Business Times - 14 May 2008
CapitaLand, US fund jostle for The Atrium
Price will be over $800m; CMT eyeing synergies with Plaza Singapura: sources
By KALPANA RASHIWALA
(SINGAPORE) The race to snap up The Atrium @ Orchard is said to have narrowed to two parties: a US fund, and a unit of CapitaLand group, possibly CapitaMall Trust (CMT), which owns Plaza Singapura next door. The price is understood to be in the region of $2,200-$2,300 per square foot of net lettable area (NLA). Based on the property's total NLA of around 370,000 sq ft, the asset would be priced at over $800 million.
The property is being sold by Singapore Land Authority (SLA).
BT understands a deal is in the process of being sewn up.
While some analysts questioned the rationale behind CMT's interest in a predominantly office development, seasoned property investors said CapitaLand or CMT would be the most logical buyer of the asset, given the synergies that can be drawn from owning the Plaza Singapura mall.
It can also reposition The Atrium, which is a predominantly office development, to have a bigger retail component, given its Orchard Road frontage.
The expression-of-interest exercise for the Grade A office property closed on Feb 22 and is believed to have attracted a number of offers. The two highest bidders - the US fund and CMT/CapitaLand - were selected to proceed with due diligence. Industry players do not seem to know much about the US fund or its plans for the property.
SLA will issue a fresh 99-year leasehold tenure for the property from mid-2008, according to earlier reports. The Atrium comprises two office towers, seven and 10 storeys high, with ground-floor retail space.
Currently, The Atrium's retail component is confined to only about 10,000 sq ft out of the total 370,000 sq ft NLA.
Some feel that the eventual buyer of The Atrium may introduce more shop/ restaurant space into the development given its location in Singapore's main shopping belt. One way would be to decant space from the upper floors and create higher-value retail/ restaurant space on the lower levels - a tried-and-tested CMT asset enhancement formula. 'Another way would be to punch an atrium into the development and install escalators to bring shoppers up to the first few levels of the property. There may also be scope to introduce retail space in the basement,' a market watcher suggested.
However, it may take a while before such plans are executed due to the current office crunch and ongoing leases in the property.
'If CapitaLand Retail/ CMT end up with The Atrium, there'll also be scope to better connect it with the group's Plaza Singapura mall. Perhaps they could buy/lease state land between the two properties and build low-rise facilities suitable for, say, alfresco dining. Extending retail activities closer to Orchard Road would also help to draw more shoppers to Plaza Singapura,' an industry observer said.
Completed in 2002, The Atrium's current average monthly rent (based on existing leases) is understood to be below $6 psf - translating to a passing net property yield of just over 2 per cent. However, BT understands this could go up to more than 3 per cent within the next 12 months.
CMT is currently trading at about 4 per cent distribution yield on the stock market. Some suggested using a significant debt component to fund the acquisition. As at March 31, 2008, CMT had an asset size of about $5.9 billion and a gearing ratio of 35.3 per cent. CMT could fund the acquisition of The Atrium entirely through debt and still not exceed 45 per cent gearing at trust level. 'If the cost of funding is sufficiently below The Atrium's net property yield, the acquisition could still be immediately yield accretive to CMT. If not, there's always the possibility of the property being initially acquired by CapitaLand Retail and warehoused for asset enhancement and other yield- boosting exercises before being offered to CMT,' an analyst suggests.
The $2,200-2,300 psf price currently being negotiated is lower than the 'above $2,700 psf' price tag indicated at the start of the property's marketing campaign in January. However, sentiment in the office investment market has weakened, because of difficulty in securing debt funding, and concerns of surging supply post-2011.
The asset is said to be stuck with some long leases locked at pretty low rental rates. Tenants include Temasek Holdings, Barclays and MTV Asia.
Wednesday, May 14, 2008
JPMorgan chief warns of long, deep US recession
JPMorgan chief warns of long, deep US recession
(NEW YORK) JPMorgan Chase & Co chairman and chief executive Jamie Dimon on Monday told bank investors that while the current credit market crunch may soon be over, the US economy could still face a deep and extended recession.
The slump in mortgage and corporate loan markets could bottom out this year, said Mr Dimon, whose bank has largely side-stepped the losses and mark-downs that have hobbled rivals during the past year.
Yet, the economy may face a longer-term challenge even as financial markets begin to function again, in the 'slower burn' of a recession that may rival the severity of the 1982 contraction, he said.
These challenging conditions, marked by tighter bank credit, new rounds of mark-downs, further capital infusions and asset sales by banks, could last into 2010, he said.
If that happens, he warned, New York-based JPMorgan and its national consumer lending businesses would suffer some significant losses, such as home equity losses doubling to US$900 million by year-end.
He further warned that the bank would have to continue boosting loan-loss reserves if economic conditions deteriorate, further eating into profits.
In the current quarter, Mr Dimon said, sub-prime mortgage losses could rise to between US$200 million and US$250 million, with prime mortgages generating about US$100 million in losses.
Loss rates in JPMorgan's massive credit card business are expected to reach 5 per cent in the second quarter and rise to as high as 6 per cent next year, while at the same time, interest and fee revenues decline.
The third-largest US bank also expects to write down 'several hundred million' dollars of auction rate securities, he said. -- Reuters
(NEW YORK) JPMorgan Chase & Co chairman and chief executive Jamie Dimon on Monday told bank investors that while the current credit market crunch may soon be over, the US economy could still face a deep and extended recession.
The slump in mortgage and corporate loan markets could bottom out this year, said Mr Dimon, whose bank has largely side-stepped the losses and mark-downs that have hobbled rivals during the past year.
Yet, the economy may face a longer-term challenge even as financial markets begin to function again, in the 'slower burn' of a recession that may rival the severity of the 1982 contraction, he said.
These challenging conditions, marked by tighter bank credit, new rounds of mark-downs, further capital infusions and asset sales by banks, could last into 2010, he said.
If that happens, he warned, New York-based JPMorgan and its national consumer lending businesses would suffer some significant losses, such as home equity losses doubling to US$900 million by year-end.
He further warned that the bank would have to continue boosting loan-loss reserves if economic conditions deteriorate, further eating into profits.
In the current quarter, Mr Dimon said, sub-prime mortgage losses could rise to between US$200 million and US$250 million, with prime mortgages generating about US$100 million in losses.
Loss rates in JPMorgan's massive credit card business are expected to reach 5 per cent in the second quarter and rise to as high as 6 per cent next year, while at the same time, interest and fee revenues decline.
The third-largest US bank also expects to write down 'several hundred million' dollars of auction rate securities, he said. -- Reuters
ISD's former headquarters up for tender
Business Times - 14 May 2008
ISD's former headquarters up for tender
By ARTHUR SIM
(SINGAPORE) The Singapore Land Authority (SLA) has launched a public tender for the adaptive re-use of the former headquarters of the Internal Security Department (ISD) and Ministry of Home Affairs (MHA) at Phoenix Park, off Tanglin Road.
Designated for office use, the 641,851-sq-ft site houses 24 low-rise blocks with a gross floor area of 143,160 sq ft. The guide rent is $165,000 per month or $1.15 per square foot (psf) per month.
SLA is looking for a master tenant to take the whole site. SLA senior manager of project services Winston Cheah said: 'The set-up of the premises allows for the tenant to parcel and sub-lease the blocks, each creating a separate identity.'
The site's historic associations go back to the mid-20th century when the British Secret Service built the first blocks there after World War II. Their design was decided by Lord Mountbatten, then Supreme Allied Commander of the South East Asia command.
ISD's predecessor, the Special Branch, moved in in 1948, until MHA moved in from 1977-2001. MHA was followed by Republic Polytechnic from 2004-2006.
Cushman & Wakefield managing director Donald Han says the fact that the buildings were recently used 'shows occupation readiness', which should make them more attractive to bidders.
He reckons office rents there could be $4-$5.50 psf per month. So the developer will need to achieve a break-even cost of $2.50-$3.50 to see a good profit margin.
