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A DUBAI government firm yesterday announced it will build a ‘new city’ in the Gulf emirate at a projected cost of US$95 billion (S$137 billion), shrugging off the global financial turmoil.

The mixed-use Jumeirah Gardens development will be ‘an integrated city within a city’, to be built over 12 years, Meraas Development said at the opening of Cityscape 2008, a four-day international real estate exhibition.

The announcement came one day after Dubai developers Nakheel said it planned to build the world’s tallest tower, which could stand 1km tall, beating its nearest rival, the Burj Dubai tower, still under construction and due to rise to a mere 818m, the Guardian said.

Nakheel said the 200-floor structure would be the centrepiece of an inner-city harbour planned as the emirate’s unofficial capital.

Taipei 101 Tower in Taipei, Taiwan, is currently the world’s tallest skyscraper at 509m high.

Foundation work for the Nakheel tower has already begun.

Chief executive Chris O’Donnell said he was confident Nakheel could pay for the project despite the global financial troubles. ‘There might be a slowdown, but there definitely won’t be a crash.’

ASSOCIATED PRESS, AGENCE FRANCE-PRESSE

Source : Straits Times - 7 Oct 2008

Plan may spark bank lending again, but damage to economy seen as enormous

INVESTORS had been waiting hopefully and impatiently over a week for the US Congress to approve the government’s plan to buy up to US$700 billion worth of the illiquid assets that have been weighing down banks’ balance sheets and operations. And when the approval came, their reactions were rather subdued.

But if last Friday’s reaction to the passage of the financial bailout plan was any indication of what the stock market faces over the next several weeks, the hard times on Wall Street could be just getting started.

‘Getting the bailout plan in place is obviously vital to keeping the financial system, both here in the US and abroad, from an outright collapse, but no one is under the illusion that the government rescue means we’re okay again. We have a long period of struggle ahead of us,’ said Hugh Johnson, the chief investment strategist at Johnson Illington Advisors, who may request his clients’ permission to reduce their equity allocations below the minimum 35 per cent level to which he has already lowered their portfolios.

Indeed, while most Wall Street analysts and economists agree that the Troubled Asset Relief Program, or TARP, passed by Congress on Friday should ease constraints in the nearly frozen credit markets, encouraging banks to begin lending to one another again and to businesses and consumers as well, enormous damage has already been done to the US economy over the past month.

‘Considering how much of a fragile condition the economy was in prior to the devastation we’ve seen the past few weeks, the economic fundamentals are in pretty bad shape now,’ said Joel Naroff, president of Naroff Economic Advisors. ‘The September jobs report offered ample proof that the credit crisis has moved into the mainstream of the economy. We’ve got the potential for a steep and long recession and are likely to see more months of job losses before conditions turn around,’ he noted.

That gloomy assessment seemed to be the majority opinion on Wall Street last Friday, and with a third quarter earnings season that is expected to be a brutal one getting it’s unofficial kick-off tomorrow, when Alcoa reports its quarterly profits, investors should brace themselves for a continuation of the stock market’s downward spiral.

‘Stock market valuations are attractive right now by many measures, making them potentially compelling investments, but given the extremely negative sentiment weighing on stocks right now, a sustained rebound looks increasingly unlikely given the market turmoil,’ said Tobias Levkovich, Citigroup’s chief equity strategist, who added that he doubts the market will reach his price targets of 1,475 in the S&P 500, and 13,250 in the Dow, which he’d already lowered by 5 per cent each on August 15.

There could be a bargain hunting rally or two this week, as investors venture into the healthier companies in the heavily battered and, some say, oversold financial services sector. But investors will be doing themselves a disservice if they expect stocks to recover even the heavy losses sustained over the past two weeks as Wall Street awaited the outcome of the bailout plan negotiations.

‘The recovery from a bear market typically takes about twice as long as the fall,’ said Mr Johnson.

If Friday’s trading marked the bottom of the bear market, investors did their best to dig the hole as deep as possible. After rising as much as two hundred points earlier in the day, the Dow Jones began a midday swoon that only worsened after passage of the bailout bill, ending with a loss of 157.47 points, or 1.5 per cent, to close at 10,325.38. The S&P 500 lost 15.05 points, or 1.35 per cent, to 1,099.23, while the Nasdaq lost 29.33 points, or 1.48 per cent, to end the week at 1,947,39.

For the week, the Dow lost 7.3 per cent, its biggest weekly drop since July 2002, and is now down 22.16 per cent for the year. The S&P 500 slumped 9.4 per cent, its lowest close in four years, and is down more than 25 per cent year-to-date. The Nasdaq, which lost 11 per cent last week, is down 26.58 per cent for the year.

The stock market could get a quick boost if investors see that banks are willing to lend to each other, so Wall Street will be paying close attention to the London Interbank Offered Rate, known as Libor, which now stands at 3.93 per cent, an extraordinary 144 basis points higher than its 2.49 per cent rate just a month ago.

