Source : Business Times - 22 May 200
Uncertain economy, housing glut fears seen taking toll on developers
HOPES that a slowdown in Singapore’s property market is temporary are fading as an uncertain economic outlook and a looming housing glut threaten to plunge the sector into a prolonged downturn.
Homebuilders such as CapitaLand, Keppel Land and GuocoLand have delayed launching new projects in the moribund market, taking a hit to first-quarter earnings as they hoped for a rebound later this year.
Prospects could be dented further in coming months if smaller developers face financing troubles and have to unload properties at massive discounts. Some have gorged themselves on expensive land acquisitions over the past two years.
With home prices expected to fall 30 to 40 per cent over the next three years, Singapore’s developers could be badly hit and analysts may slash their earnings estimates further.
‘This is the start of a multi-year price correction. Private residential property prices could easily fall by up to 30 per cent by 2010,’ said Barclays Capital economist Leong Wai Ho.
Credit Suisse in a report this month saw rents and property prices falling even more steeply by as much as 40 per cent, and downgraded its investment recommendation for the sector to ‘underweight’.
Warning signs have been flashing as first quarter 2008 sales volumes slumped to the lowest in five years and price growth slowed for two straight quarters, with concerns about a global economic slowdown and the US sub-prime mortgage crisis scaring off potential homebuyers.
Mr Leong said an impending oversupply will worsen the problem, with 66,000 new homes expected to be completed over the next four years, against forecast demand for 50,000 in the same period.
The three-month Singapore Interbank Offered Rate - a benchmark for mortgage loans - has fallen to near record lows below 1.3 per cent, but that may not be enough to revive buyers’ flagging confidence, economists say.
‘Negative real interest rates will be at best a cushion, rather than a boost to housing demand in the near term, although they could lift property demand if and when sentiment turns,’ said Citi analyst Kit Wei Zheng.
‘The worst is yet to come and price cuts are imminent,’ said ABN Amro analyst Fera Wirawan.
BNP Paribas has flagged high financial risks for small developers including Bukit Sembawang, Low Keng Huat and Lian Beng, which have almost all their debts due within a year. Even major builders such as Allgreen, Keppel Land and GuocoLand could face difficulties after steep drops in profit in the last quarter as they launch fewer projects, analysts say.
Slower sales and rising costs could raise developers’ gearing or debt-to-equity ratio to dangerous levels above 70 per cent, up from the industry average of about 62 per cent.
‘We identify three developers, namely Allgreen, GuocoLand and Keppel Land, that could face some pressures on cash flow,’ JPMorgan analyst Christopher Gee said in a report, noting that gearing levels could be pushed up to between 80 and 130 per cent.
The risk of price falls has been heightened by property speculators buying in recent years with little upfront cash, relying on a deferred payment scheme. The government scrapped the scheme last October in a bid to cool down the sector.
Analysts expect speculators will dispose of about 700 units on the cheap this year, and another 2,000 next year, as the properties near completion and instalments are due.
Some developers are still counting on home prices in the city state to rise for at least another year, as they see the market in the middle of an upswing even as the US housing market grapples with its worst downturn since the Great Depression.
‘This is a temporary hiccup. We just had a boom starting in 2006 and it’s usually a seven-year cycle,’ property tycoon Kwek Leng Beng, who heads Singapore’s No 2 developer City Developments, told Reuters. The property market will be supported by greater foreign investments as Singapore sees the completion of two casino projects and the influx of major events such as Formula One races and the Youth Olympics over the next few years, Mr Kwek argued.
But Barclays’ Mr Leong said his bearish scenario, which calls for a near one-third drop in property value, already takes into account any boost resulting from these economic developments. ‘It’s not the worst-case scenario. This is the most likely scenario based on the numbers,’ he said. — Reuters
Saturday, May 24, 2008
Singapore inflation rate hits new 26-year high of 7.5% in April
Source : Channel NewsAsia - 23 May 2008
Singapore’s annual inflation rate rose to a new 26-year high of 7.5 percent in April as food, housing and transportation costs soared and is now a risk to the economy, the government said on Friday.
Food prices alone rose 8.5 percent, transportation and communication were 7.0 percent higher and housing costs became 11.8 percent more expensive, the statistics department said.
It said April’s inflation rate is the highest since February 1982, when it stood at 9.0 percent.
“External price pressures have continued to contribute significantly to our domestic headline inflation numbers,” the Ministry of Trade and Industry (MTI) said in a separate statement.
“Oil and food prices have risen more rapidly and are expected to remain elevated over the near term.”
Oil prices surged to unprecedented record peaks of more than US$135 a barrel on Thursday and analysts said it could still go higher.
MTI and the Monetary Authority of Singapore (MAS) have bumped up their forecast for inflation this year to 5-6 percent from 4.5-5.5 percent.
Ravi Menon, second permanent secretary at the trade ministry, said inflation is emerging as a bigger risk to the economy than growth.
“Inflation has been running ahead of what we expected… We are facing risks on both fronts but the balance has shifted towards inflation,” Menon told reporters.
“We expect food and oil prices to remain elevated over the near term and filter through into domestic prices.”
Singaporeans and residents have become creative in adjusting to higher living costs, adopting such measures at taking fewer taxi rides to eating out less and shortening shower time to save on water bills.
Local charities said rising food prices are also driving more Singaporeans, especially poor senior citizens, to join queues for free meals.
The trade ministry said inflation should remain around the current levels for the next two months and ease in the second half of the year.
Analysts said the central bank could further strengthen the Singapore dollar in a bid to tame inflation.
Tiny Singapore, Southeast Asia’s most advanced economy, imports most of its needs because it lacks the natural resources and agricultural base of its much bigger neighbours.
MAS, Singapore’s central bank, deals with inflation by weighing the Singapore dollar against a basket of currencies.
It tightened its foreign exchange policy at its last meeting in April and policy makers said they have no plans to review the policy until the next meeting in October.
“Looking at the mix of risks to both inflation and growth, our assessment is that it remains appropriate given the mix of uncertainties and the forecasts that we are projecting,” said MAS deputy managing director Ong Chong Tee.
“There are no plans now to adjust the policy stance. Obviously we will be looking closely at the numbers over the course of the next months, and review this again in October,” he said.
Singapore’s annual inflation rate rose to a new 26-year high of 7.5 percent in April as food, housing and transportation costs soared and is now a risk to the economy, the government said on Friday.
Food prices alone rose 8.5 percent, transportation and communication were 7.0 percent higher and housing costs became 11.8 percent more expensive, the statistics department said.
It said April’s inflation rate is the highest since February 1982, when it stood at 9.0 percent.
“External price pressures have continued to contribute significantly to our domestic headline inflation numbers,” the Ministry of Trade and Industry (MTI) said in a separate statement.
“Oil and food prices have risen more rapidly and are expected to remain elevated over the near term.”
Oil prices surged to unprecedented record peaks of more than US$135 a barrel on Thursday and analysts said it could still go higher.
MTI and the Monetary Authority of Singapore (MAS) have bumped up their forecast for inflation this year to 5-6 percent from 4.5-5.5 percent.
Ravi Menon, second permanent secretary at the trade ministry, said inflation is emerging as a bigger risk to the economy than growth.
“Inflation has been running ahead of what we expected… We are facing risks on both fronts but the balance has shifted towards inflation,” Menon told reporters.
“We expect food and oil prices to remain elevated over the near term and filter through into domestic prices.”
Singaporeans and residents have become creative in adjusting to higher living costs, adopting such measures at taking fewer taxi rides to eating out less and shortening shower time to save on water bills.
