SINGAPORE is expected to show strong demand when Banyan Tree Residences holds a launch here this weekend for its branded hotel residences.
Banyan Tree Residences - one of the business segments of mainboard-listed Banyan Tree Holdings - offers the sale of hotel villas or suites to investors under a leaseback scheme.
Investors can choose to receive a fixed return of 6 per cent of the purchase price for six years or one-third of the net room revenue for the same period of time. After six years, investors have the option to renew their decision.
Owners will also be entitled to 60 days of use of their residence a year as well as discounts and privileges at Banyan Tree, Angsana and Colours of Angsana resorts.
Depending on which returns option the investor picks, the 60 days may be subject to black-out periods.
Banyan Tree currently has residences in Phuket, Bangkok, the Seychelles, Lijiang and Bintan.
While Banyan Tree has been selling residences since 2002, the concept and brand of Banyan Tree Residences was only launched this year.
The Banyan Tree Phuket residences - which has seen the strongest demand - start at US$1.5 million, while Banyan Tree Bintan begins at a more affordable US$440,000.
The Banyan Tree Phuket currently has 16 of the 43 residences still available. Twenty have been sold, while seven have been reserved.
The majority of the customers for Banyan Tree Lijiang were mainland Chinese, said Richard Skene, assistant vice-president (property) for Banyan Tree Residences.
The recent launch in Hong Kong saw a lot of people reserving units. This would mean putting down a reservation deposit but investors still have a month to decide.
Hong Kong was the major market for Phuket, and as Singapore has similar characteristics and a thriving property market, he reckons that the response here will be good.
‘The feedback so far leads us to believe it will be successful. Singapore should be a close second to Hong Kong, and maybe one day take over,’ he said.
He also pointed out that demand is not likely to be drastically affected by changes in the property market as their target customers would probably be less sensitive to normal market circumstances. ‘We’re not selling mass market properties,’ he added.
For the third quarter of this year, Banyan Tree Residences contributed about $3.6 million to revenues, down from $9.1 million in the corresponding quarter last year.
Revenues for Banyan Tree Holdings for Q307 overall was $82.5 million.
However, the group said the drop in revenue for residences in Q307 was due to revenues that could not be recognised for units sold, as construction had yet to begin.
The launch for Banyan Tree Residences is being held today and tomorrow at The Fullerton Hotel.
Source: Business Times 17 Nov 07
Saturday, November 17, 2007
HONG Kong’s economy is tipped to grow by 6 per cent this year as the city continues to enjoy strong domestic demand and low unemployment
HONG Kong’s economy is tipped to grow by 6 per cent this year as the city continues to enjoy strong domestic demand and low unemployment, but inflation has hit levels not seen since the 1997 handover.
‘The momentum for economic growth has become more obvious and significant,’ acting government economist Helen Chan announced yesterday, unveiling a revised GDP forecast of 6 per cent for 2007.
The government had previously forecast a rate of between 5 to 6 per cent. In the third quarter of 2007, GDP was up 6.2 per cent in real terms over a year earlier. It marks the 16th consecutive quarter of economic growth in the city.
However, the increase was just 1.7 per cent compared with the previous quarter, marking a small slowdown in the rate. Although domestic demand was strong, exports were seen to suffer amid a slowdown in the US economy.
Private consumption grew 9.7 per cent in real terms in the third quarter, buoyed by a strong labour market and rising household income.
Unemployment in the third quarter was 4.1 per cent, the lowest since mid-1998. Wages also increased by 2.9 per cent during the same period.
Inflation, however, continued its ascent, hitting 2.5 per cent in the first nine months after netting out the effects of a rates concession and public rental waiver introduced in February as part of Budget giveaways.
‘Inflation continued to creep up,’ Ms Chan said. ‘Inflation is not too high but we have to monitor the situation closely.’ The rate for 2007 as a whole is expected to be 2.7 per cent, she said (again after netting out the rates/rental effect).
She added: ‘I don’t think it’s a great problem. The current inflation rate is still quite a modest one.’
Hong Kong is facing a food price hike, partly due to a global trend but also because of its heavy reliance on the mainland for imports. Prices of certain foodstuffs - most notably meat and cooking oil - have surged in China in recent months. The headline inflation rate is expected to go up further in the fourth quarter.
Total exports were up 6.4 per cent in real terms in the third quarter compared with a year earlier. However on a seasonally adjusted quarter-to-quarter comparison, total exports of goods decreased slightly by 0.2 per cent in real terms during the period.
Policy-makers will be watching further developments in the US economy closely, Ms Chan stressed, with Hong Kong relying on the US market for 13 per cent of its exports. China now accounts for 49 per cent of the city’s exports.
‘In a way we have felt the pinch of a slowdown in the US economy,’ Ms Chan explained. ‘In the near term we are cautiously optimistic about the export outlook.’
She stressed: ‘Of course, we have to keep a close eye on changes in the external environment.’
Exports in services were, by contrast, up by 12.3 per cent in real terms during the third quarter, which the government says reflects a strong rise in inbound tourism and the city’s vibrant financial market activities.
Hong Kong’s stock market has been on a rollercoaster ride over the past few weeks, pushing through the 30,000 barrier before suffering sharp corrections. On Friday the benchmark Hang Seng Index closed at 27,614.43, down 1136 points or 3.95 per cent.
Source: Business Times 17 Nov 07
‘The momentum for economic growth has become more obvious and significant,’ acting government economist Helen Chan announced yesterday, unveiling a revised GDP forecast of 6 per cent for 2007.
The government had previously forecast a rate of between 5 to 6 per cent. In the third quarter of 2007, GDP was up 6.2 per cent in real terms over a year earlier. It marks the 16th consecutive quarter of economic growth in the city.
However, the increase was just 1.7 per cent compared with the previous quarter, marking a small slowdown in the rate. Although domestic demand was strong, exports were seen to suffer amid a slowdown in the US economy.
Private consumption grew 9.7 per cent in real terms in the third quarter, buoyed by a strong labour market and rising household income.
Unemployment in the third quarter was 4.1 per cent, the lowest since mid-1998. Wages also increased by 2.9 per cent during the same period.
Inflation, however, continued its ascent, hitting 2.5 per cent in the first nine months after netting out the effects of a rates concession and public rental waiver introduced in February as part of Budget giveaways.
‘Inflation continued to creep up,’ Ms Chan said. ‘Inflation is not too high but we have to monitor the situation closely.’ The rate for 2007 as a whole is expected to be 2.7 per cent, she said (again after netting out the rates/rental effect).
She added: ‘I don’t think it’s a great problem. The current inflation rate is still quite a modest one.’
Hong Kong is facing a food price hike, partly due to a global trend but also because of its heavy reliance on the mainland for imports. Prices of certain foodstuffs - most notably meat and cooking oil - have surged in China in recent months. The headline inflation rate is expected to go up further in the fourth quarter.
Total exports were up 6.4 per cent in real terms in the third quarter compared with a year earlier. However on a seasonally adjusted quarter-to-quarter comparison, total exports of goods decreased slightly by 0.2 per cent in real terms during the period.
Policy-makers will be watching further developments in the US economy closely, Ms Chan stressed, with Hong Kong relying on the US market for 13 per cent of its exports. China now accounts for 49 per cent of the city’s exports.
‘In a way we have felt the pinch of a slowdown in the US economy,’ Ms Chan explained. ‘In the near term we are cautiously optimistic about the export outlook.’
She stressed: ‘Of course, we have to keep a close eye on changes in the external environment.’
Exports in services were, by contrast, up by 12.3 per cent in real terms during the third quarter, which the government says reflects a strong rise in inbound tourism and the city’s vibrant financial market activities.
Hong Kong’s stock market has been on a rollercoaster ride over the past few weeks, pushing through the 30,000 barrier before suffering sharp corrections. On Friday the benchmark Hang Seng Index closed at 27,614.43, down 1136 points or 3.95 per cent.
Source: Business Times 17 Nov 07
Newly-wed couples are postponing their traditional ceremonies while they wait for a new Housing Board flat.
AS PROPERTY prices rise, some newly-wed couples are postponing their traditional ceremonies while they wait for a new Housing Board flat.
Many have been priced out of the resale market while others want to buy a new home, which means joining the hordes trying their luck at ballots in HDB sales exercises.
It is leaving couples in a dilemma. While they have registered their marriages officially, they are reluctant to hold the customary ceremony that legitimises the union in the eyes of the community, until they have a home to call their own.
Members of Parliament say they are getting more appeals from distressed couples.
Aljunied GRC MP Cynthia Phua, who raised a question on the availability of flats in Parliament this week, told The Straits Times that one or two such couples bring up the problem at her Meet-the-People session every week.
Although technically married, many of them live apart, in their family homes, while waiting to get a flat together.
Madam Phua said: ‘For us Asians, once you hold back your customary wedding, you can’t live together, and you can’t even have babies.’
Deliveryman Ang Kah Liong, 34, has unsuccessfully applied for a new flat 10 times since he registered his marriage with his girlfriend three years ago. The couple - who earn $3,000 a month - live with Mr Ang’s parents and three elder brothers in their family’s two-bedroom flat.
They were determined to wait until they had a flat of their own before holding the customary ceremony but family pressure finally prompted them to hold it in September.
‘I had no choice,’ said Mr Ang. ‘I could not wait anymore.’
People like Mr Ang are being caught in a supply-demand crunch.
The buoyant resale market, which has seen prices grow by 11 per cent in the first nine months of this year, is fuelling a demand for new HDB flats.
In the July to September quarter, five-room flats in Queenstown - a coveted district - sold for a median sum of $110,000 above their valuations. This means a buyer had to pay at least $110,000 in cash as that amount cannot be covered with a home loan.
So young couples who cannot afford such resale prices - even with government grants that can go up to $40,000 - are turning to new HDB flats.
MPs told The Straits Times that many seek help to get a new flat near their parents’ homes but this can be difficult as these are usually in older estates where few new flats are being built.
Jalan Besar MP Lily Neo said: ‘Many couples want to live near their parents in the Central Business District, but as you know, there aren’t many flats there.’
They stand a better chance of getting a flat if they are willing to consider other locations, said Dr Neo.
Application figures for recent HDB sales exercises show how competitive the flat race can get.
The HDB received almost 8,000 applications for just 400 flats in Telok Blangah recently, and more than 1,600 applications for 516 homes in Punggol.
The HDB is pumping up the supply of new homes to meet demand. A further 3,600 flats are expected to be offered under the build-to-order system from now until March.
However, the Government has stated that it cannot meet all the demand for new HDB flats as that would risk creating an oversupply in the future.
Meanwhile 28-year-old secretary Koh Bee Leng and fiance Julius Lim, 30, who hope to marry next year, carry on with their house-hunting.
The couple have set their eyes on four-room flats in a mature estate such as Ang Mo Kio and Toa Payoh, but have had no luck in two sales exercises this year.
Ms Koh said: ‘Everything is uncertain now, because of the issue of the availability of the flat. That’s delaying our plan to get married.’
Source: The Straits Times 17 Nov 07
Many have been priced out of the resale market while others want to buy a new home, which means joining the hordes trying their luck at ballots in HDB sales exercises.
It is leaving couples in a dilemma. While they have registered their marriages officially, they are reluctant to hold the customary ceremony that legitimises the union in the eyes of the community, until they have a home to call their own.
Members of Parliament say they are getting more appeals from distressed couples.
Aljunied GRC MP Cynthia Phua, who raised a question on the availability of flats in Parliament this week, told The Straits Times that one or two such couples bring up the problem at her Meet-the-People session every week.
Although technically married, many of them live apart, in their family homes, while waiting to get a flat together.
Madam Phua said: ‘For us Asians, once you hold back your customary wedding, you can’t live together, and you can’t even have babies.’
Deliveryman Ang Kah Liong, 34, has unsuccessfully applied for a new flat 10 times since he registered his marriage with his girlfriend three years ago. The couple - who earn $3,000 a month - live with Mr Ang’s parents and three elder brothers in their family’s two-bedroom flat.
They were determined to wait until they had a flat of their own before holding the customary ceremony but family pressure finally prompted them to hold it in September.
‘I had no choice,’ said Mr Ang. ‘I could not wait anymore.’
People like Mr Ang are being caught in a supply-demand crunch.
The buoyant resale market, which has seen prices grow by 11 per cent in the first nine months of this year, is fuelling a demand for new HDB flats.
In the July to September quarter, five-room flats in Queenstown - a coveted district - sold for a median sum of $110,000 above their valuations. This means a buyer had to pay at least $110,000 in cash as that amount cannot be covered with a home loan.
So young couples who cannot afford such resale prices - even with government grants that can go up to $40,000 - are turning to new HDB flats.
MPs told The Straits Times that many seek help to get a new flat near their parents’ homes but this can be difficult as these are usually in older estates where few new flats are being built.
Jalan Besar MP Lily Neo said: ‘Many couples want to live near their parents in the Central Business District, but as you know, there aren’t many flats there.’
They stand a better chance of getting a flat if they are willing to consider other locations, said Dr Neo.
Application figures for recent HDB sales exercises show how competitive the flat race can get.
The HDB received almost 8,000 applications for just 400 flats in Telok Blangah recently, and more than 1,600 applications for 516 homes in Punggol.
The HDB is pumping up the supply of new homes to meet demand. A further 3,600 flats are expected to be offered under the build-to-order system from now until March.
However, the Government has stated that it cannot meet all the demand for new HDB flats as that would risk creating an oversupply in the future.
Meanwhile 28-year-old secretary Koh Bee Leng and fiance Julius Lim, 30, who hope to marry next year, carry on with their house-hunting.
The couple have set their eyes on four-room flats in a mature estate such as Ang Mo Kio and Toa Payoh, but have had no luck in two sales exercises this year.
Ms Koh said: ‘Everything is uncertain now, because of the issue of the availability of the flat. That’s delaying our plan to get married.’
Source: The Straits Times 17 Nov 07
SHARE prices tumbled across Asia, as deepening credit woes in the United States and renewed weakness of the greenback against the yen prompted traders
SHARE prices tumbled across Asia, as deepening credit woes in the United States and renewed weakness of the greenback against the yen prompted traders to liquidate positions before the weekend.
Yet, for all the regional bloodletting, local investors took some solace that the fallout in Singapore was not as severe as in other markets.
The Straits Times Index (STI) fell 36.63 points, or 1.05 per cent, to 3,440.96, after plunging by as much as 71 points at one stage.
Other markets did not get off as easily, though. Hong Kong’s Hang Seng Index was down 3.95 per cent, hurt by concerns that China might again raise interest rates, while Tokyo’s Nikkei 225 Index lost 1.6 per cent due to fears a US slowdown might hurt the Japanese economy.
The key concern here was the striking drop in investor interest in equities as prices swung down. Overall, market volume fell to just 1.82 billion shares worth $2.11 billion.
‘Investors are moving to the sidelines and taking a wait-and-see attitude, given the uncertainties caused by the mortgage crisis in the United States,’ said a dealer.
While that was the big picture, there was an equally compelling drama going on among China plays.
Jittery traders dumped recently-listed China New Town Development on concerns its project in China probably did not receive the authorities’ blessing.
China New Town shed 12.1 per cent to 69 cents on a hefty volume of 79.6 million shares. It has now lost 16.8 per cent since it listed on Wednesday.
A China New Town spokesman said it was not the company’s policy ‘to comment on specific share price performance and market speculations’.
One dealer said investor confidence was shaken by a belated realisation that a risk factor disclosed in China New Town’s prospectus might cast a serious pall on its business prospects.
By listing here, China New Town is now regarded on the mainland as a foreign firm. This means it must get the approval of China’s Commerce Ministry for any investment that exceeds US$100 million (S$144.8 million) - a rule that applies to a 1.17 billion yuan (S$228 million) project mentioned in its prospectus.
The firm had been caught in limbo, as the Shanghai branch of the Commerce Ministry did not send its proposal to Beijing after approving it.
‘As the transfer is an internal government procedure, we are not in a position to seek clarification or confirmation,’ it said.
The plunge in China New Town rippled across other China plays, with recent losers continuing their declines.
Source: The Straits Times 17 Nov 07
Yet, for all the regional bloodletting, local investors took some solace that the fallout in Singapore was not as severe as in other markets.
The Straits Times Index (STI) fell 36.63 points, or 1.05 per cent, to 3,440.96, after plunging by as much as 71 points at one stage.
Other markets did not get off as easily, though. Hong Kong’s Hang Seng Index was down 3.95 per cent, hurt by concerns that China might again raise interest rates, while Tokyo’s Nikkei 225 Index lost 1.6 per cent due to fears a US slowdown might hurt the Japanese economy.
The key concern here was the striking drop in investor interest in equities as prices swung down. Overall, market volume fell to just 1.82 billion shares worth $2.11 billion.
‘Investors are moving to the sidelines and taking a wait-and-see attitude, given the uncertainties caused by the mortgage crisis in the United States,’ said a dealer.
While that was the big picture, there was an equally compelling drama going on among China plays.
Jittery traders dumped recently-listed China New Town Development on concerns its project in China probably did not receive the authorities’ blessing.
China New Town shed 12.1 per cent to 69 cents on a hefty volume of 79.6 million shares. It has now lost 16.8 per cent since it listed on Wednesday.
A China New Town spokesman said it was not the company’s policy ‘to comment on specific share price performance and market speculations’.
One dealer said investor confidence was shaken by a belated realisation that a risk factor disclosed in China New Town’s prospectus might cast a serious pall on its business prospects.
By listing here, China New Town is now regarded on the mainland as a foreign firm. This means it must get the approval of China’s Commerce Ministry for any investment that exceeds US$100 million (S$144.8 million) - a rule that applies to a 1.17 billion yuan (S$228 million) project mentioned in its prospectus.
The firm had been caught in limbo, as the Shanghai branch of the Commerce Ministry did not send its proposal to Beijing after approving it.
‘As the transfer is an internal government procedure, we are not in a position to seek clarification or confirmation,’ it said.
The plunge in China New Town rippled across other China plays, with recent losers continuing their declines.
Source: The Straits Times 17 Nov 07
Leveraged investors may need to scale back lending by up to US$2 trillion (S$2.9 trillion), according to investment bank Goldman Sachs.
LONDON - THE impact of the United States mortgage market crisis on the underlying economy could be ’dramatic’ as leveraged investors may need to scale back lending by up to US$2 trillion (S$2.9 trillion), according to investment bank Goldman Sachs.
In a report on Thursday, Goldman’s chief US economist Jan Hatzius said a ‘back-of-the-envelope’ estimate of credit losses on outstanding mortgages, based on past default experience, was around US$400 billion. But unlike stock-market losses, which are typically absorbed by long-term investors, this mortgagerelated hit is mostly borne by leveraged investors such as banks, broker-dealers, hedge funds and government-sponsored enterprises.
As these investors depend on loans, they react to losses by actively cutting back lending to keep capital ratios from falling. A bank targeting a constant capital ratio of 10 per cent, for example, would need to shrink its balance by US$10 for every US$1 in losses.
