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New entrants flock in as property sector booms

The property boom over the past two years has drawn many new players who are looking to reap the high returns that property development has to offer.

Six companies made their maiden property purchases this year, data compiled by property firm CB Richard Ellis (CBRE) show. Among them are companies that have made a name for themselves in other businesses, such as construction company KSH Holdings and brokerage firm Kim Eng Holdings. Others are lesser known, like Duchess Development which was formed by two stockbrokers.

In addition, three other companies - BBR Holdings, Popular Holdings and Eastern Holdings - first made their appearance in 2006 with land purchases. This year, they have gone on to snap up more sites.

'When the market is good, it draws in players who may not have been active before,' said CBRE executive director Jeremy Lake.

He noted that many of the new entrants are construction companies that might have decided to take on development risks, after watching their developer clients reap big profits. During a property boom, such risks are lessened.

'If you get your timing right in property, the profits can be substantial,' Mr Lake said.

Experts said that the same trend was seen during the last property boom, which lasted from 1993 to 1996.

Companies that did not look at property development in the past are now beginning to do so because of the fatter margins.

One example is SuperBowl, which teamed up with its parent company Hiap Hoe to buy two sites for a total of $211.3 million.

SuperBowl's managing director Teo Ho Beng told BT that while the company will continue to focus on its core leisure and entertainment business, it will also increase its exposure to property development where the margins are better.

Similarly, KSH Holdings sees good opportunities in property development. The company's chairman and managing director Choo Chee Onn said that his company invested in residential sites this year because the opportunities opened up at the right time.

'Going forward, we will buy more sites if the right opportunities arise,' Mr Choo said in an interview. The company spent $180.8 million on two residential sites this year.

The first site, which KSH acquired in June with three other partners, was the construction company's first purchase of a land parcel.

Other companies branching out from their traditional core businesses for the first time this year include electrical and mechanical engineering firm Tee International.

However, new developers and developers looking at boutique projects still account for only a small chunk of total purchases in 2007.

CBRE's data shows that the bulk of sites sold this year went to big players such as companies linked to banker Wee Cho Yaw (UOL Group, Kheng Leong, United Industrial Corp and Singapore Land), Malaysian tycoon Quek Leng Chan's GuocoLand and property giant CapitaLand.

New and boutique developers together bought some $2.4 billion worth of land sites in 2007, which account for about 5 per cent of total investment sales so far this year.

In 2006, such developers accounted for about 4 per cent of all investment sales, while in 2005, the figure was about 3 per cent.

However, property analysts warned that these new entrants are by no means guaranteed success. For starters, most bought sites in the more central areas of Singapore, where the price gain is expected to moderate this year even as construction costs are set to keep climbing, leading to a drop in margins.

'For the high-end residential segment, there is now risk of a potential correction,' said OCBC Investment Research analyst Winston Liew.

New developers might not have the resources to keep construction costs down unless they are contractors themselves, experts said.

Next year, established developers who have carved out niches are likely to do best, analysts said.

'Going into 2008, we look for developers with specific niches and themes to outperform the sector as a whole,' said CIMB property analyst Donald Chua. The research firm believed that listed smaller-cap developers are likely to trade at a discount to target valuations in 2008.

OCBC's Mr Liew advocated being defensive when choosing property developer stocks. 'We prefer developers that are domestic focused with substantial pre-sold projects, opportunities to unlock value from investment properties and finally offering valuation upside,' he said. -   2007 December 24    SINGAPORE BUSINESS TIMES

Kuwait outfit snaps up 97 apartments in $818m deal
Purchase of units in GuocoLand's condo under development in Bukit Timah is biggest of its kind

Money spinner: GuocoLand's pre-tax profit from the sale of the 97 units alone works out to around $500 million. The company bought the former Casa Rosita site in April 2006 for $280 million or $706 psf per plot ratio

Foreign institutional investors continue to bulk buy apartments in new residential developments in Singapore.

The latest deal - and biggest such transaction to date - is Kuwait Finance House's $818.4 million purchase of 97 four-bedroom apartments in GuocoLand's freehold condo, Goodwood Residence. The property is being developed on the former Casa Rosita site.

The average unit price is understood to be slightly over $3,000 per square foot. This is a new high for the prime Bukit Timah area; it is about 25-30 per cent above the $2,500 psf average price that Sui Generis is fetching at nearby Balmoral Crescent.

At over $800 million, the deal is the 'single largest purchase of units in a Singapore residential project under construction', says GuocoLand group president and CEO Quek Chee Hoon.

Industry observers' back-of-the-envelope calculations show that GuocoLand's pre-tax profit from the sale of this first batch of 97 units alone works out to around $500 million.

The four-bedders bought by a fund managed by Kuwait Finance House (Malaysia) Berhad range from 2,500 sq ft to 3,900 sq ft, GuocoLand said.

The Singapore property arm of Malaysian tycoon Quek Leng Chan is likely to release the remaining 113 units in the 210-unit freehold condo for sale in the first quarter next year, depending on market conditions. The development includes apartments with two and three bedrooms, as well as penthouses.

The largest penthouse, a duplex unit of about 12,000 sq ft with a rooftop pool, is expected to go for nearly $40 million. The WOHA Architects-designed project also includes 15 cabana-styled apartments.

This is not KFH's first such investment in the Singapore property market. A few months ago, an Islamic real estate fund set up by KFH and the Malaysian government-owned Amanah Raya Berhad, picked up two blocks (with a total of 56 apartments) at Reflections at Keppel Bay for about $286 million.

Other recent foreign bulk purchases of apartments in new projects here include Macquarie Global Property Advisors's $136 million acquisition of 19 units at 8 Napier, at an average price of $3,550 psf.

A Spanish private-equity fund is believed to have bought 20 apartments at The Cascadia, further down Bukit Timah Road, at about $1,600 psf.

While Singapore developers and property consultants are cautious about prospects for high-end residential prices next year - most are expecting modest gains of up to 10 per cent, after a nearly 50 per cent spike this year - the outlook appears rosier to foreign investors, market watchers say.

'From the perspective of these foreign funds, they must place out monies they have raised. If they look at US, there are sub-prime and credit squeeze problems. Growth in Europe is slow. Frankly, they may not have a lot of options but to look to Asia,' the research head of a property fund management outfit said.

Also, Singapore appears an island of calm in a sea of turbulence, he said. 'It's relatively stable, will soon have the integrated resorts and F1 attractions, and the island has positioned itself as a wealth management hub - these are still important factors drawing foreign institutional money to Singapore property.'

Goodwood Residence, which will comprise two 12-storey blocks, is slated for completion in 2010.

The development has received the Building and Construction Authority's Green Mark Award (Platinum). Goodwood Residence will have more than 500 trees (including 58 preserved trees) planted in the estate. In addition, the development site shares a 150-metre-long boundary with the lush Goodwood Hill.

GuocoLand bought the former Casa Rosita site in April 2006 for $280 million or $706 psf per plot ratio.

Other upcoming Singapore condo projects by GuocoLand include Sophia Residence, with about 270 units, which the group plans to release around Q3 next year, and an upscale development on the Leedon Heights site that is slated for launch in 2009.

KFH is also co-sponsor - together with Singapore's Pacific Star Group - of the Baitak Asian Real Estate Fund, whose major investments include a stake in KL Pavilion, a mega development with luxury residential, mall, office and hotel components in the prime Bukit Bintang area of Kuala Lumpur.    -  2007 December 19    SINGAPORE BUSINESS TIMES

S'pore builders seen lagging Asian peers 
Policy risks, fallout from sub-prime crisis may hurt property developers in 2008

Singapore's property companies may lag behind Asian real estate developers for a second straight year in 2008 as government limits on speculation cool the housing market.

CapitaLand Ltd, South-east Asia's largest developer, is suffering its biggest quarterly decline in more than six years after the government raised development charges by as much as 58 per cent. The Singapore Property Equities Index has dropped 19 per cent so far this quarter, the most since a 35 per cent plunge in the third quarter of 2001.

International buyers, who accounted for more than 40 per cent of real estate purchases in 2006, bought 38 per cent fewer properties last quarter as capital-market gridlock caused by rising US sub-prime mortgage defaults curbed borrowing worldwide. The supply of new homes for sale next year may almost double by value compared with 2006, weighing on prices, according to CLSA Ltd.

'We can find better propositions elsewhere in the region, where there's more growth and value to be found,' said Leslie Phang, who helps manage US$1 billion at Commonwealth Private Bank in the city. He does not own local builders and prefers Hong Kong developer Sun Hung Kai Properties Ltd.

The decline in Singapore's property gauge compares with a 10 per cent drop in the Bloomberg Asia Pacific Real Estate Index, which tracks 164 companies. The Bloomberg World Real Estate Index has slipped 8.9 per cent this quarter. Singapore's property index climbed 1.3 per cent yesterday, the biggest rise since Nov 29.

Singapore's home price index increased 8.3 per cent in the three months ended September from the second quarter. That matched the June quarter's pace, the first time the growth rate failed to rise since mid-2005.

Demand for apartments grew this year as banks hired more expatriates. New York-based Morgan Stanley, the No 2 securities firm by market value, said in February that it would open a local prime brokerage office servicing hedge funds. Citigroup Inc, the biggest US bank by assets, followed with its own prime brokerage office in March.

About 19,200 jobs were created in financial services through September this year, government data showed. Foreigners accounted for about 43 per cent of total purchases in 2006, up from 14 per cent in 2005, according to CLSA, the Asian investment-banking arm of Paris-based Credit Agricole SA. Singapore home prices rose 13 per cent last year, beating all other Asian markets, according to Global Property Guide, a Manila-based researcher.

The number of foreign purchases fell 38 per cent to 2,073 last quarter, from a record high of 3,332 in the three months ended June 30, according to DTZ Singapore, the local unit of DTZ Holdings plc, a London real-estate brokerage.

The government scrapped a program on Oct 26 that allowed buyers of planned apartments to pay 10 per cent of the asking price and defer the remainder until completion. Builders face higher fees on new developments after the government raised charges by 58 per cent for apartment projects and by 42 per cent for commercial properties, starting Sept 1.

'There are still a lot of policy risks in this segment,' said Daphne Roth, vice-president of equity research at ABN Amro Private Banking in Singapore. 'The government doesn't want home prices to go up too much, too quickly and the policy changes introduced so far have already impacted the market.' CapitaLand has slumped 25 per cent in Singapore stock exchange trading during the fourth quarter, set for its biggest quarterly drop since a 47 per cent plunge in the three months ended September 2001. It has lost 29 per cent after reaching a record high on Apr 26, even though third-quarter profit more than doubled from a year earlier.

City Developments Ltd, controlled by billionaire Kwek Leng Beng, declined 18 per cent since the start of this quarter and plunged 23 per cent from its all-time high on June 19.

The selloff has left local property shares cheaper than their regional peers. The Singapore Property Index is valued at 11 times earnings, less than a third of its high of 38 times in March 2006. The Bloomberg measure of Asian real-estate stocks is valued at 19 times, while the global index is at 17 times.

Thue Isen, who helps oversee US$1 billion at Bankinvest Group in Singapore, including shares of CapitaLand and City Developments, said that the decline is a chance to buy local developers, which he finds more attractive than those in Hong Kong and China.

'People's expectations for the property market here have definitely dampened, which justifies some of those declines,' he said. 'If you look at economic and income growth and new offices starting up, the fundamentals haven't changed that much, so the pullback looks a bit excessive.'