Local charities said rising food prices are also driving more Singaporeans, especially poor senior citizens, to join queues for free meals.
The trade ministry said inflation should remain around the current levels for the next two months and ease in the second half of the year.
Analysts said the central bank could further strengthen the Singapore dollar in a bid to tame inflation.
Tiny Singapore, Southeast Asia’s most advanced economy, imports most of its needs because it lacks the natural resources and agricultural base of its much bigger neighbours.
MAS, Singapore’s central bank, deals with inflation by weighing the Singapore dollar against a basket of currencies.
It tightened its foreign exchange policy at its last meeting in April and policy makers said they have no plans to review the policy until the next meeting in October.
“Looking at the mix of risks to both inflation and growth, our assessment is that it remains appropriate given the mix of uncertainties and the forecasts that we are projecting,” said MAS deputy managing director Ong Chong Tee.
“There are no plans now to adjust the policy stance. Obviously we will be looking closely at the numbers over the course of the next months, and review this again in October,” he said.
Singapore inflation rate hits new 26-year high of 7.5% in April
Source : Channel NewsAsia - 23 May 2008
Singapore’s annual inflation rate rose to a new 26-year high of 7.5 percent in April as food, housing and transportation costs soared and is now a risk to the economy, the government said on Friday.
Food prices alone rose 8.5 percent, transportation and communication were 7.0 percent higher and housing costs became 11.8 percent more expensive, the statistics department said.
It said April’s inflation rate is the highest since February 1982, when it stood at 9.0 percent.
“External price pressures have continued to contribute significantly to our domestic headline inflation numbers,” the Ministry of Trade and Industry (MTI) said in a separate statement.
“Oil and food prices have risen more rapidly and are expected to remain elevated over the near term.”
Oil prices surged to unprecedented record peaks of more than US$135 a barrel on Thursday and analysts said it could still go higher.
MTI and the Monetary Authority of Singapore (MAS) have bumped up their forecast for inflation this year to 5-6 percent from 4.5-5.5 percent.
Ravi Menon, second permanent secretary at the trade ministry, said inflation is emerging as a bigger risk to the economy than growth.
“Inflation has been running ahead of what we expected… We are facing risks on both fronts but the balance has shifted towards inflation,” Menon told reporters.
“We expect food and oil prices to remain elevated over the near term and filter through into domestic prices.”
Singaporeans and residents have become creative in adjusting to higher living costs, adopting such measures at taking fewer taxi rides to eating out less and shortening shower time to save on water bills.
Local charities said rising food prices are also driving more Singaporeans, especially poor senior citizens, to join queues for free meals.
The trade ministry said inflation should remain around the current levels for the next two months and ease in the second half of the year.
Analysts said the central bank could further strengthen the Singapore dollar in a bid to tame inflation.
Tiny Singapore, Southeast Asia’s most advanced economy, imports most of its needs because it lacks the natural resources and agricultural base of its much bigger neighbours.
MAS, Singapore’s central bank, deals with inflation by weighing the Singapore dollar against a basket of currencies.
It tightened its foreign exchange policy at its last meeting in April and policy makers said they have no plans to review the policy until the next meeting in October.
“Looking at the mix of risks to both inflation and growth, our assessment is that it remains appropriate given the mix of uncertainties and the forecasts that we are projecting,” said MAS deputy managing director Ong Chong Tee.
“There are no plans now to adjust the policy stance. Obviously we will be looking closely at the numbers over the course of the next months, and review this again in October,” he said.
Singapore’s annual inflation rate rose to a new 26-year high of 7.5 percent in April as food, housing and transportation costs soared and is now a risk to the economy, the government said on Friday.
Food prices alone rose 8.5 percent, transportation and communication were 7.0 percent higher and housing costs became 11.8 percent more expensive, the statistics department said.
It said April’s inflation rate is the highest since February 1982, when it stood at 9.0 percent.
“External price pressures have continued to contribute significantly to our domestic headline inflation numbers,” the Ministry of Trade and Industry (MTI) said in a separate statement.
“Oil and food prices have risen more rapidly and are expected to remain elevated over the near term.”
Oil prices surged to unprecedented record peaks of more than US$135 a barrel on Thursday and analysts said it could still go higher.
MTI and the Monetary Authority of Singapore (MAS) have bumped up their forecast for inflation this year to 5-6 percent from 4.5-5.5 percent.
Ravi Menon, second permanent secretary at the trade ministry, said inflation is emerging as a bigger risk to the economy than growth.
“Inflation has been running ahead of what we expected… We are facing risks on both fronts but the balance has shifted towards inflation,” Menon told reporters.
“We expect food and oil prices to remain elevated over the near term and filter through into domestic prices.”
Singaporeans and residents have become creative in adjusting to higher living costs, adopting such measures at taking fewer taxi rides to eating out less and shortening shower time to save on water bills.
Local charities said rising food prices are also driving more Singaporeans, especially poor senior citizens, to join queues for free meals.
The trade ministry said inflation should remain around the current levels for the next two months and ease in the second half of the year.
Analysts said the central bank could further strengthen the Singapore dollar in a bid to tame inflation.
Tiny Singapore, Southeast Asia’s most advanced economy, imports most of its needs because it lacks the natural resources and agricultural base of its much bigger neighbours.
MAS, Singapore’s central bank, deals with inflation by weighing the Singapore dollar against a basket of currencies.
It tightened its foreign exchange policy at its last meeting in April and policy makers said they have no plans to review the policy until the next meeting in October.
“Looking at the mix of risks to both inflation and growth, our assessment is that it remains appropriate given the mix of uncertainties and the forecasts that we are projecting,” said MAS deputy managing director Ong Chong Tee.
“There are no plans now to adjust the policy stance. Obviously we will be looking closely at the numbers over the course of the next months, and review this again in October,” he said.
Singapore inflation rate hits new 26-year high of 7.5% in April
Source : Channel NewsAsia - 23 May 2008
Singapore’s annual inflation rate rose to a new 26-year high of 7.5 percent in April as food, housing and transportation costs soared and is now a risk to the economy, the government said on Friday.
Food prices alone rose 8.5 percent, transportation and communication were 7.0 percent higher and housing costs became 11.8 percent more expensive, the statistics department said.
It said April’s inflation rate is the highest since February 1982, when it stood at 9.0 percent.
“External price pressures have continued to contribute significantly to our domestic headline inflation numbers,” the Ministry of Trade and Industry (MTI) said in a separate statement.
“Oil and food prices have risen more rapidly and are expected to remain elevated over the near term.”
Oil prices surged to unprecedented record peaks of more than US$135 a barrel on Thursday and analysts said it could still go higher.
MTI and the Monetary Authority of Singapore (MAS) have bumped up their forecast for inflation this year to 5-6 percent from 4.5-5.5 percent.
Ravi Menon, second permanent secretary at the trade ministry, said inflation is emerging as a bigger risk to the economy than growth.
“Inflation has been running ahead of what we expected… We are facing risks on both fronts but the balance has shifted towards inflation,” Menon told reporters.
“We expect food and oil prices to remain elevated over the near term and filter through into domestic prices.”
Singaporeans and residents have become creative in adjusting to higher living costs, adopting such measures at taking fewer taxi rides to eating out less and shortening shower time to save on water bills.
Local charities said rising food prices are also driving more Singaporeans, especially poor senior citizens, to join queues for free meals.
The trade ministry said inflation should remain around the current levels for the next two months and ease in the second half of the year.
Analysts said the central bank could further strengthen the Singapore dollar in a bid to tame inflation.