‘The macroeconomic consequences could be quite dramatic,’ Mr Hatzius said. ‘If leveraged investors see US $200 billion of the US$400 billion aggregate credit loss, they might need to scale back their lending by US$2 trillion. This is a large shock.’
He added that the number equates to 7 per cent of total debt owed by US non-financial sectors.
Source: REUTERS (The Straits Times 17 Nov 07)
In a report on Thursday, Goldman’s chief US economist Jan Hatzius said a ‘back-of-the-envelope’ estimate of credit losses on outstanding mortgages, based on past default experience, was around US$400 billion. But unlike stock-market losses, which are typically absorbed by long-term investors, this mortgagerelated hit is mostly borne by leveraged investors such as banks, broker-dealers, hedge funds and government-sponsored enterprises.
As these investors depend on loans, they react to losses by actively cutting back lending to keep capital ratios from falling. A bank targeting a constant capital ratio of 10 per cent, for example, would need to shrink its balance by US$10 for every US$1 in losses.
‘The macroeconomic consequences could be quite dramatic,’ Mr Hatzius said. ‘If leveraged investors see US $200 billion of the US$400 billion aggregate credit loss, they might need to scale back their lending by US$2 trillion. This is a large shock.’
He added that the number equates to 7 per cent of total debt owed by US non-financial sectors.
Source: REUTERS (The Straits Times 17 Nov 07)
A monkey would have beaten the pants off the S&P 500 by following Warren’s buying and selling
NEW YORK - BUYING whatever billionaire investment guru Warren Buffett bought, even months after his share purchases, delivered twice the returns of the Standard & Poor’s (S&P) 500 Index during the past three decades.
Investors would have earned an annual return of 24.6 per cent by buying the same stocks as Mr Buffett after he disclosed his holdings in regulatory filings, sometimes four months later, according to a soon-to-be released study by Professor Gerald Martin of American University in Washington and Professor John Puthenpurackal of the University of Nevada.
The S&P 500 rose 12.8 per cent a year in the same period.
‘A monkey would have beaten the pants off the S&P 500 by following Warren’s buying and selling,’ said Mr Mohnish Pabrai of Pabrai Investment Funds. Mr Pabrai and a friend paid US$650,100 (S$941,000) this year in an annual charity auction to lunch with the 77-year-old Mr Buffett.
Mr Buffett’s stock picks outperformed shares of his company, Berkshire Hathaway, from 2002 to last year when Berkshire shares advanced at a yearly rate of 7.8 per cent.
By comparison, Berkshire’s holdings in USG, the biggest maker of gypsum wallboard in North America, increased by about 1,140 per cent, and in PetroChina, China’s largest oil producer, soared eightfold.
Prof Martin said he and Prof Puthenpurackal initiated their study because they wanted to know whether it was better to purchase the stocks that Mr Buffett was buying or invest in Berkshire. The market-beating returns on copycat investing are based on buying and selling at the end of the month following disclosure over 31 years.
‘Over the past five years, people haven’t been attributing enough of the value Buffett adds to Berkshire,’ Prof Martin said. ‘They’re missing his managerial expertise and how that makes his business grow.’
‘We don’t go in and out of the market,’ said Mr Buffett, explaining his investment strategy. ‘I simply look at individual businesses and try to figure out where they’re likely to be in 5 or 10 or 20 years from now.’
Source: BLOOMBERG NEWS (The Straits Times 17 Nov 07)
Investors would have earned an annual return of 24.6 per cent by buying the same stocks as Mr Buffett after he disclosed his holdings in regulatory filings, sometimes four months later, according to a soon-to-be released study by Professor Gerald Martin of American University in Washington and Professor John Puthenpurackal of the University of Nevada.
The S&P 500 rose 12.8 per cent a year in the same period.
‘A monkey would have beaten the pants off the S&P 500 by following Warren’s buying and selling,’ said Mr Mohnish Pabrai of Pabrai Investment Funds. Mr Pabrai and a friend paid US$650,100 (S$941,000) this year in an annual charity auction to lunch with the 77-year-old Mr Buffett.
Mr Buffett’s stock picks outperformed shares of his company, Berkshire Hathaway, from 2002 to last year when Berkshire shares advanced at a yearly rate of 7.8 per cent.
By comparison, Berkshire’s holdings in USG, the biggest maker of gypsum wallboard in North America, increased by about 1,140 per cent, and in PetroChina, China’s largest oil producer, soared eightfold.
Prof Martin said he and Prof Puthenpurackal initiated their study because they wanted to know whether it was better to purchase the stocks that Mr Buffett was buying or invest in Berkshire. The market-beating returns on copycat investing are based on buying and selling at the end of the month following disclosure over 31 years.
‘Over the past five years, people haven’t been attributing enough of the value Buffett adds to Berkshire,’ Prof Martin said. ‘They’re missing his managerial expertise and how that makes his business grow.’
‘We don’t go in and out of the market,’ said Mr Buffett, explaining his investment strategy. ‘I simply look at individual businesses and try to figure out where they’re likely to be in 5 or 10 or 20 years from now.’
Source: BLOOMBERG NEWS (The Straits Times 17 Nov 07)
Fund managers’ appetite for risk has also weakened considerably.
THE flood of foreign funds surging into Asian bourses over the past four weeks has been reversed by the ongoing credit woes in the United States.
Singapore has started experiencing an outflow, with a net sale of US$2.1 million (S$3 million) last week by funds investing exclusively in Asian equities, according to Citigroup Investment Research.
This is a striking contrast to the situation in end-September, when US$110.4 million flowed into local equities in the space of a week.
And in other bullish regional markets such as Hong Kong, China and India, the inflow of foreign funds into equities has slowed down considerably.
Only US$84.3 million was invested in H-shares - shares of China firms listed in Hong Kong - between Nov 1 and Nov 7, compared with US$576.5 million between Sept 27 and Oct 3.
Over the same period, foreign funds spent just US$29.9 million on Hong Kong stocks, excluding H-shares, an 86 per cent plunge from the US$216.5 million they spent in the week of Sept 27 to Oct 3.
The slowdown in fresh investments in Asian equities coincided with the bearish mood in the US, where banks have been writing down billions of dollars in their pool of debts.
That has been coupled with the greenback plunging against regional currencies following two US interest rate cuts.
It raises fears of an unravelling in the carry trade - hedge funds taking out huge yen loans because of Japan’s low interest rates to invest in higher-yielding assets.
Sentiment has also been spooked by perception that H-shares have shot up too fast, fuelled by foreign investors entering Hong Kong and Singapore in anticipation of China allowing domestic funds to invest in overseas equities.
Fund managers’ appetite for risk has also weakened considerably. Merrill Lynch’s latest survey of Pacific Rim fund managers showed that defensive sectors - insurance, retail and consumer products - are now preferred over sexy growth stocks.
And despite oil soaring close to US$100 a barrel, fund managers have started to pare down positions in the energy sector.
Despite the falls in regional markets, the Merrill Lynch report noted that fund managers are still ‘overweight’ on shares, having reduced cash holdings to 2.8 per cent from 3.7 per cent last month.
And even as Hong Kong’s Hang Seng Index has dropped by more than 10 per cent from its record high in September, Merrill Lynch said fund managers continue to favour Hong Kong and ’sharply increase their enthusiasm for frontier markets’.
‘Fund managers have also returned to Singapore and reduced their exposure in other Asean markets,’ it added.
But Morgan Stanley’s head of global emerging markets equity strategy, Mr Jonathan Garner, said that next year may be more difficult than this year.
While the focus is on the impact any slowdown in the US economy could have on emerging markets, Europe is a much bigger export market for developing countries. ‘Weakness in the US economy could spill over to the euro zone. Emerging markets may survive a slowdown in the US, but not the US and Europe combined,’ said Mr Garner.
He expressed particular concern over a possible ‘contraction in valuations’ in China and India, after their exceptional stock market performances this year. ‘H-shares valuations are back at the 1997 and 2000 peak levels.’
Morgan Stanley has adopted a defensive posture, adding Telekom Malaysia and removing China Mobile and Hyundai Heavy from its focus list last week.
Source: The Straits Times 17 Nov 07
Singapore has started experiencing an outflow, with a net sale of US$2.1 million (S$3 million) last week by funds investing exclusively in Asian equities, according to Citigroup Investment Research.
This is a striking contrast to the situation in end-September, when US$110.4 million flowed into local equities in the space of a week.
And in other bullish regional markets such as Hong Kong, China and India, the inflow of foreign funds into equities has slowed down considerably.
Only US$84.3 million was invested in H-shares - shares of China firms listed in Hong Kong - between Nov 1 and Nov 7, compared with US$576.5 million between Sept 27 and Oct 3.
Over the same period, foreign funds spent just US$29.9 million on Hong Kong stocks, excluding H-shares, an 86 per cent plunge from the US$216.5 million they spent in the week of Sept 27 to Oct 3.
The slowdown in fresh investments in Asian equities coincided with the bearish mood in the US, where banks have been writing down billions of dollars in their pool of debts.
That has been coupled with the greenback plunging against regional currencies following two US interest rate cuts.
It raises fears of an unravelling in the carry trade - hedge funds taking out huge yen loans because of Japan’s low interest rates to invest in higher-yielding assets.
Sentiment has also been spooked by perception that H-shares have shot up too fast, fuelled by foreign investors entering Hong Kong and Singapore in anticipation of China allowing domestic funds to invest in overseas equities.
Fund managers’ appetite for risk has also weakened considerably. Merrill Lynch’s latest survey of Pacific Rim fund managers showed that defensive sectors - insurance, retail and consumer products - are now preferred over sexy growth stocks.
And despite oil soaring close to US$100 a barrel, fund managers have started to pare down positions in the energy sector.
Despite the falls in regional markets, the Merrill Lynch report noted that fund managers are still ‘overweight’ on shares, having reduced cash holdings to 2.8 per cent from 3.7 per cent last month.
And even as Hong Kong’s Hang Seng Index has dropped by more than 10 per cent from its record high in September, Merrill Lynch said fund managers continue to favour Hong Kong and ’sharply increase their enthusiasm for frontier markets’.
‘Fund managers have also returned to Singapore and reduced their exposure in other Asean markets,’ it added.
But Morgan Stanley’s head of global emerging markets equity strategy, Mr Jonathan Garner, said that next year may be more difficult than this year.
While the focus is on the impact any slowdown in the US economy could have on emerging markets, Europe is a much bigger export market for developing countries. ‘Weakness in the US economy could spill over to the euro zone. Emerging markets may survive a slowdown in the US, but not the US and Europe combined,’ said Mr Garner.
He expressed particular concern over a possible ‘contraction in valuations’ in China and India, after their exceptional stock market performances this year. ‘H-shares valuations are back at the 1997 and 2000 peak levels.’
Morgan Stanley has adopted a defensive posture, adding Telekom Malaysia and removing China Mobile and Hyundai Heavy from its focus list last week.
Source: The Straits Times 17 Nov 07
Friday, November 16, 2007
Outsourced Regional Office
ATTRACTING regional offices here is not the only way for Singapore to achieve its ambition of being a regional hub by leveraging on the rapid rise of Asia. It’s timely to also consider the concept of the Outsourced Regional Office, or ORO, as a new economic initiative.
Prior to setting up a factory in Asia, most multinational corporations (MNCs) would usually set up a regional office, that is a fully owned subsidiary, as a precursor.
While Singapore has an OHQ Scheme to attract regional offices, it comes with such conditions that many small and medium-sized enterprises (SMEs) in the West do not qualify for the scheme. It is proposed that the International Trade Institute of Singapore (ITIS) under the International Enterprise (IE) Singapore’s banner lead this new initiative whereby we will go out to catch the incipient MNCs or now sizeable SMEs in the developed economies before they mature to the stage where they will find their way to Hong Kong or Shanghai.
For years, we have been making the clarion call to make Singapore the ‘gateway to Asia’ for companies in the Americas, UK, Middle East, Europe and Australia & New Zealand. Let us create a scheme that Western SMEs can ride on.
It was reported in The Straits Times on Oct 3, 2007 that there are 3.4 million SMEs in Germany alone. And the number of German companies in Singapore? A paltry 700. Most of them are large ones like Siemens and Daimler.
There are approximately 4.3 million businesses in the UK and over 99 per cent of them are SMEs. Again, there are just 700 UK companies in Singapore.
It is imperative that we have a tool to draw the SMEs that are incipient MNCs to Singapore before they are lured by Hong Kong or Shanghai, two very attractive commercial centres in Asia given the phenomenal growth in China. It is definitely not enough today to flog our good location, a deep water port, excellent infocomm technology infrastructure or even our banking critical mass. Even Korea and Taiwan are able to tout the same advantages to intending SMEs.
Let us beat the competition by offering these developed countries a cost-effective initiative - the ORO. This can help add another dimension to our claim to be truly the best ‘gateway to Asia’. The concept is to offer the SMEs in the West, many of which are searching for ways to join the economic party in Asia, especially China, a cost-effective option to come into the region. Many of them do not know where to turn for help to come into Asia apart from their own countries’ embassies in Asia. The Germans and the Nordic countries have set up their own business centres here with the same purpose in mind.
Such foreign government-led initiatives have their limitations. Such companies need hand-holding for an initial period of at least three to five years based on my experience as an export consultant to small as well as large Western companies in Asia.
This is something that governments, whether Singapore or foreign, cannot provide. Therein lies the idea of using a network of private-sector consultants to provide the same.
For an operational budget, we will have export consultants to play the role of their regional offices in Asia way before they can do it on their own. We will therefore act as incubators for them in Asia, helping these Western companies set up the agent and/or distributor network, the most commonly used method for market entry. Firms will be encouraged to set up to cater to the different fields, for example oil and gas, industrial products, information and communication technologies, pharmaceuticals, and hospitality.
Certified consultants
The ITIS, jointly with Benroth and the NUS Business School, can set up a certification process (or quality control mechanism) offering a short course to confirm these consultants’ credentials in international marketing. Only certified consultants will be put on the list of recommended consultants which will be marketed by the network of IE Singapore offices worldwide.
This is to protect the Singapore brand for reliability and integrity. The individuals who fit the bill must have held international marketing positions with some global companies managing the network of agents and distributors in Asia Pacific. Those who have been acting as distributors and agents, for instance, will not fit the bill.
In the long term, once they are accustomed to the environment in Singapore, they would continue to stay here upon their maturity into MNCs. If they go into China, chances are they will either seek a Singapore company as a partner or they will bring in Singaporeans as advisors or directors on their boards. Capital will be raised here if they need funding.
There are also other spin-offs to our economy by these same companies using Singapore logistics providers to back up the movement of goods. Singapore law firms will be called upon to provide legal inputs in seeking redresses or simply writing distributor agreements. Accounting firms will be called upon to provide accounting services, and the list goes on.
Singapore has a pool of international marketing talents comprising executives currently or once employed by the MNCs as regional marketing/sales directors. With our bi-cultural orientation, we have a headstart over both Hong Kong and Shanghai. For not only are we able to bring them into both northern (Mandarin-speaking) and southern (Cantonese-speaking) China, we have Malay and speakers of various Indian languages who can link them to the South-east Asian markets as well as fast-developing India. Many of these international marketing talents were retrenched during the recession in 2000-2003.
The ORO initiative will be able to absorb those with international marketing experience, with them forming small niche export consultant firms described above.
IE Singapore with its network of 38 offices overseas will play a lead role in the entire firmament by marketing the ORO scheme aggressively overseas to SMEs abroad.
It is very logical to leverage on Singapore’s national branding which only the overseas offices of IE Singapore can purvey beyond what an individual ORO consultant firm can. There will be an immediate level of comfort and trust once the potential entrant sees that there is a very dependable Singapore government behind the scheme. It is almost nigh impossible for any firm to have the kind of geographical spread that IE Singapore already has.
In one stroke, this move will strengthen IE Singapore’s strategic role with our own SMEs and thus better enable it to justify its existence amongst our public agencies. IE Singapore must serve our larger national purpose; this will in fact develop into a classic example of public-private collaboration that will bring the country synergistic spin-offs.
It is where the public sector provides the infrastructure (foreign offices) and environment (international confidence in Singapore’s branding) with the private sector providing the engine.
It is this factor that has led to InvestHK’s aggressive push to attract regional offices to Hong Kong. When a plant is established say in China across the border, the MNC would still retain the managerial, strategic marketing and decision-making processes in Hong Kong.
InvestHK reported that as of June 30, 2007, it has already attracted 147 companies to invest or expand in Hong Kong, achieving more than half of its annual target of 250. During the first quarter of 2007, foreign direct investment (FDI) inflows into Hong Kong reached HK$120.2 billion (S$22.3 billion). Total FDI inflow during all of 2006 was HK$333.2 billion.
FDI gains
Apart from creating employment, FDI creates multiplier effects that no government can ignore. Many supporting services like logistics, legal, banking, information and communication technology, accounting and advisory consultancy are needed whenever a foreign company operates in a host country like Singapore.
There is much scope to riding on the tail of the dragon. Bloomberg reported the following on July 12, 2007: ‘Foreign direct investment in China, the world’s fastest-growing major economy, climbed 12.2 per cent in the first half from a year earlier. Spending rose to US$31.9 billion, the Ministry of Commerce, said today on its website. The pace has quickened from a 9.9 per cent increase in the first five months. For June alone, foreign direct investment jumped 21.9 per cent to US$6.6 billion.’
While the pace of inward FDI continues to rise in China, the day is approaching when indigenous Chinese companies seek foreign markets as well. This is evidenced by the record number of companies seeking initial public offerings in both Singapore and Hong Kong. The purchase of Maytag in America by Haeir and IBM by Lenovo heralds this new phase that is still in its incipient stage. The Chinese are finding their way out of merely being the sweat shop for Western brands.
There is therefore another business flow that we can leverage on using the same OROs in the long term and beyond the influx of Western companies coming into the Asia-Pacific market. This is the opportunity to assist the PRC companies to export their branded DEM (designed, engineered and manufactured) goods worldwide, using Singapore as a reverse gateway.
In conclusion, the ORO initiative will give us an additional leg up in the regional competition for capital and technologies. We will be able to exploit the tremendous growth in China, leveraging on our human resource capital, our branding and bicultural roots. It will also bring in the much-needed additional value-added through the multiplier effects.
Most importantly, it will also help alleviate the structural unemployment that will continue to affect those professionals above 45 in this new age of globalisation and keen economic competition. And let us not count on the current boom in our economy to last too long. Economic cycles are predicted to be shorter these days owing to the many factors at play in the Internet age. We must and should continue to reinvent ourselves. The ORO is one such initiative at reinvention.
The writer is the managing director of Benroth International Pte Ltd
Source: Business Times 16 Nov 07
Prior to setting up a factory in Asia, most multinational corporations (MNCs) would usually set up a regional office, that is a fully owned subsidiary, as a precursor.
While Singapore has an OHQ Scheme to attract regional offices, it comes with such conditions that many small and medium-sized enterprises (SMEs) in the West do not qualify for the scheme. It is proposed that the International Trade Institute of Singapore (ITIS) under the International Enterprise (IE) Singapore’s banner lead this new initiative whereby we will go out to catch the incipient MNCs or now sizeable SMEs in the developed economies before they mature to the stage where they will find their way to Hong Kong or Shanghai.