The fading economy will draw investors to several key pieces of economic data scheduled for release this week, starting tomorrow with the minutes from the Federal Reserve’s most recent meeting, which along with a Wednesday speech by Fed chairman Ben Bernanke could provide insight into whether the Fed will lower rates at its next meeting at end-October.

Consumer credit is also to be reported tomorrow. Pending home sales are released on Wednesday, and weekly jobless claims and wholesale trade are due to be reported on Thursday. Friday brings international trade and import prices.

It’s a light week for the beginning of third-quarter earnings reporting season, with only Alcoa and General Electric scheduled to release profit reports tomorrow and Friday respectively, representing the Dow Jones Industrials, and only six other S&P 500 companies reporting.

But that will be enough to get investors focusing on the estimated third-quarter profit contraction of 4.8 per cent. Most of the negative growth, of course, can be laid on the doorstep of the financial sector which is expected to post a drop of 68 per cent in profits, or a US$27 billion plunge, from the third quarter in 2007.

Source : Business Times - 6 Oct 2008

A housing upturn may induce banks to lend again: analysts

(NEW YORK) Washington’s financial bailout plan is now law. So the credit spigot will start flowing again, banks will resume lending, and an economic recovery can begin, right? Wrong.

Experts say the most important thing that needs to happen before the US$700 billion bailout even has a chance of working: Home prices must stop falling. That would send a signal to banks that the worst has passed and it’s safe to start doling out money again.

The problem is the lending freeze has made getting a mortgage loan tough for everyone except those with sterling credit.

That means it will take several months or longer to pare down the glut of houses built when times were good - and those that have come on the market because of soaring foreclosures - before home prices start appreciating.

Housing is a critical component to the US economy and by extension the availability of credit. Roughly one in eight US jobs depends on housing directly or indirectly - from construction workers to bank loan officers to big brokers on Wall Street.

A turnaround in housing prices would boost confidence in the wider economy and, experts hope, goad banks into lending again.

‘Housing traditionally does lead the economy through a recovery. I think it’s going to be critical for a sustained recovery in this cycle, too,’ said Gary Thayer, senior economist at Wachovia Securities.

Sung Won Sohn, an economics professor at California State University, Channel Islands said the near certainty of a recession makes it too risky for the thousands of small and medium-sized banks across the country to lend to small borrowers.

‘Banks know the economy is getting worse, so … they will keep being cautious,’ said Prof Sung.

Still, the government hopes that by scooping up bad mortgage debt and other toxic assets, banks eventually can clean up their shaky balance sheets, crack open the vaults and send money washing through the system again. The rescue plan also raises the federally insured deposit limit to US$250,000 from US$100,000, a move that could boost banks’ reserves and further grease the lending wheels.

Representative Barney Frank, the Financial Services Committee chairman said the measure was just the beginning of a much larger task Congress will tackle next year: overhauling housing policy and financial regulation in a legislative effort comparable to the New Deal.

Meanwhile, the Treasury Department is moving swiftly to get the plan started. Treasury Secretary Henry Paulson said on Friday he has been lining up outside advisers as his staff works out details on a multitude of complex issues.

But several hurdles could trip up the plan. For starters, even when the Treasury starts buying bad assets, some banks may hoard the cash they receive in return until they see how the plan pans out.

That has the potential to make the lending logjam worse, said Vincent R Reinhart, former director of the Federal Reserve’s monetary affairs division. ‘They may sit on the sidelines and wait to see (the bailout) get some traction. The problem is if everybody sits on the sidelines, nobody gets in the game. It’s a risk.’

But Jim Gillespie, chief executive of Coldwell Banker Real Estate, said he hopes that lower prices, combined with the government’s actions will jump-start stagnant demand. The federal bailout plan ‘will give people reassurance that mortgage money is available.’ - AP

Source : Business Times - 6 Oct 2008

147 units seized from tenants who made profit from illegal sub-letting

MORE rental flat cheats are being exposed, with the number of flats seized by the Government for illegal subletting increasing five-fold this year.

New figures obtained by The Straits Times show that 147 rental flats have been recovered by the Housing Board as at end August, compared to just 28 flats recovered last year. Less than 20 flats were seized in 2005 and 2006 each.

This year’s number is set to go up further as the HDB steps up its efforts to weed out errant tenants who abuse their rental flats to make profits.

Rental flats rates currently range from $26 to $205 for a one-roomer and $44 to $275 for a two-roomer, depending on household income and other factors.

There is a long waiting list of more than 4,000 applicants for these flats, which the Government reserves for needy, low-income families that cannot afford to buy a home or pay market rental rates.

What rental cheats do is sublet these rental flats at market rates instead of staying in them. Many flats are being sub-let for about $1,000 a month, netting their original tenants handsome profits.

The Straits Times had reported in May a surge in the number of such tenants illegally sub-letting rental flats to cash in on the demand for low-priced housing.

Demand has spiked on the back of last year’s property boom, which has upped rentals islandwide, and an influx of foreign workers looking for cheap accommodation.