Mr Han also said the site has ample parking and outdoor space that could be maximised.
SLA also revealed yesterday that the tender for 10 Winstedt Road, formerly Monk's Hill Secondary School, closed on April 16 with seven bids received.
The 164,798.5-sq-ft site and premises with a gross floor area of 83,889 sq ft drew a top bid of $211,328 per month or $2.52 psf per month from Allbest Equipments. This is 43 per cent above SLA's guide rent of $147,300 per month or $1.76 psf per month.
Allbest general manager C H Chan said that if the company is awarded the site, it intends to use 5-10 per cent of the built-up area for its corporate office and lease out the rest at $7-$8 psf.
On the demand for such space, Mr Han said: 'As long as it can be ready within six months, the market is still in the hands of the landlords.'
Garden variety: Block A of the former headquarters of the Internal Security Department and Ministry of Home Affairs at Phoenix Park, off Tanglin Road. The site is designated for office use
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
ISD's former headquarters up for tender
By ARTHUR SIM
(SINGAPORE) The Singapore Land Authority (SLA) has launched a public tender for the adaptive re-use of the former headquarters of the Internal Security Department (ISD) and Ministry of Home Affairs (MHA) at Phoenix Park, off Tanglin Road.
Designated for office use, the 641,851-sq-ft site houses 24 low-rise blocks with a gross floor area of 143,160 sq ft. The guide rent is $165,000 per month or $1.15 per square foot (psf) per month.
SLA is looking for a master tenant to take the whole site. SLA senior manager of project services Winston Cheah said: 'The set-up of the premises allows for the tenant to parcel and sub-lease the blocks, each creating a separate identity.'
The site's historic associations go back to the mid-20th century when the British Secret Service built the first blocks there after World War II. Their design was decided by Lord Mountbatten, then Supreme Allied Commander of the South East Asia command.
ISD's predecessor, the Special Branch, moved in in 1948, until MHA moved in from 1977-2001. MHA was followed by Republic Polytechnic from 2004-2006.
Cushman & Wakefield managing director Donald Han says the fact that the buildings were recently used 'shows occupation readiness', which should make them more attractive to bidders.
He reckons office rents there could be $4-$5.50 psf per month. So the developer will need to achieve a break-even cost of $2.50-$3.50 to see a good profit margin.
Mr Han also said the site has ample parking and outdoor space that could be maximised.
SLA also revealed yesterday that the tender for 10 Winstedt Road, formerly Monk's Hill Secondary School, closed on April 16 with seven bids received.
The 164,798.5-sq-ft site and premises with a gross floor area of 83,889 sq ft drew a top bid of $211,328 per month or $2.52 psf per month from Allbest Equipments. This is 43 per cent above SLA's guide rent of $147,300 per month or $1.76 psf per month.
Allbest general manager C H Chan said that if the company is awarded the site, it intends to use 5-10 per cent of the built-up area for its corporate office and lease out the rest at $7-$8 psf.
On the demand for such space, Mr Han said: 'As long as it can be ready within six months, the market is still in the hands of the landlords.'
Garden variety: Block A of the former headquarters of the Internal Security Department and Ministry of Home Affairs at Phoenix Park, off Tanglin Road. The site is designated for office use
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Dispelling 10 money myths
Business Times - 14 May 2008
MONEY MATTERS
Dispelling 10 money myths
Peoples' wallets are lighter than they should be due to unsound beliefs about growing wealth
By PHILIP LOH
AMID the backdrop of a beleaguered stock market and challenging economic conditions, it is even more imperative that you manage your wealth well. More often than not, our wallets are lighter than they should be because of unsound beliefs in how to amass and grow our wealth such as the following:
· You cannot lose money with high grade bonds
With the stock market is facing more challenges today, investing in the safety of good grade bonds seems like an excellent idea. But nothing can be further from the truth. In fact, investing in long-duration bonds or 'long bonds' may be one of the greatest investment mistakes of the next decade.
This is because bonds are effectively IOUs issued by corporate bodies or governments to raise money. They pay a fixed rate of interest over a fixed term, say 10 years. But while the income may be fixed, the price is not. A bond holding bought one year ago, for instance, is likely to be worth a lot less now if interest rates start to surge. In fact, the longer the duration of the bond, the sharper will be the drop in its value when interest rates go up.
· You can time the market
A client asked me recently whether it is true that many unit trust investors lose money. There is some truth in this but it is not entirely accurate.
Let us compare the following: The annualised return for the S&P 500 over the last 20 years, with dividend invested, is about 11 per cent a year. Meanwhile, the average investor of unit trusts, investing in S&P 500 companies, earns only 6 per cent a year during the same period. As for the average direct stock investor, he earns a meagre 3 per cent a year during that time.
The only plausible explanation for such great discrepancies is poor timing, which just goes to show that timing the market accurately is an almost impossible task. Most investors are in fact consistently worse off due to the poor timing of their investment.
· Bluechip stocks are low risk
Remember previously local hot favourites like ACCS, Citiraya and China Aviation Oil? Their rise was meteoric but their fall from grace was equally spectacular. Over in Europe, shares of Northern Rock Bank of the UK are almost worthless. In the US, the collapses of Enron, Worldcom, and more recently the plunge in Bear Stearns' share price from US$160 to US$10 is still fresh in our minds. Many top Wall Street banks are now scrambling to raise cash to beef up their depleted reserves from the sub-prime write-offs.
Much of the stockmarket losses may well take more than a generation to recover. For example, the US stock market hit a peak in 1967 and did not cross that mark until 15 years later in 1982. The Japanese stock market reached its secular peak in 1989. Even today, the Nikkei is trading at less than one-third of its historical high. Many global technology funds are also trading at less than 50 per cent of their all time highs from 2000.
· I will start saving when I have enough money
It is never too early to cultivate the good habit of saving, because the sooner you start, the longer the period your money gets to grow. This is my general advice to people of all ages, but young people in their 20s and 30s should take special heed as they tend to overspend.
Despite our grand new year resolutions to start saving more, many seem to always fall behind their planned saving schedules. It is best that you put money aside in a systematic manner through an insurance plan, a regular savings plan or a recurring investment programme. Start with an amount you feel comfortable with and gradually step it up when you gain more confidence in setting aside the committed amount.
· I am too young for life insurance
You may be young, but you are not immortal. As soon as there is someone who depends on you financially, you will need life insurance. That may be a partner whom you share a mortgage with, a spouse, or children - anyone who would struggle for money as a result of your death.
Statistics show that you are five times more likely to suffer a critical illness than you are to die before age 65, as heart attacks and cancer are becoming more survivable than ever before. In fact, most people who contract multiple sclerosis are aged between 20 and 40, and half of all testicular cancer cases show up in men under 40. As such, all Singaporeans should make sure that they have adequate critical illness cover in their life insurance programme.
· There is no need to teach children about finance
Ignorance and money are a dangerous combination, so it is very important to help your children understand the value of money. Parents should start discussing the concept of money with their children once they start saying they want something. For a start, you can begin by teaching them that they get things only when they earn them.
As your children get older, you can introduce them to the concept of stocks. You could buy them some Singapore Airlines (SIA) shares and tell them that when they fly on an SIA plane that they partly own the plane and the company, so if SIA makes money, they will too.
This way, they will understand from a young age the importance of saving and investing wisely, so they will be able to take better care of you when you get old.
· I am changing my car because the new car is better for my cash flow
This is one of the silliest notions I keep hearing over and over again from clients. To be fair to the salesman, we, the buyer, want to believe him. Our ability to exercise good judgment is often obscured by our innate desire for that flashy piece of metal. We figure that life is going to be much easier when we are the object of envy among friends, colleagues and relatives.
The moment a new car is out of the showroom, its resale value would already be much lower. Also, you would have to take a huge loss when you sell off your old vehicle. Lower maintenance cost of a new car is largely an illusion, as most Japanese or European cars are made to last for at least 10 years without major problem. Although the monthly loan financing of the new car may be lower, this is usually because you are stretching your loan repayment period and you have also ignored the par value of your current car in your calculation.