For years, we have been making the clarion call to make Singapore the ‘gateway to Asia’ for companies in the Americas, UK, Middle East, Europe and Australia & New Zealand. Let us create a scheme that Western SMEs can ride on.
It was reported in The Straits Times on Oct 3, 2007 that there are 3.4 million SMEs in Germany alone. And the number of German companies in Singapore? A paltry 700. Most of them are large ones like Siemens and Daimler.
There are approximately 4.3 million businesses in the UK and over 99 per cent of them are SMEs. Again, there are just 700 UK companies in Singapore.
It is imperative that we have a tool to draw the SMEs that are incipient MNCs to Singapore before they are lured by Hong Kong or Shanghai, two very attractive commercial centres in Asia given the phenomenal growth in China. It is definitely not enough today to flog our good location, a deep water port, excellent infocomm technology infrastructure or even our banking critical mass. Even Korea and Taiwan are able to tout the same advantages to intending SMEs.
Let us beat the competition by offering these developed countries a cost-effective initiative - the ORO. This can help add another dimension to our claim to be truly the best ‘gateway to Asia’. The concept is to offer the SMEs in the West, many of which are searching for ways to join the economic party in Asia, especially China, a cost-effective option to come into the region. Many of them do not know where to turn for help to come into Asia apart from their own countries’ embassies in Asia. The Germans and the Nordic countries have set up their own business centres here with the same purpose in mind.
Such foreign government-led initiatives have their limitations. Such companies need hand-holding for an initial period of at least three to five years based on my experience as an export consultant to small as well as large Western companies in Asia.
This is something that governments, whether Singapore or foreign, cannot provide. Therein lies the idea of using a network of private-sector consultants to provide the same.
For an operational budget, we will have export consultants to play the role of their regional offices in Asia way before they can do it on their own. We will therefore act as incubators for them in Asia, helping these Western companies set up the agent and/or distributor network, the most commonly used method for market entry. Firms will be encouraged to set up to cater to the different fields, for example oil and gas, industrial products, information and communication technologies, pharmaceuticals, and hospitality.
Certified consultants
The ITIS, jointly with Benroth and the NUS Business School, can set up a certification process (or quality control mechanism) offering a short course to confirm these consultants’ credentials in international marketing. Only certified consultants will be put on the list of recommended consultants which will be marketed by the network of IE Singapore offices worldwide.
This is to protect the Singapore brand for reliability and integrity. The individuals who fit the bill must have held international marketing positions with some global companies managing the network of agents and distributors in Asia Pacific. Those who have been acting as distributors and agents, for instance, will not fit the bill.
In the long term, once they are accustomed to the environment in Singapore, they would continue to stay here upon their maturity into MNCs. If they go into China, chances are they will either seek a Singapore company as a partner or they will bring in Singaporeans as advisors or directors on their boards. Capital will be raised here if they need funding.
There are also other spin-offs to our economy by these same companies using Singapore logistics providers to back up the movement of goods. Singapore law firms will be called upon to provide legal inputs in seeking redresses or simply writing distributor agreements. Accounting firms will be called upon to provide accounting services, and the list goes on.
Singapore has a pool of international marketing talents comprising executives currently or once employed by the MNCs as regional marketing/sales directors. With our bi-cultural orientation, we have a headstart over both Hong Kong and Shanghai. For not only are we able to bring them into both northern (Mandarin-speaking) and southern (Cantonese-speaking) China, we have Malay and speakers of various Indian languages who can link them to the South-east Asian markets as well as fast-developing India. Many of these international marketing talents were retrenched during the recession in 2000-2003.
The ORO initiative will be able to absorb those with international marketing experience, with them forming small niche export consultant firms described above.
IE Singapore with its network of 38 offices overseas will play a lead role in the entire firmament by marketing the ORO scheme aggressively overseas to SMEs abroad.
It is very logical to leverage on Singapore’s national branding which only the overseas offices of IE Singapore can purvey beyond what an individual ORO consultant firm can. There will be an immediate level of comfort and trust once the potential entrant sees that there is a very dependable Singapore government behind the scheme. It is almost nigh impossible for any firm to have the kind of geographical spread that IE Singapore already has.
In one stroke, this move will strengthen IE Singapore’s strategic role with our own SMEs and thus better enable it to justify its existence amongst our public agencies. IE Singapore must serve our larger national purpose; this will in fact develop into a classic example of public-private collaboration that will bring the country synergistic spin-offs.
It is where the public sector provides the infrastructure (foreign offices) and environment (international confidence in Singapore’s branding) with the private sector providing the engine.
It is this factor that has led to InvestHK’s aggressive push to attract regional offices to Hong Kong. When a plant is established say in China across the border, the MNC would still retain the managerial, strategic marketing and decision-making processes in Hong Kong.
InvestHK reported that as of June 30, 2007, it has already attracted 147 companies to invest or expand in Hong Kong, achieving more than half of its annual target of 250. During the first quarter of 2007, foreign direct investment (FDI) inflows into Hong Kong reached HK$120.2 billion (S$22.3 billion). Total FDI inflow during all of 2006 was HK$333.2 billion.
FDI gains
Apart from creating employment, FDI creates multiplier effects that no government can ignore. Many supporting services like logistics, legal, banking, information and communication technology, accounting and advisory consultancy are needed whenever a foreign company operates in a host country like Singapore.
There is much scope to riding on the tail of the dragon. Bloomberg reported the following on July 12, 2007: ‘Foreign direct investment in China, the world’s fastest-growing major economy, climbed 12.2 per cent in the first half from a year earlier. Spending rose to US$31.9 billion, the Ministry of Commerce, said today on its website. The pace has quickened from a 9.9 per cent increase in the first five months. For June alone, foreign direct investment jumped 21.9 per cent to US$6.6 billion.’
While the pace of inward FDI continues to rise in China, the day is approaching when indigenous Chinese companies seek foreign markets as well. This is evidenced by the record number of companies seeking initial public offerings in both Singapore and Hong Kong. The purchase of Maytag in America by Haeir and IBM by Lenovo heralds this new phase that is still in its incipient stage. The Chinese are finding their way out of merely being the sweat shop for Western brands.
There is therefore another business flow that we can leverage on using the same OROs in the long term and beyond the influx of Western companies coming into the Asia-Pacific market. This is the opportunity to assist the PRC companies to export their branded DEM (designed, engineered and manufactured) goods worldwide, using Singapore as a reverse gateway.
In conclusion, the ORO initiative will give us an additional leg up in the regional competition for capital and technologies. We will be able to exploit the tremendous growth in China, leveraging on our human resource capital, our branding and bicultural roots. It will also bring in the much-needed additional value-added through the multiplier effects.
Most importantly, it will also help alleviate the structural unemployment that will continue to affect those professionals above 45 in this new age of globalisation and keen economic competition. And let us not count on the current boom in our economy to last too long. Economic cycles are predicted to be shorter these days owing to the many factors at play in the Internet age. We must and should continue to reinvent ourselves. The ORO is one such initiative at reinvention.
The writer is the managing director of Benroth International Pte Ltd
Source: Business Times 16 Nov 07
Core Central Region was shrinking sharply.
The private housing momentum is shifting decisively as sales and launches flag in the Core Central Region (where upmarket homes are located) but appear to be picking up in other areas.
In the so-called Outside Central Region - which includes suburban mass-market housing locales like Jurong, Woodlands and Bukit Batok - developers sold some 259 homes in October. The sales here were more than in both other regions in the Urban Redevelopment Authority’s geographical classification, according to Jones Lang LaSalle’s analysis and represented a 72 per cent jump over September.
The Rest of Central Region, which includes locations like Amber Road, Rochor, Geylang, Toa Payoh and Bishan, also saw a 123 per cent month-on-month rise in developer sales to 196 homes in October, according to Jones Lang LaSalle’s analysis.
In contrast, demand in the Core Central Region was shrinking sharply. Just 135 homes were sold there in October, compared to 290 units in September and 583 in August, when the market was rollicking.
JLL also noted that the number of new homes launched by private developers dropped 55 per cent month-on-month in October for the Core Central Region, but jumped 299 per cent and 30 per cent respectively in the Rest of Central Region and Outside Central Region.
Knight Frank, which made a similar analysis, attributed the lower sales volumes in Core Central Region to the stock market turbulence causing local buyers to be more cautious while the US sub-prime problems and credit crunch have also dented sentiment among foreign investors.
Islandwide, developers launched 629 homes in October, up 10.4 per cent from 570 units in September. The number of homes they sold also increased 11.5 per cent from 529 in September to 590 in October.
JLL pointed out that the average gap between the highest and lowest prices achieved for projects in the Outside Central Region widened to 25.7 per cent in October, from 14.8 per cent in August and 18.7 per cent in September, which JLL suggests reflects more buoyancy in this segment. ‘Buyers are more optimistic and confident of this submarket,’ Dr Chua said.
‘However, this method does not account for the product differentiation or any other physical attributes that may have resulted in this gap. It is to be used only as an indication of buyers’ mood or confidence rather than to predict the market,’ he added.
Knight Frank’s analysis of URA’s data showed that, islandwide, the median transacted price increased 3.3 per cent from $960 psf in September to $992 psf in October. ‘The increase signifies that the market is on a path of modest and steady growth,’ the firm said.
It also noted that the impact of the withdrawal of the deferred payment scheme, which took effect on Oct 26 was yet to be reflected. ‘However, in subsequent months, buyers could adopt a more cautionary stance and although a significant drop is not expected, the number of units launched and sold will likely remain close to current levels,’ Knight Frank added.
CB Richard Ellis’ analysis shows that Park Natura in Bukit Batok chalked up the most primary market sales during October, at 101 units, followed by Aalto at Jalan Kechil (in the Amber Road/Peach Garden vicinity), with 49 units.
Two luxury projects that sold fairly well last month were Hilltops in the Cairnhill area, and Scotts Square, with 24 units and 33 units sold respectively.
Hilltops’ median transacted price was $3,711 psf, while that for Scotts Square was $4,005 psf. The developers of The Orchard Residences saw nine units being sold at a median price of $4,476 psf, with the highest price achieved of $5,600 psf setting a new record, as reported by BT earlier.
‘In the mid-range, new projects in the east such as Aalto, De Centurion, Suites @ Amber and The Seafront On Meyer achieved median prices ranging from about $1,300 to $1,600 psf. For suburban projects, Park Natura’s median transacted price was $1,022 psf,’ CBRE said.
URA’s data also revealed that the first unit at Far East Organization’s Boulevard Vue at Angullia Park was sold in October for $3,900 psf. In the eastern part of Singapore, the first 20 units in the 28-unit Suites @ Amber were sold at between $1,224 psf and $1,440 psf.
CBRE predicts that developers will sell about 1,800-2,000 private homes in Q4 this year, bringing their full-year sales to 15,000-16,000 units - which will still be much higher than the 11,147 new private homes they sold for the whole of 2006.
The official URA private home price index, which has already risen 22.9 per cent in the first nine months of this year from end-2006, is likely to increase another 3 to 6 per cent in the final quarter, to achieve a full-year gain of 27-30 per cent.
Source : Business Times - 16 Nov 2007
In the so-called Outside Central Region - which includes suburban mass-market housing locales like Jurong, Woodlands and Bukit Batok - developers sold some 259 homes in October. The sales here were more than in both other regions in the Urban Redevelopment Authority’s geographical classification, according to Jones Lang LaSalle’s analysis and represented a 72 per cent jump over September.
The Rest of Central Region, which includes locations like Amber Road, Rochor, Geylang, Toa Payoh and Bishan, also saw a 123 per cent month-on-month rise in developer sales to 196 homes in October, according to Jones Lang LaSalle’s analysis.
In contrast, demand in the Core Central Region was shrinking sharply. Just 135 homes were sold there in October, compared to 290 units in September and 583 in August, when the market was rollicking.
JLL also noted that the number of new homes launched by private developers dropped 55 per cent month-on-month in October for the Core Central Region, but jumped 299 per cent and 30 per cent respectively in the Rest of Central Region and Outside Central Region.
Knight Frank, which made a similar analysis, attributed the lower sales volumes in Core Central Region to the stock market turbulence causing local buyers to be more cautious while the US sub-prime problems and credit crunch have also dented sentiment among foreign investors.
Islandwide, developers launched 629 homes in October, up 10.4 per cent from 570 units in September. The number of homes they sold also increased 11.5 per cent from 529 in September to 590 in October.
JLL pointed out that the average gap between the highest and lowest prices achieved for projects in the Outside Central Region widened to 25.7 per cent in October, from 14.8 per cent in August and 18.7 per cent in September, which JLL suggests reflects more buoyancy in this segment. ‘Buyers are more optimistic and confident of this submarket,’ Dr Chua said.
‘However, this method does not account for the product differentiation or any other physical attributes that may have resulted in this gap. It is to be used only as an indication of buyers’ mood or confidence rather than to predict the market,’ he added.
Knight Frank’s analysis of URA’s data showed that, islandwide, the median transacted price increased 3.3 per cent from $960 psf in September to $992 psf in October. ‘The increase signifies that the market is on a path of modest and steady growth,’ the firm said.
It also noted that the impact of the withdrawal of the deferred payment scheme, which took effect on Oct 26 was yet to be reflected. ‘However, in subsequent months, buyers could adopt a more cautionary stance and although a significant drop is not expected, the number of units launched and sold will likely remain close to current levels,’ Knight Frank added.
CB Richard Ellis’ analysis shows that Park Natura in Bukit Batok chalked up the most primary market sales during October, at 101 units, followed by Aalto at Jalan Kechil (in the Amber Road/Peach Garden vicinity), with 49 units.
Two luxury projects that sold fairly well last month were Hilltops in the Cairnhill area, and Scotts Square, with 24 units and 33 units sold respectively.
Hilltops’ median transacted price was $3,711 psf, while that for Scotts Square was $4,005 psf. The developers of The Orchard Residences saw nine units being sold at a median price of $4,476 psf, with the highest price achieved of $5,600 psf setting a new record, as reported by BT earlier.
‘In the mid-range, new projects in the east such as Aalto, De Centurion, Suites @ Amber and The Seafront On Meyer achieved median prices ranging from about $1,300 to $1,600 psf. For suburban projects, Park Natura’s median transacted price was $1,022 psf,’ CBRE said.
URA’s data also revealed that the first unit at Far East Organization’s Boulevard Vue at Angullia Park was sold in October for $3,900 psf. In the eastern part of Singapore, the first 20 units in the 28-unit Suites @ Amber were sold at between $1,224 psf and $1,440 psf.
CBRE predicts that developers will sell about 1,800-2,000 private homes in Q4 this year, bringing their full-year sales to 15,000-16,000 units - which will still be much higher than the 11,147 new private homes they sold for the whole of 2006.
The official URA private home price index, which has already risen 22.9 per cent in the first nine months of this year from end-2006, is likely to increase another 3 to 6 per cent in the final quarter, to achieve a full-year gain of 27-30 per cent.
Source : Business Times - 16 Nov 2007
KEPPEL Land is embarking on a large-scale residential project in Shanghai.
KEPPEL Land is embarking on a large-scale residential project in Shanghai.
The Singapore-based developer announced yesterday that it has, through two subsidiaries, acquired full ownership of Shanghai Hongda Property Development for about $13.6 million.Shanghai Hongda owns a 26.4-hectare residential site in Xinchang Town, in Nanhui District in south-eastern Shanghai.
With the acquisition, Keppel Land said it is ‘poised to capitalise on the urban expansion and growing real estate market of Shanghai’.
Keppel Land already has three residential developments in Shanghai.
‘Shanghai is positioned as a global financial hub,’ said Ang Wee Gee, Keppel Land’s director of regional investments. ‘Its property market is poised for continuing good prospects.’
Nanhui District has in recent years received significant attention from the government, owing to its strategic location adjacent to China’s largest port facility, the Yangshan Deep Water Port off Hangzhou Bay.
The Shanghai government has pumped money into infrastructure and real estate development in the district. It also has plans to develop the south-eastern tip of Nanhui District into a harbour city to support the activities of Yangshan Port and trade-related industries and services, said Keppel Land. The harbour city will house 800,000 people and several industrial parks by 2020.
‘Earmarked as one of key housing zones in Shanghai, Nanhui District has taken off rapidly with a surge of public and private real estate investments,’ Mr Ang said.
‘Our latest project is well-timed to capture Nanhui’s growing housing demand, which is expected to be underpinned by strong owner-occupiers’ demand over the next few years.’
According to Keppel Land, more residents are expected to be drawn into Nanhui District by increasing economic activities and opportunities pouring into the area.
The project in Nanhui District is aimed at middle-income buyers. Keppel plans to build it in phases over five years into a mixed residential enclave of 3,000 homes ranging from terrace houses to low and mid-rise apartment blocks. The development will include a club house and retail shops.
‘Keppel Land has been present in Shanghai for more than a decade, during which we have established ourselves as a quality developer with keen market knowledge and strong business networks,’ Mr Ang said.
‘We are confident that with our valuable experience and expertise, Keppel Land is well-placed to identify and tap new opportunities, and to meet the demand for quality homes in this market.’
Keppel Land said the latest acquisition is not expected to have any significant impact on its net tangible asset and earnings per share for the financial year ending Dec 31, 2007.
Source : Business Times - 16 Nov 2007
The Singapore-based developer announced yesterday that it has, through two subsidiaries, acquired full ownership of Shanghai Hongda Property Development for about $13.6 million.Shanghai Hongda owns a 26.4-hectare residential site in Xinchang Town, in Nanhui District in south-eastern Shanghai.
With the acquisition, Keppel Land said it is ‘poised to capitalise on the urban expansion and growing real estate market of Shanghai’.
Keppel Land already has three residential developments in Shanghai.
‘Shanghai is positioned as a global financial hub,’ said Ang Wee Gee, Keppel Land’s director of regional investments. ‘Its property market is poised for continuing good prospects.’
Nanhui District has in recent years received significant attention from the government, owing to its strategic location adjacent to China’s largest port facility, the Yangshan Deep Water Port off Hangzhou Bay.
The Shanghai government has pumped money into infrastructure and real estate development in the district. It also has plans to develop the south-eastern tip of Nanhui District into a harbour city to support the activities of Yangshan Port and trade-related industries and services, said Keppel Land. The harbour city will house 800,000 people and several industrial parks by 2020.
‘Earmarked as one of key housing zones in Shanghai, Nanhui District has taken off rapidly with a surge of public and private real estate investments,’ Mr Ang said.
‘Our latest project is well-timed to capture Nanhui’s growing housing demand, which is expected to be underpinned by strong owner-occupiers’ demand over the next few years.’
According to Keppel Land, more residents are expected to be drawn into Nanhui District by increasing economic activities and opportunities pouring into the area.
The project in Nanhui District is aimed at middle-income buyers. Keppel plans to build it in phases over five years into a mixed residential enclave of 3,000 homes ranging from terrace houses to low and mid-rise apartment blocks. The development will include a club house and retail shops.
