Singapore Property News Summary 02

US sub-par growth in US will slow down Singapore
Standard Chartered Bank sees challenges for the Singapore economy this year. It says growth may be weighed down by the sub-par growth in the US economy, as well as a sharp slowdown in other developed economies. The British lender has cut its growth projections for Singapore's economy from 5.7 percent to 4.5 percent. This is at the low end of the government's official 4.5 to 6.5 percent range. Cargo ships will still chug along this year, taking Singapore products overseas. But Standard Chartered says easing global demand will see exports slow down further, with spillover effects on sectors linked to trade, such as logistics.

The last time the US economy stagnated in 2001, Singapore went into a recession. However, things may not be as bad this time. Tai Hui, Regional Economic Research Head, Southeast Asia, Standard Chartered, says: "Compared to 2001 when the Singapore economy did go into a recession, the factors are much more positive now. "You have consumption pattern positive, investment sentiment remaining strong. The domestic demand side of the story this time is much more favourable for the Singapore economy, and that's one reason why we expect the growth to moderate and not plunge." Singapore's key growth drivers include the services and construction sectors.

StanChart also expects inflation to hit around 4 percent for the full year, most of it to come in the first half. Tai Hui says: "I think food prices and energy prices will be some of the external factors pushing inflation higher in Singapore. Domestic demand is again very robust. That could give retailers more room to price themselves for profit. Property prices again will be a positive factor driving inflation higher." Also expected to be higher is the Singapore dollar when compared to its US counterpart, which may temper imported inflation. However, StanChart sees other domestic prices pressures like rentals and wages. But it believes there may be some government measures to moderate the increases.

Marina Bay Suites - invulnerable to slow market?
Marina Bay Suites is seeing strong demand despite uncertainty in the market, according to its marketing agents. Both CB Richard Ellis and DTZ Debenham Tie Leung say they've received significant numbers of enquiries from both local and foreign buyers. What goes up may not necessarily come down, even in these uncertain times.

Demand for these luxury apartment units overlooking Marina Bay seems almost immune to external shocks. Ong Choon Fah, Executive Director and Regional Head, Consulting and Research, DTZ Debenham Tie Leung (SEA), said: "The top end of the market is like your blue chip stocks. When the market recovers they're the ones that run first, the price recovery is the fastest. But when the market comes down, a lot of them don't need to sell, so activity may come down but we find there's very good price support." Joseph Tan, Executive Director - Residential, CB Richard Ellis, said: "This is likely to be probably one of the last sites that has views of the Bay so in any property purchase situation, it's still location, location, location."

According to Raffles Quay Asset Management, the prevailing market rate for the Marina area is between S$3,000 and S$4,000 per square foot. And it remains bullish about the capital appreciation from residential units there. Kan Kum Wah, Marketing Head - Residential, Raffles Quay Asset Management, said: "You can see from the first phase of Marina Bay Residences, the price has moved between 25 percent and 75 percent as of today, and we believe that based on the current strong economy, we'll be growing in tandem or even outperform." Each unit in Marina Bay Suites comes with its own private lift lobby and there are just four units per floor. The apartments range from 1,600 to 2,700 square feet in area each. The development also includes three penthouse units, ranging from 4,700 to over 8,100 square feet each. Selected buyer previews for all 221 units will be held later this month.

For more resale value around Marina Bay, check out asking prices of units at www.PropertyBingo.com

Leedon Heights owners may get a breather for extended stay
Property developer GuocoLand is considering allowing former owners of Leedon Heights condominium in District 10 to continue staying on in their units for a limited period of time. This is a goodwill gesture at the request of some residents of the development who want more time to find replacement units. The 23-year-old Leedon Heights, off Farrer Road, was sold to GuocoLand in a collective sale last year for S$835 million.

Together with a S$40 million development charge, the price works out to S$1,062 per square foot per plot ratio. Some owners said they had asked for more time to vacate their units while they looked for replacement units. Karamjit Singh, Credo's managing director, said: "Well, most developers prefer to get on with their demolition construction so as to be able to market their projects. Usually, contractually, owners are allowed up to six months (to vacate their units). "Recently, what some developers with large projects have done is to build showflats within the large land areas at an obscure corner that allows existing occupants to stay on in the units while the new projects are being marketed." This appears to be what GuocoLand may do as well.