Nevertheless, this remains largely a lifestyle decision, and if your income can support it, it is really no great sin to spend some money for that extra attention. To me, I am too much of a miser to consider it.
· I should pay off my mortgage as soon as possible
Liquidity should be the No 1 consideration in any prudent investment. Many Singaporeans believe that home equity (defined as the excess of your property valuation over your remaining mortgage) is a convenient nest egg which they can tap when they are in financial trouble. But the opposite is true instead.
You see, banks are income lenders, not collateral lenders. They associate assets with liens, but their first requirement is that you must show your ability to repay your loan. The irony is that you almost have to prove that you don't need the money before they loan it to you.
But note that what I am advocating is not piling up excessive debt but the proper management and utility of debt to enhance your wealth. In fact, most people do not realise that mortgage interest can be used to offset their rental income in their income tax computation, thus reducing their effective borrowing cost of a rental property.
· A shortage of land in Singapore means property prices cannot fall
It is true that land may be scarce in Singapore but it is mathematically impossible for residential prices to appreciate faster than income over long periods of time. Think about it. If home prices go up more than income over time, nobody would be able to buy a place to live in, apart from inheriting one.
Other common property-related myths include:
Prime properties never fall in price.
During the last property market correction in Singapore from 2001 to 2005, property across the entire spectrum of the market was affected, regardless of whether it was high or low-end. Remember, there is a difference between high prices and increasing prices. Prices may be high, but they may not be increasing.
House prices do not fall to zero like stock prices, so it is safer to invest in real estate.
It is true that house prices do not fall to zero, but your equity in a house can easily fall to zero and even below that. It just takes a fall of 30 per cent to completely wipe out people who only have 25 per cent equity in their house. This means that house price crashes may actually be worse than stock crashes. Singaporeans should take note especially since most of their retirement funds are locked in their property, and the money may be leveraged.
· I do not know why I always overspend
The cause may appear unclear initially but actually the following are some of the common reasons why people spend beyond their means:
Buying happiness: This is an easy trap to fall into, since most advertisements go to great lengths to associate a product with happiness. They lead you to purchase things by persuading you that doing so will make your life better. While the purchase itself may give you pleasure, the feeling is fleeting. You will end up having to purchase something else to find more 'happiness'.
Keeping up with the Joneses: Spending to bolster your image is dangerous. In many cases, the Joneses are doing exactly the same thing to keep up with you.
Embarrassment: Often it is hard to admit to friends that you do not have the money to take part in certain activities, so you play along instead and pay for things that you cannot afford. These could be anything ranging from a weekly dinner at a fancy restaurant to regular golfing sessions.
Lack of patience: Some people want instant gratification. When they see something they fancy, they want it immediately, regardless of whether they can really afford it.
Laziness: Instead of doing some research, looking for deals and spending their money wisely, they often pay too much for things. When bargaining, a sure-fire technique is to ask dispassionately, 'What is the lowest you can go?', even if you feel that the price is already very good and you really want that item. Often, the seller will give you a better offer.
Hopeless optimism: Many people spend with the expectation that they will earn more money soon as a result of a pay rise or bonus. But if the bonus or raise does not work out as expected, there will be a lot of debt to account for.
Charge and charge: Some people who do not have the cash in hand see credit cards as real money. This, of course, can get them into a lot of financial trouble.
These are just a few reasons behind overspending - some people may be motivated by a combination of several reasons. Whatever your reasons, understanding the motivating forces behind overspending can help you address the issue and get a new 'lease of life', financially speaking.
The writer is a chartered financial consultant with Great Eastern Life. The views expressed are his own. Comments are welcomed at www.philiploh.com/contact.htm#feedback
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
MONEY MATTERS
Dispelling 10 money myths
Peoples' wallets are lighter than they should be due to unsound beliefs about growing wealth
By PHILIP LOH
AMID the backdrop of a beleaguered stock market and challenging economic conditions, it is even more imperative that you manage your wealth well. More often than not, our wallets are lighter than they should be because of unsound beliefs in how to amass and grow our wealth such as the following:
· You cannot lose money with high grade bonds
With the stock market is facing more challenges today, investing in the safety of good grade bonds seems like an excellent idea. But nothing can be further from the truth. In fact, investing in long-duration bonds or 'long bonds' may be one of the greatest investment mistakes of the next decade.
This is because bonds are effectively IOUs issued by corporate bodies or governments to raise money. They pay a fixed rate of interest over a fixed term, say 10 years. But while the income may be fixed, the price is not. A bond holding bought one year ago, for instance, is likely to be worth a lot less now if interest rates start to surge. In fact, the longer the duration of the bond, the sharper will be the drop in its value when interest rates go up.
· You can time the market
A client asked me recently whether it is true that many unit trust investors lose money. There is some truth in this but it is not entirely accurate.
Let us compare the following: The annualised return for the S&P 500 over the last 20 years, with dividend invested, is about 11 per cent a year. Meanwhile, the average investor of unit trusts, investing in S&P 500 companies, earns only 6 per cent a year during the same period. As for the average direct stock investor, he earns a meagre 3 per cent a year during that time.
The only plausible explanation for such great discrepancies is poor timing, which just goes to show that timing the market accurately is an almost impossible task. Most investors are in fact consistently worse off due to the poor timing of their investment.
· Bluechip stocks are low risk
Remember previously local hot favourites like ACCS, Citiraya and China Aviation Oil? Their rise was meteoric but their fall from grace was equally spectacular. Over in Europe, shares of Northern Rock Bank of the UK are almost worthless. In the US, the collapses of Enron, Worldcom, and more recently the plunge in Bear Stearns' share price from US$160 to US$10 is still fresh in our minds. Many top Wall Street banks are now scrambling to raise cash to beef up their depleted reserves from the sub-prime write-offs.
Much of the stockmarket losses may well take more than a generation to recover. For example, the US stock market hit a peak in 1967 and did not cross that mark until 15 years later in 1982. The Japanese stock market reached its secular peak in 1989. Even today, the Nikkei is trading at less than one-third of its historical high. Many global technology funds are also trading at less than 50 per cent of their all time highs from 2000.
· I will start saving when I have enough money
It is never too early to cultivate the good habit of saving, because the sooner you start, the longer the period your money gets to grow. This is my general advice to people of all ages, but young people in their 20s and 30s should take special heed as they tend to overspend.
Despite our grand new year resolutions to start saving more, many seem to always fall behind their planned saving schedules. It is best that you put money aside in a systematic manner through an insurance plan, a regular savings plan or a recurring investment programme. Start with an amount you feel comfortable with and gradually step it up when you gain more confidence in setting aside the committed amount.
· I am too young for life insurance
You may be young, but you are not immortal. As soon as there is someone who depends on you financially, you will need life insurance. That may be a partner whom you share a mortgage with, a spouse, or children - anyone who would struggle for money as a result of your death.
Statistics show that you are five times more likely to suffer a critical illness than you are to die before age 65, as heart attacks and cancer are becoming more survivable than ever before. In fact, most people who contract multiple sclerosis are aged between 20 and 40, and half of all testicular cancer cases show up in men under 40. As such, all Singaporeans should make sure that they have adequate critical illness cover in their life insurance programme.
· There is no need to teach children about finance
Ignorance and money are a dangerous combination, so it is very important to help your children understand the value of money. Parents should start discussing the concept of money with their children once they start saying they want something. For a start, you can begin by teaching them that they get things only when they earn them.
As your children get older, you can introduce them to the concept of stocks. You could buy them some Singapore Airlines (SIA) shares and tell them that when they fly on an SIA plane that they partly own the plane and the company, so if SIA makes money, they will too.
This way, they will understand from a young age the importance of saving and investing wisely, so they will be able to take better care of you when you get old.
· I am changing my car because the new car is better for my cash flow
This is one of the silliest notions I keep hearing over and over again from clients. To be fair to the salesman, we, the buyer, want to believe him. Our ability to exercise good judgment is often obscured by our innate desire for that flashy piece of metal. We figure that life is going to be much easier when we are the object of envy among friends, colleagues and relatives.