Tiny Singapore, Southeast Asia’s most advanced economy, imports most of its needs because it lacks the natural resources and agricultural base of its much bigger neighbours.
MAS, Singapore’s central bank, deals with inflation by weighing the Singapore dollar against a basket of currencies.
It tightened its foreign exchange policy at its last meeting in April and policy makers said they have no plans to review the policy until the next meeting in October.
“Looking at the mix of risks to both inflation and growth, our assessment is that it remains appropriate given the mix of uncertainties and the forecasts that we are projecting,” said MAS deputy managing director Ong Chong Tee.
“There are no plans now to adjust the policy stance. Obviously we will be looking closely at the numbers over the course of the next months, and review this again in October,” he said.
Singapore’s annual inflation rate rose to a new 26-year high of 7.5 percent in April as food, housing and transportation costs soared and is now a risk to the economy, the government said on Friday.
Food prices alone rose 8.5 percent, transportation and communication were 7.0 percent higher and housing costs became 11.8 percent more expensive, the statistics department said.
It said April’s inflation rate is the highest since February 1982, when it stood at 9.0 percent.
“External price pressures have continued to contribute significantly to our domestic headline inflation numbers,” the Ministry of Trade and Industry (MTI) said in a separate statement.
“Oil and food prices have risen more rapidly and are expected to remain elevated over the near term.”
Oil prices surged to unprecedented record peaks of more than US$135 a barrel on Thursday and analysts said it could still go higher.
MTI and the Monetary Authority of Singapore (MAS) have bumped up their forecast for inflation this year to 5-6 percent from 4.5-5.5 percent.
Ravi Menon, second permanent secretary at the trade ministry, said inflation is emerging as a bigger risk to the economy than growth.
“Inflation has been running ahead of what we expected… We are facing risks on both fronts but the balance has shifted towards inflation,” Menon told reporters.
“We expect food and oil prices to remain elevated over the near term and filter through into domestic prices.”
Singaporeans and residents have become creative in adjusting to higher living costs, adopting such measures at taking fewer taxi rides to eating out less and shortening shower time to save on water bills.
Local charities said rising food prices are also driving more Singaporeans, especially poor senior citizens, to join queues for free meals.
The trade ministry said inflation should remain around the current levels for the next two months and ease in the second half of the year.
Analysts said the central bank could further strengthen the Singapore dollar in a bid to tame inflation.
Tiny Singapore, Southeast Asia’s most advanced economy, imports most of its needs because it lacks the natural resources and agricultural base of its much bigger neighbours.
MAS, Singapore’s central bank, deals with inflation by weighing the Singapore dollar against a basket of currencies.
It tightened its foreign exchange policy at its last meeting in April and policy makers said they have no plans to review the policy until the next meeting in October.
“Looking at the mix of risks to both inflation and growth, our assessment is that it remains appropriate given the mix of uncertainties and the forecasts that we are projecting,” said MAS deputy managing director Ong Chong Tee.
“There are no plans now to adjust the policy stance. Obviously we will be looking closely at the numbers over the course of the next months, and review this again in October,” he said.
Luxury home prices down 2.0%, says report
Source : Straits Times - 13 May 2008
Number of foreign purchases fall; many buying homes in suburban areas
HIGH-END homes have become the first to buckle under the pressure of volatile market conditions and gloomy buyer sentiment.
Prices of luxury developments dipped in the first three months of this year, even as foreign buyers - a traditional source of demand for such properties - turned to cheaper options.
A report by property firm Savills Singapore released yesterday showed that prices of expensive homes fell 2.1 per cent in the first quarter, after a steady 21/2-year climb that saw values more than double.
Foreigners also began switching from the prime central districts to suburban areas, such as East Coast, Bukit Batok and Serangoon, said Savills.
Its analysis covered luxury developments located in districts 1, 4, 9, 10 and 11, which include Shenton Way, Sentosa, Orchard, Holland, Newton and Bukit Timah. The average price of these homes fell to $2,360 per sq ft (psf) in the period from January to March, from $2,410 psf in the previous three months.
At the very top end, the priciest condominiums registered a 2.9 per cent dip in prices to $3,577 psf in the first quarter, from $3,683 psf in the previous quarter, Savills said. These are developments that have crossed $2,500 psf.
While Savills would not disclose the names of the buildings it analysed, a check of caveats showed that luxury projects such as Ardmore Park and St Regis Residences in Cuscaden Road recently lodged sales at gradually lower prices.
Savills suggested that luxury condos might be more vulnerable to the global credit crisis.
On the bright side, foreign buying islandwide stayed strong despite the softening housing market, it added.
Foreign buyers took up 28 per cent of private homes in the first quarter, up from 25.9 per cent for the whole of last year.
But the total number of foreign purchases fell, in line with the general slowdown in market activity. Foreigners bought only 901 private homes from January to March this year, less than half the 2,245 homes they took up in the same period last year.
Surprisingly, many of the homes they bought were well away from their usual stronghold of districts 9 to 11.
Savills’ report showed that areas as far-flung as Changi and Hougang made it to the most-bought list, while traditionally foreigner-friendly areas such as Shenton Way dropped out of the top 10.
This could be because more of the foreign buyers now are expatriates living here with their families, rather than investors looking for prime assets, said Mr Ku Swee Yong, Savills’ director of business development and marketing.
‘Rentals are still holding up at high levels, and many expats who are more price-sensitive may now be converting from leasing homes to buying them,’ he said.
‘Some of these expats postponed buying homes last year, but now they could be taking advantage of the slowdown in the market to get a good deal.’
This would explain the foreign demand for suburban areas, as expatriates are likely to buy homes in neighbourhoods that have good schools or where they are currently renting houses.
Bolstering this theory is a sudden drop in the number of leasing transactions this year, said Mr Ku. Based on leases that were signed in 2006, there should be a lot more renewals this year than had actually taken place, he explained.
Savills expects private home prices to grow a moderate 5 per cent to 10 per cent this year.
Number of foreign purchases fall; many buying homes in suburban areas
HIGH-END homes have become the first to buckle under the pressure of volatile market conditions and gloomy buyer sentiment.
Prices of luxury developments dipped in the first three months of this year, even as foreign buyers - a traditional source of demand for such properties - turned to cheaper options.
A report by property firm Savills Singapore released yesterday showed that prices of expensive homes fell 2.1 per cent in the first quarter, after a steady 21/2-year climb that saw values more than double.
Foreigners also began switching from the prime central districts to suburban areas, such as East Coast, Bukit Batok and Serangoon, said Savills.
Its analysis covered luxury developments located in districts 1, 4, 9, 10 and 11, which include Shenton Way, Sentosa, Orchard, Holland, Newton and Bukit Timah. The average price of these homes fell to $2,360 per sq ft (psf) in the period from January to March, from $2,410 psf in the previous three months.
At the very top end, the priciest condominiums registered a 2.9 per cent dip in prices to $3,577 psf in the first quarter, from $3,683 psf in the previous quarter, Savills said. These are developments that have crossed $2,500 psf.
While Savills would not disclose the names of the buildings it analysed, a check of caveats showed that luxury projects such as Ardmore Park and St Regis Residences in Cuscaden Road recently lodged sales at gradually lower prices.
Savills suggested that luxury condos might be more vulnerable to the global credit crisis.
On the bright side, foreign buying islandwide stayed strong despite the softening housing market, it added.
Foreign buyers took up 28 per cent of private homes in the first quarter, up from 25.9 per cent for the whole of last year.