‘Keppel Land has been present in Shanghai for more than a decade, during which we have established ourselves as a quality developer with keen market knowledge and strong business networks,’ Mr Ang said.
‘We are confident that with our valuable experience and expertise, Keppel Land is well-placed to identify and tap new opportunities, and to meet the demand for quality homes in this market.’
Keppel Land said the latest acquisition is not expected to have any significant impact on its net tangible asset and earnings per share for the financial year ending Dec 31, 2007.
Source : Business Times - 16 Nov 2007
Enggor Street behind Icon drew a top bid of $717 per square foot per plot ratio (psf ppr) from Allgreen Properties - about 16 % lower than FEO
Some developers yesterday took advantage of the current dip in sentiment caused by the stockmarket turmoil to go fishing for land on the cheap. A state tender for a 99-year condo site at Enggor Street behind Icon drew a top bid of $717 per square foot per plot ratio (psf ppr) from Allgreen Properties - about 16 per cent lower than the $852 psf ppr that Far East Organization paid for the next-door parcel exactly two weeks ago.
Interestingly, Far East’s bid yesterday (it was second-highest tenderer) of $652 psf ppr was 24 per cent lower than its winning bid a fortnight ago. This probably reflected a strategy of attempting to average down its cost, market watchers say.
Yesterday’s tender also attracted one other contender, GuocoLand, whose $600 psf ppr bid was 9.1 per cent higher than the price it offered for the next-door plot earlier this month.
Allgreen, controlled by Malaysian tycoon Robert Kuok, is expected to develop a project about 50 storeys high with about 200 units. The ground level must be developed into commercial space.
‘Their breakeven cost will be about $1,200 psf. Going by current prices for units at Icon, Lumiere and The Clift of between $1,600 and $2,100 psf, Allgreen stands to enjoy a good profit margin when they launch their project,’ according to CB Richard Ellis executive director Li Hiaw Ho.
Market watchers said the lower top bid at yesterday’s tender reflected the erosion in sentiment over the past fortnight due to the stockmarket slide following massive writedowns by major American banks due to the US sub-prime crisis.
However, Mr Li reasoned that yesterday’s tender drawing three bids - against just two for the earlier plot - showed that developers are confident of the prospects for this site.
Agreeing, Knight Frank managing director Tan Tiong Cheng said: ‘Fundamentally, the property market is still sound, so there will be developers taking advantage of the current stock-market turmoil to go fishing. You never know; you may catch something at a reasonable price.’
The averaging down of cost strategy was also very much at play at another Urban Redevelopment Authority (URA) tender earlier this week: that of Marina View Land Parcel B. Macquarie Global Property Advisors’ top bid of $779 psf ppr was about 55 per cent of their winning bid in September for the adjacent plot, also slated for a predominantly office use.
But other factors were also at play in the tender that closed on Nov 13, including a minimum hotel component for the site, and office investors turning cautious as the outcome of the sub-prime crisis may have a direct impact on demand for Singapore office space if big international banks are hit.
The government has also expressly stated recently that it will boost the supply of office land in Singapore over the next few years to alleviate the current shortage.
Separately, URA also made available for application yesterday a 99-year condo site next to Tanah Merah MRT Station. The reserve-list site, with a land area of nearly one hectare, can be developed into a condo with about 250 units averaging 1,200 sq ft.
Jones Lang LaSalle’s head of research (South-east Asia) Chua Yang Liang notes that at the next-door Casa Merah project, seven units have changed hands in the subsale market since August this year, at an average price of $717 psf. ‘Assuming the latest site on offer receives a successful application from a developer this quarter and the new condo on the site is launched say around mid-year 2008, we reckon it could sell for about $850-$950 psf on average.
‘Going by this assumption, the plot would fetch land bids of $425 to $470 psf ppr, translating to breakeven cost for a new condo of about $710 to $790 psf.’
Knight Frank director (consultancy and research) Nicholas Mak predicts a lower price, of $288 to $323 psf ppr, on the assumption that the proposed development will be launched in 12 to 18 months at $800-$850 psf.
Reserve-list sites are only launched for tender upon successful application by a developer who undertakes to offer a minimum bid acceptable to the state.
Source : Business Times - 16 Nov 2007
Interestingly, Far East’s bid yesterday (it was second-highest tenderer) of $652 psf ppr was 24 per cent lower than its winning bid a fortnight ago. This probably reflected a strategy of attempting to average down its cost, market watchers say.
Yesterday’s tender also attracted one other contender, GuocoLand, whose $600 psf ppr bid was 9.1 per cent higher than the price it offered for the next-door plot earlier this month.
Allgreen, controlled by Malaysian tycoon Robert Kuok, is expected to develop a project about 50 storeys high with about 200 units. The ground level must be developed into commercial space.
‘Their breakeven cost will be about $1,200 psf. Going by current prices for units at Icon, Lumiere and The Clift of between $1,600 and $2,100 psf, Allgreen stands to enjoy a good profit margin when they launch their project,’ according to CB Richard Ellis executive director Li Hiaw Ho.
Market watchers said the lower top bid at yesterday’s tender reflected the erosion in sentiment over the past fortnight due to the stockmarket slide following massive writedowns by major American banks due to the US sub-prime crisis.
However, Mr Li reasoned that yesterday’s tender drawing three bids - against just two for the earlier plot - showed that developers are confident of the prospects for this site.
Agreeing, Knight Frank managing director Tan Tiong Cheng said: ‘Fundamentally, the property market is still sound, so there will be developers taking advantage of the current stock-market turmoil to go fishing. You never know; you may catch something at a reasonable price.’
The averaging down of cost strategy was also very much at play at another Urban Redevelopment Authority (URA) tender earlier this week: that of Marina View Land Parcel B. Macquarie Global Property Advisors’ top bid of $779 psf ppr was about 55 per cent of their winning bid in September for the adjacent plot, also slated for a predominantly office use.
But other factors were also at play in the tender that closed on Nov 13, including a minimum hotel component for the site, and office investors turning cautious as the outcome of the sub-prime crisis may have a direct impact on demand for Singapore office space if big international banks are hit.
The government has also expressly stated recently that it will boost the supply of office land in Singapore over the next few years to alleviate the current shortage.
Separately, URA also made available for application yesterday a 99-year condo site next to Tanah Merah MRT Station. The reserve-list site, with a land area of nearly one hectare, can be developed into a condo with about 250 units averaging 1,200 sq ft.
Jones Lang LaSalle’s head of research (South-east Asia) Chua Yang Liang notes that at the next-door Casa Merah project, seven units have changed hands in the subsale market since August this year, at an average price of $717 psf. ‘Assuming the latest site on offer receives a successful application from a developer this quarter and the new condo on the site is launched say around mid-year 2008, we reckon it could sell for about $850-$950 psf on average.
‘Going by this assumption, the plot would fetch land bids of $425 to $470 psf ppr, translating to breakeven cost for a new condo of about $710 to $790 psf.’
Knight Frank director (consultancy and research) Nicholas Mak predicts a lower price, of $288 to $323 psf ppr, on the assumption that the proposed development will be launched in 12 to 18 months at $800-$850 psf.
Reserve-list sites are only launched for tender upon successful application by a developer who undertakes to offer a minimum bid acceptable to the state.
Source : Business Times - 16 Nov 2007
Thursday, November 15, 2007
Singapore’s home prices have climbed 14 consecutive quarters since 2004, soaring to a 10-year high
Singapore’s home prices will probably increase at a slower pace as buyers hold back their purchases amid the US subprime crisis, said Lim Ee Seng, chief executive officer of Frasers Centrepoint Group.
Losses related to US housing mortgages have sapped consumer confidence, Mr Lim said. Some buyers returned apartment units bought at the Singapore-based company’s new project, Soleil@Sinaran near the city’s downtown, forfeiting initial deposits, he said in an interview late on Tuesday.
The outlook among homebuyers may also slow land purchases by developers including Frasers, one of the biggest buyers of older apartments in the city-state’s downtown, where they’re torn down for new home developments through so-called en bloc sales.
The developer is a unit of Fraser & Neave Ltd, the city’s biggest beverage maker.
‘The sub-prime crisis has shaken investors’ confidence,’ he said. ‘We are still looking to boost our land bank, but we are opportunistic and won’t pay current values because our costs would be too high,’ he added, referring to the purchase of existing apartment buildings to increase its land holdings.
Singapore’s home prices have climbed 14 consecutive quarters since 2004, soaring to a 10-year high this year as the island- state’s economy posted its longest economic expansion since 1991. The developer’s outlook for property sales also indicates its appetite may ease for new land purchases.
The price gain has helped the developer on earlier purchases of existing apartments, which are sold at a profit.
An example is the St Thomas Suites development in the city’s downtown, where apartments were recently sold at $2,189 a square foot.
For a 2,605-square-foot apartment, the latest sale recorded by the government, the price was $5.7 million.
‘We bought the site of St. Thomas Suites at $600 per square foot,’ Lim said. ‘But nearby properties put up for en bloc sales are asking over $1,800, and a developer has to sell at at least $2,500 to cover costs.’ - Bloomberg
Source : Business Times - 15 Nov 2007
Losses related to US housing mortgages have sapped consumer confidence, Mr Lim said. Some buyers returned apartment units bought at the Singapore-based company’s new project, Soleil@Sinaran near the city’s downtown, forfeiting initial deposits, he said in an interview late on Tuesday.
The outlook among homebuyers may also slow land purchases by developers including Frasers, one of the biggest buyers of older apartments in the city-state’s downtown, where they’re torn down for new home developments through so-called en bloc sales.
The developer is a unit of Fraser & Neave Ltd, the city’s biggest beverage maker.
‘The sub-prime crisis has shaken investors’ confidence,’ he said. ‘We are still looking to boost our land bank, but we are opportunistic and won’t pay current values because our costs would be too high,’ he added, referring to the purchase of existing apartment buildings to increase its land holdings.
Singapore’s home prices have climbed 14 consecutive quarters since 2004, soaring to a 10-year high this year as the island- state’s economy posted its longest economic expansion since 1991. The developer’s outlook for property sales also indicates its appetite may ease for new land purchases.
The price gain has helped the developer on earlier purchases of existing apartments, which are sold at a profit.
An example is the St Thomas Suites development in the city’s downtown, where apartments were recently sold at $2,189 a square foot.
For a 2,605-square-foot apartment, the latest sale recorded by the government, the price was $5.7 million.
‘We bought the site of St. Thomas Suites at $600 per square foot,’ Lim said. ‘But nearby properties put up for en bloc sales are asking over $1,800, and a developer has to sell at at least $2,500 to cover costs.’ - Bloomberg
Source : Business Times - 15 Nov 2007
Soilbuild Group Holdings yesterday said that it bought a landed site off Meyer Road which it plans to amalgamate with Margate Mansion
Listed developer Soilbuild Group Holdings yesterday said that it bought a landed site off Meyer Road which it plans to amalgamate with Margate Mansion for a small luxury condominium project.
The group’s latest purchase is 10 Margate Road. It paid $30.8 million for the 16,967 sq ft freehold site. Together with Margate Mansion, total land cost - including a development charge of about $18.4 million - works out to $88.8 million or $987 per sq ft (psf) per plot.
Soilbuild said that its purchase of Margate Mansion, a collective sale site, is still pending the Strata Titles Board’s approval.
The group bid $58 million, or about $882 psf per plot including an estimated development charge then of $6.5 million, for the 34,804 sq ft freehold site. Development charges have since been revised upwards.
The combined land area for the two sites is 51,771 sq ft. Based on a plot ratio of 2.1, gross floor area for the amalgamated site is 108,719 sq ft.
Assuming average unit sizes of between 1,500 and 2,000 sq ft, the site can be redeveloped into about 50 to 70 luxurious residential units.
The East Coast site, in district 15, has easy access to the East Coast Park Expressway and is about 10 minutes from Suntec City and the Central Business District.
Soilbuild said that the group’s latest purchase will be funded by internal resources and borrowings.
Source : Business Times - 15 Nov 2007
The group’s latest purchase is 10 Margate Road. It paid $30.8 million for the 16,967 sq ft freehold site. Together with Margate Mansion, total land cost - including a development charge of about $18.4 million - works out to $88.8 million or $987 per sq ft (psf) per plot.
Soilbuild said that its purchase of Margate Mansion, a collective sale site, is still pending the Strata Titles Board’s approval.
The group bid $58 million, or about $882 psf per plot including an estimated development charge then of $6.5 million, for the 34,804 sq ft freehold site. Development charges have since been revised upwards.
The combined land area for the two sites is 51,771 sq ft. Based on a plot ratio of 2.1, gross floor area for the amalgamated site is 108,719 sq ft.
Assuming average unit sizes of between 1,500 and 2,000 sq ft, the site can be redeveloped into about 50 to 70 luxurious residential units.
The East Coast site, in district 15, has easy access to the East Coast Park Expressway and is about 10 minutes from Suntec City and the Central Business District.
Soilbuild said that the group’s latest purchase will be funded by internal resources and borrowings.
Source : Business Times - 15 Nov 2007
New Zealand’s housing market is slowing in response to record-high interest rates
New Zealand’s housing market is slowing in response to record-high interest rates, Reserve Bank governor Alan Bollard said, adding to signs the central bank won’t raise borrowing costs again.
‘We’re now seeing monetary policy having its impact on the housing sector in quite a significant way,’ Mr Bollard told a parliamentary committee in Wellington on Tuesday. ‘It’s having the sort of impact it needs to have.’
Mr Bollard raised the official cash rate four times between March and July to a record 8.25 per cent, sending home loans costs higher and crimping property sales. House sales fell 23 per cent in October from a year earlier, according to the Real Estate Institute.
‘The housing market is certainly going in the direction the Reserve Bank wanted,’ said Khoon Goh, senior economist at ANZ National Bank Ltd in Wellington. ‘There are a lot of upside risks to inflation, so they need to see housing slow even more.’
Just two of 16 economists surveyed by Bloomberg News say rates will rise before June 30 next year. Eleven forecast no change and three expect a cut.
Mr Bollard said pressure on food and fuel prices globally meant inflation will be near the top of the 1-3 per cent range he is required to target.
In September, he forecast consumer prices will rise 3 per cent in the year ending Dec 31.
Inflation is ‘not dead unfortunately, not even sleeping,’ he said.
Because housing is slowing, Mr Bollard can ’sit back and maintain his wait-and-see stance,’ said Mr Goh. There is nothing in recent reports to make the central bank change from a neutral stance, he said.
House prices have surged 41 per cent the past three years to a record and are about six times the average disposable income. The rapid increase in this ratio suggests house prices are overvalued, the central bank said last week. The long-run average ratio is about three times.
Mr Bollard also said demand may be abating for the New Zealand dollar from investors who borrow cheaply in yen to invest in the nation’s higher-yielding assets.
‘The pressure has moved from the New Zealand dollar to other countries, I would say particularly to the Australian dollar and the Canadian dollar, which are both under quite considerable pressure from carry trades,’ Mr Bollard said. ‘They’re the ones having a tougher time at the moment.’
The New Zealand dollar has gained 15 per cent against the US currency in the past year. Mr Bollard said he shares concerns of exporters who have said the strength and volatility of the currency has crimped earnings.
Still ‘we don’t think the strength and volatility has been as damaging as some would say,’ he said. ‘Export volumes have held up.’
The parliamentary committee is concluding an inquiry into the framework of monetary policy following concerns that Mr Bollard was raising interest rates to curb the housing market at the expense of exporters being hurt by a rising currency. — Bloomberg
Source : Business Times - 15 Nov 2007
‘We’re now seeing monetary policy having its impact on the housing sector in quite a significant way,’ Mr Bollard told a parliamentary committee in Wellington on Tuesday. ‘It’s having the sort of impact it needs to have.’
Mr Bollard raised the official cash rate four times between March and July to a record 8.25 per cent, sending home loans costs higher and crimping property sales. House sales fell 23 per cent in October from a year earlier, according to the Real Estate Institute.
‘The housing market is certainly going in the direction the Reserve Bank wanted,’ said Khoon Goh, senior economist at ANZ National Bank Ltd in Wellington. ‘There are a lot of upside risks to inflation, so they need to see housing slow even more.’
Just two of 16 economists surveyed by Bloomberg News say rates will rise before June 30 next year. Eleven forecast no change and three expect a cut.
Mr Bollard said pressure on food and fuel prices globally meant inflation will be near the top of the 1-3 per cent range he is required to target.
In September, he forecast consumer prices will rise 3 per cent in the year ending Dec 31.
Inflation is ‘not dead unfortunately, not even sleeping,’ he said.
Because housing is slowing, Mr Bollard can ’sit back and maintain his wait-and-see stance,’ said Mr Goh. There is nothing in recent reports to make the central bank change from a neutral stance, he said.
House prices have surged 41 per cent the past three years to a record and are about six times the average disposable income. The rapid increase in this ratio suggests house prices are overvalued, the central bank said last week. The long-run average ratio is about three times.
Mr Bollard also said demand may be abating for the New Zealand dollar from investors who borrow cheaply in yen to invest in the nation’s higher-yielding assets.
‘The pressure has moved from the New Zealand dollar to other countries, I would say particularly to the Australian dollar and the Canadian dollar, which are both under quite considerable pressure from carry trades,’ Mr Bollard said. ‘They’re the ones having a tougher time at the moment.’
The New Zealand dollar has gained 15 per cent against the US currency in the past year. Mr Bollard said he shares concerns of exporters who have said the strength and volatility of the currency has crimped earnings.
Still ‘we don’t think the strength and volatility has been as damaging as some would say,’ he said. ‘Export volumes have held up.’
The parliamentary committee is concluding an inquiry into the framework of monetary policy following concerns that Mr Bollard was raising interest rates to curb the housing market at the expense of exporters being hurt by a rising currency. — Bloomberg
Source : Business Times - 15 Nov 2007
China’s house prices rose in October at the fastest pace
China’s house prices rose in October at the fastest pace since 2005 as inflation outpaced returns on bank deposits, encouraging households to invest in property.
Prices in 70 major cities jumped 9.5 per cent from a year earlier after gaining 8.9 per cent in September, the National Development and Reform Commission said yesterday on its web site. That was the biggest gain since records began in August 2005. Values climbed 1.6 per cent from September.
The acceleration is fuelled by the cash flood from China’s trade surplus, a record US$27 billion in October, prompting concerns about a possible property bubble.
China in September raised interest rates on some mortgages and increased minimum down payments to curb real estate speculation.
‘Price gains are understandable because the strong demand is still out there,’ said Liu Xihui, a Shenzhen-based analyst with Ping An Securities Co. ‘The reason prices are still accelerating is probably because September’s tightening measures haven’t yet had an effect.’
Prices soared 19.5 per cent in October from a year earlier in Shenzhen and 15.1 per cent in Beijing, the commission said. New commercial housing valuations rose 10.6 per cent from a year earlier and second-hand prices increased by 8.7 per cent, it said.
Measures introduced by China on Sept 27 to damp property speculation included raising downpayments to 40 per cent from 30 per cent for housing loans, and to half a property’s value for commercial real estate.