The moment a new car is out of the showroom, its resale value would already be much lower. Also, you would have to take a huge loss when you sell off your old vehicle. Lower maintenance cost of a new car is largely an illusion, as most Japanese or European cars are made to last for at least 10 years without major problem. Although the monthly loan financing of the new car may be lower, this is usually because you are stretching your loan repayment period and you have also ignored the par value of your current car in your calculation.
Nevertheless, this remains largely a lifestyle decision, and if your income can support it, it is really no great sin to spend some money for that extra attention. To me, I am too much of a miser to consider it.
· I should pay off my mortgage as soon as possible
Liquidity should be the No 1 consideration in any prudent investment. Many Singaporeans believe that home equity (defined as the excess of your property valuation over your remaining mortgage) is a convenient nest egg which they can tap when they are in financial trouble. But the opposite is true instead.
You see, banks are income lenders, not collateral lenders. They associate assets with liens, but their first requirement is that you must show your ability to repay your loan. The irony is that you almost have to prove that you don't need the money before they loan it to you.
But note that what I am advocating is not piling up excessive debt but the proper management and utility of debt to enhance your wealth. In fact, most people do not realise that mortgage interest can be used to offset their rental income in their income tax computation, thus reducing their effective borrowing cost of a rental property.
· A shortage of land in Singapore means property prices cannot fall
It is true that land may be scarce in Singapore but it is mathematically impossible for residential prices to appreciate faster than income over long periods of time. Think about it. If home prices go up more than income over time, nobody would be able to buy a place to live in, apart from inheriting one.
Other common property-related myths include:
Prime properties never fall in price.
During the last property market correction in Singapore from 2001 to 2005, property across the entire spectrum of the market was affected, regardless of whether it was high or low-end. Remember, there is a difference between high prices and increasing prices. Prices may be high, but they may not be increasing.
House prices do not fall to zero like stock prices, so it is safer to invest in real estate.
It is true that house prices do not fall to zero, but your equity in a house can easily fall to zero and even below that. It just takes a fall of 30 per cent to completely wipe out people who only have 25 per cent equity in their house. This means that house price crashes may actually be worse than stock crashes. Singaporeans should take note especially since most of their retirement funds are locked in their property, and the money may be leveraged.
· I do not know why I always overspend
The cause may appear unclear initially but actually the following are some of the common reasons why people spend beyond their means:
Buying happiness: This is an easy trap to fall into, since most advertisements go to great lengths to associate a product with happiness. They lead you to purchase things by persuading you that doing so will make your life better. While the purchase itself may give you pleasure, the feeling is fleeting. You will end up having to purchase something else to find more 'happiness'.
Keeping up with the Joneses: Spending to bolster your image is dangerous. In many cases, the Joneses are doing exactly the same thing to keep up with you.
Embarrassment: Often it is hard to admit to friends that you do not have the money to take part in certain activities, so you play along instead and pay for things that you cannot afford. These could be anything ranging from a weekly dinner at a fancy restaurant to regular golfing sessions.
Lack of patience: Some people want instant gratification. When they see something they fancy, they want it immediately, regardless of whether they can really afford it.
Laziness: Instead of doing some research, looking for deals and spending their money wisely, they often pay too much for things. When bargaining, a sure-fire technique is to ask dispassionately, 'What is the lowest you can go?', even if you feel that the price is already very good and you really want that item. Often, the seller will give you a better offer.
Hopeless optimism: Many people spend with the expectation that they will earn more money soon as a result of a pay rise or bonus. But if the bonus or raise does not work out as expected, there will be a lot of debt to account for.
Charge and charge: Some people who do not have the cash in hand see credit cards as real money. This, of course, can get them into a lot of financial trouble.
These are just a few reasons behind overspending - some people may be motivated by a combination of several reasons. Whatever your reasons, understanding the motivating forces behind overspending can help you address the issue and get a new 'lease of life', financially speaking.
The writer is a chartered financial consultant with Great Eastern Life. The views expressed are his own. Comments are welcomed at www.philiploh.com/contact.htm#feedback
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Fed to hold rates steady: economists
Business Times - 14 May 2008
Fed to hold rates steady: economists
Some expect a recovery in the US economy next year
By LYNETTE KHOO
(SINGAPORE) Against the double whammy of mounting inflationary pressures and slower economic growth, the Federal Reserve is expected to hold its key rates steady for the rest of this year, according to panelists at yesterday's Lunch with the Economists 2008.
This likely pause follows a series of rate cuts by the central bank since last September, which brought the federal funds rate, the key overnight rate at which banks lend money to one another, to 2 per cent in April.
'I think the Fed is going to maintain the current Fed funds rate at 2 per cent at least for now,' said Thomas Lam, UOB group vice-president and senior treasury economist for global markets. 'But it is going to be accommodative to other unconventional means' of stimulating the economy.
Mr Lam expects at least another 10 per cent decline in home prices, and hence, does not think that the credit market problems are over yet.
Barclays Capital senior regional economist Sailesh Jha was more bullish. He predicts that the Fed would hike rates in the first quarter of next year by 75 basis points as he expects the US economic outlook to brighten up.
'We expect growth to accelerate in the second half of this year by as much as 3 per cent,' he said. 'We do think that in terms of the impact from Wall Street to main street, that is sedated.'
As the current US economic problem stems largely from housing and financial sectors, it is more easily solved by liquidity injection and cutting of interest rates, as compared with the broader manufacturing sector downturn during the Nasdaq tech bubble-burst, economists noted.
Some are expecting a recovery in the US economy next year, since the US non-financial sector continues to lend support.
'For the liquidity crunch or credit crisis, we have probably passed the mid-point,' Jan Lambregts, Rabobank International's head of Asia research, said. 'Once we work through the worst of the housing crisis, the US economy is going to rebound.'
This, he predicts, will happen as soon as next year.
With the recent global destabilisation caused by the surge in food prices, food inflation also became a hot topic during the panel discussion.
The economists noted that while much of the rise in food prices may be a result of speculative trading, the fundamentals are still pointing to upside risks in the near-term. Central banks are also going to find currency tools no longer effective in coping with inflation.
As some central banks in Asia look to raising interest rates or removing liquidity from the system, the risk is, Mr Lam of UOB cautioned, that overly aggressive tightening can cause a plunge in asset prices and equities.
In terms of the impact on investment choices, Mr Jha of Barclays reckoned that investors would continue to long commodities at least for the next two quarters. 'People are still very light in holding commodity assets in their portfolios and so, there's more to come and that's going to push prices up on top of the fundamental picture.'
But Subir Gokarn, chief economist for Asia-Pacific at Standard & Poor's, did not think that the rise in commodity prices, particularly that of energy and base metals, is sustainable as speculation in commodities, which is sentiment-driven, may soon recede if sentiment flips, while upside is capped by intervention by central banks.
'Commodities in many aspects is going to be the next bubble,' he reckons.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Fed to hold rates steady: economists
Some expect a recovery in the US economy next year
By LYNETTE KHOO
(SINGAPORE) Against the double whammy of mounting inflationary pressures and slower economic growth, the Federal Reserve is expected to hold its key rates steady for the rest of this year, according to panelists at yesterday's Lunch with the Economists 2008.
This likely pause follows a series of rate cuts by the central bank since last September, which brought the federal funds rate, the key overnight rate at which banks lend money to one another, to 2 per cent in April.
'I think the Fed is going to maintain the current Fed funds rate at 2 per cent at least for now,' said Thomas Lam, UOB group vice-president and senior treasury economist for global markets. 'But it is going to be accommodative to other unconventional means' of stimulating the economy.
Mr Lam expects at least another 10 per cent decline in home prices, and hence, does not think that the credit market problems are over yet.
Barclays Capital senior regional economist Sailesh Jha was more bullish. He predicts that the Fed would hike rates in the first quarter of next year by 75 basis points as he expects the US economic outlook to brighten up.