CIMB-GK Research, based in Singapore, cut its price forecasts in a Dec 10 note. Properties costing at least S$1,200 a square foot may climb 8 per cent in 2008, compared with an earlier forecast of 15 per cent. Overall home prices will rise 15 per cent from a previous estimate of a 25 per cent increase, said Donald Chua, a Singapore-based analyst.

The brokerage, a unit of CIMB Bank Bhd, Malaysia's largest investment bank, also cut its rating on the industry to 'underweight' from 'overweight', citing slowing growth. The firm lowered its recommendation on CapitaLand to 'neutral' from 'outperform'.

CLSA forecasts that as many as 12,000 new homes under construction could be up for sale in the next year to 18 months in the most expensive residential districts, driving up supply and hurting prices. The 'unprecedented' inventory is worth S$21 billion, almost twice the S$11 billion invested in real estate in 2006, according to Yew Kiang Wong, a CLSA analyst in Singapore.

'There's just too much negative news out there right now, with the government regulations and concerns over sub-prime,' said Nicole Sze, Singapore-based investment analyst at Bank Julius Baer, which manages US$350 billion. 'We're unlikely to see the same kind of broad-based rally that we've had.'   -  2007 December 20   BLOOMBERG

RESIDENTIAL
Property boom expected to continue 
Robust economy, jobs growth, strong housing demand and en bloc sales proceeds are key drivers

The bullish sentiment in Singapore's residential market continued into 2007 from where it left off in 2006. In the first nine months of this year, the market recorded a total of 29,331 sales transactions worth some $52 billion. This represents a year-on-year increase of 89 and 116 per cent respectively.

The demand for high-end residential housing has been growing at a feverish pace over the past two years and although the stock market plunge may have affected investor sentiment, new benchmark prices continued to make headlines over the past two quarters. Rising fast to support the high-end residential sector are the mid-tier and mass market segments, which have picked up significantly since early 2007 with record prices set at several project launches. Strong economic outlook, coupled with higher salaries and bigger bonuses and rapid jobs growth have brought new impetus for investors, home owners and speculators to upgrade and/or to purchase.

Comparing average prices with those at the end of 2006, the average price for homes in the super luxury market segment (luxury developments which crossed the $2,500 psf mark in Q4/2006) jumped 42 per cent to $3,700, while the high-end market segment (luxury developments in Districts 1, 4, 9, 10 & 11) rose by 36 per cent to $2,076 per sq ft. The average prices for both mid-tier and mass market developments have also risen by more than 50 per cent, albeit from a lower base, to $1,250 per sq ft and $700 per sq ft respectively.

One major market driver is en bloc sales, which have been very active since early 2005. However, with the prolonged US sub-prime credit woes, hikes in development charge rates and the tightening of en bloc sales legislation, the en bloc sizzle has taken a breather from the end of the third quarter of this year.

This has been a phenomenal year for en bloc sales. Since January, some 95 en bloc sales with a total value of $11.3 billion were transacted, compared to 65 transactions totalling $7.5 billion for the whole of 2006. The displaced tenants and owner-occupiers from these properties have contributed to the overall increase in rentals and capital values of homes in the mid-tier, mass and public market segments.

Notwithstanding the stock market shock in the third quarter, the buying momentum is expected to resume between next month and early 2008 given the wave of purchases from displaced en bloc-owners who are expected to collect their money and buy a replacement home around this time. This time round, the mid-tier and mass market segments will lead the way with a strong growth, lending solid fundamentals to prices in the high-end and luxury sectors.

For next year, the residential market in Singapore is expected to remain strong with all segments looking set to continue growing supported by robust domestic economy, jobs growth, wage growth in both the public and private sectors, strong housing demand from expatriates relocating to Singapore and reinvestment of proceeds from en bloc sales.

The general market consensus is that supply will tighten due to a short- term supply crunch in 2008, as the expected demolitions from en bloc sales outstrip the completion of new projects. The tightness in supply will be exacerbated by the need to fill job vacancies which stood at close to 40,000 by mid-2007 with unemployment standing at 1.7 per cent in September 2007.

An estimated 10,000 units from en bloc sales are also expected to be demolished in 2008 while TOPs from new projects are expected to re-supply only 8,000 units. (This is largely due to the few construction starts back in 2003 and 2004 when economic confidence was low, which resulted in low completion numbers in 2007 and 2008.)

Furthermore, there is also the potential risk for a slower pace of construction of residential properties arising from the strong competition for resources in the construction sector. This is largely due to the fact that several of these mega projects are also scheduled for completion within the next three to four years. Some of these mega projects include the two integrated resorts, BFC, petrochemicals plants in Jurong Island, public infrastructure such as the Circle Line and Circle Line Extension, common services tunnel in Marina Bay, sports hub at Kallang, and Gardens by The Bay.

On the demand side, there are several significant events that could spur investments into Singapore. The first is next September's Formula 1 night race, which will bring international attention to Singapore starting from February, when the F1 season begins.

The weakening US dollar, strengthening Sing dollar, reduced confidence in US markets and political uncertainties as several key regional countries will be holding their general elections soon, could encourage more high-net-worth individuals (HNWIs) from around the region to park some of their wealth here.

The strong Singapore property market has also caught the eye of fund managers from Europe, the Middle East and Japan who have been investing in Asian real estate; and Singapore will benefit from that allocation in 2008 and beyond.

The high-end market is expected to remain steady with average prices likely to rise by another 15 to 20 per cent to hit an average of $3,000 per sq ft. With such strong demand, it would not be to far-fetched to expect some units in super luxury residential projects to cross the $6,000 per sq ft mark.

Developers will continue to raise prices for luxury high-end apartments with superior product quality, such as more spacious surrounding, and designer fixtures and fittings. At the same time, the replacement cost of land, whether from en bloc sales or government land sales, will continue to go up.

Meanwhile, Singapore's status as a global financial centre, tax-friendly environment, strong currency and liquidity in the local market will keep attracting investment interest from the fast-growing private banking sector which, in turn, are attracting HNWIs to the region as well as expatriates entering Singapore's job market.

While the high-end market takes a slower growth next year over an increased baseline, the mid-tier and mass markets will surge in 2008 due to strong demand and spill-over effects from the high-end market. Twelve months ago, we proclaimed that 2007 will be the year of resurgence for the mass market. We were spot on. We now know that the resurgence is backed by solid fundamentals and we expect this sector to soar in 2008.

Assuming two-thirds of home owners, who sold their properties en bloc in the first nine months of 2007, will buy replacement homes, we could expect to see some 4,300 buyers with a budget of approximately $7.5 billion looking for homes in the first half of 2008.

Soaring high-end prices and supply crunch in prime districts have forced some buyers to turn their attention to mid-tier projects. In addition, public and private sector wage rise backed by robust domestic economy, tighter job market will also drive up demands from HDB upgraders or families exceeding the HDB income ceiling, particularly in the mass market segment.

Strong demand could also push mid-tier prices up by another 20 to 40 per cent to between $1,500 and $2,000 per sq ft for the whole of 2008. Areas that will benefit from the rise in the mid-tier market include Balestier, Bukit Timah, Novena, Thomson and Upper East Coast. As many of the mass market areas are still relatively undervalued, it is expected that prices will grow strongly, up by between 30 and 50 per cent from a low base, with average prices reaching around $1,000 per sq ft. Areas likely to see the most significant price gains include Upper Paya Lebar, Hougang, Ang Mo Kio, Upper Thomson to Mandai, Clementi, West Coast, Jurong East, Upper Bukit Timah and Bedok.

There are several projects in the high-end and super luxury markets to keep an eye on in 2008, such as the Ritz-Carlton Residences at Cairnhill, Hilltops at Cairnhill, Paterson Suites at Paterson Road, and The Marina Collection and The Quayside Isle in Sentosa Cove. We would also be monitoring The Cascadia and Floridian at Bukit Timah, and the development by CDL in Thomson Road for signals of strength in the mid-tier market. For the mass market segment, it will be the developments at Simon Road and Bedok Reservoir and Park Natura at Bukit Batok. In the landed property sector, international attention-grabbers in Sentosa Cove could be launched in 2008.

The rental market is also expected to strengthen. Based on robust demand and limited supply being completed, coupled with the withdrawal of properties in the prime districts through en bloc sales, rentals are likely to hit new highs.

Rents in prime districts will increase by 20 to 30 per cent next year, to an average of $6 to $8 per sq ft per month. The trend of existing tenants in prime districts moving out to fringe or suburban areas will continue, and this will support the annual 50 to 80 per cent growth of the suburban rental markets, at average rents of $4 to $5 per sq ft per month.

Though the property market continues to exhibit strong performance, there are several factors which could affect the residential sales market. Factors such as prolonged uncertainties in the global equity markets, further property measures imposed by the government to cool the market, rising oil prices and high inflation rate could possibly dampen investors' sentiment and confidence. Increased operating costs due to rising residential and office rents have also sparked concerns about the erosion of Singapore's attractiveness for MNCs.

The Singapore government targets a long-term economic growth of 4 to 6 per cent per annum. We have been making basic changes to diversify our economy, through the IRs (conventions/exhibitions, Universal Studios theme parks), through investments in R&D and intellectual property, through continued liberalisation of funds management, private banking and insurance industries. This re-positioning of Singapore as a vibrant, global city will continue to support the residential market.

Singapore is undergoing a structural upwards re-rating of the property market. Barring unexpected shocks, property prices will continue to rise for at least three years, and if the IRs deliver their performance, another five to seven years. And even if there were a downturn in the property sector beyond 2012, the authors believe that bottom prices then will still be higher than the prices of 2007.

Given the factors outlined above, what might be the opportunity cost of doubting the continued growth in this market and staying on the sidelines and waiting for it to drop?   - 2007 November 14    SINGAPORE BUSINESS TIMES

A broadbased recovery in the housing market now looks imminent with some developers feeling confident enough to put in new benchmark bids for 99-year suburban leasehold sites.

But HDB upgraders are finally making a comeback, bolstered no doubt by salary revisions in the civil service and mid-year bonuses.

Even the much-anticipated fallout from the United States sub-prime crisis and subsequent global credit crunch appears to have left the Singapore property market relatively unscathed. Not only have foreign institutional investors continued to pump money into the property sector, a new base of investors, most notably from the Middle East, are making their presence felt.

Of course, there is still a level of volatility in some segments. The high-end and luxury residential sector may see both foreign and local investors make more cautious decisions about buying into a segment that is already a little peakish.

Speculators, who have been driving up prices in the high-end and luxury segments, also appear to be beating a retreat, after considering the upsides in flipping properties no longer worth the risks.

Emerging markets are also looking like pretty safe bets though.

Few will have failed to notice that when the US sub-prime situation started to unravel in July and August, the China and India markets seemed impervious to its effects.

The growth story of both these powerhouses is well known, so much so that industrialists and developers alike are looking for new frontiers.

Vietnam is certainly a hot favourite now but closer home, Malaysia too holds many opportunities.

And if the Singapore market is anything to go by, the increasingly buoyant high-end sector in its capital city certainly bodes well for the rest of the real estate market.

Risk aversion may yet be the catch phrase of choice for the months ahead.

Not surprising then, financial analysts have come out in support of the mass market and the mid-cap developers most exposed to this segment.