The steps will slow property price increases in the balance of the year by crimping buying for investment purposes, said Ping An Securities’ Liu. Housing sold to buyers hoping to sell at anticipated higher prices accounts for a ‘big part’ of total sales, he said.
September’s measures came after new taxes, higher mortgage rates and downpayment ratios imposed since 2005 failed to cool the market. Investment in real estate development jumped 30.3 per cent in the first nine months of 2007, 6 percentage points faster than a year earlier.
China’s consumer prices rose 6.5 per cent last month from a year earlier, matching the decade high in August, as food costs surged. The benchmark one-year deposit rate is 3.87 per cent.
China has this year raised interest rates five times and ordered lenders on nine occasions to set aside larger reserves to curb inflation and contain bubbles in the property and stock markets. — Bloomberg
Source : Business Times - 15 Nov 2007
Prices in 70 major cities jumped 9.5 per cent from a year earlier after gaining 8.9 per cent in September, the National Development and Reform Commission said yesterday on its web site. That was the biggest gain since records began in August 2005. Values climbed 1.6 per cent from September.
The acceleration is fuelled by the cash flood from China’s trade surplus, a record US$27 billion in October, prompting concerns about a possible property bubble.
China in September raised interest rates on some mortgages and increased minimum down payments to curb real estate speculation.
‘Price gains are understandable because the strong demand is still out there,’ said Liu Xihui, a Shenzhen-based analyst with Ping An Securities Co. ‘The reason prices are still accelerating is probably because September’s tightening measures haven’t yet had an effect.’
Prices soared 19.5 per cent in October from a year earlier in Shenzhen and 15.1 per cent in Beijing, the commission said. New commercial housing valuations rose 10.6 per cent from a year earlier and second-hand prices increased by 8.7 per cent, it said.
Measures introduced by China on Sept 27 to damp property speculation included raising downpayments to 40 per cent from 30 per cent for housing loans, and to half a property’s value for commercial real estate.
The steps will slow property price increases in the balance of the year by crimping buying for investment purposes, said Ping An Securities’ Liu. Housing sold to buyers hoping to sell at anticipated higher prices accounts for a ‘big part’ of total sales, he said.
September’s measures came after new taxes, higher mortgage rates and downpayment ratios imposed since 2005 failed to cool the market. Investment in real estate development jumped 30.3 per cent in the first nine months of 2007, 6 percentage points faster than a year earlier.
China’s consumer prices rose 6.5 per cent last month from a year earlier, matching the decade high in August, as food costs surged. The benchmark one-year deposit rate is 3.87 per cent.
China has this year raised interest rates five times and ordered lenders on nine occasions to set aside larger reserves to curb inflation and contain bubbles in the property and stock markets. — Bloomberg
Source : Business Times - 15 Nov 2007
Wednesday, November 14, 2007
The second Marina View plot drew only two bids when its tender closed yesterday. The top offer came in at $952.9 million
BARELY two months after a site at Marina View fetched a record $2.02 billion, a similar plot next door has managed only half that price.
The unexpectedly low bids for the plot, which was seen as highly attractive, came on top of lukewarm response to other recent land sales. This is further proof that sentiment in the property market has started to cool, consultants warned.
The second Marina View plot drew only two bids when its tender closed yesterday. The top offer came in at $952.9 million - a far cry from the first site’s price and well below the experts’ predictions of up to $1.6 billion.
Both Marina View sites, which are located behind the One Shenton condominium, had the same high bidder: Macquarie Global Property Advisers (MGPA), a private equity real estate firm partly owned by Australia’s Macquarie Bank Group.
Property group CapitaLand also put in offers for both plots.
MGPA’s offer in September for the first site, which is slightly bigger, worked out to $1,409 per sq ft per plot ratio (psf ppr), almost double the $779 psf ppr bid it submitted for the second site.
The stark difference shows how much the mood in the market has shifted in just two months, said Knight Frank director of research and consultancy Nicholas Mak.
‘Clearly, they had a change of heart,’ he said. ‘The two sites are right next to each other, but the second bid is only 55 per cent of the previous bid.’
Mr Mak agreed that the price is ’still decent’, and that there was ‘a fair bit of exuberance in land tenders previously’.
But, in general, property investors are now turning more cautious, he said. This is due to stock market volatility, uncertainty over the global credit crunch and recent government measures in the property market.
The Government last month removed the deferred payment scheme for homebuyers in a surprise move that is being seen as an act to discourage speculation.
Mr Mak suggested, however, that this may have helped overcool the market.
Following the Government’s move, a residential land parcel on Enggor Street at Tanjong Pagar attracted only two offers when it went on sale, while an office site in Tampines found just one bidder.
This is despite these plots being fairly attractive, said Mr Mak.
‘If the Government throws in a site in Jurong, they may not get any bids at all.’
But while other consultants agreed that developers and investors are now more circumspect, some said the low Marina View bids could be an aberration.
‘The mood has changed somewhat, but it’s not as drastic as this. This is a bit of a flash in the pan,’ said Mr Li Hiaw Ho, CB Richard Ellis’ executive director.
He had expected bids for the second Marina View site to come in at a lower level because 25 per cent of the plot’s gross floor area must be used for hotel rooms, which have slightly lower land values.
Mr Li said, however, that the huge difference in bids was unexpected. He attributed it partly to the fact that there were only two bids: ‘This cannot draw out the most competitive offers.’
The Marina View site has a land area of about 0.9ha and a maximum floor area of 1.2 million sq ft. On top of the hotel use requirement, at least 60 per cent of the plot’s area must be given to offices.
If MGPA is awarded the second site, it could lower its average price for the two plots to about $1,100 psf ppr and combine them to form a mega commercial development, said Mr Donald Han, managing director of Cushman & Wakefield.
Source : Straits Times - 14 Nov 2007
The unexpectedly low bids for the plot, which was seen as highly attractive, came on top of lukewarm response to other recent land sales. This is further proof that sentiment in the property market has started to cool, consultants warned.
The second Marina View plot drew only two bids when its tender closed yesterday. The top offer came in at $952.9 million - a far cry from the first site’s price and well below the experts’ predictions of up to $1.6 billion.
Both Marina View sites, which are located behind the One Shenton condominium, had the same high bidder: Macquarie Global Property Advisers (MGPA), a private equity real estate firm partly owned by Australia’s Macquarie Bank Group.
Property group CapitaLand also put in offers for both plots.
MGPA’s offer in September for the first site, which is slightly bigger, worked out to $1,409 per sq ft per plot ratio (psf ppr), almost double the $779 psf ppr bid it submitted for the second site.
The stark difference shows how much the mood in the market has shifted in just two months, said Knight Frank director of research and consultancy Nicholas Mak.
‘Clearly, they had a change of heart,’ he said. ‘The two sites are right next to each other, but the second bid is only 55 per cent of the previous bid.’
Mr Mak agreed that the price is ’still decent’, and that there was ‘a fair bit of exuberance in land tenders previously’.
But, in general, property investors are now turning more cautious, he said. This is due to stock market volatility, uncertainty over the global credit crunch and recent government measures in the property market.
The Government last month removed the deferred payment scheme for homebuyers in a surprise move that is being seen as an act to discourage speculation.
Mr Mak suggested, however, that this may have helped overcool the market.
Following the Government’s move, a residential land parcel on Enggor Street at Tanjong Pagar attracted only two offers when it went on sale, while an office site in Tampines found just one bidder.
This is despite these plots being fairly attractive, said Mr Mak.
‘If the Government throws in a site in Jurong, they may not get any bids at all.’
But while other consultants agreed that developers and investors are now more circumspect, some said the low Marina View bids could be an aberration.
‘The mood has changed somewhat, but it’s not as drastic as this. This is a bit of a flash in the pan,’ said Mr Li Hiaw Ho, CB Richard Ellis’ executive director.
He had expected bids for the second Marina View site to come in at a lower level because 25 per cent of the plot’s gross floor area must be used for hotel rooms, which have slightly lower land values.
Mr Li said, however, that the huge difference in bids was unexpected. He attributed it partly to the fact that there were only two bids: ‘This cannot draw out the most competitive offers.’
The Marina View site has a land area of about 0.9ha and a maximum floor area of 1.2 million sq ft. On top of the hotel use requirement, at least 60 per cent of the plot’s area must be given to offices.
If MGPA is awarded the second site, it could lower its average price for the two plots to about $1,100 psf ppr and combine them to form a mega commercial development, said Mr Donald Han, managing director of Cushman & Wakefield.
Source : Straits Times - 14 Nov 2007
Singapore office market
The new-found caution surrounding the Singapore office market is now spilling over to the Central Business District.
Reflecting this, a site at Marina View diagonally behind One Shenton yesterday attracted a top bid from Macquarie Global Property Advisors (MGPA) of $779.42 psf per plot ratio - only about half of the group’s winning bid in September for the site next door.
Knight Frank managing director Tan Tiong Cheng acknowledged that office investors have turned cautious. ‘The outcome of the sub-prime episode may have an impact on demand for office space in Singapore, while the government has expressly stated recently it will boost supply of office land in the next few years to alleviate the current shortage,’ he said.
Another reason for the lower bid for the latest site - Marina View Land Parcel B - is that it has a minimum hotel component of at least 25 per cent of the site’s maximum gross floor area, property consultants said. ‘Hotel land values are a lot lower than office values,’ said Mr Tan.
‘The latest tender outcome is also a knee jerk-reaction to what has been happening lately in the US - the sub-prime crisis being worse than initially thought and big banks being affected. Banks are prime users of office space.’
The only other bid at yesterday’s tender came from units of CapitaLand, at $898 million or $734.52 psf ppr.
BT understands that CapitaLand was to team up with Thai tycoon Charoen Sirivadhanabhakdi’s privately held vehicle Pacific Coast Assets, had its bid been successful.
By most counts, the top bid at yesterday’s tender by MGPA unit MGP Kimi of $952.89 million or $779 psf ppr was lower than had been predicted.
CB Richard Ellis executive director Li Hiaw Ho had expected Marina View Land Parcel B to fetch about $1,200 to $1,300 psf ppr, lower than the $1,409 psf ppr that an MGPA unit paid in September for the next door Marina View Land Parcel A, considering the minimum hotel component for the latest plot. ‘There is a chance that the state’s reserve price may not have been met and that the latest site may not be awarded,’ Mr Li suggests.
However, other property consultants argued that the plot will be awarded.
Mr Tan said his firm, Knight Frank, predicted in late July projected that the site would attract bids of $1.1 billion to $1.3 billion, or $900-1,060 psf ppr. ‘Taking the mid point of $1.2 billion, the top bid was about 20 per cent lower than our projection. To me that is within range, and I would expect the site to be awarded,’ Mr Tan said.
‘The price is still substantially higher than other sites sold in the Marina Bay area in recent years.’
Jones Lang LaSalle’s Asia Capital Markets head Stuart Crow said: ‘The price seems fair going by recent land bids and taking into account the hotel component for this site.’
MGPA’s top bid at yesterday’s tender also ‘reinforces the foreign investor interest in the Singapore property market fundamentals’, he added. ‘In my view, the site will be awarded.’
Mr Crow estimates that MGPA’s bid price for Parcel B yesterday reflects a break-even cost of about $2,200 to $2,300 psf for the office component of a potential development on the site. As for the hotel component, market watchers estimate the break-even cost could be about $700,000 to $800,000 per room.
Marina View Land Parcel B has a site area of about 0.9 hectare and can be developed into a maximum gross floor area (GFA) of about 1.22 million sq ft, of which at least 60 per cent must be for offices and at least another 25 per cent for hotel use.
Source : Business Times - 14 Nov 2007
Reflecting this, a site at Marina View diagonally behind One Shenton yesterday attracted a top bid from Macquarie Global Property Advisors (MGPA) of $779.42 psf per plot ratio - only about half of the group’s winning bid in September for the site next door.
Knight Frank managing director Tan Tiong Cheng acknowledged that office investors have turned cautious. ‘The outcome of the sub-prime episode may have an impact on demand for office space in Singapore, while the government has expressly stated recently it will boost supply of office land in the next few years to alleviate the current shortage,’ he said.
Another reason for the lower bid for the latest site - Marina View Land Parcel B - is that it has a minimum hotel component of at least 25 per cent of the site’s maximum gross floor area, property consultants said. ‘Hotel land values are a lot lower than office values,’ said Mr Tan.
‘The latest tender outcome is also a knee jerk-reaction to what has been happening lately in the US - the sub-prime crisis being worse than initially thought and big banks being affected. Banks are prime users of office space.’
The only other bid at yesterday’s tender came from units of CapitaLand, at $898 million or $734.52 psf ppr.
BT understands that CapitaLand was to team up with Thai tycoon Charoen Sirivadhanabhakdi’s privately held vehicle Pacific Coast Assets, had its bid been successful.
By most counts, the top bid at yesterday’s tender by MGPA unit MGP Kimi of $952.89 million or $779 psf ppr was lower than had been predicted.
CB Richard Ellis executive director Li Hiaw Ho had expected Marina View Land Parcel B to fetch about $1,200 to $1,300 psf ppr, lower than the $1,409 psf ppr that an MGPA unit paid in September for the next door Marina View Land Parcel A, considering the minimum hotel component for the latest plot. ‘There is a chance that the state’s reserve price may not have been met and that the latest site may not be awarded,’ Mr Li suggests.
However, other property consultants argued that the plot will be awarded.
Mr Tan said his firm, Knight Frank, predicted in late July projected that the site would attract bids of $1.1 billion to $1.3 billion, or $900-1,060 psf ppr. ‘Taking the mid point of $1.2 billion, the top bid was about 20 per cent lower than our projection. To me that is within range, and I would expect the site to be awarded,’ Mr Tan said.
‘The price is still substantially higher than other sites sold in the Marina Bay area in recent years.’
Jones Lang LaSalle’s Asia Capital Markets head Stuart Crow said: ‘The price seems fair going by recent land bids and taking into account the hotel component for this site.’
MGPA’s top bid at yesterday’s tender also ‘reinforces the foreign investor interest in the Singapore property market fundamentals’, he added. ‘In my view, the site will be awarded.’
Mr Crow estimates that MGPA’s bid price for Parcel B yesterday reflects a break-even cost of about $2,200 to $2,300 psf for the office component of a potential development on the site. As for the hotel component, market watchers estimate the break-even cost could be about $700,000 to $800,000 per room.
Marina View Land Parcel B has a site area of about 0.9 hectare and can be developed into a maximum gross floor area (GFA) of about 1.22 million sq ft, of which at least 60 per cent must be for offices and at least another 25 per cent for hotel use.
Source : Business Times - 14 Nov 2007
Separate deals saving stamp duties
En bloc sale or 53 separate contracts entered into by individual owners of the apartments to sell? That was the $286,000 question that emerged in the High Court in what can be described as a test case for property developers to get savings on stamp duty.
United Overseas Land subsidiary UOL Development Novena (UOLD) claimed that its purchase of 53 properties at Minbu Road for $61 million was not an en bloc sale but 53 separate contracts which it entered into with the individual owners.
At stake was $286,200 in stamp duty savings if it was found to have bought the 53 properties separately.
This is because under the Stamp Duties Act, stamp duty is charged at one per cent on the first $180,000 of purchase price, two per cent on the next $180,000 and three per cent on the balance of the purchase price that exceeds $360,000.
The way this works out is that stamp duty can be calculated simply by taking three per cent of the purchase price minus $5,400 - that being the sum of one per cent on $180,000 and two per cent on the next $180,000.
So if there was only one contract arising from an en bloc sale, the $5,400 could only be subtracted once.
But if there were 53 contracts, then $5,400 can be subtracted 53 times, resulting in savings of $286,200 for the property developer.
However, the High Court ruled last month that UOLD bought the 53 properties in an en bloc sale.
The court said that the owners of the Minbu properties intended to sell their properties on the basis of an en bloc sale.
The invitation to tender issued by the owners said that they ‘collectively’ invite offers to buy their property on an ‘en bloc’ basis.
The court also found that there is no evidence that UOLD’s offer to buy the Minbu properties for $61 million was made on the basis that separate contracts were to be entered for each property.
And even though the owners sent 53 separate letters of acceptances to UOLD according to the developer’s request, the court found that the owners did not ‘give any thought’ to converting the en bloc sale to 53 separate contracts.
Justice Tan Lee Meng said that the case raises an interesting question as to how stamp duty is assessed on properties bought through en bloc sales.
However, he found that the plan for 53 separate contracts was mooted ‘for the sole purpose of lessening the stamp duty payable on the en bloc sale’.
BT understands from UOLD’s lawyers that the developer has not filed an appeal yet. It has until tomorrow to do so.
UOLD was represented by Tan Kay Kheng and Teo Lay Khoon from WongPartnership.
Source : Business Times - 14 Nov 2007
United Overseas Land subsidiary UOL Development Novena (UOLD) claimed that its purchase of 53 properties at Minbu Road for $61 million was not an en bloc sale but 53 separate contracts which it entered into with the individual owners.
At stake was $286,200 in stamp duty savings if it was found to have bought the 53 properties separately.
This is because under the Stamp Duties Act, stamp duty is charged at one per cent on the first $180,000 of purchase price, two per cent on the next $180,000 and three per cent on the balance of the purchase price that exceeds $360,000.
The way this works out is that stamp duty can be calculated simply by taking three per cent of the purchase price minus $5,400 - that being the sum of one per cent on $180,000 and two per cent on the next $180,000.
So if there was only one contract arising from an en bloc sale, the $5,400 could only be subtracted once.
But if there were 53 contracts, then $5,400 can be subtracted 53 times, resulting in savings of $286,200 for the property developer.
However, the High Court ruled last month that UOLD bought the 53 properties in an en bloc sale.
The court said that the owners of the Minbu properties intended to sell their properties on the basis of an en bloc sale.
The invitation to tender issued by the owners said that they ‘collectively’ invite offers to buy their property on an ‘en bloc’ basis.
The court also found that there is no evidence that UOLD’s offer to buy the Minbu properties for $61 million was made on the basis that separate contracts were to be entered for each property.
And even though the owners sent 53 separate letters of acceptances to UOLD according to the developer’s request, the court found that the owners did not ‘give any thought’ to converting the en bloc sale to 53 separate contracts.
Justice Tan Lee Meng said that the case raises an interesting question as to how stamp duty is assessed on properties bought through en bloc sales.
However, he found that the plan for 53 separate contracts was mooted ‘for the sole purpose of lessening the stamp duty payable on the en bloc sale’.
BT understands from UOLD’s lawyers that the developer has not filed an appeal yet. It has until tomorrow to do so.
UOLD was represented by Tan Kay Kheng and Teo Lay Khoon from WongPartnership.
Source : Business Times - 14 Nov 2007
Singapore to postpone public projects
The government said yesterday that it would postpone several public projects - at a time when the building boom is stretching Singapore’s construction resources to the limit.
The government’s cut-back could reduce the demand for additional construction manpower in the next two years by 20-40 per cent. The authorities will further relax policies on the employment of foreign manpower and help expand construction capacity.
The government’s move to push back projects worth at least $2 billion comes as construction costs escalate and contractors are in short supply.
Developers told BT that most contractors are fully booked for the next 12 months.