'We expect growth to accelerate in the second half of this year by as much as 3 per cent,' he said. 'We do think that in terms of the impact from Wall Street to main street, that is sedated.'
As the current US economic problem stems largely from housing and financial sectors, it is more easily solved by liquidity injection and cutting of interest rates, as compared with the broader manufacturing sector downturn during the Nasdaq tech bubble-burst, economists noted.
Some are expecting a recovery in the US economy next year, since the US non-financial sector continues to lend support.
'For the liquidity crunch or credit crisis, we have probably passed the mid-point,' Jan Lambregts, Rabobank International's head of Asia research, said. 'Once we work through the worst of the housing crisis, the US economy is going to rebound.'
This, he predicts, will happen as soon as next year.
With the recent global destabilisation caused by the surge in food prices, food inflation also became a hot topic during the panel discussion.
The economists noted that while much of the rise in food prices may be a result of speculative trading, the fundamentals are still pointing to upside risks in the near-term. Central banks are also going to find currency tools no longer effective in coping with inflation.
As some central banks in Asia look to raising interest rates or removing liquidity from the system, the risk is, Mr Lam of UOB cautioned, that overly aggressive tightening can cause a plunge in asset prices and equities.
In terms of the impact on investment choices, Mr Jha of Barclays reckoned that investors would continue to long commodities at least for the next two quarters. 'People are still very light in holding commodity assets in their portfolios and so, there's more to come and that's going to push prices up on top of the fundamental picture.'
But Subir Gokarn, chief economist for Asia-Pacific at Standard & Poor's, did not think that the rise in commodity prices, particularly that of energy and base metals, is sustainable as speculation in commodities, which is sentiment-driven, may soon recede if sentiment flips, while upside is capped by intervention by central banks.
'Commodities in many aspects is going to be the next bubble,' he reckons.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
HSBC economist tips inflation at 6% this year
May 14, 2008
HSBC economist tips inflation at 6% this year
By Alvin Foo
INFLATION is set to peak in the coming months before falling to 4 per cent by the end of the year, said HSBC Bank economist Robert Prior-Wandesforde yesterday.
However, he expects overall inflation for the year to average 6 per cent because of higher oil and food prices.
The Monetary Authority of Singapore anticipates inflation this year to be in the upper half of the 4.5 per cent to 5.5 per cent range.
Inflation in March hit a 26-year high of 6.7 per cent.
Mr Prior-Wandesforde, who was speaking on the economic outlook for Singapore, said: 'We think the central bank will need to raise its inflation projection...the size of the oil and food shocks has taken everyone by surprise.'
Oil hit a record high of nearly US$126 a barrel last week, and food prices have shot up recently due to supply shocks and rising demand.
Mr Prior-Wandesforde expects inflation in Singapore to reach a high of just over 7 per cent by next month, with electricity and petrol prices likely to go up.
But it should fall back to about 4 per cent by year end due to the dissipation of the effect of last year's goods and services tax hike, and hit 3.5 per cent by the middle of next year.
DBS Bank economist Irvin Seah said of HSBC's forecast: 'Six per cent's possible if food and fuel prices continue to creep upwards.'
He tips inflation to be 5 per cent this year.
Mr Prior-Wandesforde expects gross domestic product to grow by 6 per cent this year - at the upper end of the Government's forecast range of 4 per cent to 6 per cent.
'It will slow down gradually this year,' he noted. 'Some cooling in the Singapore economy is to be welcomed, because the economy was growing a little too fast, resulting in cost and price pressures.'
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
HSBC economist tips inflation at 6% this year
By Alvin Foo
INFLATION is set to peak in the coming months before falling to 4 per cent by the end of the year, said HSBC Bank economist Robert Prior-Wandesforde yesterday.
However, he expects overall inflation for the year to average 6 per cent because of higher oil and food prices.
The Monetary Authority of Singapore anticipates inflation this year to be in the upper half of the 4.5 per cent to 5.5 per cent range.
Inflation in March hit a 26-year high of 6.7 per cent.
Mr Prior-Wandesforde, who was speaking on the economic outlook for Singapore, said: 'We think the central bank will need to raise its inflation projection...the size of the oil and food shocks has taken everyone by surprise.'
Oil hit a record high of nearly US$126 a barrel last week, and food prices have shot up recently due to supply shocks and rising demand.
Mr Prior-Wandesforde expects inflation in Singapore to reach a high of just over 7 per cent by next month, with electricity and petrol prices likely to go up.
But it should fall back to about 4 per cent by year end due to the dissipation of the effect of last year's goods and services tax hike, and hit 3.5 per cent by the middle of next year.
DBS Bank economist Irvin Seah said of HSBC's forecast: 'Six per cent's possible if food and fuel prices continue to creep upwards.'
He tips inflation to be 5 per cent this year.
Mr Prior-Wandesforde expects gross domestic product to grow by 6 per cent this year - at the upper end of the Government's forecast range of 4 per cent to 6 per cent.
'It will slow down gradually this year,' he noted. 'Some cooling in the Singapore economy is to be welcomed, because the economy was growing a little too fast, resulting in cost and price pressures.'
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Former MHA complex up for office lease
May 14, 2008
Former MHA complex up for office lease
Tanglin site can be leased for an initial 3 years, with option for renewal till 2017
By Joyce Teo
THE sprawling Phoenix Park site in Tanglin Road, which housed the Ministry of Home Affairs (MHA) for more than two decades, can now be leased for office use.
The 641,852 sq ft site, in the exclusive foreign embassy district, should help ease Singapore's office space crunch.
The Singapore Land Authority (SLA) yesterday launched the site tender. The site is now also open for public viewing for the first time.
The historical buildings were built by the British after World World II. They also once housed the headquarters of the Internal Security Department, which is now at New Phoenix Park in Irrawaddy Road. The MHA moved into Phoenix Park in 1977 and stayed there until 2001, when it relocated to Irrawaddy Road.
The complex was then used by Republic Polytechnic for about two years until the middle of 2006, when the institution moved to its new campus in Woodlands.
The successful bidder will likely have to spend several million dollars to spruce up the rundown buildings before leasing them out. There are 31 blocks, of which 24 are single-storey and four are two- and three-storey buildings. Two substation blocks and one bin centre make up the rest of the buildings.
The four main blocks are now under conservation study, which means future tenants must retain the facades, including the windows and certain architectural features, during any renovation work.
The site - a gazetted tree conservation area - has a basketball court and four carparks.
The SLA wishes to work with a master tenant instead of several tenants. Its guide rent is $165,000 a month, or about $1.15 per sq ft (psf). The site has a gross floor area of 143,160 sq ft and can be leased for an initial three years, with options to renew the lease up to 2017.
Hean Nerng Holdings, a firm specialising in converting old premises for new uses, believes the site has good potential as an office location.
Mr Danny Wong, its marketing manager, said on a site tour yesterday: 'Offices can lease out one whole block with their own entrance. It's good for corporate branding.'
While the site is strictly for office use, the SLA allows for supporting uses such as a staff canteen, gymnasium and other food and recreational facilities.
Offices on the site may appeal to advertising firms, for instance, and could rent for $3 psf to $6 psf, sources said.
Due to tight supply, office rents in Singapore have surged to an average $17 psf to $18 psf for top buildings in areas like Raffles Place.
Since February last year, the SLA has helped relieve the shortage by tendering out 18 former schools and other vacant properties for office use. So far, 13 of them have been taken up.
Its tender for the former Monk's Hill Secondary School off Bukit Timah Road attracted seven bids - all above its guide rent of $147,300 a month.
AllBest Equipment had the highest tendered monthly rent of $211,328, or $2.52 psf.
General manager C.H. Chan said it would use one of the four blocks for its corporate office and lease out the rest at possibly $9 psf to $10 psf.
The firm will spend up to $4 million on renovation, which will bring its break-even cost to about $6 psf to $7 psf, he said.