Responding to queries from Channel NewsAsia, GuocoLand said it believes that the land parcel is large enough for it to undertake its marketing initiatives for the new development, without inconveniencing the residents. As such, it is considering the request to allow Leedon Heights residents to remain in their homes for a limited period. Leedon Heights sits on a land area of about 48,500 square metres with a plot ratio of 1.6, which can accommodate buildings of up to 12 storeys. Nicholas Mak, director of Knight Frank, said: "It's very unusual for developers to lease back to their owners, after the collective sale.

The reason is because the developers are buying the site only for redevelopment. "For developers to do that - I think that has happened before, during the Asian financial crises - it would usually mean that the developer feels that the market, the primary sales market, is rather weak and is not ready to support the kind of selling price that they have in mind." According to the Urban Redevelopment Authority (URA), there were almost 65,400 private residential units in the pipeline last September. Of these, 41,600 are slated to be completed between this year and 2010.

S$929.5m payout to Ascott owners
CapitaLand Ltd. offered at least S$929.5 million ($648 million) to buy out minority owners of Ascott Group Ltd., after shares in Asia's biggest operator of serviced apartments fell 40 percent over the past eight months. CapitaLand, which owns 67 percent of Ascott, will pay S$1.73 a share to take the company private, the Singapore-based developer said in a statement to the stock exchange.

That values the unit at S$2.78 billion, 43 percent higher than its market worth Jan. 4 before the stock was suspended yesterday. ``Ascott was a severely undervalued stock,'' said Wilson Liew, an analyst with Kim Eng Securities Pte in Singapore. ``Going by the business model of CapitaLand, it does make sense as it allows them greater ease to carry out transactions such as sales of assets.''

CapitaLand, Southeast Asia's largest developer, more than tripled profit in the first nine months of last year as Singapore property values rose and the company built more houses in China. Ascott, Singapore's second-worst performing property stock in 2007, suffered a drop in net income as development costs rose.

Buying Ascott, the biggest operator of serviced apartments in Asia and Europe, will let CapitaLand strengthen ties between the companies' fund and property trust businesses, the developer said in the statement. Ascott, which was suspended yesterday, climbed 3.4 percent to S$1.21 in Singapore on Jan. 4. The shares dropped 18 percent in 2007, a year when the Singapore Property Equities Index advanced 9.3 percent.

CapitaLand, which was also halted from trading, gained 1.1 percent last year and last closed at S$6.25, valuing the developer at S$17.5 billion. ``There's an underlying tone that suggests CapitaLand is very bullish on the hospitality sector,'' Liew said. ``Going into 2008 and 2009, tourism figures in Singapore as well as internationally are expected to remain strong.'' DBS Bank Ltd. is advising CapitaLand on its bid, which also includes an offer to buy stock options for 17.1 million new shares in Ascott. CapitaLand will pay for the purchase through bank borrowings and internal funds, the developer said.

CapitaLand had S$2 billion of cash as of Dec. 31 and will be able to fund the takeover, brokerage DBS Vickers said in a research note today. The developer also agreed to borrow S$600 million for the deal, DBS Vickers said. ``If privatized, cost efficiency would result from greater sharing of services and resources with CapitaLand's other unlisted strategic business units,'' the company said. ``CapitaLand and Ascott will be able to fully integrate their fund and REIT management businesses to increase operational benefits and cost savings.''

Ascott has more than 19,500 rooms in serviced-residence units in 23 countries, including fast-growing economies China, India and Russia. The apartment manager posted a S$34.1 million profit in the third quarter of last year. CapitaLand, which is also one of Singapore's biggest landlords of retail and office space, reported 2007 third-quarter net income of S$563.9 million. Ascott Group sold shares in its first property trust, Ascott Residence Trust, in 2006. CapitaLand will not be making an offer for Ascott Residence.

Are China Property Bonds attractive?
Bonds of China's Agile Property Holdings Ltd. yield 7.17 percentage points more than U.S. Treasuries, double the premium in July and 1.79 percentage points more than the debt of Los Angeles-based KB Home, which has the same credit ratings. Agile, a housing developer in the southern province of Guangdong, and Country Garden Holdings Co., China's most-profitable builder, canceled debt sales in November when borrowing costs climbed. As China's government attempts to cool property prices with limits on lending, developers are in a land grab. Li, who made his fortune in Hong Kong real estate, Chinese billionaire Xu Rongmao, who owns Shimao Property Holdings Ltd., and hundreds of local developers boosted investment 29 percent in the first eight months of 2007, the National Bureau of Statistics said.