Construction costs have also gone up by as much as 40 per cent over the last year on the back of rising raw material prices and wage increases brought on by tight labour supply.
‘The investment and property boom is leading to a construction squeeze,’ said Citigroup economist Chua Hak Bin. ‘The property boom is moreover not confined to just one segment, but is across the board - commercial, residential, infrastructure and the integrated resorts (IRs).’
Annual construction demand is expected to hit $19-$22 billion in 2007, and is likely to be sustained at this high level in 2008 and 2009, said industry regulator Building and Construction Authority (BCA).
The sharp increase in construction demand in Singapore also coincides with a global surge in construction activity - especially in China, India and the Middle East.
For developers here, this adds up to a shortage of contractors and rising costs. ‘Contractors are booked 12, 15 months ahead,’ said the chief executive of a Singaporean developer. ‘And it’s not just the main contractors; the main contractors are saying that sub-contractors are hard to find as well.’
‘I think most contractors already have big orderbooks, so supply is tight,’ said Cheang Kok Kheong, development and property general manager for Frasers Centrepoint (FCL). ‘There are many big projects for them, such as the IRs and the Gardens by the Bay.’
FCL is not feeling the pinch as it has the support of contractors it has worked with for many years, Mr Cheang said. But others, he added, might not be as lucky. ‘If you don’t have that many projects and you are new in the market, then there will be difficulties getting contractors,’ he said. FCL’s construction costs have gone up by 20-30 per cent over the last year. Other developers report cost increases of up to 40 per cent.
Several big projects have already been hit. Genting International recently upped its budget for its Sentosa IR to $5.75 billion - from an original $5.2 billion. The company said that $275 million of the $550 million budget increase is due to rising construction costs.
And in August this year, Marina Bay Sands said that its cost could escalate to $5.2 billion, from $5.05 billion originally.
On the flip side, things are starting to look very bright for construction companies, as the sector is coming off a decade of sub-zero growth rates.
Kim Eng analyst Wilson Liew estimates that some contractors are now able to command a higher pre-tax margin of about 15 per cent, as compared to 5 per cent in the past. ‘This margin is expected to improve even further as established contractors hold greater bargaining power amidst an increased number of contracts,’ he said.
But this could soon change. Right now, BCA is working with developers and builders to expand the capacity of both local and foreign firms in Singapore. It is also exploring attracting new foreign contractors - especially those in the top-tier and specialist trades - to come to Singapore, it said.
The government will also monitor the manpower situation closely and will further adjust its manpower policies if necessary, BCA said.
For now, various government agencies have identified a list of public projects in the pipeline for 2008 and 2009 that could be rescheduled to 2010 and beyond.
The projects being deferred include the Health Ministry’s National Addiction Management Centre, and Cluster C of the Changi Prison Complex.
Public sector projects that are ‘essential’ - such as those required for Singapore’s economic growth or needed to meet key social needs such as public housing - would not be affected, BCA said.
‘The bulk of the construction activities and resources in 2008 and 2009 are expected to be concentrated on mega projects such as the IRs, Marina Business Financial Centre, Downtown MRT Line and petrochemical plants,’ said BCA. ‘Once these have been completed, more construction resources and capacity will be available for other new projects beyond 2009.’
Source : Business Times - 14 Nov 2007
The government’s cut-back could reduce the demand for additional construction manpower in the next two years by 20-40 per cent. The authorities will further relax policies on the employment of foreign manpower and help expand construction capacity.
The government’s move to push back projects worth at least $2 billion comes as construction costs escalate and contractors are in short supply.
Developers told BT that most contractors are fully booked for the next 12 months.
Construction costs have also gone up by as much as 40 per cent over the last year on the back of rising raw material prices and wage increases brought on by tight labour supply.
‘The investment and property boom is leading to a construction squeeze,’ said Citigroup economist Chua Hak Bin. ‘The property boom is moreover not confined to just one segment, but is across the board - commercial, residential, infrastructure and the integrated resorts (IRs).’
Annual construction demand is expected to hit $19-$22 billion in 2007, and is likely to be sustained at this high level in 2008 and 2009, said industry regulator Building and Construction Authority (BCA).
The sharp increase in construction demand in Singapore also coincides with a global surge in construction activity - especially in China, India and the Middle East.
For developers here, this adds up to a shortage of contractors and rising costs. ‘Contractors are booked 12, 15 months ahead,’ said the chief executive of a Singaporean developer. ‘And it’s not just the main contractors; the main contractors are saying that sub-contractors are hard to find as well.’
‘I think most contractors already have big orderbooks, so supply is tight,’ said Cheang Kok Kheong, development and property general manager for Frasers Centrepoint (FCL). ‘There are many big projects for them, such as the IRs and the Gardens by the Bay.’
FCL is not feeling the pinch as it has the support of contractors it has worked with for many years, Mr Cheang said. But others, he added, might not be as lucky. ‘If you don’t have that many projects and you are new in the market, then there will be difficulties getting contractors,’ he said. FCL’s construction costs have gone up by 20-30 per cent over the last year. Other developers report cost increases of up to 40 per cent.
Several big projects have already been hit. Genting International recently upped its budget for its Sentosa IR to $5.75 billion - from an original $5.2 billion. The company said that $275 million of the $550 million budget increase is due to rising construction costs.
And in August this year, Marina Bay Sands said that its cost could escalate to $5.2 billion, from $5.05 billion originally.
On the flip side, things are starting to look very bright for construction companies, as the sector is coming off a decade of sub-zero growth rates.
Kim Eng analyst Wilson Liew estimates that some contractors are now able to command a higher pre-tax margin of about 15 per cent, as compared to 5 per cent in the past. ‘This margin is expected to improve even further as established contractors hold greater bargaining power amidst an increased number of contracts,’ he said.
But this could soon change. Right now, BCA is working with developers and builders to expand the capacity of both local and foreign firms in Singapore. It is also exploring attracting new foreign contractors - especially those in the top-tier and specialist trades - to come to Singapore, it said.
The government will also monitor the manpower situation closely and will further adjust its manpower policies if necessary, BCA said.
For now, various government agencies have identified a list of public projects in the pipeline for 2008 and 2009 that could be rescheduled to 2010 and beyond.
The projects being deferred include the Health Ministry’s National Addiction Management Centre, and Cluster C of the Changi Prison Complex.
Public sector projects that are ‘essential’ - such as those required for Singapore’s economic growth or needed to meet key social needs such as public housing - would not be affected, BCA said.
‘The bulk of the construction activities and resources in 2008 and 2009 are expected to be concentrated on mega projects such as the IRs, Marina Business Financial Centre, Downtown MRT Line and petrochemical plants,’ said BCA. ‘Once these have been completed, more construction resources and capacity will be available for other new projects beyond 2009.’
Source : Business Times - 14 Nov 2007
SC Global Developments’ net profit more than quadrupled
PRIME residential developer SC Global Developments’ net profit more than quadrupled to $4.3 million for the third quarter ended Sept 30, from $931,000 for the previous corresponding period. Revenue rose 4 per cent to $30 million.
The group said that Q3 revenue comprised mainly the recognition of sales of the remaining units at The Tomlinson and sale of units at The Boulevard Residence and The Lincoln Modern.
Share of profits from the group’s associated company in Australia, AVJennings Limited, came to $2.5 million, against a loss of $600,000 for Q3 2006.
For the first nine months, SC Global’s net profit doubled to $20.6 million as revenue edged up 4 per cent to $117.9 million.
Q3 earnings per share (EPS) rose to 2.28 cents from 0.75. EPS for the first nine months rose to 12.46 cents from 8.48.
The group said that its recent projects, The Marq on Paterson Hill and Hilltops have received approval to offer the deferred payment scheme which will continue to be available.
With the recent acquisition of sites at Ardmore Park and Sentosa Cove in the third quarter, the group says that it will aim to deliver high quality residential developments in prime locations.
SC Global shares remained unchanged at $2.50 yesterday.
Source : Business Times - 14 Nov 2007
The group said that Q3 revenue comprised mainly the recognition of sales of the remaining units at The Tomlinson and sale of units at The Boulevard Residence and The Lincoln Modern.
Share of profits from the group’s associated company in Australia, AVJennings Limited, came to $2.5 million, against a loss of $600,000 for Q3 2006.
For the first nine months, SC Global’s net profit doubled to $20.6 million as revenue edged up 4 per cent to $117.9 million.
Q3 earnings per share (EPS) rose to 2.28 cents from 0.75. EPS for the first nine months rose to 12.46 cents from 8.48.
The group said that its recent projects, The Marq on Paterson Hill and Hilltops have received approval to offer the deferred payment scheme which will continue to be available.
With the recent acquisition of sites at Ardmore Park and Sentosa Cove in the third quarter, the group says that it will aim to deliver high quality residential developments in prime locations.
SC Global shares remained unchanged at $2.50 yesterday.
Source : Business Times - 14 Nov 2007
HO Bee Investment, the dominant residential developer at Sentosa Cove
HO Bee Investment, the dominant residential developer at Sentosa Cove, yesterday posted net earnings of $39.27 million for the third quarter ended Sept 30, up 297 per cent from $9.89 million a year earlier.
The jump was on a 137.9 per cent increase in revenue to $129.6 million, due mainly to a 149 per cent rise in the sale of development properties.
The main contributor to revenue was progressive recognition of sales of residential projects such as Coral Island, which obtained a Temporary Occupation Permit in August, Orange Grove Residences, The Coast and Paradise Island.
For the first nine months of this year, Ho Bee’s net profit leaped 391.8 per cent year on year to a record $233.4 million, benefiting not only from a 133.8 per cent increase in revenue to $535.4 million but also a $71 million gain in fair-value changes on investment properties.
Chairman and CEO Chua Thian Poh said the group’s revenue and earnings for the rest of the year and the next few years will be buttressed by the progressive recognition of income from successful residential projects that have been launched.
In its results statement, Ho Bee said that the recent withdrawal of the Deferred Payment Scheme by the authorities will have an initial impact on prices and demand.
‘The group does not anticipate its upcoming residential projects in the Core Central Region, which includes Sentosa Cove, to be adversely affected as underlying demand from both local and foreign buyers is expected to remain relatively strong,’ it said.
Mr Chua said that despite good sales, ‘we continue to be prudent in the way we conduct our business, always bearing in mind that we have to ensure long-term sustainable growth for shareholders’.
Ho Bee’s Q3 earnings per share jumped to 5.33 cents from 1.34 cents in the year-ago period.
Net asset value per share was 102.8 cents at Sept 30, up from 67.9 cents as at Dec 31, 2006. On the stock market yesterday, Ho Bee shares ended one cent higher at $1.78
Source : Business Times - 14 Nov 2007
The jump was on a 137.9 per cent increase in revenue to $129.6 million, due mainly to a 149 per cent rise in the sale of development properties.
The main contributor to revenue was progressive recognition of sales of residential projects such as Coral Island, which obtained a Temporary Occupation Permit in August, Orange Grove Residences, The Coast and Paradise Island.
For the first nine months of this year, Ho Bee’s net profit leaped 391.8 per cent year on year to a record $233.4 million, benefiting not only from a 133.8 per cent increase in revenue to $535.4 million but also a $71 million gain in fair-value changes on investment properties.
Chairman and CEO Chua Thian Poh said the group’s revenue and earnings for the rest of the year and the next few years will be buttressed by the progressive recognition of income from successful residential projects that have been launched.
In its results statement, Ho Bee said that the recent withdrawal of the Deferred Payment Scheme by the authorities will have an initial impact on prices and demand.
‘The group does not anticipate its upcoming residential projects in the Core Central Region, which includes Sentosa Cove, to be adversely affected as underlying demand from both local and foreign buyers is expected to remain relatively strong,’ it said.
Mr Chua said that despite good sales, ‘we continue to be prudent in the way we conduct our business, always bearing in mind that we have to ensure long-term sustainable growth for shareholders’.
Ho Bee’s Q3 earnings per share jumped to 5.33 cents from 1.34 cents in the year-ago period.
Net asset value per share was 102.8 cents at Sept 30, up from 67.9 cents as at Dec 31, 2006. On the stock market yesterday, Ho Bee shares ended one cent higher at $1.78
Source : Business Times - 14 Nov 2007
They expected Lee Hsien Yang to face the media for the first time as Fraser & Neave’s chairman
IT was a news conference many journalists were looking forward to. They expected Lee Hsien Yang to face the media for the first time as Fraser & Neave’s chairman at the group’s full-year financial results announcement yesterday.
But Mr Lee was a no-show, and director and group company secretary Anthony Cheong fielded the questions.
Mr Lee was not required to attend the news conference, Mr Cheong said. ‘Mr Lee is a non-executive chairman, so he need not be here.’
Operationally, the strong property market helped the food and beverage and property and publishing conglomerate lift net profit for the full year ended Sept 30 by 18.5 per cent to $378.6 million, from $319.5 million.
Before exceptional items, net profit attributable to shareholders increased 28 per cent to $377.9 million.
Full-year revenue rose 25 per cent to $4.74 billion. Earnings per share rose to 28.7 cents from 27.3 cents.
‘Our properties division continues to benefit from better-than-expected development margins and higher rental rates achieved from new and renewed leases,’ Mr Lee said in a statement. ‘Likewise, for eight consecutive years, food and beverage has maintained strong growth momentum and delivered rising profits. Publishing and printing also showed good progress and is on track to return to historical levels of profitability.’
Development property, which accounts for the lion’s share of the group’s attributable profit, came in at $214 million for the full year. Revenue from development property grew 24 per cent to $1.4 billion for the year.
During the year, the company sold more than 1,680 units at 19 developments in Singapore and close to 200 units at five projects overseas. It launched One St Michael’s, St Thomas Suites and Soleil @ Sinaran to strong interest.
Meanwhile, F&N subsidiary Asia Pacific Breweries (APB) reported a 3 per cent increase in net profit attributable to shareholders to $133.7 million for the full year. This was on a 17 per cent increase in revenue to $1.78 billion.
CEO Koh Poh Tiong said: ‘APB achieved strong organic profit growth amidst a healthy regional economy. Our ongoing strategy to expand our business, enhance the equity of our brands, and continually enlarge the global footprint of Tiger beer have once again delivered robust top line growth.’
IndoChina - Cambodia, Laos and Vietnam - remained APB’s largest profit contributor, accounting for about 48 per cent of APB’s total profit before interest and tax.
F&N and APB have recommended a final dividend of 8.5 cents and 18 cents a share respectively.
In response to a recent BT report, Mr Cheong said that there is a possibility that F&N’s business may be split in the future, but not now. ‘There are ways of increasing shareholder value,’ he said, adding: ‘All kinds of options will be explored and scenarios worked out, I’m sure some of these process will include examining the scenario of break up. But at this stage, at this time, there’re no plans to split.’
He also acknowledged Temasek’s role in growing the F&B business for F&N. ‘Temasek was looking for a vehicle for F&B, and we were looking for somebody who has a good track record and good stream of deals, a very good deal-maker to help us grow our F&B business,’ he said. F&N looked at several deals but unfortunately none of them came to fruition, so it is still looking.
Mr Cheong also acknowledged differences between former CEO Han Cheng Fong and the board. ‘We don’t want to get into details about the differences but I think at this stage, differences in opinion are par for the course,’ he said. ‘It is common when you put a group of people together. Dr Han left not because he had a difference in opinion with the board but because this resulted in a dysfunctional relationship.’
The separation was amicable and both sides had moved on, Mr Cheong said.
On the search for the new CEO, he said that it is in the hands of the chairman of the board and chairman of the nominating committee. ‘I’m afraid we don’t have any progress reports,’ he said. But F&N is open to looking internally and externally.
When asked about who the likely candidates were, he said to much laughter: ‘Why don’t you ask Conrad Raj?’ - referring to the BT correspondent who has broken many stories on F&N, including Mr Lee’s appointment as chairman and the possible splitting up of F&N.
Source : Business Times - 14 Nov 2007
But Mr Lee was a no-show, and director and group company secretary Anthony Cheong fielded the questions.
Mr Lee was not required to attend the news conference, Mr Cheong said. ‘Mr Lee is a non-executive chairman, so he need not be here.’
Operationally, the strong property market helped the food and beverage and property and publishing conglomerate lift net profit for the full year ended Sept 30 by 18.5 per cent to $378.6 million, from $319.5 million.
Before exceptional items, net profit attributable to shareholders increased 28 per cent to $377.9 million.
Full-year revenue rose 25 per cent to $4.74 billion. Earnings per share rose to 28.7 cents from 27.3 cents.
‘Our properties division continues to benefit from better-than-expected development margins and higher rental rates achieved from new and renewed leases,’ Mr Lee said in a statement. ‘Likewise, for eight consecutive years, food and beverage has maintained strong growth momentum and delivered rising profits. Publishing and printing also showed good progress and is on track to return to historical levels of profitability.’
Development property, which accounts for the lion’s share of the group’s attributable profit, came in at $214 million for the full year. Revenue from development property grew 24 per cent to $1.4 billion for the year.
During the year, the company sold more than 1,680 units at 19 developments in Singapore and close to 200 units at five projects overseas. It launched One St Michael’s, St Thomas Suites and Soleil @ Sinaran to strong interest.
Meanwhile, F&N subsidiary Asia Pacific Breweries (APB) reported a 3 per cent increase in net profit attributable to shareholders to $133.7 million for the full year. This was on a 17 per cent increase in revenue to $1.78 billion.
CEO Koh Poh Tiong said: ‘APB achieved strong organic profit growth amidst a healthy regional economy. Our ongoing strategy to expand our business, enhance the equity of our brands, and continually enlarge the global footprint of Tiger beer have once again delivered robust top line growth.’
IndoChina - Cambodia, Laos and Vietnam - remained APB’s largest profit contributor, accounting for about 48 per cent of APB’s total profit before interest and tax.
F&N and APB have recommended a final dividend of 8.5 cents and 18 cents a share respectively.
In response to a recent BT report, Mr Cheong said that there is a possibility that F&N’s business may be split in the future, but not now. ‘There are ways of increasing shareholder value,’ he said, adding: ‘All kinds of options will be explored and scenarios worked out, I’m sure some of these process will include examining the scenario of break up. But at this stage, at this time, there’re no plans to split.’
He also acknowledged Temasek’s role in growing the F&B business for F&N. ‘Temasek was looking for a vehicle for F&B, and we were looking for somebody who has a good track record and good stream of deals, a very good deal-maker to help us grow our F&B business,’ he said. F&N looked at several deals but unfortunately none of them came to fruition, so it is still looking.
Mr Cheong also acknowledged differences between former CEO Han Cheng Fong and the board. ‘We don’t want to get into details about the differences but I think at this stage, differences in opinion are par for the course,’ he said. ‘It is common when you put a group of people together. Dr Han left not because he had a difference in opinion with the board but because this resulted in a dysfunctional relationship.’
The separation was amicable and both sides had moved on, Mr Cheong said.
On the search for the new CEO, he said that it is in the hands of the chairman of the board and chairman of the nominating committee. ‘I’m afraid we don’t have any progress reports,’ he said. But F&N is open to looking internally and externally.