PRESERVING HISTORY: Three of the four blocks that are now under conservation study, which means future tenants must retain their facades, including the windows and certain architectural features, during renovation work. -- PHOTO: URBAN REDEVELOPMENT AUTHORITY
joyceteo@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Former MHA complex up for office lease
Tanglin site can be leased for an initial 3 years, with option for renewal till 2017
By Joyce Teo
THE sprawling Phoenix Park site in Tanglin Road, which housed the Ministry of Home Affairs (MHA) for more than two decades, can now be leased for office use.
The 641,852 sq ft site, in the exclusive foreign embassy district, should help ease Singapore's office space crunch.
The Singapore Land Authority (SLA) yesterday launched the site tender. The site is now also open for public viewing for the first time.
The historical buildings were built by the British after World World II. They also once housed the headquarters of the Internal Security Department, which is now at New Phoenix Park in Irrawaddy Road. The MHA moved into Phoenix Park in 1977 and stayed there until 2001, when it relocated to Irrawaddy Road.
The complex was then used by Republic Polytechnic for about two years until the middle of 2006, when the institution moved to its new campus in Woodlands.
The successful bidder will likely have to spend several million dollars to spruce up the rundown buildings before leasing them out. There are 31 blocks, of which 24 are single-storey and four are two- and three-storey buildings. Two substation blocks and one bin centre make up the rest of the buildings.
The four main blocks are now under conservation study, which means future tenants must retain the facades, including the windows and certain architectural features, during any renovation work.
The site - a gazetted tree conservation area - has a basketball court and four carparks.
The SLA wishes to work with a master tenant instead of several tenants. Its guide rent is $165,000 a month, or about $1.15 per sq ft (psf). The site has a gross floor area of 143,160 sq ft and can be leased for an initial three years, with options to renew the lease up to 2017.
Hean Nerng Holdings, a firm specialising in converting old premises for new uses, believes the site has good potential as an office location.
Mr Danny Wong, its marketing manager, said on a site tour yesterday: 'Offices can lease out one whole block with their own entrance. It's good for corporate branding.'
While the site is strictly for office use, the SLA allows for supporting uses such as a staff canteen, gymnasium and other food and recreational facilities.
Offices on the site may appeal to advertising firms, for instance, and could rent for $3 psf to $6 psf, sources said.
Due to tight supply, office rents in Singapore have surged to an average $17 psf to $18 psf for top buildings in areas like Raffles Place.
Since February last year, the SLA has helped relieve the shortage by tendering out 18 former schools and other vacant properties for office use. So far, 13 of them have been taken up.
Its tender for the former Monk's Hill Secondary School off Bukit Timah Road attracted seven bids - all above its guide rent of $147,300 a month.
AllBest Equipment had the highest tendered monthly rent of $211,328, or $2.52 psf.
General manager C.H. Chan said it would use one of the four blocks for its corporate office and lease out the rest at possibly $9 psf to $10 psf.
The firm will spend up to $4 million on renovation, which will bring its break-even cost to about $6 psf to $7 psf, he said.
PRESERVING HISTORY: Three of the four blocks that are now under conservation study, which means future tenants must retain their facades, including the windows and certain architectural features, during renovation work. -- PHOTO: URBAN REDEVELOPMENT AUTHORITY
joyceteo@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Check before you renovate
Check before you renovate
Radac's here to help, but consumers should ensure contractor is accredited first
Wednesday • May 14, 2008
Letter from FAROK MAJEED
Chairman, Renovation and Decoration Advisory Centre (Radac)
We refer to the letter "Renovation Aggravation" by Raymond Ng (April 29).
Radac was set up by the Consumer's Association of Singapore (Case) in 1986 to provide greater control in the renovation industry.
Recognising Radac's importance, growth and capability, Case's Central Committee recommended that Radac operate as an independent body not only to look after the interests of consumers at large, but also to improve the standard and quality of renovation and meet the demand of more sophisticated consumers.
In 1995, Radac was registered as an independent voluntary, non-profit consumer-based body comprising of council members from practising professionals in the real estate, construction and other industries.
Being a registration body, Radac accredits and registers qualified renovators in its Singapore National Registry of Accredited Renovators (Singaroar). These renovators are given the accreditation and recognition as Radac-accredited renovators. They are not members of Radac.
To be accredited, one must satisfy requirements like sound financial standing, technical competence and be registered for at least three years with a Housing and Development Board (HDB) licence or at least seven years for those without a HDB licence.
They are also required to be covered under the public liability insurance for a minimum sum of $200,000, to protect the interest of the accredited renovators as well as homeowners who engage them.
The list of Radac-accredited renovators is updated in our annual renovation guide — Singaroar — as well as our website at www.radac.org.sg.
As Raymond Ng pointed out, this complimentary renovation guide is distributed to new homeowners through the HDB. It can also be obtained, free of charge, from HDB branch offices, town council offices and the Radac Resource Centre.
To assist consumers in obtaining their rights and good value for money, Radac issues the Radac Standard Contract which contains contractual obligations, recommended payment terms, etc to protect consumers and renovators. This can be obtained from the Radac Resource Centre at $5 per copy.
Radac-accredited renovators, as well as consumers, are strongly encouraged to use this standard contract.
Consumers should provide feedback to Radac if any accredited renovator rejects their request to use this contract.
We would like to thank Raymond Ng for his feedback and would appreciate it if he could contact our Resource Centre at 6565 9929 or email radacnet@singnet.com.sg, to provide us with more details, so we can look into the matter.
When engaging a renovator, consumers are advised to check Radac's website to confirm the accreditation before signing any agreement and should make sure that the agreement is signed with the accredited renovator and not any of their associated firms which are not accredited and not registered in Singaroar. Radac provides mediation services should disputes arise between consumers and accredited renovators.
Copyright MediaCorp Press Ltd. All rights reserved.
Radac's here to help, but consumers should ensure contractor is accredited first
Wednesday • May 14, 2008
Letter from FAROK MAJEED
Chairman, Renovation and Decoration Advisory Centre (Radac)
We refer to the letter "Renovation Aggravation" by Raymond Ng (April 29).
Radac was set up by the Consumer's Association of Singapore (Case) in 1986 to provide greater control in the renovation industry.
Recognising Radac's importance, growth and capability, Case's Central Committee recommended that Radac operate as an independent body not only to look after the interests of consumers at large, but also to improve the standard and quality of renovation and meet the demand of more sophisticated consumers.
In 1995, Radac was registered as an independent voluntary, non-profit consumer-based body comprising of council members from practising professionals in the real estate, construction and other industries.
Being a registration body, Radac accredits and registers qualified renovators in its Singapore National Registry of Accredited Renovators (Singaroar). These renovators are given the accreditation and recognition as Radac-accredited renovators. They are not members of Radac.
To be accredited, one must satisfy requirements like sound financial standing, technical competence and be registered for at least three years with a Housing and Development Board (HDB) licence or at least seven years for those without a HDB licence.
They are also required to be covered under the public liability insurance for a minimum sum of $200,000, to protect the interest of the accredited renovators as well as homeowners who engage them.
The list of Radac-accredited renovators is updated in our annual renovation guide — Singaroar — as well as our website at www.radac.org.sg.
As Raymond Ng pointed out, this complimentary renovation guide is distributed to new homeowners through the HDB. It can also be obtained, free of charge, from HDB branch offices, town council offices and the Radac Resource Centre.
To assist consumers in obtaining their rights and good value for money, Radac issues the Radac Standard Contract which contains contractual obligations, recommended payment terms, etc to protect consumers and renovators. This can be obtained from the Radac Resource Centre at $5 per copy.
Radac-accredited renovators, as well as consumers, are strongly encouraged to use this standard contract.
Consumers should provide feedback to Radac if any accredited renovator rejects their request to use this contract.
We would like to thank Raymond Ng for his feedback and would appreciate it if he could contact our Resource Centre at 6565 9929 or email radacnet@singnet.com.sg, to provide us with more details, so we can look into the matter.