Also looking relatively safe is the growing Singapore real estate investment trust (S-Reit) sector. The first Reit was listed in 2002 and, to date, there are 17 S-Reits with more expected to be listed.    2007 September 27   SINGAPORE BUSINESS TIMES

The million-dollar club in Singapore continues to grow. The IRAS annual report shows that 2,121 taxpayers earned more than $1 million in Year of Assessment 2006, which assesses income earned in 2005. That was 22 per cent up from 1,738 million-dollar earners in 2004.

The bulk of these wealthy people were Singapore residents, with only 31 non-residents. For tax purposes, residents are defined as those physically present in Singapore for at least 183 days in a year.

The total income of this exclusive club has also grown. Their total assessable income earned in 2005 was $4.2 billion, up from $3.4 billion the year before. And the total tax assessed on their income was $682 million - about 17 per cent of total income tax collected from all individuals that year.   - SINGAPORE BUSINESS TIMES   2007 September 8

Sizzling real estate sector
Bullish investors may drive 2007 sales to a record high, while home prices and rents continue to surge

After years of being in the doldrums, the Singapore property market has been staging a spectacular recovery in the past couple of years. The rally is being fuelled by a surge in confidence from foreign investors as well as local buyers. The real estate sector is firing on all cylinders, including investment sales, residential and office.

A whopping $24.81 billion worth of investment sale deals were sealed in the first six months of this year, according to CB Richard Ellis (CBRE). Investment sale deals - a gauge of major property players' confidence level in the mid-to-long-term prospects for the real estate sector - include collective sales, other land deals, transactions of entire office and other buildings, as well as strata-titled units above $5 million. The first half of 2007's sparkling investment sale numbers include some 75 collective sales worth $9.3 billion, higher than $8.2 billion for the whole of last year.

CBRE expects the full-year investment sale figure to surpass the record $30.51 billion set in 2006, hitting as high as $35 billion.

Major deals in H1 this year include the $1.04 billion sale of Temasek Tower, the collective sale of Leedon Heights ($835 million) and Novotel Clarke Quay Hotel ($201 million).

In the residential sector, the Urban Redevelopment Authority's (URA) Q2 price index for private homes was up 8.3 per cent from the preceding quarter and 21 per cent higher year on year. And latest Q2 official figures show that the residential price recovery that began some two years ago in the high-end segment fuelled by foreign buyers has started filtering down to other segments of the market, based on URA's sub-indices.

Prices of non-landed private homes in the Core Central Region (CCR) - which includes prime districts 9, 10, 11, Downtown Core (including Marina Bay) and Sentosa - were up 7.9 per cent in Q2 over Q1, while prices of non-landed homes in Rest of Central Region (RCR) - which includes areas like Bukit Merah, Queenstown, Geylang, Toa Payoh and Katong - rose 8.1 per cent over the same period. The Outside Central Region (OCR), covering suburban mass-market locations like Woodlands, Clementi, Jurong, Hougang, Tampines and Bedok, posted a 7.2 per cent quarter-on-quarter rise in Q2.

The rental market has also been sizzling, with residential rental indices of non-landed private homes rising 12 per cent in Q2 over Q1 for the CCR, and by 10 per cent and 9.4 per cent respectively for RCR and OCR in the same period. The Q2 rental indices were up around 35 per cent from a year ago for each of the CCR and RCR, and by 28.3 per cent for OCR.

In the public housing segment, the Housing & Development Board's (HDB) resale flat price index rose 3 per cent quarter-on-quarter in Q2, compared with a 1.3 per cent gain in Q1.

The outlook for the residential sector is bright. Most property consultants predict that URA's overall private home price index may surge a further 8 to 15 per cent in the second half, chalking a full-year increase of 23 to 30 per cent. Analysts generally expect HDB resale flat prices to post an 8 to 10 per cent full-year increase.

Interestingly, collective sales have caused a ripple effect. For instance, those who sell their homes through en bloc sales are looking for replacement homes, in many cases outside the prime districts where they sold their en bloc properties because of rapidly rising prices in the prime locations.

This has helped to spur a recovery in the other market segments, even HDB resale flats, where a few units have been purchased at record prices by those who sold their private homes through en bloc sales.

At the same time, as developers pull down en bloc sale sites to redevelop them, the resulting shortage of prime district apartments has helped fuel rental hikes for such homes. In the industrial property market, average rents for all categories of space increased in Q2 this year. High-tech space posted the biggest quarter-on-quarter gain of 11.9 per cent to $2.35 psf per month, as the office space shortage and rising office rentals led many qualifying occupiers to move to high-tech properties, according to CBRE. The average monthly prime retail rent along Orchard Road posted a 1.8 per cent quarter-on quarter gain in Q2 to $34.40 psf - close to the $35.10 psf achieved in 1996.

As for the office sector, a shortage of space in the near term, coupled with strong demand from occupiers including big-wig international financial institutions have been the key factors driving a whopping 80 per cent year-on-year rise in CBRE's average prime rental in Q2 to $10.80 psf a month. This surpassed the 1996 peak of $9.90 psf a month, and is fast closing in on the 1990 historic peak of $11.50 psf a month. The Q2 office rental figure is also more than double the $4 psf during the current cycle trough in Q1 2004.

Market watchers expect office rents to head further north in the next few years because of the supply crunch. However, the government has been releasing more office sites, including the maiden 'transitional office' plot which can be built into a low-rise office building in about a year.

In addition, it has made available more 99-year condo sites, mostly in suburban locations. Besides tackling the supply side, the authorities have also begun releasing more property market data so that participants can make more informed decisions. So far, the indication from government is that it is not inclined to intervene to cool demand.

Fundamentals for the Singapore real estate sector remain strong for the next couple of years, at least - barring unforeseen circumstances.

Of course, a sustained rout in the local stock market because of the selldown on Wall Street is likely dent sentiment in the Singapore property market. But there could also be a more direct hit if the US sub-prime mortgage default fiasco dries up some of the liquidity that has been powering the local real estate sector's sparkling recovery. - SINGAPORE BUSINESS TIMES  9 August 2007   By Kalpana Rashiwala

UOB tightens up on home loans in face of dizzy market
Bank imposes caps on valuations and puts 80% ceiling on loans

Wee Cho Yaw has done it again, though only time will tell if he was ahead of the curve.

At a time when property prices have started to touch giddy heights, the chairman of United Overseas Bank (UOB) has reportedly asked his institution to tighten lending criteria.

Since late last month, UOB has been lending only 80 per cent of a home's valuation, even though most banks are willing to stump up 90 per cent of the selling price.

UOB has also decided to put its own cap on valuations, which appear more conservative than the current market prices.

Mr Wee, arguably Singapore's sharpest banker, stepped down as chief executive of UOB in April this year and was succeeded by his oldest son, Ee Cheong.

UOB's stricter lending criteria mean that some potential borrowers have been turned away. A UOB mobile sales banker complained that she has been losing sales but has told prospective customers that she can try to appeal on their behalf. UOB is believed to be the first bank to make its lending norms more stringent.

At UOB's second-quarter results on Tuesday, Eddie Khoo, executive vice-president, personal financial services, said that less than 10 per cent of the bank's new home loans this year provided more than 80 per cent financing.

'We require a higher cash portion,' said Mr Khoo.

He said that more than 80 per cent of UOB's home loans were for owner occupation and that foreigners accounted for 20 per cent of home loan customers.

For certain hot projects in the prime districts such as Orchard Residences, Scotts Square or St Regis Residences, UOB has put a valuation cap of $3,600 per square foot (psf), even though sales and sub-sales have been reported at much higher prices.

Scotts Square, launched last week, saw 169 units sold at an average price of $3,983 psf. The highest price paid was $4,430 psf for a one-bedroom apartment on the 41st floor, of the 338-unit project, said Wheelock Properties, the developer.

The median price for St Regis Residences on Cuscaden Road, developed by City Developments, is $3,713 psf, according to Urban Redevelopment Authority data. In June, it was reported that a unit went for $4,635 psf at the 173-unit St Regis Residences which has only 15 units unsold.

At selected projects in the upmarket districts 9, 10, 11 and in Marina Bay, UOB is said to have set the valuation cap at not more than $2,600 psf.

Sub-sales of The Sail @ Marina Bay are being advertised at prices ranging from $1,900 psf to over $3,500 psf. Caveats lodged show that units were sold from prices as low as $1,249 psf for The Sail which was first launched in 2004.

Even for the recently launched Fontaine Parry near Serangoon, UOB is said to have a valuation cap of $834 psf. According to sole agent Knight Frank, the first phase of Fontaine Parry, which was sold out, saw prices starting at $850 psf and some sub-sales are now going for $900 psf.

For the first half of 2007, UOB grew its total home loans book 18 per cent, outpacing the industry average, to $20.7 billion. DBS's group home loans rose 8.75 per cent to $26.1 billion. UOB said Singapore mortgages were up 15 per cent while DBS reported an almost similar growth of 14 per cent.

In August 1995, Mr Wee said famously: 'I don't think the property market will collapse but prices have reached a high and the upside is limited.'

Although still sympathetic to first-time property buyers or HDB upgraders, he said the bank had more stringent criteria for speculative buyers and those investing in second properties.

The strategy meant that UOB lost some market share in property loans.

UOB that year reduced financing to only 65-70 per cent of the purchase price of a property, compared to about 90 per cent in 1992, just before the height of the property frenzy which peaked in 1996 before crashing.

Singapore's property market subsequently went into a long depression, which lasted for the most part of the decade until 2003 and sent many borrowers into negative equity - where the size of their loan was larger than the value of their property.

The bank is opting for caution again.

Said a spokesman: 'UOB has always taken a prudent approach in its credit assessment process. A loan application is assessed on the creditworthiness of the borrower as well as the merits of the property. We would consider the loan application favourably if the borrower meets our criteria. From time to time, the bank reviews its home mortgage policies, and if necessary, adjustments may be made to align with market conditions.'  - by Siow Li Sen   SINGAPORE BUSINESS TIMES   9 August 2007

COMMENTARY

2007 promises to be an interesting year for Singapore with the euphoric success at Marina Bay and a number of regional property players collaborating on the orderly playing field.    We have assembled a few key bits of research and news so one can interpolate as one wishes.     

Singapore is experiencing 'flavour' of the season for even some Western-based real estate investors and hedge funds to get their feet wet in Asia.   This trend started last year with Colony Capital of New York's purchase of Raffles Hotel with the Fairmont Hotel group.     

No better place than Singapore as a test market but German and Australian funds have been playing in this market for a number of years and Hong Kong players are demonstrating that they know how to cooperate for mutual profit.   This hasn't always been the case  as often the cities were competing. 

In any event, the developments taking place at Orchard Turn and Marina Bay is igniting the property market in Singapore.   And Sentosa is finally taking off like wild-fire after many years of dedicated effort.     Purchasers  of luxury condominiums are being asked to turn over blank cheques for the premium units and luxury residential condos have hit the $2,500 per sq ft price mark.    >> MORE

Much of Singapore property market's success is as a result of the expectation that more expatat's will be moving to the city fuelling growth in the luxury sector of the residential market and increased deman for office space.     Still, as typical of Asian investors, many are still treating Real Estate as yet another commodity - some of which is to be traded for profit .  - Andrea Eng

There's upside yet in Singapore property
Investing in property requires capital and time but the rewards can be substantial
Singapore's  property market is booming, with activity centred in districts 4, 9, 10, 11and 15. And I believe there is a lot more upside yet. Why? For each key event listed below, I expect an above average movement of $200 per square foot for the districts mentioned in the years ahead:

Year 2008: Singapore will host the world's first Formula One night racing. The world will be invited to Singapore, interact with and invest in Singapore.