``If the government decides to impose further restrictions, most if not all of the developers will go bankrupt, depending on the severity of the restrictions,'' said Eugene Kim, chief investment officer of Hong Kong-based Tribridge Investment Partners Ltd., a $200 million hedge fund. ``That makes us very selective in terms of which bonds we buy and the spreads we require to compensate for risk.'' Kim said he has trades set up that would profit from a decline in prices. New York-based Merrill Lynch & Co., the world's biggest brokerage, rates China property companies ``underweight,'' meaning investors should own a smaller percentage of the debt than contained in benchmark indexes.
Home prices in Shenzhen, a city north of Hong Kong, were 18.6 percent higher in November than a year earlier, according to a National Development and Reform Commission survey. They rose 14.9 percent in the capital city of Beijing and 16.4 percent in Beihai, in Guangxi province. The People's Bank of China last month raised its benchmark one-year lending rate to a nine-year high and increased reserve requirements to the most since at least 1998. The government increased the minimum down payments on apartments to 40 percent from 30 percent in September.
Signs of a shift are already emerging. The nation's largest publicly traded developer, Shenzhen-based China Vanke Co., sold property worth 4.23 billion yuan ($582 million) in November, 18 percent less than in October.

Chinese developers are among the most vulnerable of any group in Asia to downgrades because a slowdown in home sales would deplete cash, said Clara Lau, an analyst at Moody's Investors Service in Hong Kong. ``They have been growing aggressively, with the view that if they don't buy now, it will be more expensive for them later'' to acquire land, Lau said. Standard & Poor's cut the credit ratings of Greentown China Holdings Ltd., the largest builder in Zhejiang province, one level to BB- on Dec. 3 due to ``increasingly aggressive land acquisitions.'' Its $400 million of 9 percent bonds yield 11.2 percent, up from 9.6 percent in November.

The risk of Shimao and Agile defaulting on their debt rose to a record today, credit-default swaps show. The cost of protecting the bonds of Shimao and Agile against default increased by as much as 80 basis points, the contracts' biggest rise, to 560 basis points and 650 basis points, respectively, at 5:13 p.m. in Hong Kong, according to BNP Paribas SA. Each basis point, or 0.01 percentage point, on a contract protecting $10 million of debt from default for five years adds $1,000 to the annual cost.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Bond sales by developers rated at least BB, or one to three levels below investment grade, may rise 10-fold to more than $15 billion, Todd Schubert, a Singapore-based credit analyst at Deutsche Bank AG, said in a Dec. 7 report. Developers issued $1.4 billion of dollar-denominated debt in 2007, compared with about $5.5 billion from their U.S. counterparts, according to data compiled by Bloomberg.

``Each company knows that the window of opportunity is small and they want to be the one to fit through the window,'' Schubert said in the report. Agile pulled a $400 million debt sale in November after its borrowing costs surged to a record. The spread on the company's $400 million of 9 percent debentures due September 2013 widened to 7.17 percentage points from 3.23 percentage points on July 2. That caused the value of the bonds to fall 10 percent.

The premium on $250 million of 5.75 percent notes maturing February 2014 by KB Home, the fifth-largest U.S. homebuilder, rose to 5.38 percentage points from 2.41 percentage points, representing a loss of 5.9 percent. Agile and KB are rated BB by S&P. After reaching a peak of 1.389 million in July 2005, sales of new homes in the U.S. fell to an annual pace of 647,000 in November, a 12-year low, as discounts failed to lure buyers and mounting foreclosures swelled the glut of unsold properties, according to the Commerce Department.

Higher borrowing costs haven't stopped developers betting China's economy, which expanded 11.5 percent in the quarter ended September from a year earlier, will continue to support the housing market. ``Demand in China is huge,'' said Met Luk, a deputy general manager of Agile. ``Together with improvement in the economy, a lot of people are looking for a better living environment.'' Agile said it will add at least 2 million square meters (21.5 million square feet) of land this year. Country Garden Holdings Co., based in Foshan, Guangdong, tripled its land for development to 51.9 million square meters between April and August, according to an Oct. 29 Moody's report.