When engaging a renovator, consumers are advised to check Radac's website to confirm the accreditation before signing any agreement and should make sure that the agreement is signed with the accredited renovator and not any of their associated firms which are not accredited and not registered in Singaroar. Radac provides mediation services should disputes arise between consumers and accredited renovators.
Copyright MediaCorp Press Ltd. All rights reserved.
An underground reservoir?
An underground reservoir?
Govt tender to study feasibility of more facilities in rock caverns
Wednesday • May 14, 2008
Ansley Ng
ansley@mediacorp.com.sg
LAND-SCARCE Singapore is already storing some of its military munitions in this way. And work is underway on similar storage facilities for crude oil and oil products.
Now, the Government wants to look at building power stations, warehouses, incineration plants, airport logistics centres and reservoirs — all below ground.
Industrial landlord Jurong Town Corporation (JTC) last Friday called a tender for a "underground rock cavern usage feasibility study" to see how subterranean grottos could be used to maximise land use. Among other things, the winning consultant will have to study the costs and the use of underground caverns in other countries. It will also advise JTC on the possible environmental and health issues, such as pollution, radiation and damage to existing buildings and infrastructure.
Last July, Today broke the story of how government agencies including the JTC were exploring the feasibility of creating caverns for living.
Professor Zhao Jian, who led early feasibility studies on cavern development in Singapore, had said then that the potential for space underground was "almost limitless" and was "particularly useful for any facilities that are not desirable at surface level, for example, sewage treatment plants".
The study now up for tender will look merely at feasibility and not sites, a JTC spokeswoman told the Business Times.
However, potential sites could be areas with deposits of igneous rock, such as granite, in the central, northern and northeastern areas of the island.
A 1995 paper by Nanyang Technological University researchers including Prof Zhao, in the Quarterly Journal of Engineering Geology, concluded that the Bukit Timah granite — which forms one-third of the surface area of Singapore — had good potential for underground cavern construction.
The tender closes June 6, and the consultant is expected to work with the Civil Aviation Authority of Singapore and the Energy Market Authority, among others.
other cavern projects:
• In March, the Ministry of Defence opened caverns under the disused Mandai Quarry to store ammunition such as bullets, bombs and missiles. The warehouse caverns – each about the size of six basketball courts – were blasted out of solid granite underneath the quarry, freeing up surface land the size of Pasir Ris town.
• The JTC is constructing the $2-billion Jurong Rock Cavern beneath Jurong Island, for use by petrochemical companies. The first caverns under Phase 1 should begin operations in 2010.
• A plan in the late 1990s to construct a Science City, a mixed-use commercial project, under Science Park 2 was derailed by cost factors.
Copyright MediaCorp Press Ltd. All rights reserved.
Govt tender to study feasibility of more facilities in rock caverns
Wednesday • May 14, 2008
Ansley Ng
ansley@mediacorp.com.sg
LAND-SCARCE Singapore is already storing some of its military munitions in this way. And work is underway on similar storage facilities for crude oil and oil products.
Now, the Government wants to look at building power stations, warehouses, incineration plants, airport logistics centres and reservoirs — all below ground.
Industrial landlord Jurong Town Corporation (JTC) last Friday called a tender for a "underground rock cavern usage feasibility study" to see how subterranean grottos could be used to maximise land use. Among other things, the winning consultant will have to study the costs and the use of underground caverns in other countries. It will also advise JTC on the possible environmental and health issues, such as pollution, radiation and damage to existing buildings and infrastructure.
Last July, Today broke the story of how government agencies including the JTC were exploring the feasibility of creating caverns for living.
Professor Zhao Jian, who led early feasibility studies on cavern development in Singapore, had said then that the potential for space underground was "almost limitless" and was "particularly useful for any facilities that are not desirable at surface level, for example, sewage treatment plants".
The study now up for tender will look merely at feasibility and not sites, a JTC spokeswoman told the Business Times.
However, potential sites could be areas with deposits of igneous rock, such as granite, in the central, northern and northeastern areas of the island.
A 1995 paper by Nanyang Technological University researchers including Prof Zhao, in the Quarterly Journal of Engineering Geology, concluded that the Bukit Timah granite — which forms one-third of the surface area of Singapore — had good potential for underground cavern construction.
The tender closes June 6, and the consultant is expected to work with the Civil Aviation Authority of Singapore and the Energy Market Authority, among others.
other cavern projects:
• In March, the Ministry of Defence opened caverns under the disused Mandai Quarry to store ammunition such as bullets, bombs and missiles. The warehouse caverns – each about the size of six basketball courts – were blasted out of solid granite underneath the quarry, freeing up surface land the size of Pasir Ris town.
• The JTC is constructing the $2-billion Jurong Rock Cavern beneath Jurong Island, for use by petrochemical companies. The first caverns under Phase 1 should begin operations in 2010.
• A plan in the late 1990s to construct a Science City, a mixed-use commercial project, under Science Park 2 was derailed by cost factors.
Copyright MediaCorp Press Ltd. All rights reserved.
From Ministry HQ to office space
From Ministry HQ to office space
Site at Phoenix Park being put up for public tender to ease space crunch
Wednesday • May 14, 2008
Esther Fung
esther@mediacorp.com.sg
FANCY having your office desk in the room where Internal Security Department or British Secret Service officers may have once carried out interrogations?
To help ease the office space crunch, the Ministry of Home Affairs' former Phoenix Park headquarters in Tanglin Road is being put up for public tender.
"The master tenant will have much literal space and flexibility to do up the property," said Mr Winston Cheah, a senior manager at Singapore Land Authority (SLA), which is managing the tender.
The site's well-worn buildings are not only rich in national history and heritage, but come with a large land area.
Yesterday, 10 potential bidders turned up to view the 59,630 sq m site, which has been vacant since May 2006.
While there are some conservation guidelines such as height restrictions, the 31 separate low-rise buildings are proving attractive.
One potential bidder, Mr Danny Wong, marketing manager of Hean Nerng Holdings, said: "The potential is good here, because there are a lot of blocks. Companies will be better off leasing one whole block to themselves, rather than leasing in a commercial development where they've got to share different floors."
Mr Wong added: "Over here, they can have their own space, own entrance, so it's ideal for companies which want to have a very good corporate image front."
Combined, the buildings cover a gross floor area of 13,300 sq m. SLA has proposed an indicative rent of $165,0020 per month for the master tenant, who could sublet space or use it all themselves. This would be on a three-year tenure that is renewable till 2017.
Mr Donald Han, managing director of Cushman and Wakefield, said: "The advantage of this site is the sprawling land. To attract office users, you need ample car-park facilities."
The tender closes on June 4.
Copyright MediaCorp Press Ltd. All rights reserved.
Site at Phoenix Park being put up for public tender to ease space crunch
Wednesday • May 14, 2008
Esther Fung
esther@mediacorp.com.sg
FANCY having your office desk in the room where Internal Security Department or British Secret Service officers may have once carried out interrogations?
To help ease the office space crunch, the Ministry of Home Affairs' former Phoenix Park headquarters in Tanglin Road is being put up for public tender.
"The master tenant will have much literal space and flexibility to do up the property," said Mr Winston Cheah, a senior manager at Singapore Land Authority (SLA), which is managing the tender.
The site's well-worn buildings are not only rich in national history and heritage, but come with a large land area.
Yesterday, 10 potential bidders turned up to view the 59,630 sq m site, which has been vacant since May 2006.
While there are some conservation guidelines such as height restrictions, the 31 separate low-rise buildings are proving attractive.
One potential bidder, Mr Danny Wong, marketing manager of Hean Nerng Holdings, said: "The potential is good here, because there are a lot of blocks. Companies will be better off leasing one whole block to themselves, rather than leasing in a commercial development where they've got to share different floors."
Mr Wong added: "Over here, they can have their own space, own entrance, so it's ideal for companies which want to have a very good corporate image front."
Combined, the buildings cover a gross floor area of 13,300 sq m. SLA has proposed an indicative rent of $165,0020 per month for the master tenant, who could sublet space or use it all themselves. This would be on a three-year tenure that is renewable till 2017.