Year 2009: The first integrated resort (IR) at Marina Bay will be completed with US$5 billion flowing into Singapore from the first wave of tourists. They will come from the business travel, meetings, conventions and dexhibitions segment.

Year 2010: The second IR on Sentosa will be completed with another US$5 billion flowing in from the second wave of tourists. These tourists will come from destinations beyond a nine-hour flight radius.

Year 2011: My guess is that there will be a general election in Singapore which could see some election year goodies.

Year 2015: Singapore celebrates her 50th birthday and hopefully fulfils Prime Minister Lee Hsien Loong's vision of Singapore as the jewel of the region.

Can we really profit from investing in the property market?

While many wealth creation fads come and go, property investment has consistently created more permanent millionaires than any other investing strategy in history.   Here are what some of the wealthiest Americans have said:

'Real estate is the basis for all wealth.' - Theodore Roosevelt

'Eighty per cent of all millionaires made it through real estate.' - Andrew Carnegie

'Buying real estate is the best, safest way to become wealthy.' - Marshall Fields 

The truth is that property investment is not just for the rich. If done correctly, anyone who has the desire to succeed can create enough passive income or a lump sum of cash to become financially free.

According to an annual World Wealth Report compiled recently by Merrill Lynch and research firm Capgemini, Singapore has 66,660 millionaires (in US$ terms). They account for about 1.5 per cent of the population, that is, three out of every 200 people here are millionaires. 

Where are the areas to invest? I highly recommend Sentosa Cove and District 10.

Sentosa Cove offers one of the most exciting propositions - a residential enclave that shares the island with an integrated resort. The wealthiest individuals in the world will be looking to buy your property which will be situated right next to their favourite entertainment spot.

In district 10, the Duchess area is the place where you can invest in your child's future. Within a one-km radius, it offers several premier schools: the Nanyang and Raffles Girls' primary schools, St Margaret's Secondary School, Nanyang Girls' High, Chinese High School, Hwa Chong Institution, National Junior College and Hwa Chong Junior College.    -  by Clement Chiang   SINGAPORE BUSINESS TIMES commentary   4 July  2007

Hot picks in real estate

2007  March 22:  It has been quite a year for the Singapore property market, emerging from the gloom and heading into uncharted territory. The spark that started the uptrend can be traced back to late 2004 when foreigners, flush with liquidity, began showing interest in Singapore's high-end property.

This was boosted by the country's plans for the Sentosa and Marina Bay integrated resorts as well as government efforts to make property more appealing by easing the approval process for foreigners to own land (in the case of Sentosa). Moreover, Singapore's property market had been lagging behind Asian cities like Shanghai, Hong Kong and Mumbai.

Capitalising on the government's effort to revitalise the property market, developers started acquiring prime land in the core central region (downtown core, Sentosa and districts 9, 10 and 11) in anticipation of rising property prices. It led to a series of en bloc deals in 2005 and 2006 as developers outbid each other to secure prime land.

This in turn prompted the government to hike the development charge (DC), with the rates for commercial use and office space rising by an average 12 per cent, landed residential use by 6 per cent and non-landed residential use by 14 per cent.

Reaping rewards 

Savvy investors who saw the glimmer of light in late 2005 as a buy signal are reaping the rewards of their investments. In 2006, the Singapore property equities index rose 67 per cent while the URA property price index for residential and commercial property increased by 10.2 per cent and 17 per cent respectively. Singapore Reits (S-Reits) have also done well, appreciating by more than 40 per cent on average in 2006.

Given the buoyant outlook, where should investors look for the best returns in 2007?

Home prices increased by 10 per cent in 2006, with the bulk of the price increase concentrated in the core central region. Prices are expected to rise by a further 12 per cent this year. Residential rents have also risen 14 per cent in 2006.

While the focus has been on the central region, the mass market could see the filter- down effects this year, for several reasons. First, the strong economy has led to greater job security and rising wages. Coupled with a partial restoration of CPF, demand for mass market projects is expected to rise as middle-income earners, who were most affected by structural changes, will have greater confidence to upgrade their properties.

Second, following the wave of en bloc deals, people who have sold their homes to developers would be shopping for replacement units. As some of them may be priced out of units in the original area, they would look for homes in outlying areas.

Third, the government's strategy of attracting foreign professionals into the country is paying dividends. Anecdotal evidence suggests many have decided to call Singapore home, driving up demand for private property. Many Singaporeans are also snapping up projects close to where the foreigners are working, in hopes of fetching rich rentals.

This can be seen in the recent launch of One North Residences at One North Research Hub in Buona Vista, which sold close to 80 per cent of the units in three days.

On the commercial side, the sharp 30 per cent spike in office rentals in 2006 was attributed to the shortage of prime office space. Although the government has released the Business and Financial Centre for development, no new office supply is expected to hit the market till late 2009. This has caused office rentals in the CBD to surge past $10 per sq ft with occupancy hitting 98.4 per cent for Grade A properties.

With more multinationals from the finance, IT and marine industries relocating to Singapore, demand has risen considerably, while downtown supply has dipped as old commercial buildings are being redeveloped into apartments. As such, the commercial sector will continue to do well for the next couple of years, and new records are expected to be set for Grade A properties. Sub-prime areas will also benefit from spillover demand.

Pockets of opportunities

As property recovers, property stocks have seen one of the best runs in recorded history, far outpacing the rise in real estate. While fundamentals are strong and profits should be very healthy, much of the prospects of property developers may already be in the stock price. However, there are pockets of opportunities, particularly in stocks exposed to the commercial sector as well as Reits.

With the crunch in office supply, commercial real estate landlords will see another stellar year. Given the discrepancy between rental yields of commercial property and the required returns of commercial Reits, value can be unlocked by landlords by selling these properties to existing players or floating a Reit themselves.

S-Reits outperformed their global peers in 2006 and are likely to see slower growth ahead. Given that it is increasingly difficult for Reit managers to make yield accretive acquisitions, it is likely that there will be some merger and acquisition (M&A) activity among listed players. Smaller Reits like Cambridge Industrial Trust, which typically have more attractive valuations and higher yields, are likely targets for takeover.

Property is riding high and will continue to see strong interest in 2007. For investors, this should be a good time to invest in well-located mass market projects, particularly those close to the city or MRT stations. Commercial landlords are also expected to enjoy a good run for at least the next two years. Grade A office buildings have already seen record rentals, and this is expected to spill over to the lower tiers. While prospects for property remain bright, property counters may have already priced in much of the good news. As such, investors should not expect the same gains as before and be more selective. -   Terence Wong is chief executive officer, and Alvin Yong, research associate, at SIAS Research Pte Ltd    SINGAPORE BUSINESS TIMES     22 March 2007

Overview

These are heady times to be a developer or an estate agent in Singapore. The city-state is in the grip of a property boom powered by economic growth, strong employment and a buoyant stockmarket. Rents, both residential and commercial, are rising fast. And new blocks of flats are selling even faster, sometimes within hours.

January 5th saw the launch of One Shenton, an apartment block near Marina Bay, just south of the central business district. Thousands turned up and virtually all of the 330 apartments on offer were sold within one-and-a-half days. The developer, City Developments (CDL), said it had sold the block for between S$1,500 and S$2,200 ($972 and $1,426) per square foot. The smaller, one-bedroom flats sold for about S$1m each; the biggest flats went for four times as much.

CDL has delayed selling the 11 penthouse units at One Shenton in the hope of attracting even higher prices. A few weeks ago the penthouses at the nearby Marina Bay Residences were sold for a new Singaporean record of S$3,400 per square foot. The rush has all the hallmarks of a speculative bubble, but few believe it is anywhere close to bursting just yet.   - 22 January 2007   THE ECONOMIST

'Property Prices to Rise on Consistent Demand'

Singapore's high-end property prices may rise by as much as 10 per cent this year amid consistent investments by overseas funds and expatriate workers, the chief executive of Southeast Asia's biggest property company said on Monday.

'2007 will be good year,' CapitaLand Ltd chief executive Liew Mun Leong told Dow Jones Newswires during a visit to Kuala Lumpur.

Still, that's a slower growth rate than last year. Analysts estimate prices of Singapore's high-end property market, which traditionally attracts rich buyers from Asia and funds looking to invest in the real estate sector, rose between 20 per cent and 30 per cent in 2006.

Mr Liew said CapitaLand expects medium-end property prices in Singapore to rise by 5 per cent compared to 2006, while high-end developments could see an increase of between 5 per cent and 10 per cent on year.

Mr Liew said the trend of prices rising is 'cascading down' to the other price segments also, driven by rising demand from expatriate workers in the city-state as well as investment funds that buy property.

However, the rise isn't creating a speculative bubble, he said.

'I would say that a bubble develops if there is no demand. And when I say demand I'm talking about real demand,' he said.

'I think in Singapore the demand is still there,' Mr Liew said. 'Because there is a lot of growth in expat housing. There are a lot of companies moving to Singapore and the reality is we need housing, whether it's (the) financial industry or manufacturing or other industry.' -- AP    8 January 2007

2006 The Year in Review
Far East Organization the biggest property investment buyer in 2006

Property tycoon Ng Teng Fong's Far East Organization was the biggest buyer in the property investment market in Singapore last year with about $1.6 billion worth of deals under its belt, according to the latest analysis by CB Richard Ellis (CBRE). 

CapitaCommercial Trust was the next biggest buyer with its purchases valued at $1.3 billion. The Singapore-listed real estate investment trust (Reit) was catapulted to the top buyers' list with its acquisition of a 60 per cent stake in Raffles City.

Las Vegas Sands was in third spot, with its $1.2 billion purchase of the Marina Bay integrated resort (IR) site.

City Developments, controlled by Kwek Leng Beng and his family, was in fourth position, with $1.127 billion, according to CBRE.

Following closely behind was the Riady family's Lippo Group (inclusive of Auric Pacific and Overseas Union Enterprise), with $1.067 billion. Other local players making it to the list of top buyers last year include Ho Bee (about $820 million), Frasers Centrepoint (also above $800 million), SC Global (about $720 million), GuocoLand ($510 million), MCL Land (about $420 million) and Wing Tai (about $380 million).

UOL Group bought about $340 million worth of properties, while United Industrial Corp and its subsidiary Singapore Land were involved in deals totalling around $240 million.

Also noteworthy was the strong inflow of foreign investment in the local real estate market last year. Besides Las Vegas Sands and Genting Group which bagged the Marina Bay and Sentosa IR plots respectively, other big foreign buyers were Australia's Lend Lease (over $650 million), CLSA-linked entities (which purchased SIA Building and HB Robinson), Lehman Brothers, Hong Kong's Park Hotel Group and Macquarie Global Property Advisors.

Latest updated figures from CBRE show the total investment sales of property in the Singapore market hit $28.19 billion last year, more than double the previous historical high of $13.5 billion in 2005.

Investment sales of property - seen as a barometer of developers' and big investors' mid-to-long-term confidence in the real estate market - refer to large investment transactions like office buildings and shopping centres, as well as sites bought for development, including collective sale deals. CBRE's figures also include sales of strata residential and commercial units costing $5 million or more.