Cheung Kong Holdings Ltd., the property company controlled by Li, added at least 3 million square meters in the first half of last year, more than triple the acquisitions in all of 2006, its annual report shows. Li hasn't relied on debt to fund purchases in China. ``2008 will be a good year for investing in the property market in China,'' Justin Chiu, executive director of Cheung Kong, Hong Kong's second-biggest developer by market value, said in an e-mail.
China real estate investments by Cheung Kong and Hutchison Whampoa Ltd., Li's largest company, were at a ``historic high'' of more than HK$10 billion ($1.3 billion), and ``would rise,'' Li said in 2006. His net worth is estimated at $23 billion by Forbes magazine. The 79-year-old has a history of overcoming long odds to succeed. Li closed an unprofitable U.K. mobile phone operator called Rabbit in 1993. He returned a year later to start Orange Plc, which he sold in 1999 at a $15 billion profit.

Developers such as Cheung Kong and Sun Hung Kai Properties Ltd., Hong Kong's biggest, ``have been relatively prudent,'' said Hugh Young, a managing director at Aberdeen Asset Management Asia Ltd. in Singapore who oversees $50 billion. ``I don't think they just close their eyes and plunge all their money in China.'' Bondholders, wary that developers are too optimistic, say what happened in the U.S. last year and Japan in the 1990s may be repeated in China.

More than 100 U.S. mortgage lenders were shuttered, scaled back or sold in 2007 as the rate of foreclosures rose to the highest on record and home sales tumbled, according to data compiled by Bloomberg. In 1998, the Japanese government had to put 13.4 trillion yen ($122 billion) into public works as the fallout from a real estate slump lingered. In China, a housing slump may trigger more defaults because banking laws are still being written and a consumer credit rating system doesn't exist, said Yi Xianrong, a finance specialist at the government-backed Chinese Academy of Social Sciences research institute in Beijing. China's National Audit Office said in June it uncovered irregularities involving 15.6 billion yuan of loans in the 2005 results of three of the nation's largest banks. ``We will not know how big this problem is as long as property prices continue to rise,'' Yi said.

What's up for Vietnam's real estate market?
Singaporean businesses are showing their interest in the real estate market in Viet Nam, considering this to be a promising market. “As the political situation is stable and the economy has experienced growth for many consecutive years, the Vietnamese people are getting richer and their demand for housing is high. I suppose this is a potential market,” said Edwin Yu Kwok Kam, Director of the IMC Industrial and Property Investment Company. Edwin said at the Investment Opportunities in Viet Nam forum, which opened in Ha Noi on January 9, that the demand for housing will continue rising in Viet Nam where the property market is in short of supply.

Statistics released at the forum indicated an imbalance between the demand and the supply of apartment and office for rent. In the Ha Noi capital city, almost all apartment and office building projects report an occupancy rate of more than 95 percent. According to the real estate service provider, CB Richard Ellis (CBRE), Ha Noi has 4,924 hotel rooms rated at 3 - 5 stars and the figure remains modest as compared with 20,000 hotels in Bangkok .

Ho Jiann Ching, business development manager from the Ayala International Holdings Ltd. said he has seen a big opportunity in Viet Nam and believed that once entering the market, foreign businesses would be successful. Singapore now ranks second among foreign investors in Viet Nam , with 500 projects, capitalised at 9.7 billion USD.
Dang Dung – Vice President of the Ha Noi Association of Young Entrepreneurs (HAYE)– said almost all Singaporean projects are invested by multi-national groups. Small Singaporean firms, which have capital ranging between 1 and 10 million USD, are yet to come to Viet Nam.

UK property market predicted to continue falling
The UK commercial property market, battered throughout 2007 by falling values, is set to suffer more bad news this week with the publication of the UK annual property index from consultants IPD. Experts who follow the much-anticipated index are confidently predicting that it will show a slump of 15pc in the capital value of UK property from June, when values peaked, including a 4pc to 5pc fall in December alone, revealing that the second half of 2007 was one of the worst in recent memory.

Taking 2007 as a whole, capital values are thought to have slumped 10pc. The pain being felt by property investors has been reflected in the falling share prices of leading UK property companies such as British Land and Land Securities, which have dropped 45pc and 36pc respectively over the past 12 months. The only relief has come from a 5pc uplift in rental income over the 12-month period, which will mean the total return from property in 2007 - capital value plus rental income - will see a fall of 5pc.