When asked about who the likely candidates were, he said to much laughter: ‘Why don’t you ask Conrad Raj?’ - referring to the BT correspondent who has broken many stories on F&N, including Mr Lee’s appointment as chairman and the possible splitting up of F&N.
Source : Business Times - 14 Nov 2007
Robin Court and Robin Star and the sole owner of No 1 Robin Drive, has indicated a price range of $128-138 million for the combined plots
THREE adjoining freehold properties at Robin Drive, off Bukit Timah Road, have been put up for joint collective sale.
Credo Real Estate, the marketing agent representing the majority owners of Robin Court and Robin Star and the sole owner of No 1 Robin Drive, has indicated a price range of $128-138 million for the combined plots, which have a total land area of 64,878 sq ft. This reflects a unit land price of about $1,500-1,600 psf of potential gross floor area inclusive of an estimated $8 million development charge.
Based on this, the breakeven cost for a new condo on the site works out to about $2,075-2,190 psf, Credo executive director Yong Choon Fah said. The combined site of the three properties is large enough for a condo with about 43 units averaging 2,000 sq ft.
The site is zoned for residential use with a 1.4 plot ratio (ratio of maximum potential gross floor area to land area) and a five-storey maximum height.
Robin Court comprises 15 apartments, Robin Star 10 apartments, and No 1 Robin Drive is a detached house with a pre-school operating on its site.
Owners controlling more than 80 per cent of share values in each of Robin Court and Robin Star, and the sole owner of No 1 Robin Drive have agreed to the sale, Credo said. The tender for the three properties closes on Dec 12.
Source : Business Times - 13 Nov 2007
Credo Real Estate, the marketing agent representing the majority owners of Robin Court and Robin Star and the sole owner of No 1 Robin Drive, has indicated a price range of $128-138 million for the combined plots, which have a total land area of 64,878 sq ft. This reflects a unit land price of about $1,500-1,600 psf of potential gross floor area inclusive of an estimated $8 million development charge.
Based on this, the breakeven cost for a new condo on the site works out to about $2,075-2,190 psf, Credo executive director Yong Choon Fah said. The combined site of the three properties is large enough for a condo with about 43 units averaging 2,000 sq ft.
The site is zoned for residential use with a 1.4 plot ratio (ratio of maximum potential gross floor area to land area) and a five-storey maximum height.
Robin Court comprises 15 apartments, Robin Star 10 apartments, and No 1 Robin Drive is a detached house with a pre-school operating on its site.
Owners controlling more than 80 per cent of share values in each of Robin Court and Robin Star, and the sole owner of No 1 Robin Drive have agreed to the sale, Credo said. The tender for the three properties closes on Dec 12.
Source : Business Times - 13 Nov 2007
$500 million - the amount it eventually attracted - was realistically the best price Horizon Towers could have fetched in an en bloc sale - DTZ
$500 million - the amount it eventually attracted - was realistically the best price Horizon Towers could have fetched in an en bloc sale, DTZ Debenham Tie Leung director Tang Wei Leng told the Strata Titles Board (STB) yesterday.
She was one of several marketing agents invited in early 2006 to make a presentation on the en bloc sale potential of the development to its newly formed sales committee.
Ms Tang’s testimony to STB yesterday suggests the eventual price of $500 million obtained by the Horizon Towers sales committee was the highest it could have hoped for, given some of the development’s shortcomings.
Ms Tang said the Leonie Hill 99-year leasehold development was a challenge to market, compared with other sites in the area.
She described the site as unattractive because it had a limited view, was oddly shaped and impossible to sub-divide. She also said the two access roads leading to it were not an advantage.
She compared it to its neighbouring development The Grangeford, which she said had a regular shape, a full view of Orchard Road and a Grange Road address.
Her testimony comes in the face of some of the arguments put up by minority owners - those who did not agree to the en bloc sale.
It is the minorities’ case that the collective sale of Horizon Towers should not be allowed because the deal was done in bad faith - as the sales committee did not do its best to secure the highest possible price.
Still, the minorities’ case got support when former sales committee member Henry Lim returned to the stand later yesterday. He had first testified last Friday.
Yesterday, he said the sales committee received a higher offer than the $500 million from Hotel Properties (HPL) and its partners, which was eventually accepted by the bulk of the owners.
Mr Lim said Hong Kong developer Vinyard Holdings, through its Malaysian lawyers Chan & Shu, offered $510 million for Horizon Towers. He said he made attempts to contact them but was advised by lawyer David Ang of Drew & Napier not to pursue the offer as Chan & Shu was an ‘unknown name’.
Mr Limsaid last Friday that there were at least four offers comparable to or better than HPL’s $500 million bid. He said three out of nine of the sales committee members were happy with the HPL offer but rushed into the deal and had failed to consult the majority owners before accepting it.
The hearing continues today.
Source : Business Times - 13 Nov 2007
She was one of several marketing agents invited in early 2006 to make a presentation on the en bloc sale potential of the development to its newly formed sales committee.
Ms Tang’s testimony to STB yesterday suggests the eventual price of $500 million obtained by the Horizon Towers sales committee was the highest it could have hoped for, given some of the development’s shortcomings.
Ms Tang said the Leonie Hill 99-year leasehold development was a challenge to market, compared with other sites in the area.
She described the site as unattractive because it had a limited view, was oddly shaped and impossible to sub-divide. She also said the two access roads leading to it were not an advantage.
She compared it to its neighbouring development The Grangeford, which she said had a regular shape, a full view of Orchard Road and a Grange Road address.
Her testimony comes in the face of some of the arguments put up by minority owners - those who did not agree to the en bloc sale.
It is the minorities’ case that the collective sale of Horizon Towers should not be allowed because the deal was done in bad faith - as the sales committee did not do its best to secure the highest possible price.
Still, the minorities’ case got support when former sales committee member Henry Lim returned to the stand later yesterday. He had first testified last Friday.
Yesterday, he said the sales committee received a higher offer than the $500 million from Hotel Properties (HPL) and its partners, which was eventually accepted by the bulk of the owners.
Mr Lim said Hong Kong developer Vinyard Holdings, through its Malaysian lawyers Chan & Shu, offered $510 million for Horizon Towers. He said he made attempts to contact them but was advised by lawyer David Ang of Drew & Napier not to pursue the offer as Chan & Shu was an ‘unknown name’.
Mr Limsaid last Friday that there were at least four offers comparable to or better than HPL’s $500 million bid. He said three out of nine of the sales committee members were happy with the HPL offer but rushed into the deal and had failed to consult the majority owners before accepting it.
The hearing continues today.
Source : Business Times - 13 Nov 2007
What should I consider about buying a house and financing it?
KEVIN LAM discusses five key areas that your home loan banker would be looking very closely at
THIS has been a special year for the property market. Not since the early 1990s has there been such euphoria about the property market - long queues at property launches, stories of someone we know making fast money by ‘flipping’ new property purchases in a matter of weeks, even days. Many people who have yet to join the party have been wondering if they should also jump on to the property bandwagon.
With the latest government measures to discontinue the deferred payment scheme, some measure of stability should return to the market such that even as prices continue to go up given our transformation into a global city, it would rise in a more measured manner.
For those who need to think very carefully about the finer details of taking out a loan with a bank to finance what would be one of the biggest financial commitments, you may want to consider some finer details as part of your overall decision-making process.
What should I consider about buying a house and financing it?
In Singapore, we have seen two boom-and-bust cycles of property price peaks and troughs in the past 17 years. While many people may think that we are currently in the midst of a boom, many others remain cautious and conservative about making a property financing commitment, and rightly so. The first and most important thing potential home owners should be looking at when they consider buying a house and taking up a mortgage to finance it is this - are you over-stretching yourself? To answer this, you have to look at five key areas that your banker would probably be also looking very closely at:
Quantum of financing: Since July 2005, the Monetary Authority of Singapore (MAS) has liberalised the quantum of financing for housing loans, up to 90 per cent loan-to-value (LTV). This means that as a home buyer, the minimum that one needs to raise is 10 per cent of the value of the property and the cash component can be a minimum 5 per cent with the balance of 5 per cent made up from the Central Provident Fund (CPF).
Typically, because the capital and credit cost associated with granting these higher quantum loans are higher, these loans come with higher interest rates when compared to 80 per cent LTV loans. In this market, a comfortable level for financing for banks would generally be at 80 per cent quantum of financing. This means that home buyers must have a minimum of 5 per cent cash and 15 per cent CPF lump-sum from their CPF Ordinary Account. For a $1 million property, this works out to $50,000 in cash and $150,000 in CPF OA monies, or if one prefers, this amount could be paid in cash.
With more cash upfront, this is generally viewed more favourably by the banker, that is, if you could use more than the minimum 5 per cent cash. For example, if there are two borrowers looking for 90 per cent financing, both of equal standing, the one who can put up the entire 10 per cent in cash downpayment, would be better positioned from a bank’s credit standpoint than the other who uses 5 per cent cash and 5 per cent CPF monies. More cash upfront shows more commitment from the potential customer, and this would generally put your financing request in a better light.
Likewise, if a potential customer has the ability to fork out up to 30 per cent or more, cash or CPF down payment, and request only 70 per cent financing, he or she can be more confident of your request for financing.
Employment profile: The potential customer’s employment status is also one of the most important considerations to review when taking out a housing loan. He or she should consider the stability of his/her employment, regardless of whether the potential customer is a working employee or self-employed.
Typically two years of qualified income coming from the same employer or same source of business should be a good indication of the borrower’s employment profile. On the other hand, if a borrower changes jobs frequently, even with higher income, it may be viewed by banks as being less secure and stable in employment.
Income and your CPF reserve: In home financing, one of the key commitments is to ensure that monthly housing loans instalments remain uninterrupted and consistent.
As a good rule-of-thumb, if housing loan instalments are kept to below 40 per cent of a person’s monthly income, the borrower would be better positioned in his/her monthly servicing ability. This is especially so if the borrower’s monthly CPF OA contribution is able to fund a good part of the housing loan instalment.
It would also be a prudent measure to have a reserve of at least six to 12 months of monthly instalments in the CPF OA. This provides more cushion should there be a change in a borrower’s employment status, and he/she needs time to find another job. This means that when one uses CPF for the initial downpayment, it is important to be conservative and keep a reserve, rather than using up all of one’s CPF for downpayment. As one goes through the sums for mortgage financing, one will realise that income, CPF resources, employment profile, and the quantum of financing are all inter-related. Any home buyer should sit down and work out the numbers to ask the question: ‘Am I over-stretching myself financially?’
Interest rate, monthly instalment and rental yields: One of the key considerations in taking a housing loan is interest rate. However, borrowers almost always ask the wrong question with regards to interest rate. ‘How low is your interest versus other banks?’ is the typical question.
Consider this alternative thinking; instead of asking how low a bank’s interest rates are, borrowers should seriously consider the exact opposite: ‘How high can interest rates be, while I can still afford the housing loan payment? Look at the accompanying table and consider various scenarios, such as a higher interest rate (note that the SGD mortgage interest rate is one of the lowest in the region) and whether a borrower can continue to service the loan, even if interest rate would double. Not possible?
Those of us who can remember the 1990s recall that housing loan rates were once at 8 per cent. These difficult economic periods when interest went up were often accompanied by periods where people found the stability of their income at risk. So, under such circumstances, if you were to lose your job, do you have sufficient reserves to last - and for how long?
This is where the difference of taking a fixed or a floating rate should be reviewed. Floating rates, while lower, do not have the stability of fixed rate loans. So a borrower may want to consider taking a two-in-one loan where a borrower can combine both fixed and floating rate loans in one mortgaged property. For example, the UOB two-in-one loan.
With rising rental yields, many are also thinking of buying a property as an investment which they intend to rent out to cover mortgage payments. Here. the question to ask would be: ‘Would I still be all right if rental should fall by half?’ Rents go up quickly due to shortage of housing, especially for foreigners with good housing budgets, but they can drop as quickly if there is a downturn.
In the current climate, these may seem faraway possibilities, but whether you are buying for your own stay, or for investment - consider the various scenarios and do your sums carefully.
Your credit performance: One of the other lesser known issues one should consider before taking up a housing loan is credit performance. In Singapore, all your credit performance in terms of number of loans applied for, whether for housing, cars, credit cards or other loans is stored in the Credit Bureau. When you apply for a loan, you would have signed a consent for your bank to obtain a copy of your credit performance.
Some borrowers have been caught in a situation where they committed to a property by paying the option money, only to find that when they apply for a loan, their application is either turned down, or their request for financing reduced. This could be due the credit history, showing a habitual lateness for other loans. These information are transparent across banks, and a borrower would be advised to get a home financing in-principle approval before committing to a property. One of the ways to ensure that one is not ‘caught’ by credit performance is to ensure that payment is prompt in the borrower’s other loan repayments.
Many people think that housing loans are commodity products, but that cannot be further from the truth. In a very competitive market like Singapore where rates are so low, banks have learnt to compete not by price competition, but through value-added features.
All said, it is key for every potential home buyer to do some homework. Ask yourself if you have the resources both now and in the future to service the mortgage for the amount of loan you intend to take to buy that property. As daunting an exercise as this may be, it is one exercise that we must spend time pondering. At the end of the day, there is no free lunch.
Kevin Lam is head, loans division, United Overseas Bank
Source : Business Times - 14 Nov 2007
THIS has been a special year for the property market. Not since the early 1990s has there been such euphoria about the property market - long queues at property launches, stories of someone we know making fast money by ‘flipping’ new property purchases in a matter of weeks, even days. Many people who have yet to join the party have been wondering if they should also jump on to the property bandwagon.
With the latest government measures to discontinue the deferred payment scheme, some measure of stability should return to the market such that even as prices continue to go up given our transformation into a global city, it would rise in a more measured manner.
For those who need to think very carefully about the finer details of taking out a loan with a bank to finance what would be one of the biggest financial commitments, you may want to consider some finer details as part of your overall decision-making process.
What should I consider about buying a house and financing it?
In Singapore, we have seen two boom-and-bust cycles of property price peaks and troughs in the past 17 years. While many people may think that we are currently in the midst of a boom, many others remain cautious and conservative about making a property financing commitment, and rightly so. The first and most important thing potential home owners should be looking at when they consider buying a house and taking up a mortgage to finance it is this - are you over-stretching yourself? To answer this, you have to look at five key areas that your banker would probably be also looking very closely at:
Quantum of financing: Since July 2005, the Monetary Authority of Singapore (MAS) has liberalised the quantum of financing for housing loans, up to 90 per cent loan-to-value (LTV). This means that as a home buyer, the minimum that one needs to raise is 10 per cent of the value of the property and the cash component can be a minimum 5 per cent with the balance of 5 per cent made up from the Central Provident Fund (CPF).
Typically, because the capital and credit cost associated with granting these higher quantum loans are higher, these loans come with higher interest rates when compared to 80 per cent LTV loans. In this market, a comfortable level for financing for banks would generally be at 80 per cent quantum of financing. This means that home buyers must have a minimum of 5 per cent cash and 15 per cent CPF lump-sum from their CPF Ordinary Account. For a $1 million property, this works out to $50,000 in cash and $150,000 in CPF OA monies, or if one prefers, this amount could be paid in cash.
With more cash upfront, this is generally viewed more favourably by the banker, that is, if you could use more than the minimum 5 per cent cash. For example, if there are two borrowers looking for 90 per cent financing, both of equal standing, the one who can put up the entire 10 per cent in cash downpayment, would be better positioned from a bank’s credit standpoint than the other who uses 5 per cent cash and 5 per cent CPF monies. More cash upfront shows more commitment from the potential customer, and this would generally put your financing request in a better light.
Likewise, if a potential customer has the ability to fork out up to 30 per cent or more, cash or CPF down payment, and request only 70 per cent financing, he or she can be more confident of your request for financing.
Employment profile: The potential customer’s employment status is also one of the most important considerations to review when taking out a housing loan. He or she should consider the stability of his/her employment, regardless of whether the potential customer is a working employee or self-employed.
Typically two years of qualified income coming from the same employer or same source of business should be a good indication of the borrower’s employment profile. On the other hand, if a borrower changes jobs frequently, even with higher income, it may be viewed by banks as being less secure and stable in employment.
Income and your CPF reserve: In home financing, one of the key commitments is to ensure that monthly housing loans instalments remain uninterrupted and consistent.
As a good rule-of-thumb, if housing loan instalments are kept to below 40 per cent of a person’s monthly income, the borrower would be better positioned in his/her monthly servicing ability. This is especially so if the borrower’s monthly CPF OA contribution is able to fund a good part of the housing loan instalment.
It would also be a prudent measure to have a reserve of at least six to 12 months of monthly instalments in the CPF OA. This provides more cushion should there be a change in a borrower’s employment status, and he/she needs time to find another job. This means that when one uses CPF for the initial downpayment, it is important to be conservative and keep a reserve, rather than using up all of one’s CPF for downpayment. As one goes through the sums for mortgage financing, one will realise that income, CPF resources, employment profile, and the quantum of financing are all inter-related. Any home buyer should sit down and work out the numbers to ask the question: ‘Am I over-stretching myself financially?’
Interest rate, monthly instalment and rental yields: One of the key considerations in taking a housing loan is interest rate. However, borrowers almost always ask the wrong question with regards to interest rate. ‘How low is your interest versus other banks?’ is the typical question.
Consider this alternative thinking; instead of asking how low a bank’s interest rates are, borrowers should seriously consider the exact opposite: ‘How high can interest rates be, while I can still afford the housing loan payment? Look at the accompanying table and consider various scenarios, such as a higher interest rate (note that the SGD mortgage interest rate is one of the lowest in the region) and whether a borrower can continue to service the loan, even if interest rate would double. Not possible?
Those of us who can remember the 1990s recall that housing loan rates were once at 8 per cent. These difficult economic periods when interest went up were often accompanied by periods where people found the stability of their income at risk. So, under such circumstances, if you were to lose your job, do you have sufficient reserves to last - and for how long?
This is where the difference of taking a fixed or a floating rate should be reviewed. Floating rates, while lower, do not have the stability of fixed rate loans. So a borrower may want to consider taking a two-in-one loan where a borrower can combine both fixed and floating rate loans in one mortgaged property. For example, the UOB two-in-one loan.
With rising rental yields, many are also thinking of buying a property as an investment which they intend to rent out to cover mortgage payments. Here. the question to ask would be: ‘Would I still be all right if rental should fall by half?’ Rents go up quickly due to shortage of housing, especially for foreigners with good housing budgets, but they can drop as quickly if there is a downturn.
In the current climate, these may seem faraway possibilities, but whether you are buying for your own stay, or for investment - consider the various scenarios and do your sums carefully.
Your credit performance: One of the other lesser known issues one should consider before taking up a housing loan is credit performance. In Singapore, all your credit performance in terms of number of loans applied for, whether for housing, cars, credit cards or other loans is stored in the Credit Bureau. When you apply for a loan, you would have signed a consent for your bank to obtain a copy of your credit performance.