For Far East's Mr Ng, the property buying spree last year began right from the word go, when the group placed, on the same day (Jan 18), top bids for two properties - the former Glutton's Square site on Orchard Road ($421.1 million) and Amberville ($183 million) in Katong. The latter marked the group's first private residential land purchase in Singapore for almost 10 years. Far East followed that up with a string of other residential site purchases throughout the year - Angullia Mansion, Skyline Angullia, Rose Garden, Pacific Court and a group of properties at Keng Chin Road in Bukit Timah. Mr Ng's Hong Kong arm, Sino Land, also clinched the coveted Collyer Quay site at a state land tender in December.

Properties sold by the private sector accounted for $23.6 billion, or 84 per cent of the total investment sales deals last year. The remaining $4.6 billion originated from public sector sales, including the land parcels for the two integrated resorts at Marina Bay and Sentosa.

By sector, the residential market accounted for the lion's share of $14.5 billion (roughly 51 per cent of 2006's total investment sales), up 91 per cent from the preceding year. Last year's $14.5 billion figure included a whopping $8 billion worth of collective sales deals - four times the $2 billion for the preceding year and the highest in the past decade.

It was also an active year for Good Class Bungalow sales, with nearly $1 billion worth of deals struck, up 33 per cent from 2005. The commercial property sector saw $9.9 billion of deals last year, up 49 per cent from 2005.

The hotel sector also recorded an unprecedented level of investment sales at $1.5 billion, reflecting the buoyant mood in the industry on the back of record visitor arrivals.

In terms of buyer profile, developers were tops with a total of about $11 billion worth of acquisitions, either done solo or jointly with other parties. Next were Singapore-listed Reits, accounting for $6.12 billion or almost 22 per cent of 2006's total investment sales. - SINGAPORE BUSINESS TIMES    Jan 15, 2007

Broad-based recovery in property seen

Property players polled by Business Times believe the market - which collapsed 10 years ago - is set for a broad-based recovery following recent signs that stability has returned.

Ten years after boom turned to bust in 1996, they believe that a sensible - as opposed to an unrealistic - mindset has taken hold, with sellers focusing on fair prices and buyers looking for fair value.

Property cycles, by definition, come and go. And many owners, still hurting from the 1990s, are not sure whether they are coming or going. So BT polled 13 major players on how things stand. The reactions were mixed - but mostly optimistic, although three abstained.

Seven of the remaining 10 believe that signs of a broad-based recovery will emerge this year. Their view also applies to the all-important residential mass market, which has traditionally been driven by Housing and Development Board upgraders.

For the high-end market, six of the 10 reckon prices will eventually hit 1996 levels - while four think otherwise.

BT also asked if speculation will make a comeback this year, and apart from those who said it 'never went away', five said no.

Jones Lang LaSalle's regional director and head of investments Lui Seng Fatt says property cycles are based on 'historical patterns', and using a seven-year cycle, 'we may peak in mid-2007'.

Property segments have also become increasingly inter-linked, and Mr Lui notes that the broad-based recovery is being led by the retail and office market. 'The retail market in particular has not been affected as much.'

If the mass market has been slow to pick up, it could be because buyers realise the investment potential of real estate is not what it used to be - not yet anyway.

Tay Huey Ying, associate director of research and consultancy at Colliers International, is sanguine. 'Properties are regarded more as consumption goods now, and there are more investment alternatives offering higher returns than direct property investments, like Reits and unit trusts,' he says. 'The number of upgraders has dwindled, as most home-owners are saddled with properties bought at high prices. Some are still in a negative-equity situation. Hence, the ability to upgrade is lower compared with 1996.'

But if buyers are wiser, what about developers? They too learned lessons from the last boom, according to City Developments group general manager Chia Ngiang Hong. 'Generally speaking, a property bubble with unsustainable prices is detrimental to the economy,' he says. 'Developers now pace their launches so as not to flood the market, mindful of the appetite of different-tier buyers.'

Of course, with prices still considered low, the only way is up. And that's where United Overseas Land's group general manager Liam Wee Sin expects them to head. 'With prices of homes, especially for the low to mid-end, still more than 30 per cent from peak levels, the up cycle is expected to be sustainable,' he says.

Some of those polled have vastly different ideas on what constitutes 'peak prices' and 'recovery'. Assistant Professor Lum Sau Kim, of the Department of Real Estate, School of Design and Environment, National University of Singapore, says: 'Recovery may not be an appropriate term because we are not far off the market equilibrium path. If you track the property price index over the past three decades, it would appear that the price peak in 1996 was an anomaly. The boom in property prices then was out of sync with the long-term trend in income. Today's price levels appear to be more in line with long-term income growth.'

The property boom in the mid-1990s was also very much driven by HDB upgraders, who benefited from new HDB and Central Provident Fund policies related to housing. According to DTZ Debenham Tie Leung executive director Ong Choon Fah, 'the boom in the mid-90s was very much a bottom-up phenomenon. Today's upswing is the first time we have seen the top-end of the market take off first - but it is happening across the region.'

Foreigners are now a key element of the Singapore property scene - as recognised by such developers as Far East Organization. Chia Boon Kuah, its chief operating officer of property sales, says: 'We have begun in recent years to actively market our projects outside of Singapore. For our newest project, Orchard Scotts, we expect foreign investors to make up about 50 per cent of the total buyers.'

Globalisation and the free flow of capital have changed local economies everywhere, making property highly volatile. So could the pick-up in the high-end market be an isolated phenomenon - another aspect of globalisation that the market will have to come to terms with.

Colin Tan, head of research at Chesterton International, for one, believes that the market has become more segmented and that one prediction cannot apply to all. Expatriates, for instance, 'prop up prices in certain areas only'.

Mr Tan notes: 'The level of demand from expatriates from housing does support prices in the prime locations. When the expats leave en-masse, there is also a problem. Our economy is also to a certain extent held hostage to major global economic events, unlike Malaysia or our other neighbours, where the economy is closed and the impact is less.'

Not surprisingly then, some property experts are taking a more global macro-economic perspective when it comes to reading property cycles. Knight Frank's director of consultancy and research Nicholas Mak, who watches US federal interests rates closely, says: 'US interest rates reflect liquidity in the market. And this is important because foreign buyers make a big part of the market here.'

Indeed, global capital follows the actions - so it is worth noting where this is going. Merrill Lynch analyst Sean Monaghan says: 'Our property stocks are not Singapore stocks any more. They are increasingly China stocks, or at least Asia regional property stocks, so the question is not what the outlook for the Singapore property cycle is, but what is the outlook for the region.'   - by Arthur Sim     SINGAPORE BUSINESS TIMES    28 January 2006

For the private residential market, the supply glut is abating and is at its lowest level in nine years. The stock of yet-to-be-sold private homes in uncompleted projects with the necessary approvals for sale stood at 10,277 units at end-2005, down 9.6 per cent from the preceding quarter and 35 per cent lower than at end-2004. The last time the figure came close to this level was in Q4 1996, near the market peak.

On the demand side, developers sold 8,955 private homes last year in the primary market, or a 55 per cent increase from 2004. The secondary market - in which properties are bought from home owners, not developers - was also busy, with 7,582 private homes changing hands, up 38 per cent from 2004.

'With the lack of suburban mass-market residential launches throughout the year, home buyers turned to the secondary market for better buys,' says CB Richard Ellis executive director Soon Su Lin.

Another important component of a market recovery - speculation - is also in play, albeit on a modest scale. The number of sub-sale deals, often taken as a proxy of speculative activity since they involve sales by home buyers before project completion, rose 54 per cent, from 261 in 2004 to 402 last year. The bulk of the increase came in Q4 last year, when there were 167 sub-sale transactions. When speculative fever was at its height in 1995 and the first half of 1996, sub-sales averaged 1,200 per quarter.

The total 402 sub-sale deals for the whole of last year accounted for only 2.4 per cent of total private housing transactions in the primary and secondary markets combined, up only slightly from a 2.3 per cent share in 2004. In Q4 2005, when the sub-sale level was at its peak last year, the figure was 3.5 per cent.

Some agents say the speculation was largely confined to a handful of projects, including The Sail @ Marina Bay and The Azure at Sentosa Cove.

'It's very project specific - iconic, waterfront condos. Speculation is not rampant now, unlike in the 1990s,' says a seasoned property agent. 'In any market, whether money market, stocks or property, you need some speculation. It prices the market...otherwise things will be down.'

In the figures released yesterday, the Urban Redevelopment Authority's private home price index rose 1.4 per cent in Q4 from Q3 and posted a 3.9 per cent increase for the whole of 2005.

In the public housing segment, too, the Housing & Development Board's resale flat price index rose 0.4 per cent in Q4 from Q3, although the full-year figure was down 4.7 per cent, reflecting the declines in Q2 and Q3 last year that resulted from anti-cashback measures introduced by the government.

The recovery theme was also very much apparent in URA's data for the other sectors of the private property market - office, industrial retail.

The office rental index gained 6.7 per cent in Q4 and 12.7 per cent for the whole of 2005, higher than the 3.5 per cent full-year increase in 2004. The all-industrial rental index was up 2.5 per cent in Q4 and 5.2 per cent for the whole year.

URA's shop rental index rose 0.6 per cent in Q4 and 3.6 per cent for 2005 as a whole.

The residential rental index rose 0.7 per cent in Q4 and and 3 per cent for the whole of last year.

Knight Frank managing director Tan Tiong Cheng points out that the property market recovery was from a low base.

'Sentiment has been lifted by a few niche projects like The Sail and Azure which led the wave of foreign buying. The hikes in interest rates and oil prices didn't prove to be as severe as some had feared,' he says. 'And the government's decision to go ahead with the two integrated resort projects also boosted sentiment in the property market.'

Consultants are generally optimistic about the various segments of the Singapore property market this year, thanks to improving demand on the back of economic recovery and wage increases. CBRE predicts a 5 per cent increase in the overall URA private home price index this year and reckons luxury home prices could go up 20 per cent, after rising 15 per cent last year.

Agreeing that the outlook is brighter, DTZ Debenham Tie Leung executive director Ong Choon Fah says that while Singapore has a high rate of home ownership because of a successful public housing policy, demand for private homes continues to be an aspiration. 'A private home is a status symbol of sorts,' she says.   - by Kalpana Rashiwala    SINGAPORE BUSINESS TIMES     28 January 2006

Singapore's home prices rise 1.5% in Q1

Singapore home prices saw their biggest increase in five and a half years, rising 1.5 per cent between January and March, the Government's real estate planning agency said on Monday.

The Urban Redevelopment Authority (URA) said its initial estimate of the price index for private residential homes rose to 120.0 points in the first quarter from 118.2 points in the fourth quarter of 2005.

The first-quarter gain is higher than the 1.4 per cent rise seen in the last three months last year.

The URA will release the official price index on April 28. -- REUTERS      3 April 2006

HKG developers making a comeback in SNG
They are again set to play a major part in rejuvenating the skyline, but this time as partners of big S'pore listed developers

More than a decade after they launched Suntec City, Hong Kong parties are again making waves in the Singapore property scene.

Courtesy of SINGAPORE BUSINESS TIMES

Property heavyweights from Hong Kong - jointly or with local partners - accounted for about 90 per cent of the estimated $2.7 billion generated from land sales by the Urban Redevelopment Authority so far this year, according to a compilation by The Business Times. Hong Kong parties have been involved in the winning bids for three of eight vacant sites awarded by the URA in 2005.

