand properties.’

An estimated 600,000 shoppers pass through the company’s 11 malls every day, or some 18 million each month.

CapitaLand vice-president for corporate social responsibility Baey Yam Keng said that more initiatives will be rolled out in the coming months. It is understood that these will include programmes for schools and the possible adoption of water bodies such as reservoirs.

Dr Yaacob said the Government is heartened to see the private sector embracing and spreading the green message.

‘It is obvious that they know best how to implement this at their operations and we do not want to legislate this but rather work with them.

‘We encourage more private sector parties to take up such initiatives in the future.’

Source : Straits Times - 16 May 2008