But the total number of foreign purchases fell, in line with the general slowdown in market activity. Foreigners bought only 901 private homes from January to March this year, less than half the 2,245 homes they took up in the same period last year.
Surprisingly, many of the homes they bought were well away from their usual stronghold of districts 9 to 11.
Savills’ report showed that areas as far-flung as Changi and Hougang made it to the most-bought list, while traditionally foreigner-friendly areas such as Shenton Way dropped out of the top 10.
This could be because more of the foreign buyers now are expatriates living here with their families, rather than investors looking for prime assets, said Mr Ku Swee Yong, Savills’ director of business development and marketing.
‘Rentals are still holding up at high levels, and many expats who are more price-sensitive may now be converting from leasing homes to buying them,’ he said.
‘Some of these expats postponed buying homes last year, but now they could be taking advantage of the slowdown in the market to get a good deal.’
This would explain the foreign demand for suburban areas, as expatriates are likely to buy homes in neighbourhoods that have good schools or where they are currently renting houses.
Bolstering this theory is a sudden drop in the number of leasing transactions this year, said Mr Ku. Based on leases that were signed in 2006, there should be a lot more renewals this year than had actually taken place, he explained.
Savills expects private home prices to grow a moderate 5 per cent to 10 per cent this year.
Developers face higher funding costs
Source : Business Times - 17 May 2008
PROPERTY developers in Asia face a ‘double whammy’ of rising credit spreads on loans and banks lending less against the value of new projects, a senior Asian property fund manager said yesterday.
And the wider interest margins that banks have been demanding on loans since the start of the financial market turmoil are likely to be sustained, said Olivier Lim, chief financial officer of CapitaLand, South-east Asia’s largest developer.
Mr Lim and Ng Beng Tiong, the Singapore-based director of operations at ARA Asia Dragon Fund, were speaking at a panel discussion on the last day of a conference organised by Merrill Lynch that started on Tuesday.
Mr Ng said that although benchmark interest rates in Singapore and Hong Kong have fallen, ‘what we’ve seen is that the margins have shot up tremendously - more than double in many cases’.
Before the US sub-prime mortgage crisis broke, property companies in Asia could borrow at spreads of less than 100 basis points or one percentage point above interbank lending rates, Mr Ng said.
‘Now banks are quoting 200, 300 and for some smaller developers we understand that they’re being quoted 400′ basis-point spreads.
Besides paying higher interest rate spreads on loans, developers are also finding that the proportion of a project’s value that banks are willing to fund - the loan-to-value (LTV) ratio - has shrunk, he said.
‘In the bullish days, we were seeing 70-80 per cent LTV. Now banks are quoting 50-60 per cent, so it’s a double whammy for project financing.’
ARA Asia Dragon Fund is the flagship private real estate fund of ARA Asset Management, an affiliate of Hong Kong’s Cheung Kong Group. At the end of last year, the fund, which invests in major cities throughout Asia, had more than US$1.5 billion of capital from institutional investors worldwide, including Calpers, the largest US public pension fund.
CapitaLand’s Mr Lim said the first quarter saw ‘the worst credit market situation I’ve seen in my 19-year career’.
Although spreads have since narrowed slightly, ‘I think the blow-out in the credit margins will be sustained’, he added. ‘I don’t see it compressing to where it was last year.’
At CapitaLand, ‘we’re seeing, on average, rates go up by between 60 to 100 basis points, depending on whether it’s corporate risk or project risk’.
‘But we are sensing a flight to quality, so for us we’ve been able to raise about S$4 billion overall of credit debt from multiple sources in the first quarter alone. We still have access, but we do have to adjust to a higher margin. Thankfully, the cost of money is much lower, so the overall cost is about the same as it was last year.’
Last month, the firm raised another S$2 billion of bank funding for its new condominium development at Farrer Court. ‘Banks are still lending,’ he said.
In Asia, outside its main markets of Singapore, China and Australia, CapitaLand has been ‘probing many other markets’ including Thailand, Malaysia and the Middle East, ‘but it’s becoming much clearer to us that two countries are at the top of the list - Vietnam and India’, he said. ‘We’re starting to accelerate our investments in both of those countries.’
Meanwhile, despite suggestions that property prices in Singapore have risen too far too fast, ‘I think the market is a lot healthier than people indicate’, Mr Lim said.
PROPERTY developers in Asia face a ‘double whammy’ of rising credit spreads on loans and banks lending less against the value of new projects, a senior Asian property fund manager said yesterday.
And the wider interest margins that banks have been demanding on loans since the start of the financial market turmoil are likely to be sustained, said Olivier Lim, chief financial officer of CapitaLand, South-east Asia’s largest developer.
Mr Lim and Ng Beng Tiong, the Singapore-based director of operations at ARA Asia Dragon Fund, were speaking at a panel discussion on the last day of a conference organised by Merrill Lynch that started on Tuesday.
Mr Ng said that although benchmark interest rates in Singapore and Hong Kong have fallen, ‘what we’ve seen is that the margins have shot up tremendously - more than double in many cases’.
Before the US sub-prime mortgage crisis broke, property companies in Asia could borrow at spreads of less than 100 basis points or one percentage point above interbank lending rates, Mr Ng said.
‘Now banks are quoting 200, 300 and for some smaller developers we understand that they’re being quoted 400′ basis-point spreads.
Besides paying higher interest rate spreads on loans, developers are also finding that the proportion of a project’s value that banks are willing to fund - the loan-to-value (LTV) ratio - has shrunk, he said.
‘In the bullish days, we were seeing 70-80 per cent LTV. Now banks are quoting 50-60 per cent, so it’s a double whammy for project financing.’
ARA Asia Dragon Fund is the flagship private real estate fund of ARA Asset Management, an affiliate of Hong Kong’s Cheung Kong Group. At the end of last year, the fund, which invests in major cities throughout Asia, had more than US$1.5 billion of capital from institutional investors worldwide, including Calpers, the largest US public pension fund.
CapitaLand’s Mr Lim said the first quarter saw ‘the worst credit market situation I’ve seen in my 19-year career’.
Although spreads have since narrowed slightly, ‘I think the blow-out in the credit margins will be sustained’, he added. ‘I don’t see it compressing to where it was last year.’
At CapitaLand, ‘we’re seeing, on average, rates go up by between 60 to 100 basis points, depending on whether it’s corporate risk or project risk’.
‘But we are sensing a flight to quality, so for us we’ve been able to raise about S$4 billion overall of credit debt from multiple sources in the first quarter alone. We still have access, but we do have to adjust to a higher margin. Thankfully, the cost of money is much lower, so the overall cost is about the same as it was last year.’
Last month, the firm raised another S$2 billion of bank funding for its new condominium development at Farrer Court. ‘Banks are still lending,’ he said.
In Asia, outside its main markets of Singapore, China and Australia, CapitaLand has been ‘probing many other markets’ including Thailand, Malaysia and the Middle East, ‘but it’s becoming much clearer to us that two countries are at the top of the list - Vietnam and India’, he said. ‘We’re starting to accelerate our investments in both of those countries.’
Meanwhile, despite suggestions that property prices in Singapore have risen too far too fast, ‘I think the market is a lot healthier than people indicate’, Mr Lim said.
Profiteering adds to construction woes
Source : Business Times - 19 May 2008
As costs of materials rise, some suppliers default on earlier contracts to make more
THE last thing the construction industry needs now is another roadblock. But with the cost of materials and shortages soaring, the opportunity to inflate prices is too much for some errant suppliers and sub-contractors to resist.