Property analysts say Hong Kong developers are bullish on Singapore, where the real estate market, despite its recovery, has lagged Hong Kong and other Asian cities.

'Hong Kong parties believe that with improving regional economic prospects and government efforts to make Singapore a great place to live, work and play, property prices here will head up,' says Colliers International managing director Dennis Yeo.

In the recent past, Hong Kong developers have participated in residential and office developments such as One Raffles Quay. But the projects they are now going to undertake are seen to be as significant as Suntec City.

Some of Hong Kong's richest tycoons bought land from URA in 1988 and developed the iconic Suntec City for around $2 billion. Li Ka-shing, who is Hong Kong's richest man, shipping tycoon Frank Tsao, entertainment mogul Run Run Shaw and property tycoons Lee Shau Kee and Cheng Yu-tung were among the investors in Suntec City.

Hong Kong players are again set to play a major part in the rejuvenation of Singapore - but this time the charge is led by big listed property developers.

Winning consortiums for the Orchard Turn and the Business & Financial Centre (BFC) development sites were Temasek-linked companies partnering Hong Kong developers, leaving local heavyweights like Kwek Leng Beng of City Developments and Ng Teng Fong of Far East Organization on the sidelines.

Earlier this month, Hong Kong's Sun Hung Kai Properties (SHKP) made a major foray into Singapore property. In that deal, it is a 50 per cent stakeholder in the winning consortium alongside CapitaLand for the Orchard Turn site. The partners clinched the site for $1.38 billion.

SHKP's controlling shareholders - Walter Kwok and family - are ranked number three in Asia on Forbes' 2005 billionaires' list, with wealth estimated at US$10.9 billion. The Kwok family partnered CapitaLand and others in an unsuccessful bid for the BFC site.

Hongkong Land, with Li Ka-shing's Cheung Kong Holdings and Hutchison Whampoa, partnered Keppel Land to win the tender for the BFC site. The land cost alone for phase one of the BFC project works out to around $1 billion.

'Hong Kong developers recognise a prime site when they see it and are willing to pay prime prices,' says Chesterton International's head of research Colin Tan.

Colliers' Mr Yeo says that with the emergence of real estate investment trusts in Hong Kong, developers there can monetise investment properties and use the money for development opportunities. Also, with a Reit market developing in Singapore, Hong Kong developers have a ready exit option for their projects, Mr Yeo notes.

Market players say the resources and aggressiveness of the big Hong Kong developers have driven their bullish bids for sites. Analysts expect further interest from them and Hong Kong investors in Singapore next year.

An SHKP spokesperson says the Orchard Turn project will be a relatively minor part of SHKP's investment property portfolio, and does not change the company's strategy of concentrating on Hong Kong and mainland China.

Hong Kong property heavyweights SHKP and Cheung Kong have market capitalisations of about $40 billion each, against CapitaLand's $9.4 billion and CDL's $7.5 billion.

Chesterton's Mr Tan thinks that with Orchard Turn, SHKP can bring new retailers to Singapore, while with the BFC, Cheung Kong and HK Land will have little to worry over cannibalising demand from other office properties.

Hong Kong parties have a good track record in commercial property in Singapore. Suntec City proves highly profitable. And HK Land and Cheung Kong are partners with KepLand in developing One Raffles Quay, which sits on a site fronting Marina Bay bought from URA in 2001.

Besides mega projects, Hong Kong parties have also been active in other parts of the market. Li Dak Sum's Carlton group won a URA tender for a Bras Basah hotel site with a bid of $55.6 million in January. And the Park Hotel Group paid $300 million for the Crown Hotel on Orchard Road in June.

Other Hong Kong developers, like HKR International, are reported to be scouting for opportunities. Other foreigners also appear upbeat on Singapore's property. Malaysia's IOI group was the second highest bidder for the Orchard Turn site.

Indonesia's Lippo Group, which has a strong presence in Hong Kong, has also emerged as a major player. Lippo bought a residential site at Alexandra Road/Tiong Bahru Road with CapitaLand for $180 million in November. Lippo also bought 78 Shenton Way and Newton Heights.   - by Leslie Yee    SINGAPORE BUSINESS TIMES     23 Dec 2005

HISTORICAL
Property Synopsis

Stock prices are now almost double what they were in second-quarter 2003 - but property prices are up a mere 2.8 per cent, the Urban Redevelopment Authority's property price index shows.

Many pundits are predicting that the property market is at the beginning of a multi-year reflation cycle. So let's look at some of the statistics to see for ourselves how strong their case is.

Just like stock prices, real estate prices are determined by the cost of capital (that is, interest rates), demand and supply. But more so than stocks, the property market is affected by government policies. We'll look at these issues, starting with interest rates, to see whether the reflation story stands up.

Most people borrow to buy property, so interest costs and the affordability of monthly mortgage payments are major considerations. Chart 1 shows the relationship between interest rates and property prices. From the late 1980s up to 1990, interest rates were going up. Despite that, property prices were also climbing, albeit very gradually. Then in 1991 and 1992, when interest rates steadily declined, property prices took a steep hike. By the mid-1990s, the property fever was running so hot that the government moved to cool things down.

It introduced anti-speculative measures, including a requirement for 20 per cent cash downpayments and capital gains tax on property sold soon after it was bought. The new rules coincided with a surge in interest rates, as liquidity tightened following the Asian financial crisis. Combined, these factors caused a perfect storm for the property market.

From their peak in Q2 1996, property prices have plunged some 45 per cent, taking them back to 1993 levels. (Compared with the low in 1998, prices today are only about 17 per cent higher.)

There was a quick rebound after 1998. But despite falling interest rates, home prices resumed their slide. Whatever the level of interest rates, buyers were concerned about their future financial security. Major restructuring was taking place in the employment market in early 2000.

Guaranteed annual increments were a thing of the past. Job security itself was a big worry. The iron rice was smashed to smithereens. Retrenchments were the order of the day.

But for the past two years, things have been turning around. Economic restructuring is bearing fruit - the job market is expanding again and so are pay packets. The increased confidence of Singaporeans and foreigners in the nation's economic prospects has led to a mild recovery in property prices.

But here's the catch: interest rates are on the rise. And the rapidity of their climb has taken analysts by surprise. In the past few weeks, the interbank rate has shot up by one percentage point - a 50 per cent jump - to 3 per cent. That's the highest level in five years.

Some analysts expect the rate to peak at 3.5 per cent by Q1 next year. If that happens, then interest rates are not likely to pose too big a threat to property price recovery. But if rates head beyond 4 per cent, all bets are off.

Demand for any item depends on its affordability, how much it is needed and how buyers expect the price to move, among other things. I took the average monthly earnings of Singapore residents divided by the median price of condominiums as a rough gauge of affordability. On this basis, Chart 2 shows that private property has become much more affordable.

As for rental yield, this has stayed pretty constant for the past three years. Charts 4, 5 and 6 show the supply of properties on the market. Chart 5 presents a rather nice inverse relationship between the vacancy rates of condominiums and the property price index. A spike in vacancy rate to above 14 per cent at end-1997 was followed by a severe downturn in the property prices. In the past two years, vacancy rates were relatively high at above 10 per cent. But in recent quarters, the rates have come off. If this continues, it would be a good sign for landlords.

The market appears to be slowly digesting unsold private residential units. Meanwhile, moves to build integrated resorts, rejuvenate the Orchard area and reduce the cash requirement for property purchase to 10 per cent have combined to unleash a wave of demand from locals and foreigners.

So all things considered, it would appear that the outlook for the property market is not bad. And when compared with stocks which have almost doubled in price in the past two years, property might seem to be a more attractive asset class right now. -   19 Nov 2005   SINGAPORE BUSINESS TIMES

Residential property prices have risen two quarters in a row, the first indication that the local market is on the mend since Asia's 1997-98 economic crisis. That has prompted a rally, of sorts, of Singapore property stocks.  - Oct 2004

After the Asian financial crisis, it staged a rapid recovery which peaked in mid-2000. Since then, prices slid due to the global economic slowdown.

They have remained flat in the last two years and are now about 20 per cent below the mid-2000 peak. However, home prices made a modest turnaround in June this year.

What this means is that there is still good upside potential. For example, the current average price of completed luxury properties is S$1,300 per sq ft compared to about S$1,600 psf in 2000 and more than S$2,000 psf in 1997.

Still, investors need to be selective in their property choices in Singapore's more mature market. Projects considered better buys are those that are well-differentiated, with a good location, top-notch design and finishes, that are attractive to foreign buyers and occupiers. 

Rental yields have been fairly stable in the past few years, hovering just above 3 per cent, while better quality developments can expect higher yields of 4-5 per cent. While expatriates have traditionally favoured the prime districts 9 and 10, one other factor that will influence future rental choices is emerging large-scale business locations such as the New Downtown at Marina Bay and the high-tech hub of One-North in Buona Vista, where the 'work-live-play' concept is being promoted.

The recovery of the residential market should be sustainable on the back of Singapore's economic growth. Home prices have mostly kept pace with or outperformed the economy in the 1990s.

As home prices have been underperforming compared with the economy in the last three years, there is a strong case for a significant and steady price rebound.   - 2004 Oct    SINGAPORE BUSINESS TIMES

S'pore's rich forecast to grow by over 100 000
SYDNEY- A new report from independent market analyst Datamonitor has shown that the number of wealthy individuals in Singapore has grown by over a quarter over the last five years.

Singapore is now home to over 415,000 individuals with more than S$86,000 in onshore liquid assets.

Their investible wealth grew from $150b in 1998 to $193b in 2003.

'Growth in Singaporean affluent wealth has not been as marked as in some of the other Asia-Pacific countries. However, the country continues on its way to a full economic recovery after the global economic slowdown and the Asian economic crisis and future growth for affluent wealth looks strong,' comments Alan Shields, Financial Analyst at Datamonitor and author of the report.

Singapore's wealthy population is forecast to grow by a further 29 per cent to just fewer 538,000 in 2008, and their liquid assets are forecast to increase at a faster rate, registering a total rise of 39 per cent over the period.

Singapore's affluents who have seen their wealth increase in the last five years have not been immune to the global economic slowdown.

While the amount of liquid wealth owned by the high net worth population increased in total over the 1998-2003 period, it fluctuated significantly during this period.

In 1998, affluent individuals owned 77.5 per cent of total assets, and then peaked in 2000, when they accounted for 81.1 per cent of total retail liquid assets.

During 2003, affluent individual's wealth increased as a proportion of total liquid wealth to 78.8 per cent as the stock market performed better, indicating the level of affluent investors' exposure to direct equity investment.

The fastest level of asset growth throughout the 2003-2008 period will be amongst the richest individuals; those with 510,307.42 or more.

These high net worth individuals are set to get richer, with average assets increasing from $1.6m in 2003 to just over $1.7m in 2008.

The wealth of these high net worth individuals is set to grow at a rate of 7.7 per cent compounded annually over the 2003-2008 period, versus 5.3 per cent for the mass affluent segment; those with between $86,000 and $516,000.   - reported 10 Sept 2004    SINGAPORE BUSINESS TIMES

HK, S'pore property market gap explained
Official policies behind more stable prices Singapore

Many a property player in Singapore has been left scratching his head in the past year wondering why the sector here is still playing catch-up to Hong Kong's, especially when real estate prices in both economies historically are deemed to follow a similar trend.

Knight Frank, for one, believes the explanation lies in government policies.