However, although last year proved bad news for investors, this year is set to be worse. Paul Bacon, the chief executive of Cushman & Wakefield, the leading property advisers, said: "The big story is that since June capital values have fallen 15pc but for how long is that going to continue? We will see another 10pc fall in the first three to six months of this year. "We had a very, very significant sell-off in the last quarter. At the moment a lot of people are saying, 'This is a buying opportunity, this is the moment to start seriously looking.' " The sell-off in the property sector was highlighted last week when it emerged that the Government of Singapore Investment Corporation had amassed a 3pc stake in British Land.

URA releases flash 4th Quarter 2007 Private Residential Property Price Index
The Urban Redevelopment Authority (URA) released today the flash estimate of the price index of private residential property for 4th Quarter 2007. Based on the estimated price index of private residential property, prices rose from 160.0 points in the 3rd Quarter 2007 to 170.5 points in the 4th Quarter 2007. This represents an increase of 6.6%, compared with the 8.3% increase in the previous quarter (see Annex A)1. For the year 2007 as a whole, the price index rose 31.0%.

URA also released today the flash estimates of the price changes in the three geographical regions for 4th Quarter 2007. Prices of non-landed private residential properties increased by 7.0% in Core Central Region, 7.3% in Rest of Central Region and 7.5% in Outside Central Region in the quarter (see Annex B). In comparison, for 3rd Quarter 2007, prices of non-landed private residential properties increased by 8.3% in Core Central Region, 7.9% in Rest of Central Region and 7.9% in Outside Central Region.

The flash estimates are compiled based on transaction prices given in caveats lodged during the first ten weeks of the quarter supplemented by information on the number of new units sold. The statistics will be updated four weeks later when URA releases the full 4th Quarter 2007 real estate statistics, when more data on the caveats lodged and the take-up of new projects are captured. Past data have shown that the difference between the quarterly price changes indicated by the flash estimate and the actual price changes could be significant when the change is small. The public is advised to interpret the flash estimates with caution.

The Government will continue to monitor prices closely and release relevant price sensitive information in a timely manner. On the supply side, as at 3rd Quarter 2007, there are about 65,400 private residential units in the pipeline, of which about 41,600 new private housing units are expected to be completed between 2008 and 2010. About 38,000 units of the supply in the pipeline (or 58%) have not been sold by developers yet. This does not take into account new sites that will be made available for development through the Government Land Sales (GLS) programme. Prospective home-buyers are advised to take into consideration the ample pipeline supply of private housing, as well as the potential supply from GLS sites, when making decisions on property purchase.

Just a reminder on 2007 3rd Qtr release
Supply in the Pipeline
As at the end of 3rd Quarter 2007, there was a total supply of 65,406 uncompleted units of private housing from projects in the pipeline5 , about 16.4% higher than the 56,182 units as at the end of the previous quarter (see Annex F). Of these 65,406 units, 38,013 units were still unsold. These comprised 1,897 units that had been launched for sale by developers and 6,546 units which had the pre-requisite conditions for sale and could be launched for sale immediately. The remaining 29,570 units with planning approvals did not have the pre-requisite conditions for sale.

However, the pre-requisite approvals for sale, ie sale license from the Controller of Housing and Building Plan approval from the Building and Construction Authority (BCA) could be obtained quite quickly and these units could be made available for sale quite soon, if the developers choose to do so6 (see Annex C-1).

Of the 65,406 units, about 44,484 units are expected to be completed between the 4th Quarter of 2007 and 20107 . Construction has commenced for almost all the units scheduled for completion up to 2008. About 48% of the units that are expected to be completed in 2009 and 2010 are already under construction, while the remaining units not under construction yet can be completed as scheduled8. Details of the supply in the pipeline in the 3 locations are given in Annex C-2.

In addition, more supply will also come from the sites made available by the Government in the 2H2007 Government Land Sales (GLS) Programme, which can yield about 8,000 new units. When sold, the supply from these sites can be made available for sale within the next one year or so. The Government will also make additional supply available in the 1H2008 GLS Programme if necessary.

Apart from the additional supply from GLS sites, there will also be additional supply from new private residential developments on private land which will be coming in for planning approval, including those on sites where the existing developments have been sold en-bloc. This will further increase the number of units that can be made available for sale in the next few years.