Sources told BT that some suppliers of building materials have been opting to default on earlier contracts because the current demand and prices are so strong, they can easily secure more profitable contracts elsewhere, stock piling materials in the meantime.
To add to the strain, labour supply has become so tight that crane operators, for instance, are said to be commanding salaries upwards of $8,000 per month.
A check with the Building and Construction Authority (BCA) reveals, however, that this opportunistic behaviour is not widespread - yet.
A BCA spokesman also said it has not received feedback of contract defaults by suppliers of steel and other construction materials, or of any delay in construction works due to such default of contractual obligations.
However, BCA said: ‘We do understand that the suppliers have increased their importation and stocking up of steel rebars in view of the surging prices. Suppliers have also shortened the period of supply contract for rebars from the previous 12 months to the current six months.’
‘Contractors and developers have to resolve the price issue based on their business practices, relationship and understanding. For projects which adopt price fluctuation for these materials, the cost impact on the contractors will be minimal,’ added BCA.
Construction companies that BT spoke with had mixed reactions to the situation.
A spokesman for United Engineers Ltd said: ‘The industry is particularly seeing some delays in projects, either in the midst of or commencing construction, that were awarded before the construction boom as prices negotiated at that time were definitely lower compared to now.’
Straits Construction director Wong Chee Herng said the industry has seen some smaller suppliers defaulting on contracts and causing delays but the level is still ‘manageable’.
He added: ‘Prices have moved up and there is no point lamenting . . . It’s a choice of either negotiating or just walking away.’
With so much uncertainty, Straits Construction is more selective about tendering for jobs. ‘If we feel we can’t deliver, we won’t tender,’ Mr Wong said.
Other construction companies like Hiap Hoe and Sim Lian say they are not facing any delays.
Giving an insight into how suppliers are also facing the same challenges, Lee Metal Group executive director Lee Heng Thiam revealed how a steel supplier for Marina Bay Sands was contracted to supply 85,000 tonnes over a two- year period at US$600 per tonne. However, the price of this steel has since risen to US$1,000. ‘It is too much for anyone to bear,’ he said. And while the particular supplier was able to renegotiate the contract, Mr Lee said: ‘I think they will still make a loss.’
To mitigate the risks, Lee Metal has to hedge its position. ‘In the past, the practice was to sell first and buy later; now, it’s the other way around,’ he explained. This means it keeps a stockpile of 6-8 months worth of supply to ensure it can fulfil its obligations.
Price fluctuation clauses are not a big help to suppliers who stockpile. ‘If prices are on a downward trend, we are in trouble,’ he explained. ‘Buying and selling needs to be managed tightly.’
HG Metal manages its stock on a tighter basis by maintaining 3-4 months worth of inventory amounting to as much as $200 million worth in stock at any one time. HG Metal CEO Wee Piew also said that it does not ‘lock in’ its prices. ‘Most major suppliers don’t set contracts,’ he added.
‘The only issue is when a big contractor wants to lock in prices. Then they have to deal with steel mills directly,’ he added.
These mills are usually in China but both HG Metal and Lee Metal say their supply comes from international traders instead because of the uncertain supply from Chinese mills.
PSL Holdings, a foundation engineering specialist contractor, says that its operators of construction cranes and other vehicles are commanding ‘very high salaries’ but it has managed to factor increasing manpower costs into its contracts. ‘The effect on our margins is minimal,’ added a PSL spokesman.
PSL says it has not encountered delays so far but apart from rising salaries, it is faced with rising costs due to surging diesel prices as well as shortage of personnel. PSL said: ‘We have managed to mitigate the higher costs because of the short duration of our projects.’
Developers that BT spoke too also say they are not facing delays.
City Developments Ltd (CDL) says it has not encountered any significant delays from its contractors. ‘Perhaps they have made early confirmation orders on the construction materials and are not really affected by the present rising costs of materials,’ added CDL’s spokesman.
Frasers Centrepoint COO Cheang Kok Kheong did say that to counter rising costs, it has had to take certain steps including continuously reviewing its plans and specifications to ensure that cost-effective construction methods and alternatives are considered. ‘In addition, we have improved and streamlined our procurement methods to get bulk pricing for construction supplies from our associates,’ he added.
The construction industry is perhaps beginning to show signs of strain, and may need more help.
To this end, BCA says it is also working with the Real Estate Developers’ Association of Singapore to encourage their member developers to make prompt payment to help ease the cashflow of the contractors.
As costs of materials rise, some suppliers default on earlier contracts to make more
THE last thing the construction industry needs now is another roadblock. But with the cost of materials and shortages soaring, the opportunity to inflate prices is too much for some errant suppliers and sub-contractors to resist.
Sources told BT that some suppliers of building materials have been opting to default on earlier contracts because the current demand and prices are so strong, they can easily secure more profitable contracts elsewhere, stock piling materials in the meantime.
To add to the strain, labour supply has become so tight that crane operators, for instance, are said to be commanding salaries upwards of $8,000 per month.
A check with the Building and Construction Authority (BCA) reveals, however, that this opportunistic behaviour is not widespread - yet.
A BCA spokesman also said it has not received feedback of contract defaults by suppliers of steel and other construction materials, or of any delay in construction works due to such default of contractual obligations.
However, BCA said: ‘We do understand that the suppliers have increased their importation and stocking up of steel rebars in view of the surging prices. Suppliers have also shortened the period of supply contract for rebars from the previous 12 months to the current six months.’
‘Contractors and developers have to resolve the price issue based on their business practices, relationship and understanding. For projects which adopt price fluctuation for these materials, the cost impact on the contractors will be minimal,’ added BCA.
Construction companies that BT spoke with had mixed reactions to the situation.
A spokesman for United Engineers Ltd said: ‘The industry is particularly seeing some delays in projects, either in the midst of or commencing construction, that were awarded before the construction boom as prices negotiated at that time were definitely lower compared to now.’
Straits Construction director Wong Chee Herng said the industry has seen some smaller suppliers defaulting on contracts and causing delays but the level is still ‘manageable’.
He added: ‘Prices have moved up and there is no point lamenting . . . It’s a choice of either negotiating or just walking away.’
With so much uncertainty, Straits Construction is more selective about tendering for jobs. ‘If we feel we can’t deliver, we won’t tender,’ Mr Wong said.
Other construction companies like Hiap Hoe and Sim Lian say they are not facing any delays.
Giving an insight into how suppliers are also facing the same challenges, Lee Metal Group executive director Lee Heng Thiam revealed how a steel supplier for Marina Bay Sands was contracted to supply 85,000 tonnes over a two- year period at US$600 per tonne. However, the price of this steel has since risen to US$1,000. ‘It is too much for anyone to bear,’ he said. And while the particular supplier was able to renegotiate the contract, Mr Lee said: ‘I think they will still make a loss.’
To mitigate the risks, Lee Metal has to hedge its position. ‘In the past, the practice was to sell first and buy later; now, it’s the other way around,’ he explained. This means it keeps a stockpile of 6-8 months worth of supply to ensure it can fulfil its obligations.
Price fluctuation clauses are not a big help to suppliers who stockpile. ‘If prices are on a downward trend, we are in trouble,’ he explained. ‘Buying and selling needs to be managed tightly.’
HG Metal manages its stock on a tighter basis by maintaining 3-4 months worth of inventory amounting to as much as $200 million worth in stock at any one time. HG Metal CEO Wee Piew also said that it does not ‘lock in’ its prices. ‘Most major suppliers don’t set contracts,’ he added.
‘The only issue is when a big contractor wants to lock in prices. Then they have to deal with steel mills directly,’ he added.