Anecdotal evidence, based on interviews with residents, shows that in some estates, as many as one in five rental flats were illegally rented out, often to foreign workers or students from Malaysia, China and India.

‘It’s great that HDB is discovering more of such cases,’ said MP for Pasir Ris-Punggol GRC, Mr Teo Ser Luck.

‘These units shouldn’t be used for profit and denied to a citizen who is really in need,’ he said.

The HDB has stepped up its enforcement blitzes, extending its net to more areas across the country. This was partly in response to a call-for-action by MPs, residents of rental blocks and genuinely needy Singaporeans who have been left waiting in the queue.

‘I fully support HDB’s enforcement actions. Rental flats shouldn’t be used as a money-making machine,’ said North West District Mayor Dr Teo Ho Pin, who is also MP for Bukit Panjang.

HDB said the increased awareness of such abuse this year has helped in its enforcement, with more residents calling its hotline. Of the 147 units recovered, 31 units - or 21 per cent - could be traced to feedback from residents.

The increase in such cases comes at a time when local demand for rental flats have escalated - a ‘worrying trend’ singled out by Prime Minister Lee Hsien Loong in his National Day Rally speech.

The number of people seeking such flats has ‘tripled’ in just a year, he said. There are about 4,387 in the waiting list as at June, with a waiting time of nine to 18 months. In 2006, the wait was just two to six months.

HDB has since said it will ramp up its current stock of rental flats from 42,800 to 49,860 by end-2011. Tenants illegally renting out their home can lose the flat and face a five-year ban from renting or buying HDB property.

Source : Straits Times - 6 Oct 2008

No need for panic as regulatory approach ensures banks are solid

THE questions came fast and furious: How well are insurance policies protected? Are offshore banks safe? Can the Government make banks raise the guaranteed amount for deposits?

In an uncertain economic climate that has seen seemingly rock-solid financial institutions in the United States topple one after another, anxious residents yesterday quizzed the Finance Minister himself on Singapore’s financial system.

Mr Tharman Shanmugaratnam assured them Singapore is ‘not in the same situation as the US’.

‘We need not panic,’ he told residents at a dialogue in Toa Payoh East.

One resident noted that if there is a run on a bank here, depositors are protected for up to $20,000 in their accounts. ‘I think many of us have more than $20,000. Can the minister do something to make the bank increase the guaranteed amount?’ he asked.

Mr Tharman replied: ‘I can assure you our Singapore banks are well regulated and there is no risk and no reason whatsoever to have a run on our banks.’

Singapore has been ‘old-fashioned’ in its strict regulatory approach to make sure banks have adequate assets, and do not over-lend to property owners.

‘So frankly, you need not worry about how solid our banks are, your money is safe,’ he said.

If banks are made to increase the guaranteed amount from $20,000, it will mean higher costs, ultimately borne by the customer. ‘So I would say this system is better: regulate the banks well, keep deposit insurance cost low.’

To another resident who wanted to know how well-protected Singaporeans’ insurance is, Mr Tharman stated categorically: ‘You can have equal confidence in our insurers.

‘Any insurance company operating in Singapore, including the foreign companies, have to abide by strict regulations.’

As for offshore banks, they are required to maintain assets in Singapore to meet their liabilities, he added.

‘It is not possible for anyone to say all banks are safe, but what I can say is our local banks are safe, and foreign banks in Singapore are subject to tighter regulations compared to most other places.’

Ultimately, consumers must have their eyes open when going to financial institutions, and judge where their money is safe, he said. ‘This is a responsibility that you have. Especially when people offer you higher interest or higher returns, your eyes must open even wider.’

The minister repeated this point when telling reporters later that there were lessons to be gleaned from the crisis.

The system can be improved, he acknowledged, whether on the part of the regulator, the Monetary Authority of Singapore (MAS); financial institutions; or the consumer.

‘The MAS approach is one that balances regulation with responsibility on the part of the institution and the investor. All three play a part, and in all three areas, I’m sure there can be improvements, coming out of the recent problems.’

But he warned against over-regulating, saying risk is inherent in the system.

‘We have to avoid swinging in a pendulum-like fashion when it comes to the regulation of financial products.

‘There have to be improvements in marketing and selling and disclosure. There are learning points coming out from the recent problems.

‘(But) let’s not swing to over-regulation because that is going to increase costs and it’s going to reduce the range of products that meet everyone’s needs.’

He cited as an example Lehman Bonds, which, as late as July, were rated A1 by credit-rating agency Moody’s. The highest rating is Aaa.

‘Should MAS say A1 bonds should not be bought by people? I think that would be over-regulation, but it turned out that Lehman Bonds went bust.

‘So it’s an example of how there is risk in the system, there is no way you can get it out of the picture by over-regulation unless you over-regulate to the extent you cut out options to sensible investors.

‘So let’s find a suitable middle ground (to) improve the system.’

Source : Straits Times - 6 Oct 2008