In a report, the real estate consultancy noted that after the outbreak of Sars in Q2 2003, the Hong Kong government implemented a series of initiatives to help lift sentiment and boost the economy, such as the signing of the Closer Economic Partnership Arrangement with the mainland and the investor residency scheme.

'But it was the relaxation of travel restrictions for mainland tourists that had the most initial impact,' Knight Frank executive director Tay Kah Poh said. Essentially, fundamentals - which reflect the improving global economic environment and are similar in both markets - have not moulded the real estate sectors in the two cities as much as government policies relating to home ownership.

Whereas the total number of homes sold in Hong Kong has been rising gradually since the Sars epidemic in Q2 2003, the situation in Singapore couldn't be more different, with the number of private homes sold declining 13 per cent in Q3 last year from Q2.

Subsequently, home prices in the Lion City declined to a five-year low in the first quarter of this year when the Urban Redevelopment Authority's private home price index fell a further 0.4 per cent from the last quarter of 2003.

In comparison, housing prices in Hong Kong are up by about 20 per cent since August last year, with the luxury segment up 30 per cent. As a developer noted: 'It's like the Singapore property scene in late 1980s to 1990s, when Indonesian buyers were big in the market.

'Such buyers went into purchases without negotiating much, and some paid above valuation, which inflated the entire market,' he said.

In Singapore, however, a more cautious take has evolved, due partly to its having attained a 'world-beating' 98.2 per cent home-ownership rate. This, said Knight Frank, has partially prompted the government, among other moves, to curb the use of Central Provident Fund savings for property purchase.

The total CPF withdrawal for housing loans has been gradually reduced, by 6 per cent each year, from a valuation limit - the value of the property at time of purchase - of 150 per cent in 2003 to 120 per cent by 2008.

Meanwhile, the Hong Kong government has announced a target home-ownership rate of 70 per cent by 2007, which is a big leap from the current 56 per cent mark, Mr Tay noted. 'The Home Loan Assistance scheme is available for those who are eligible and eligible households are provided either with a lump sum interest-free loan, or monthly loan subsidy for two years,' he said, even though the annual quota of 10,000 households has already been filled for the 2003/04 fiscal year.

In addition, the private housing market in Hong Kong continues to have a wider scope for growth because only over 30 per cent of the population there live in public housing. On the other hand, 86 per cent in Singapore live in government units, Knight Frank noted.

'All these factors considered, Singapore residential property prices will accelerate at a lower pace than those in Hong Kong,' Mr Tay said, adding that leading indicators point to a 5 to 10 per cent growth by the end of the year.

Consequently, homes here offer a different risk-return profile that shows less volatility than those in Hong Kong, Knight Frank said, though interestingly, there was more fluctuation of Singapore's private home prices in the early 1990s till 1996.

'Arguably, this can be attributed to the counter-cyclical policies that the government has consistently pursued, such as cutting back land supply when prices have fallen, and introducing various anti-speculation measures in 1996 when the market was over-heating,' it said.

For now at least, while Singapore private home prices are likely to be less exciting, its market will be more stable compared with that in Hong Kong, Mr Tay concluded. 'In either case, the worse is probably behind us, and investors can look forward to an improvement in the market's performance,' he said.       - by Vince Chong     SINGAPORE BUSINESS TIMES   27 May 2004

Strait Shooting
Half the world's oil and one quarter of its trade pass through the Strait of Malacca, which threads between the Malaysian peninsula and the Indonesian island of Sumatra. More than 50,000 vessels pass down the strait in a year, giving Singapore, which sits at its southern tip, the world's busiest trans-shipment port.

Pirates have operated in the strait for years. Now local governments are increasingly concerned about terrorists hijacking boats and using them as floating bombs, or sinking them to block the vital shipping route, 1.5 miles (2.4km) wide at its narrowest point (the Phillips Channel in the Singapore Strait). Teo Chee Hean, Singapore's defence minister, said bluntly that security on the strait “is not adequate”. The American navy offered to patrol the strait; Mr Teo approved the plan, but Indonesia and Malaysia have rejected it, saying it would infringe on their sovereignty.  - Economist.com   25 May 2004

On April 27th, Mr Goh ordered MPs in his People's Action Party (PAP) to submit an annual list of their directorships, plus total fees and stock options to party leaders. PAP MPs—some of whom sit on as many as 11 boards and receive up to S$70,000 from each appointment—are now banned from sitting on boards of companies run by political colleagues. While there is still no official cap on how many boards legislators can sit on, the added scrutiny has already prompted Wang Kai Yuen, an MP, to resign his directorship of Accord, an electronics-servicing company. Accord's chairman is one of Mr Wang's advisors  - Economist.com    25 May 2004

China's juggernaut has region on edge
Singapore nervously tries to reshape its business profile

All around this orderly, law-abiding country, people are being urged to do what until now has seemed totally unnatural: Take risks! Be spontaneous! Be creative!

On billboard ads, young models with devil-may-care looks jump ecstatically in midair to hawk clothing, sodas and real-estate developments. Banks sponsor blogger competitions and art festivals. Television shows lavishly praise tech geeks, musicians and fashion designers.

Last month, Singapore's government even sponsored a graffiti contest, allowing schoolchildren to decorate city buses -- a far cry from the days when such activity would be punished by a painful caning.

It's all part of a wave of nervousness across Southeast Asia as leading industries face aggressive competition from Chinese firms. As China emerges as an economic giant, its southern neighbors are taking a less-adversarial stance than the United States, where Chinese business deals are viewed with suspicion.

Instead, the so-called Southeast Asian tigers, which have boomed in recent decades under the umbrella of the U.S. security alliance, are planning for a humbling task: finding a profitable, sustainable niche within the new Chinese economic empire.

Singapore officials say that Shanghai is likely to overtake the island nation within a decade as a corporate headquarters city for East Asia and is likely to draw away major companies and banks. Anticipating this change, they say, Singapore must morph further into a knowledge-based economy, with increased emphasis on high-tech research and development, as well as design, media, advertising and the arts.

Creativity, Singapore authorities have decided, is the missing link -- any kind of creativity, but especially the patentable kinds.

For Singapore, long known for its authoritarian approach to economic development, this change requires a change in mind-set.

"We must reinvent ourselves," said Education Minister Tharman Shanmugaratnam, who also is an economic adviser to Prime Minister Lee Hsien Loong. "China is advancing very fast along the same value-added path we traveled in recent decades, so we must find new niches. We have been excellent engineers and managers, but we have not done enough as inventors and entrepreneurs. We are not producing enough patents."

Until now, the region has benefited from China's rising prosperity, as most nations have large trade surpluses with their northern neighbor, spurred by Chinese demand for raw materials and manufacturing inputs. Southeast Asia's economies are growing at a healthy pace, ranging from 5 to 8 percent of gross domestic product per year. But analysts and government officials say the writing is on the wall.

"In Southeast Asia, we do not see China as a military threat but an economic challenge, and a large one," said Noordin Sopiee, chairman of the Institute of Strategic and International Studies, a think tank in Kuala Lumpur, Malaysia. "Our margins are being shaved. China is doing to us what we did to Taiwan and South Korea in previous years. In time, our margins will become too small. So we need to act ahead of time."

Chinese competition affects Southeast Asia in varied ways because the nations have wildly different economies, ranging from the European-level prosperity of Singapore to the African-level poverty of Laos.

In Cambodia, the issue is apparel. In Malaysia, it is semiconductors. In Thailand, home electronics. All are facing fast-growing competition from China.

"Globalization has helped us, but it is now hurting us," said Loo Took Gee, an economic adviser to Malaysian Prime Minister Abdullah Ahmad Badawi. "From China, there are a lot of products coming in at 30 percent to 40 percent below cost here. How in the world can one compete against that? I don't have an answer."

In the past few years, Malaysia has spent billions of dollars on an attempt to leapfrog into Silicon Valley status. It has built Putrajaya, an ultramodern capital city on former rubber and palm-oil plantations outside Kuala Lumpur, and Cyberjaya, a high-tech corridor next door to Putrajaya. So far, at least, Putrajaya has been a white elephant, with large, mostly empty buildings adorned with logos of global technology firms that have been lured to Malaysia by lucrative tax breaks, yet have avoided making major investments.

"I believe Cyberjaya will fail, but we need to try it anyway," said Sopiee. "We need 30 years for that, and in the meantime we will have to shop around the world for talent. We will have to hire 10,000 electronics engineers, software developers, violinists, chefs, furniture designers, fashion designers. That is what the Chinese won't be doing, so these are the niches we need to fill."

For their part, apparel-producing nations fear that the expiration of international apparel quotas on Jan. 1, 2005, has spelled doom for their own industries as China gobbles up the world market.

After the quota system -- known as the Multifiber Agreement -- expired, Chinese apparel exports to the United States soared by 158 percent during the first five months of the year, far above growth rates in Indonesia of 23 percent; Thailand, 12 percent; Cambodia, 9 percent; and Vietnam, a 6 percent loss. Many observers say China would have grabbed even more market share if the Bush administration had not applied so-called safeguard limits against Chinese imports -- a capacity that is set to expire in 2008.

"We have very good relations with China, but it is true that they are very tough competitors," said Hidayat Nur Wahid, chairman of Indonesia's upper legislative chamber, the People's Consultative Assembly. He noted that Indonesia's dilemma has been worsened by declining oil production and diminishing petroleum reserves, turning the country into a net oil importer for the first time in decades.

"We no longer are the rich country we were, because of oil," Wahid said. "We must find an alternative, but this is difficult. ... Chinese products are too cheap."

In the United States, suspicion of Chinese motives is widespread, and congressional opposition to the attempt by CNOOC Ltd. to purchase Unocal Corp. of El Segundo (Los Angeles County) prompted the Chinese firm to abandon its bid last week. In Indonesia, however, Chinese investment is considered crucial to help rescue the oil and natural-gas industry from its slump.

CNOOC is Indonesia's largest offshore oil and gas producer, and it is scheduled to begin large-scale shipments of liquefied natural gas to southern China next year. Most industry analysts believe that CNOOC wanted to buy Unocal in large part because of the American firm's gas production assets in Indonesia, which CNOOC would have been able to divert toward Chinese markets.

In Southeast Asia, most eyes are on Singapore, the hub of the region's economy, where creativity has become the new buzzword.

Education has long been a linchpin of Singapore's economic success, and the country has ranked No. 1 in some international surveys of school math and science skills. But Shanmugaratnam, the education minister, says this achievement may have come at a cost of excessive conformity. Now, he says, increased attention to the arts is needed to unleash Singapore's economic potential.

"We are redesigning our concept of meritocracy to include a broader range of merits, not just results in standardized exams, to help stimulate creativity and innovation. The arts are a big factor in this," he said.

Shanmugaratnam said Singapore has adopted arts education methods from around the world, including San Francisco's School of the Arts, a high school in the Upper Market area that he visited in 2002. "That school had high standards and a broad curriculum," he said. "It was very interesting." Yet he remained confident that Singapore would win any comparison, adding: "It also had poor facilities, like the rest of your public school system. Our facilities are much better."

Despite the region's worries about Chinese business inroads, attitudes are markedly friendly toward Chinese diplomatic initiatives, and political leaders vie to be seen as friendly to Beijing.

Part of this sympathy is driven by ethnic loyalty. In most Southeast Asian nations, local business elites are composed largely of ethnic Chinese who maintain close ties to their ancestral homeland and support Beijing's role in the region.