These mills are usually in China but both HG Metal and Lee Metal say their supply comes from international traders instead because of the uncertain supply from Chinese mills.
PSL Holdings, a foundation engineering specialist contractor, says that its operators of construction cranes and other vehicles are commanding ‘very high salaries’ but it has managed to factor increasing manpower costs into its contracts. ‘The effect on our margins is minimal,’ added a PSL spokesman.
PSL says it has not encountered delays so far but apart from rising salaries, it is faced with rising costs due to surging diesel prices as well as shortage of personnel. PSL said: ‘We have managed to mitigate the higher costs because of the short duration of our projects.’
Developers that BT spoke too also say they are not facing delays.
City Developments Ltd (CDL) says it has not encountered any significant delays from its contractors. ‘Perhaps they have made early confirmation orders on the construction materials and are not really affected by the present rising costs of materials,’ added CDL’s spokesman.
Frasers Centrepoint COO Cheang Kok Kheong did say that to counter rising costs, it has had to take certain steps including continuously reviewing its plans and specifications to ensure that cost-effective construction methods and alternatives are considered. ‘In addition, we have improved and streamlined our procurement methods to get bulk pricing for construction supplies from our associates,’ he added.
The construction industry is perhaps beginning to show signs of strain, and may need more help.
To this end, BCA says it is also working with the Real Estate Developers’ Association of Singapore to encourage their member developers to make prompt payment to help ease the cashflow of the contractors.
Property seems paler but its anyones call
Business Times - 16 May 2008
Volumes shrink, prices weaken but some segments are holding firm
(SINGAPORE) Based on the latest monthly developer sales data from the Urban Redevelopment Authority (URA), property prices could be on the downward trend.
Developer sales fell, with April seeing only 274 transactions. This is about 9 per cent lower than the 301 units sold in March, though still higher than the 174 units sold in February.
And while it is difficult to accurately pinpoint price movements with such low volume, an analysis by Knight Frank of overall median prices achieved nevertheless registered an 8.9 per cent drop in April, falling to $943 psf compared to $1,035 psf in March.
The peak median price of over $1,400 psf was reached in August 2007.
Knight Frank director (research and consultancy) Nicholas Mak also explained that the analysis was a 'median of median prices', and so may not be a precise reflection of price movements.
Mr Mak also said that applying a different mode of analysis to the same data - the formula used to calculate URA's quarterly property price index for instance - could even show that prices have increased slightly.
Still, a comparison of monthly median prices of recently launched developments does suggest that prices could be falling.
The 79-unit Blu Coral was launched in February with nine units sold at a median price of $872 psf. In March, 28 units were sold at a median price of $802 psf, while in April, 18 units were sold at a median price of $657.
Similarly, 53 units of the 106-unit, The Verve, were launched in March with 36 units sold at a median price of $1,187 psf. In April, 8 units were sold at a median price of $1,055 psf.
And nine units of the 625-unit, The Quartz, were sold in March at a median price of $742 psf, followed by 14 units sold in April at a median price of $721 psf.
Interestingly, one unit of Waterfront Waves was sold at $909 psf in April, higher than the median price of $806 in March when 14 units were sold.
Perhaps another indication of the weakening market is that 43 units of 659-unit The Parc Condominium, previously reported as being fully sold, have re-emerged on the market. According to the monthly data, the returned units first appeared in February.
A source that did not want to be named also said that these units were returned by buyers who chose not to exercise their options, forfeiting a quarter of the 5 per cent downpayment in the process.
Jones Lang LaSalle head of research (South-East Asia) Chua Yang Liang has also analysed median prices as a measure of volatility and suggests that this has increased in the Outside Central Region (OCR).
Dr Chua explained that volatility, as a measure of how wide market prices are per unit dollar of the median price achieved could also reflect, 'the market's speculative level'. As such, he said: 'It would appear that upgraders may be returning, with entry level projects that are moderately priced between $750 to $850 psf as the preferred choice.'
Supporting this were the healthy sales of the 56-unit Stadia at Yio Chu Kang, which saw 52 units sold. Two units were sold for under $750 psf while the remaining 50 were sold at between $750 and $1,000 psf.
In the OCR, Dr Chua said based on the analysis, median prices continued to soften by 4.2 per cent. But he also added that the analysis was just an 'indication of the market's mood', and does not account for product differentiation or physical attributes of each development.
While the volume of sales was low in the Central Core Region with just 19 non-landed homes transacted, Dr Chua believes that the low volatility in median prices there suggests that market activity and future prices in the high end market are likely to remain stable.
Also holding this view is CB Richard Ellis Research executive director Li Hiaw Ho who noted that two units in Scotts Square were sold at around $4,300 psf, a unit at Orchard Scotts was sold at $2,520 psf and two units at Skypark were sold at around $2,300 psf.
'Although high-value transactions were limited, the individual transactions seemed to indicate that prices in the high-end market were still holding firm,' he added.
The analysis of price movements will however, remain an academic one, and as such will remain open to debate.
Colliers International director (research and advisory) Tay Huey Ying said there were too few transactions at the higher end of the market to comment fairly on the sector.
And even for the OCR, she noted that the median transacted price for mass-market units averaged $792 psf in April, about 8 per cent higher than the average median price of $729 in August 2007 when the highest sale volume for the sector was registered.
Volumes shrink, prices weaken but some segments are holding firm
(SINGAPORE) Based on the latest monthly developer sales data from the Urban Redevelopment Authority (URA), property prices could be on the downward trend.
Developer sales fell, with April seeing only 274 transactions. This is about 9 per cent lower than the 301 units sold in March, though still higher than the 174 units sold in February.
And while it is difficult to accurately pinpoint price movements with such low volume, an analysis by Knight Frank of overall median prices achieved nevertheless registered an 8.9 per cent drop in April, falling to $943 psf compared to $1,035 psf in March.
The peak median price of over $1,400 psf was reached in August 2007.
Knight Frank director (research and consultancy) Nicholas Mak also explained that the analysis was a 'median of median prices', and so may not be a precise reflection of price movements.
Mr Mak also said that applying a different mode of analysis to the same data - the formula used to calculate URA's quarterly property price index for instance - could even show that prices have increased slightly.
Still, a comparison of monthly median prices of recently launched developments does suggest that prices could be falling.
The 79-unit Blu Coral was launched in February with nine units sold at a median price of $872 psf. In March, 28 units were sold at a median price of $802 psf, while in April, 18 units were sold at a median price of $657.
Similarly, 53 units of the 106-unit, The Verve, were launched in March with 36 units sold at a median price of $1,187 psf. In April, 8 units were sold at a median price of $1,055 psf.
And nine units of the 625-unit, The Quartz, were sold in March at a median price of $742 psf, followed by 14 units sold in April at a median price of $721 psf.
Interestingly, one unit of Waterfront Waves was sold at $909 psf in April, higher than the median price of $806 in March when 14 units were sold.
Perhaps another indication of the weakening market is that 43 units of 659-unit The Parc Condominium, previously reported as being fully sold, have re-emerged on the market. According to the monthly data, the returned units first appeared in February.
A source that did not want to be named also said that these units were returned by buyers who chose not to exercise their options, forfeiting a quarter of the 5 per cent downpayment in the process.
Jones Lang LaSalle head of research (South-East Asia) Chua Yang Liang has also analysed median prices as a measure of volatility and suggests that this has increased in the Outside Central Region (OCR).