Some borrowers have been caught in a situation where they committed to a property by paying the option money, only to find that when they apply for a loan, their application is either turned down, or their request for financing reduced. This could be due the credit history, showing a habitual lateness for other loans. These information are transparent across banks, and a borrower would be advised to get a home financing in-principle approval before committing to a property. One of the ways to ensure that one is not ‘caught’ by credit performance is to ensure that payment is prompt in the borrower’s other loan repayments.
Many people think that housing loans are commodity products, but that cannot be further from the truth. In a very competitive market like Singapore where rates are so low, banks have learnt to compete not by price competition, but through value-added features.
All said, it is key for every potential home buyer to do some homework. Ask yourself if you have the resources both now and in the future to service the mortgage for the amount of loan you intend to take to buy that property. As daunting an exercise as this may be, it is one exercise that we must spend time pondering. At the end of the day, there is no free lunch.
Kevin Lam is head, loans division, United Overseas Bank
Source : Business Times - 14 Nov 2007
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich.
They make sense to short-term investors and individuals who are high income earners and in high tax brackets, says BEN FOK
CONSUMERS are constantly bombarded with offers of loans, overdrafts, credit cards and instalment plans that promise instant gratification.
We cannot avoid debt entirely, especially when it comes to acquiring the big ticket items, and not all debt is bad. But those who borrow must be prudent and know that they can make the repayments.
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich. But there are situations where it is worthwhile for the HNWI to borrow instead of paying with their own cash.
Some financial institutions offer interest-only loans targeted at the HNWIs. With such loans, you only repay the interest, not the principal, so the loan balance remains unchanged. Most interest-only loans offered by financial institutions are associated with the purchase of property.
Interest-only loans make sense to individuals who are high income earners and in high tax brackets. The benefit comes from being able to save on tax on rental income. That’s because the interest portion of loan instalments for rental properties is tax deductible.
This package also works well for short-term investors. By repaying only the interest, investors fork out less cash each month, until they sell the property. As a result, they may be able to invest in two properties instead of one.
But interest-only loans are not for the long term, because at the end of the loan period, the payment is raised to the fully amortising level. If you’re still in your home at the end of the interest-only period, you’ll have to start paying off the principal. The payments will be considerably larger because they’ll be amortised over a shorter period. For example, if your interest-only option lasts for five years and you have a 30-year loan, your principal payments will be calculated on a 25-year term.
Drawbacks of interest-only mortgages:
You could experience payment shock. As mentioned earlier, your monthly payment will go up - sometimes by 30 per cent or more - when you start paying off the principal. And if the end of your interest-only period coincides with an upward adjustment in your mortgage rate, you could face an even sharper hike in monthly payments.
You’re more vulnerable if your home value declines. Many borrowers with interest-only loans assume home price appreciation will help them build equity in their homes. In recent years, that’s been a good bet. But rising interest rates could deflate real estate values in some high-cost areas.
It’s best to get a reputable financial institution to run the numbers for you and spell out the worst-case scenarios.
Equity provides a cushion against falling home values. Without it, you could find yourself owing more on your mortgage than your home is worth. If you sell, the proceeds won’t cover your loan balance, which means you’ll have to come up with money from another source. One way to avoid this problem is to make a good-sized downpayment on your mortgage.
Advantages of interest-only mortgages:
You have more flexibility. Some interest-only borrowers can afford a larger mortgage payment but their priority is to beef up their retirement nestegg or build up their emergency funds. Once they’ve accomplished those goals, they often decide to increase their mortgage payments.
Increasing your monthly payments will build equity and lessen payment shock when you’re required to start paying off the principal. If you’re interested in this option, make sure your loan doesn’t contain pre-payment penalties.
Interest-only mortgages are complicated, so make sure you understand the pitfalls before you sign anything.
And don’t rely on the financial institutions to figure out how much you can afford to borrow. A lender may not take into account all of your future expenses, such as child’s university fees or support of an elderly parent.
What worries me is Singaporeans taking two or more mortgages in a rising market. As property prices rise, the dollar amount also rises in line with higher selling prices. Affordability becomes an issue. You’re in the best position to know what your financial obligations are, so get a mortgage you can afford. How much should one borrow? There are two ratios that financial advisers commonly use:
Debt to asset ratio which is total debt/total assets. This ratio should be 50 per cent or less;
Debt servicing ratio which is total monthly loan repayment/monthly take-home pay. This ratio should be 35 per cent or less.
After all, wealth equals assets less debt. It is built up over the years by accumulating assets and paying down debt, especially mortgage debt. When you pay down the balance of your mortgage, you are increasing your wealth by reducing debt. But an interest-only mortgage does not increase wealth in that way.
Of course, you may be increasing your wealth by accumulating assets instead. If that’s your plan and you have determined that it is more effective in building wealth during the interest-only period than paying down mortgage debt, fine. But paying down mortgage debt is the most effective way to build wealth, especially in today’s financial environment. Four dangers related to borrowing too much:
It can become a habit; It takes away money from other important needs;
Your credit rating will be damaged if you don’t pay the bills;
It can lead to high interest payments that are harder to make.
Three situations where it’s better to avoid borrowing:
Paying your everyday expenses;
Covering optional spending;
Borrowing when you know you can’t afford the payments
It’s not a good idea to borrow a lot thinking that you will just pay the minimum back each month. It may take a long time to get out of debt and you’ll end up paying a lot of interest. Also, if you have one late payment, your credit rating may suffer and you’ll be charged penalties.
At the end of the day, paying down a loan is the best option, because once it’s paid it remains paid.
Ben Fok is CEO, Grandtag Financial Consultancy (Singapore) Pte Lt.
Source : Business Times - 14 Nov 2007
CONSUMERS are constantly bombarded with offers of loans, overdrafts, credit cards and instalment plans that promise instant gratification.
We cannot avoid debt entirely, especially when it comes to acquiring the big ticket items, and not all debt is bad. But those who borrow must be prudent and know that they can make the repayments.
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich. But there are situations where it is worthwhile for the HNWI to borrow instead of paying with their own cash.
Some financial institutions offer interest-only loans targeted at the HNWIs. With such loans, you only repay the interest, not the principal, so the loan balance remains unchanged. Most interest-only loans offered by financial institutions are associated with the purchase of property.
Interest-only loans make sense to individuals who are high income earners and in high tax brackets. The benefit comes from being able to save on tax on rental income. That’s because the interest portion of loan instalments for rental properties is tax deductible.
This package also works well for short-term investors. By repaying only the interest, investors fork out less cash each month, until they sell the property. As a result, they may be able to invest in two properties instead of one.
But interest-only loans are not for the long term, because at the end of the loan period, the payment is raised to the fully amortising level. If you’re still in your home at the end of the interest-only period, you’ll have to start paying off the principal. The payments will be considerably larger because they’ll be amortised over a shorter period. For example, if your interest-only option lasts for five years and you have a 30-year loan, your principal payments will be calculated on a 25-year term.
Drawbacks of interest-only mortgages:
You could experience payment shock. As mentioned earlier, your monthly payment will go up - sometimes by 30 per cent or more - when you start paying off the principal. And if the end of your interest-only period coincides with an upward adjustment in your mortgage rate, you could face an even sharper hike in monthly payments.
You’re more vulnerable if your home value declines. Many borrowers with interest-only loans assume home price appreciation will help them build equity in their homes. In recent years, that’s been a good bet. But rising interest rates could deflate real estate values in some high-cost areas.
It’s best to get a reputable financial institution to run the numbers for you and spell out the worst-case scenarios.
Equity provides a cushion against falling home values. Without it, you could find yourself owing more on your mortgage than your home is worth. If you sell, the proceeds won’t cover your loan balance, which means you’ll have to come up with money from another source. One way to avoid this problem is to make a good-sized downpayment on your mortgage.
Advantages of interest-only mortgages:
You have more flexibility. Some interest-only borrowers can afford a larger mortgage payment but their priority is to beef up their retirement nestegg or build up their emergency funds. Once they’ve accomplished those goals, they often decide to increase their mortgage payments.
Increasing your monthly payments will build equity and lessen payment shock when you’re required to start paying off the principal. If you’re interested in this option, make sure your loan doesn’t contain pre-payment penalties.
Interest-only mortgages are complicated, so make sure you understand the pitfalls before you sign anything.
And don’t rely on the financial institutions to figure out how much you can afford to borrow. A lender may not take into account all of your future expenses, such as child’s university fees or support of an elderly parent.
What worries me is Singaporeans taking two or more mortgages in a rising market. As property prices rise, the dollar amount also rises in line with higher selling prices. Affordability becomes an issue. You’re in the best position to know what your financial obligations are, so get a mortgage you can afford. How much should one borrow? There are two ratios that financial advisers commonly use:
Debt to asset ratio which is total debt/total assets. This ratio should be 50 per cent or less;
Debt servicing ratio which is total monthly loan repayment/monthly take-home pay. This ratio should be 35 per cent or less.
After all, wealth equals assets less debt. It is built up over the years by accumulating assets and paying down debt, especially mortgage debt. When you pay down the balance of your mortgage, you are increasing your wealth by reducing debt. But an interest-only mortgage does not increase wealth in that way.
Of course, you may be increasing your wealth by accumulating assets instead. If that’s your plan and you have determined that it is more effective in building wealth during the interest-only period than paying down mortgage debt, fine. But paying down mortgage debt is the most effective way to build wealth, especially in today’s financial environment. Four dangers related to borrowing too much:
It can become a habit; It takes away money from other important needs;
Your credit rating will be damaged if you don’t pay the bills;
It can lead to high interest payments that are harder to make.
Three situations where it’s better to avoid borrowing:
Paying your everyday expenses;
Covering optional spending;
Borrowing when you know you can’t afford the payments
It’s not a good idea to borrow a lot thinking that you will just pay the minimum back each month. It may take a long time to get out of debt and you’ll end up paying a lot of interest. Also, if you have one late payment, your credit rating may suffer and you’ll be charged penalties.
At the end of the day, paying down a loan is the best option, because once it’s paid it remains paid.
Ben Fok is CEO, Grandtag Financial Consultancy (Singapore) Pte Lt.
Source : Business Times - 14 Nov 2007
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich.
They make sense to short-term investors and individuals who are high income earners and in high tax brackets, says BEN FOK
CONSUMERS are constantly bombarded with offers of loans, overdrafts, credit cards and instalment plans that promise instant gratification.
We cannot avoid debt entirely, especially when it comes to acquiring the big ticket items, and not all debt is bad. But those who borrow must be prudent and know that they can make the repayments.
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich. But there are situations where it is worthwhile for the HNWI to borrow instead of paying with their own cash.
Some financial institutions offer interest-only loans targeted at the HNWIs. With such loans, you only repay the interest, not the principal, so the loan balance remains unchanged. Most interest-only loans offered by financial institutions are associated with the purchase of property.
Interest-only loans make sense to individuals who are high income earners and in high tax brackets. The benefit comes from being able to save on tax on rental income. That’s because the interest portion of loan instalments for rental properties is tax deductible.
This package also works well for short-term investors. By repaying only the interest, investors fork out less cash each month, until they sell the property. As a result, they may be able to invest in two properties instead of one.
But interest-only loans are not for the long term, because at the end of the loan period, the payment is raised to the fully amortising level. If you’re still in your home at the end of the interest-only period, you’ll have to start paying off the principal. The payments will be considerably larger because they’ll be amortised over a shorter period. For example, if your interest-only option lasts for five years and you have a 30-year loan, your principal payments will be calculated on a 25-year term.
Drawbacks of interest-only mortgages:
You could experience payment shock. As mentioned earlier, your monthly payment will go up - sometimes by 30 per cent or more - when you start paying off the principal. And if the end of your interest-only period coincides with an upward adjustment in your mortgage rate, you could face an even sharper hike in monthly payments.
You’re more vulnerable if your home value declines. Many borrowers with interest-only loans assume home price appreciation will help them build equity in their homes. In recent years, that’s been a good bet. But rising interest rates could deflate real estate values in some high-cost areas.
It’s best to get a reputable financial institution to run the numbers for you and spell out the worst-case scenarios.
Equity provides a cushion against falling home values. Without it, you could find yourself owing more on your mortgage than your home is worth. If you sell, the proceeds won’t cover your loan balance, which means you’ll have to come up with money from another source. One way to avoid this problem is to make a good-sized downpayment on your mortgage.
Advantages of interest-only mortgages:
You have more flexibility. Some interest-only borrowers can afford a larger mortgage payment but their priority is to beef up their retirement nestegg or build up their emergency funds. Once they’ve accomplished those goals, they often decide to increase their mortgage payments.
Increasing your monthly payments will build equity and lessen payment shock when you’re required to start paying off the principal. If you’re interested in this option, make sure your loan doesn’t contain pre-payment penalties.
Interest-only mortgages are complicated, so make sure you understand the pitfalls before you sign anything.
And don’t rely on the financial institutions to figure out how much you can afford to borrow. A lender may not take into account all of your future expenses, such as child’s university fees or support of an elderly parent.
What worries me is Singaporeans taking two or more mortgages in a rising market. As property prices rise, the dollar amount also rises in line with higher selling prices. Affordability becomes an issue. You’re in the best position to know what your financial obligations are, so get a mortgage you can afford. How much should one borrow? There are two ratios that financial advisers commonly use:
Debt to asset ratio which is total debt/total assets. This ratio should be 50 per cent or less;
Debt servicing ratio which is total monthly loan repayment/monthly take-home pay. This ratio should be 35 per cent or less.
After all, wealth equals assets less debt. It is built up over the years by accumulating assets and paying down debt, especially mortgage debt. When you pay down the balance of your mortgage, you are increasing your wealth by reducing debt. But an interest-only mortgage does not increase wealth in that way.
Of course, you may be increasing your wealth by accumulating assets instead. If that’s your plan and you have determined that it is more effective in building wealth during the interest-only period than paying down mortgage debt, fine. But paying down mortgage debt is the most effective way to build wealth, especially in today’s financial environment. Four dangers related to borrowing too much:
It can become a habit; It takes away money from other important needs;
Your credit rating will be damaged if you don’t pay the bills;
It can lead to high interest payments that are harder to make.
Three situations where it’s better to avoid borrowing:
Paying your everyday expenses;
Covering optional spending;
Borrowing when you know you can’t afford the payments
It’s not a good idea to borrow a lot thinking that you will just pay the minimum back each month. It may take a long time to get out of debt and you’ll end up paying a lot of interest. Also, if you have one late payment, your credit rating may suffer and you’ll be charged penalties.
At the end of the day, paying down a loan is the best option, because once it’s paid it remains paid.
Ben Fok is CEO, Grandtag Financial Consultancy (Singapore) Pte Lt.
Source : Business Times - 14 Nov 2007
CONSUMERS are constantly bombarded with offers of loans, overdrafts, credit cards and instalment plans that promise instant gratification.
We cannot avoid debt entirely, especially when it comes to acquiring the big ticket items, and not all debt is bad. But those who borrow must be prudent and know that they can make the repayments.
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich. But there are situations where it is worthwhile for the HNWI to borrow instead of paying with their own cash.
Some financial institutions offer interest-only loans targeted at the HNWIs. With such loans, you only repay the interest, not the principal, so the loan balance remains unchanged. Most interest-only loans offered by financial institutions are associated with the purchase of property.
Interest-only loans make sense to individuals who are high income earners and in high tax brackets. The benefit comes from being able to save on tax on rental income. That’s because the interest portion of loan instalments for rental properties is tax deductible.
This package also works well for short-term investors. By repaying only the interest, investors fork out less cash each month, until they sell the property. As a result, they may be able to invest in two properties instead of one.
But interest-only loans are not for the long term, because at the end of the loan period, the payment is raised to the fully amortising level. If you’re still in your home at the end of the interest-only period, you’ll have to start paying off the principal. The payments will be considerably larger because they’ll be amortised over a shorter period. For example, if your interest-only option lasts for five years and you have a 30-year loan, your principal payments will be calculated on a 25-year term.
Drawbacks of interest-only mortgages:
You could experience payment shock. As mentioned earlier, your monthly payment will go up - sometimes by 30 per cent or more - when you start paying off the principal. And if the end of your interest-only period coincides with an upward adjustment in your mortgage rate, you could face an even sharper hike in monthly payments.
You’re more vulnerable if your home value declines. Many borrowers with interest-only loans assume home price appreciation will help them build equity in their homes. In recent years, that’s been a good bet. But rising interest rates could deflate real estate values in some high-cost areas.
It’s best to get a reputable financial institution to run the numbers for you and spell out the worst-case scenarios.
Equity provides a cushion against falling home values. Without it, you could find yourself owing more on your mortgage than your home is worth. If you sell, the proceeds won’t cover your loan balance, which means you’ll have to come up with money from another source. One way to avoid this problem is to make a good-sized downpayment on your mortgage.
Advantages of interest-only mortgages:
You have more flexibility. Some interest-only borrowers can afford a larger mortgage payment but their priority is to beef up their retirement nestegg or build up their emergency funds. Once they’ve accomplished those goals, they often decide to increase their mortgage payments.
Increasing your monthly payments will build equity and lessen payment shock when you’re required to start paying off the principal. If you’re interested in this option, make sure your loan doesn’t contain pre-payment penalties.
Interest-only mortgages are complicated, so make sure you understand the pitfalls before you sign anything.
And don’t rely on the financial institutions to figure out how much you can afford to borrow. A lender may not take into account all of your future expenses, such as child’s university fees or support of an elderly parent.
What worries me is Singaporeans taking two or more mortgages in a rising market. As property prices rise, the dollar amount also rises in line with higher selling prices. Affordability becomes an issue. You’re in the best position to know what your financial obligations are, so get a mortgage you can afford. How much should one borrow? There are two ratios that financial advisers commonly use:
Debt to asset ratio which is total debt/total assets. This ratio should be 50 per cent or less;
Debt servicing ratio which is total monthly loan repayment/monthly take-home pay. This ratio should be 35 per cent or less.
After all, wealth equals assets less debt. It is built up over the years by accumulating assets and paying down debt, especially mortgage debt. When you pay down the balance of your mortgage, you are increasing your wealth by reducing debt. But an interest-only mortgage does not increase wealth in that way.
Of course, you may be increasing your wealth by accumulating assets instead. If that’s your plan and you have determined that it is more effective in building wealth during the interest-only period than paying down mortgage debt, fine. But paying down mortgage debt is the most effective way to build wealth, especially in today’s financial environment. Four dangers related to borrowing too much:
It can become a habit; It takes away money from other important needs;
Your credit rating will be damaged if you don’t pay the bills;
It can lead to high interest payments that are harder to make.
Three situations where it’s better to avoid borrowing:
Paying your everyday expenses;
Covering optional spending;
Borrowing when you know you can’t afford the payments
It’s not a good idea to borrow a lot thinking that you will just pay the minimum back each month. It may take a long time to get out of debt and you’ll end up paying a lot of interest. Also, if you have one late payment, your credit rating may suffer and you’ll be charged penalties.
At the end of the day, paying down a loan is the best option, because once it’s paid it remains paid.
Ben Fok is CEO, Grandtag Financial Consultancy (Singapore) Pte Lt.
Source : Business Times - 14 Nov 2007