China's diplomatic success may be coming at the expense of the United States. Washington officials are concerned by the emergence of a new 16-nation regional trade group, to be called the East Asian Summit, which will hold its first annual meeting in Malaysia in December. The members rejected a U.S. request to be admitted as an observer -- the first time that a regional Asian group has excluded the United States, and a startling setback for the Bush administration.

"In Southeast Asia, we do not share the opinion of some Americans that China is a strategic threat," said Chin Kin Wah, deputy director of the Institute of Southeast Asian Studies, a government-backed think tank in Singapore. "We view the Chinese role as very natural. There are certain economic frictions that can be difficult for us, but it is our neighbor." - by Robert Collier    SAN FRANCISCO CHRONICLE     7 August 2005

From father to son

Photo & article:  ECONOMIST

Lee Hsien Loong, the son of Singapore’s elder statesman, Lee Kuan Yew, became the city-state’s prime minister on Thursday. Singapore’s economic success, based on an odd mixture of free markets and state meddling, looks set to continue. But will its new leader allow a bit more social and political freedom?

It is only the second time Singapore has changed its leader since independence in the 1960s; and there will be more continuity than change. On Thursday August 12th, Lee Hsien Loong was sworn in as prime minister of the South-East Asian city-state, a job which his father, Lee Kuan Yew, held for 31 years until 1990—since when he has continued to exert power from behind the scenes. Under the stern, fatherly guidance of the elder Mr Lee, Singapore won independence from Britain (via a brief and unhappy period as part of Malaysia) and was transformed from a third-world colony into a rich, high-technology export success. Under Goh Chok Tong, who has bridged the gap as prime minister between the two Lees, Singapore weathered the late1990s Asian crisis and, a couple of years later, the bursting of the high-tech bubble. Since then its economy has bounced back.

Even with his 52-year-old son finally in the top job for which he has long been groomed, the 80-year-old Mr Lee senior will continue to sit beside him at the cabinet table, enjoying the title of “minister mentor”. Nor will Mr Goh go: he will stay in government as head of Singapore’s central bank. Several other senior figures from Mr Goh’s cabinet will remain, though swapping jobs.

Like Hong Kong, another formerly British-run city-state, Singapore has built its modern prosperity on free enterprise and openness to trade. But in Singapore’s case these have been combined with enthusiastic government backing for favoured industrial sectors. The government’s main industrial-holding company, Temasek run by the new prime minister’s wife, Ho Ching, owns stakes in everything from airlines to banks to the country’s main telecoms firm. (The latter is, in turn, run by Mr Lee’s brother, Lee Hsien Yang, adding to the impression that Singapore is essentially a big family firm.) The promotion of industrial “national champions”, in other countries an expensive disaster, seems to have served Singapore well—and it seems likely to continue under the next generation of the Lee family.

While Singapore regularly comes near the top of surveys of the freest places to do business, its people have to put up with restrictions on their social and political liberties. Though it is fair to call Singapore a democracy, the Lee family’s ruling People’s Action Party (PAP) has long used its unshakeable grip on power to harass its opponents. And the country’s 4.4m citizens have had to endure constant haranguing from their government, which only recently relaxed—slightly—its infamous ban on chewing gum (purchasers must first register with a pharmacist).

The elder Mr Lee always brushed aside foreign criticism of his authoritarian style: “If this is a ‘nanny state’, I am proud to have fostered one,” he wrote. Singaporeans have always seemed prepared to accept nannying as the price of their prosperity. In the last election, in 2001, the PAP won yet another landslide, even though this coincided with the country’s worst recession since independence. The younger Mr Lee shares his father’s didactic, hectoring style. His speeches are full of stern injunctions to Singaporeans to tighten their belts against the hard times ahead.

The economy does indeed face a number of potential challenges—from the demographic effects of a low birth rate to the risk of losing jobs to low-cost China. But right now it is booming: in the second quarter of this year it grew at an annual rate of almost 12%, having bounced back smartly from last year’s outbreak of the SARS virus across Asia, which hit various sectors, from manufacturing to tourism.

Much of the vigorous growth is the result of government-directed diversification into electronic components and, more recently, pharmaceuticals. Multinational drug firms such as Pfizer and Schering-Plough are expanding their capacity in Singapore, attracted by its economic freedoms, reliable legal system, relative absence of corruption and well-educated workforce. During his stint as finance minister—a post he held from November 2001 until this week—the younger Mr Lee cut taxes, reformed pensions and liberalised the financial sector.

Singapore’s pro-government media have lavished praise on the new prime minister for his courage and strength of character: he stoically endured the death of his first wife and later survived a bout of cancer. But while he has demonstrated his credentials as an economic liberal, he also seems to share his father’s old-fashioned attitude to social and political freedoms: for instance, he fiercely defends the PAP’s more underhand tactics, such as threatening to put districts that vote for the opposition at the bottom of the list for public spending.

Under his predecessor, Mr Goh, some of Singapore’s strict social controls were eased. Bans on everything from bungee-jumping to street-busking were relaxed. Singaporean television was even allowed to broadcast the salacious American sitcom “Sex and the City”. This cautious liberalisation partly reflects the government’s realisation that Singapore must now move beyond manufacturing into “knowledge-based” industries that depend more on individual creativity. The government recently announced a review of Singapore’s strict sex laws, under which homosexuality is a criminal offence (though increasingly tolerated), after official researchers noted that cities with lots of gay residents tend also to be centres of innovation. Last weekend, the authorities allowed Singapore’s biggest-ever gay street carnival to take place, attended by an estimated 6,000 people.

Other signs of gradual social liberalisation include a reduction in the period of compulsory military service and an official review of poverty, which may even lead to a reconsideration of one of Singapore’s strongest taboos: welfare benefits. The elder Mr Lee abhorred the very idea of state handouts (except to industry, that is) and his strait-laced son is likely to share this attitude. Thus, as in other social matters, any changes will be gradual. Still, the younger Mr Lee is likely to have plenty of time to carry them out.   -  ECONOMIST    12 August 2004

Singapore Corporate Structure
Under the new one-tier tax, an operating holding company has an advantage over a pure investment holding company. Ernst & Young explains

The one-tier tax system was introduced on Jan 1, 2003. It will not take full effect until the five-year transition period expires on Dec 31, 2007. What major issues should companies be concerned about as they approach 2008? Or is 2008 still too far away?

Every CEO and CFO should know something about the one-tier system and its immediate effects. Most will remember three of these:

All corporate dividends will be tax-exempt once the one-tier system comes into full force by Jan 1, 2008

• Any Section 44 tax credits that could not be used for dividend franking by Dec 31, 2007 will be forfeited
• Interest costs attributable to equity investments, including investments in subsidiaries and associated companies, will not be deductible for tax purposes, or if deductible, will not give a deduction value.

Many may not realise the deeper and continuing effects of the one-tier system on many aspects of corporate decisions in the years to come. I see these effects as emerging trends. I share my observations here and urge you to think about what needs to be done over the next three years.

But first, a bit of history. The previous system (called the imputation system) allows the franking of dividend payment with tax credits. This has been with us since the Income Tax Act was introduced on Jan 1, 1948.

When it comes to tax planning, our corporate structures and many transactional processes were based on that system. Structures and processes that produced the desired tax results under the imputation system do not produce the same results under the one-tier system. In fact, companies could be worse off taxwise if they operate as if things had remained the same. Companies need to abandon the familiar and embrace the new.

The first emerging trend

After 2007, under a one-tier system, an operating holding company is likely to be preferred over a pure investment holding company. If your group holding company is a pure investment holding company, and it is the main entity responsible for funding the rest of the entities in the group, then you may have good cause for some concern.

As a pure investment holding company, its investments in subsidiaries will form a very large percentage of the total assets on its balance sheet. Let's assume this is 65 per cent of the total assets. All things being equal, it means up to 65 per cent of the group holding company's interest cost may not qualify for tax deduction. This is because the interest cost attributed to equity investments can only be claimed against the dividend income received.

If no dividend is received, the interest cost is denied deduction. If dividends are received, the interest cost can only be deducted against dividend income that is tax exempt. But there cannot be a value creation if the deduction is against an income that is not taxable in the first place. The result? The interest expense, while deductible, has no deduction value!

What if your group holding company also conducts an active business with its own assets base? The investments in subsidiaries will be proportionately smaller. Mathematically, the amount of the interest disallowance also should be proportionately smaller.

This is the clear advantage of an operating holding company over that of a pure investment holding company.

What if your group holding company provides management services to the entities in the group? Will this overcome the concern? I am afraid it does not. The assets in a management service business are largely intangible in nature. These are not featured as assets in the balance sheet. So very little help comes from there.

Even if your group holding company has an active business with a large asset base of its own, your future decisions may have consequences. Decisions such as those on mergers and acquisitions, spin-offs, risks management, lease versus buy and the like are good examples.

Over time, these can change the composition of the assets in your balance sheet. Therefore, they can change the relative proportion of the equity investment assets you have in any given year. It is the composition of the balance sheet assets that gives a good indication of what might be in store for you.

You may not have a concern with your group holding company now because you hardly have any external borrowings. I agree. But you must be quite certain that the company is never ever likely to go into debt in the future.

In the face of this emerging trend, what should you do? My suggestion: gather the facts and evaluate your options. Answers to at least some of these questions should help:

• Based on your current position, what is your theoretical exposure to interest disallowance from Jan 1, 2008 if you do nothing?
• What is the likely impact if you should gear up in the near future?
• Is this issue confined to the group holding company only or are some of your subsidiaries affected also?
• What are the options you have as you approach 2008?
• What aspects of your corporate decisions might impact on the future composition of your assets mix, and therefore the level of the interest expense disallowance?

- by Pok Soy Yoong     SINGAPORE BUSINESS TIMES      1 Sept 2004

The apology, published in its latest issue, says allegations in a recent article were "false and completely without merit." The article appeared in the magazine last month and was titled, "Temasek, First Singapore, Next the World."

Temasek, the Singapore government's investment arm, is headed by the prime minister's wife, Ho Ching. The Economist said in its apology that the article meant or was understood to mean that Ho's appointment was based not on merit but on "corrupt, nepotist motives for the advancement of the Lee family's interests."

"We admit and acknowledge that these allegations are false and completely without foundation. We unreservedly apologize to Prime Minister Lee Hsien Loong and Minister Mentor Lee Kuan Yew for the distress and embarrassment caused to them by these allegations," the apology said.

Economist editor Bill Emmott said Thursday that $123,530 will be paid to Prime Minister Lee and an additional $105,890 to the elder Lee. Emmott said the magazine received a complaint from the Lees on Aug. 21 and agreed to pay the damages and issue the apology on Sept. 1.

The Economist also agreed to pay the expenses incurred by the Lees, said Hri Kumar, director of Drew & Napier, the law firm representing the Lees in their complaint.

The elder Lee was Singapore's prime minister from its independence in 1965 until 1990. He still wields considerable influence under the title of minister mentor.

Emmott said the incident would not affect the magazine's Singapore operations.

Many foreign publications have run into trouble in Singapore. Two years ago, the financial news service Bloomberg apologized to the two Lees and then-Prime Minister Goh Chok Tong over an article and paid a settlement of $350,000.

Several foreign news publications have had their distribution limited in Singapore after they refused to print the government's full response to critical reports.  - Cnews   2 Sept 2004