Dr Chua explained that volatility, as a measure of how wide market prices are per unit dollar of the median price achieved could also reflect, 'the market's speculative level'. As such, he said: 'It would appear that upgraders may be returning, with entry level projects that are moderately priced between $750 to $850 psf as the preferred choice.'
Supporting this were the healthy sales of the 56-unit Stadia at Yio Chu Kang, which saw 52 units sold. Two units were sold for under $750 psf while the remaining 50 were sold at between $750 and $1,000 psf.
In the OCR, Dr Chua said based on the analysis, median prices continued to soften by 4.2 per cent. But he also added that the analysis was just an 'indication of the market's mood', and does not account for product differentiation or physical attributes of each development.
While the volume of sales was low in the Central Core Region with just 19 non-landed homes transacted, Dr Chua believes that the low volatility in median prices there suggests that market activity and future prices in the high end market are likely to remain stable.
Also holding this view is CB Richard Ellis Research executive director Li Hiaw Ho who noted that two units in Scotts Square were sold at around $4,300 psf, a unit at Orchard Scotts was sold at $2,520 psf and two units at Skypark were sold at around $2,300 psf.
'Although high-value transactions were limited, the individual transactions seemed to indicate that prices in the high-end market were still holding firm,' he added.
The analysis of price movements will however, remain an academic one, and as such will remain open to debate.
Colliers International director (research and advisory) Tay Huey Ying said there were too few transactions at the higher end of the market to comment fairly on the sector.
And even for the OCR, she noted that the median transacted price for mass-market units averaged $792 psf in April, about 8 per cent higher than the average median price of $729 in August 2007 when the highest sale volume for the sector was registered.
Inflation to hit Singapore harder than US economic slowdown
Source : Channel NewsAsia - 8 May 2008
Inflation is a more serious problem for Singapore and other Asian economies than an economic slowdown in the United States, according to HSBC’s senior Asian economist, Robert Prior-Wandesforde.
He said if inflation continues to push upwards, Asia could find itself facing an economic slowdown next year. His comment came at a seminar organised by the Singapore International Chamber of Commerce.
Inflation in Asian economies has been on a relentless move upwards, with Singapore seeing inflation rising at its fastest pace in more than 26 years.
HSBC said the Singapore government appears to be tackling inflation well, but external factors are key when assessing the overall outlook.
Mr Prior-Wandesforde said: “Singapore isn’t too badly placed; I think we can manage this reasonably well. The countries that I’m more worried about would be some of the lesser developed countries, where inflation is starting to get a bit out of hand.
“The governments and central banks are going to need to do something about that. That means pressure on growth eventually, and that could be the bigger danger for Singapore as we go into 2009 and 2010.”
He said inflation is a bigger worry than the anticipated slowdown in the US because as a whole, Asia is still expected to show robust growth, led by economies such as China and India.
He added: “Asia has survived what has already been a reasonably big US downturn surprisingly well. In fact, some Asian countries have picked up at exactly the same time as the US has been slowing down.
“I do think there’s a possibility that the reverse could happen with these various commodity price shocks having a bigger impact on Asia than the Western world. Asia is slowing down more aggressively in 2009 (and) 2010, at exactly the same time as the US picks up.”
Prices of commodities such as oil and rice have been surging, leading to protests in Thailand, Vietnam and the Philippines. - CNA /ls
Inflation is a more serious problem for Singapore and other Asian economies than an economic slowdown in the United States, according to HSBC’s senior Asian economist, Robert Prior-Wandesforde.
He said if inflation continues to push upwards, Asia could find itself facing an economic slowdown next year. His comment came at a seminar organised by the Singapore International Chamber of Commerce.
Inflation in Asian economies has been on a relentless move upwards, with Singapore seeing inflation rising at its fastest pace in more than 26 years.
HSBC said the Singapore government appears to be tackling inflation well, but external factors are key when assessing the overall outlook.
Mr Prior-Wandesforde said: “Singapore isn’t too badly placed; I think we can manage this reasonably well. The countries that I’m more worried about would be some of the lesser developed countries, where inflation is starting to get a bit out of hand.
“The governments and central banks are going to need to do something about that. That means pressure on growth eventually, and that could be the bigger danger for Singapore as we go into 2009 and 2010.”
He said inflation is a bigger worry than the anticipated slowdown in the US because as a whole, Asia is still expected to show robust growth, led by economies such as China and India.
He added: “Asia has survived what has already been a reasonably big US downturn surprisingly well. In fact, some Asian countries have picked up at exactly the same time as the US has been slowing down.
“I do think there’s a possibility that the reverse could happen with these various commodity price shocks having a bigger impact on Asia than the Western world. Asia is slowing down more aggressively in 2009 (and) 2010, at exactly the same time as the US picks up.”
Prices of commodities such as oil and rice have been surging, leading to protests in Thailand, Vietnam and the Philippines. - CNA /ls
GIC warns global economic risks may rise
Source : Business Times - 9 May 2008
Singapore’s sovereign fund GIC, one of the world’s biggest state-owned investors, warned on Friday that risks to the global economy could rise in the next 12 months due to falling house prices and a spike in energy costs.
The comments by Government of Singapore Investment Corp (GIC) deputy chairman Tony Tan come after he cautioned last month that financial markets would remain fickle and the world could face its worst recession in 30 years - a scenario that was widely perceived as being too gloomy.
‘Steep falls in house prices in the US could deepen mortgage-related losses and dampen consumer spending,’ Dr Tan said, according to the text of a speech delivered in Shanghai.
‘Higher energy costs could potentially offset the positive impact of tax rebates US households receive from the fiscal stimulus package,’ he said.
Dr Tan acknowledged that market uncertainty and volatility had made it harder for investors to achieve strong returns, while taking acceptable risks.
GIC, estimated to have more than US$300 billion in assets, is heavily exposed to the financial industry through its multi-billion dollar investments in beleaguered banks UBS and Citigroup made in the wake of the credit crisis.
GIC said last month it was confident that the bank investment would give good long-term returns. Its sister fund, Temasek Holdings, has invested in Merrill Lynch and Barclays. — REUTERS
Singapore’s sovereign fund GIC, one of the world’s biggest state-owned investors, warned on Friday that risks to the global economy could rise in the next 12 months due to falling house prices and a spike in energy costs.
The comments by Government of Singapore Investment Corp (GIC) deputy chairman Tony Tan come after he cautioned last month that financial markets would remain fickle and the world could face its worst recession in 30 years - a scenario that was widely perceived as being too gloomy.
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‘Steep falls in house prices in the US could deepen mortgage-related losses and dampen consumer spending,’ Dr Tan said, according to the text of a speech delivered in Shanghai.
‘Higher energy costs could potentially offset the positive impact of tax rebates US households receive from the fiscal stimulus package,’ he said.
Dr Tan acknowledged that market uncertainty and volatility had made it harder for investors to achieve strong returns, while taking acceptable risks.
GIC, estimated to have more than US$300 billion in assets, is heavily exposed to the financial industry through its multi-billion dollar investments in beleaguered banks UBS and Citigroup made in the wake of the credit crisis.
GIC said last month it was confident that the bank investment would give good long-term returns. Its sister fund, Temasek Holdings, has invested in Merrill Lynch and Barclays. — REUTERS
Experts divided over whether good times are back
Source : Straits Times - 3 May 2008
Is the global financial crisis really over? Many in the financial industry seem to think so.
On Thursday, Britain’s central bank suggested that the credit crisis was easing, saying the market has been overly pessimistic in valuing certain assets which now even look like bargains.
But a number of economists continue to caution that much of the optimism is misplaced. The full extent of the crisis, they say, has yet to wend through the wider economy, and may be the trigger for a long-overdue unwinding of economic imbalances that have built up in recent years.
Echoing earlier optimistic comments by heads of investment banks, the Bank of England (BOE) said that ‘while there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months’.
Mr John Gieve, a BOE deputy governor, said in the bank’s twice-yearly Financial Stability Report that ‘the pricing of risk in credit markets seems to have swung from being unsustainably low last summer to being temporarily too high relative to fundamentals’.
The report added, ‘As uncertainty falls and market liquidity improves, it should become clearer that some assets appear cheap relative to credit fundamentals.’
The comments are the latest in a discussion among policymakers, bankers, economists and investors about whether the current financial and economic turmoil is nearing the end.
On Wednesday, United States Treasury Secretary Henry Paulson Jr said that credit market conditions were improving. ‘We are closer to the end of this problem than we are to the beginning,’ he told Bloomberg Television.
The International Monetary Fund has estimated that the ultimate cost will reach nearly US$1 trillion (S$1.36 trillion) in write-downs and credit losses in the current crisis. But this estimate, based on imperfect information and models, may turn out to have been unduly pessimistic, the BOE said.
Still, some economists, like Mr Julian Jessop, the chief international economist at Capital Economics in London, said that even if conditions in the financial markets improved quickly, the wider economic fallout from the credit crisis would persist for many months or even years to come.
‘Indeed, the financial crisis might be seen as simply the trigger for the long-overdue unwinding of the economic imbalances that have built up in recent years,’ he said.
Uncertainties about the extent of the economic downturn and house price declines, Mr Jessop added, will add to the risk aversion in the financial sector.
The BOE shared some of that caution in its report on Thursday, saying tight credit conditions could lead to a pickup in defaults among vulnerable borrowers, parts of the commercial property sector and some non-financial companies with a lot of debt.
The BOE cut its benchmark interest rate last month for a third time since December, to 5 per cent, while the US Federal Reserve on Wednesday lowered its benchmark rate to 2 per cent, its seventh cut since September.
The BOE, following a similar initiative by the Fed, also announced a plan to swop £50 billion (S$133.59 billion) of British government bonds for up to three years in exchange for the illiquid mortgage securities that banks were holding on their balance sheets.
But some analysts pointed out that the banks’ need for such a facility illustrated that there were still not enough buyers for these assets in the market and that their value might have to drop further.
Banks worldwide have already written off more than US$300 billion in soured investments since the crisis began last summer with the collapse of the US sub-prime mortgage market.
The BOE is conscious that the market is partly ruled by sentiment, and the bank made clear in its report that too much pessimism about valuations and persisting concerns ‘could become self-fulfilling’.
Mr James Knightley, an economist at ING Financial Markets in London, said that ‘there may be signs that the credit crunch is easing up but there are still uncertainties about write-downs, and the macro numbers will get worse before they get better’.
‘There is still so much uncertainty that it is difficult to value the costs of the credit crisis, and there are so many shifts and turns in sentiment that it’s impossible to predict any timeframe,’ he said.
PROBLEMS WILL PERSIST
‘The financial crisis might be seen as simply the trigger for the long-overdue unwinding of the economic imbalances that have built up in recent years.’ - MR JULIAN JESSOP, chief international economist at Capital Economics in London, who believes the wider economic fallout from the credit crisis will persist for many months or even years
STILL TOO EARLY TO TELL
‘There is still so much uncertainty that it is difficult to value the costs of the credit crisis, and there are so many shifts and turns in sentiment that it’s impossible to predict any timeframe.’ - MR JAMES KNIGHTLEY, an economist at ING Financial Markets in London
Is the global financial crisis really over? Many in the financial industry seem to think so.
On Thursday, Britain’s central bank suggested that the credit crisis was easing, saying the market has been overly pessimistic in valuing certain assets which now even look like bargains.
But a number of economists continue to caution that much of the optimism is misplaced. The full extent of the crisis, they say, has yet to wend through the wider economy, and may be the trigger for a long-overdue unwinding of economic imbalances that have built up in recent years.
Echoing earlier optimistic comments by heads of investment banks, the Bank of England (BOE) said that ‘while there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months’.
Mr John Gieve, a BOE deputy governor, said in the bank’s twice-yearly Financial Stability Report that ‘the pricing of risk in credit markets seems to have swung from being unsustainably low last summer to being temporarily too high relative to fundamentals’.
The report added, ‘As uncertainty falls and market liquidity improves, it should become clearer that some assets appear cheap relative to credit fundamentals.’
The comments are the latest in a discussion among policymakers, bankers, economists and investors about whether the current financial and economic turmoil is nearing the end.
On Wednesday, United States Treasury Secretary Henry Paulson Jr said that credit market conditions were improving. ‘We are closer to the end of this problem than we are to the beginning,’ he told Bloomberg Television.
The International Monetary Fund has estimated that the ultimate cost will reach nearly US$1 trillion (S$1.36 trillion) in write-downs and credit losses in the current crisis. But this estimate, based on imperfect information and models, may turn out to have been unduly pessimistic, the BOE said.
Still, some economists, like Mr Julian Jessop, the chief international economist at Capital Economics in London, said that even if conditions in the financial markets improved quickly, the wider economic fallout from the credit crisis would persist for many months or even years to come.
‘Indeed, the financial crisis might be seen as simply the trigger for the long-overdue unwinding of the economic imbalances that have built up in recent years,’ he said.
Uncertainties about the extent of the economic downturn and house price declines, Mr Jessop added, will add to the risk aversion in the financial sector.
The BOE shared some of that caution in its report on Thursday, saying tight credit conditions could lead to a pickup in defaults among vulnerable borrowers, parts of the commercial property sector and some non-financial companies with a lot of debt.
The BOE cut its benchmark interest rate last month for a third time since December, to 5 per cent, while the US Federal Reserve on Wednesday lowered its benchmark rate to 2 per cent, its seventh cut since September.
The BOE, following a similar initiative by the Fed, also announced a plan to swop £50 billion (S$133.59 billion) of British government bonds for up to three years in exchange for the illiquid mortgage securities that banks were holding on their balance sheets.
But some analysts pointed out that the banks’ need for such a facility illustrated that there were still not enough buyers for these assets in the market and that their value might have to drop further.
Banks worldwide have already written off more than US$300 billion in soured investments since the crisis began last summer with the collapse of the US sub-prime mortgage market.
The BOE is conscious that the market is partly ruled by sentiment, and the bank made clear in its report that too much pessimism about valuations and persisting concerns ‘could become self-fulfilling’.
Mr James Knightley, an economist at ING Financial Markets in London, said that ‘there may be signs that the credit crunch is easing up but there are still uncertainties about write-downs, and the macro numbers will get worse before they get better’.
‘There is still so much uncertainty that it is difficult to value the costs of the credit crisis, and there are so many shifts and turns in sentiment that it’s impossible to predict any timeframe,’ he said.
PROBLEMS WILL PERSIST
‘The financial crisis might be seen as simply the trigger for the long-overdue unwinding of the economic imbalances that have built up in recent years.’ - MR JULIAN JESSOP, chief international economist at Capital Economics in London, who believes the wider economic fallout from the credit crisis will persist for many months or even years
STILL TOO EARLY TO TELL
‘There is still so much uncertainty that it is difficult to value the costs of the credit crisis, and there are so many shifts and turns in sentiment that it’s impossible to predict any timeframe.’ - MR JAMES KNIGHTLEY, an economist at ING Financial Markets in London
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