Mr Donald Han, managing director of Cushman and Wakefield, said: "The advantage of this site is the sprawling land. To attract office users, you need ample car-park facilities."
The tender closes on June 4.
Copyright MediaCorp Press Ltd. All rights reserved.
Buffer plan for funeral parlour hub in Sin Ming
Buffer plan for funeral parlour hub in Sin Ming
URA is already developing an industrial estate in front of the proposed complex to serve as a buffer between the residents and the new parlour site.
Daryll Nanayakara
Tue, May 13, 2008
my paper
PLANNERS for a "funeral parlour hub" which will house all the undertakers and funeral parlours in Singapore have taken the comments of hopeful Sin Ming residents into consideration.
In response to queries from my paper, the Urban Redevelopment Authority (URA) said it has been relooking and reconsidering its original plans. Based on residents' concerns, it is already developing an industrial estate in front of the proposed complex to serve as a buffer between the residents and the new parlour site.
A URA spokesman told my paper that the tender for the industrial site was won by MV Land. URA was unable to provide further details on the development.
Last October, the URA announced the plans to construct the one-stop bereavement centre at an empty plot of land in Sin Ming Drive next to Bright Hill Temple. The plot of land is about 80m - or two minutes' walk" from the nearest residential site, which comprises several blocks of HDB flats.
Residents nearby had argued that property prices in the area would drop. The residents added that such a "funeral hub" would affect them due to the noise from funeral processions.
Property agents my paper spoke to said that property in the Sin Ming area is in demand because it is easily accessible and is relatively near the Central district.
However, they confirmed the residents' fear of a drop in property prices.
ERA agent Darren Teo, 31, who has six years' experience, said that currently, a four-room HDB flat there fetches about $280,000. He estimated a drop of about $20,000 to $30,000 should the construction of the beareavement centre go ahead.
Mr David Lim, 32, also an ERA agent, explained that some potential buyers are likely to be driven away because the site would be considered inauspicious.
Mr Lim, who has been in the line for five years, said: "Nobody would want to live next to such a building. It?s like having a funeral under your void deck every day."
Already, there are at least 12 funeral parlours in two single-storey blocks in Sin Ming Drive, but these establishments are a 10-minute walk away from the nearest housing blocks.
Another factor that make the Sin Ming estate unattractive would be the commercialisation of the proposed funeral hub.
Property agent Allen Lee, 45, who has 15 years of experience, said: "If the parlours started advertising their businesses, property prices in Sin Ming would plunge."
One resident, public relations executive Jeannette Wang, 29, said: "There are already more than enough parlours here."
However, there are space constraints at the current site.
Manager of New Indian Casket Singapore, Mr K. Rajen, 50, said: "I would support the idea because that way, things would be organised, hygienic and there would be more space." However, others said there is no need to move into one building.
Mrs Ang Yew Seng, 50, who runs Ang Yew Seng Undertakers, said: "It is cheaper here now. I believe rental at the new place would really increase by more than 100 per cent. I would rather stay here."
Fellow undertaker John Tee, 53, echoed her sentiments. The manager of Hock Hin and Eternal Life Undertakers explained: "Right now, there is no restriction and problems because it is a small community of undertakers and everyone is understanding."
URA is already developing an industrial estate in front of the proposed complex to serve as a buffer between the residents and the new parlour site.
Daryll Nanayakara
Tue, May 13, 2008
my paper
PLANNERS for a "funeral parlour hub" which will house all the undertakers and funeral parlours in Singapore have taken the comments of hopeful Sin Ming residents into consideration.
In response to queries from my paper, the Urban Redevelopment Authority (URA) said it has been relooking and reconsidering its original plans. Based on residents' concerns, it is already developing an industrial estate in front of the proposed complex to serve as a buffer between the residents and the new parlour site.
A URA spokesman told my paper that the tender for the industrial site was won by MV Land. URA was unable to provide further details on the development.
Last October, the URA announced the plans to construct the one-stop bereavement centre at an empty plot of land in Sin Ming Drive next to Bright Hill Temple. The plot of land is about 80m - or two minutes' walk" from the nearest residential site, which comprises several blocks of HDB flats.
Residents nearby had argued that property prices in the area would drop. The residents added that such a "funeral hub" would affect them due to the noise from funeral processions.
Property agents my paper spoke to said that property in the Sin Ming area is in demand because it is easily accessible and is relatively near the Central district.
However, they confirmed the residents' fear of a drop in property prices.
ERA agent Darren Teo, 31, who has six years' experience, said that currently, a four-room HDB flat there fetches about $280,000. He estimated a drop of about $20,000 to $30,000 should the construction of the beareavement centre go ahead.
Mr David Lim, 32, also an ERA agent, explained that some potential buyers are likely to be driven away because the site would be considered inauspicious.
Mr Lim, who has been in the line for five years, said: "Nobody would want to live next to such a building. It?s like having a funeral under your void deck every day."
Already, there are at least 12 funeral parlours in two single-storey blocks in Sin Ming Drive, but these establishments are a 10-minute walk away from the nearest housing blocks.
Another factor that make the Sin Ming estate unattractive would be the commercialisation of the proposed funeral hub.
Property agent Allen Lee, 45, who has 15 years of experience, said: "If the parlours started advertising their businesses, property prices in Sin Ming would plunge."
One resident, public relations executive Jeannette Wang, 29, said: "There are already more than enough parlours here."
However, there are space constraints at the current site.
Manager of New Indian Casket Singapore, Mr K. Rajen, 50, said: "I would support the idea because that way, things would be organised, hygienic and there would be more space." However, others said there is no need to move into one building.
Mrs Ang Yew Seng, 50, who runs Ang Yew Seng Undertakers, said: "It is cheaper here now. I believe rental at the new place would really increase by more than 100 per cent. I would rather stay here."
Fellow undertaker John Tee, 53, echoed her sentiments. The manager of Hock Hin and Eternal Life Undertakers explained: "Right now, there is no restriction and problems because it is a small community of undertakers and everyone is understanding."
Tuesday, May 13, 2008
Old army barracks now a hip hangout for students
May 13, 2008
Old army barracks now a hip hangout for students
Colonial building on S'pore Polytechnic campus revamped at a cost of $1m
By Sumathi V. Selvaretnam
A FORMER home of British and Malayan soldiers has been converted into a hip hangout for students of the Singapore Polytechnic's Dover Road campus.
Called Moberly, the old barracks, refurbished at a cost of over $1 million, is the last colonial building on the campus.
The building's original facade is the only thing that has been retained; its interior space has been revamped and reconfigured to accommodate a LAN gaming room, music studios and a study area.
A former British soldier in town for the official launch of the student hub last week said: 'I'm sure the old soldiers would love it! I'm glad they didn't knock it down.'
Fond memories came flooding back for the now 70-year-old Barry Hardy as he toured the place, which was his home for six months in 1963, eight years before the British armed forces pulled out of Singapore.
It was not a hard posting. Even back then, the facility was modern and comfortable, compared to tents. It had ceiling fans and mosquito nets were not needed.
Mr Hardy recalled: 'We had a boot boy to clean our boots, polish the brass and make the beds, a man to do our laundry and an old, very shy Chinese lady to do our mending.'
Singapore Polytechnic began occupying the 33ha Princess Mary Barracks in 1971, when its Shenton Way campus could no longer hold its growing student intake.
The polytechnic demolished most of the colonial buildings there, save for Moberly, which housed the Civil Engineering and Building Department and the School of Nautical Studies.
In the late 1990s, it was renovated and used for co-curricular activities and student camps.
The idea to convert it into a student hub was thus a natural progression from that, said Mr Liew Beng Keong, director of the department of student and alumni affairs at the polytechnic.
To connect current users of the place to history, a museum has been set up in Moberly to display memorabilia like old trophies, teaching aids and historical documents donated by alumni and former staff members. Military insignia donated by former soldiers also take pride of place.
Moberly is fast becoming a hangout for the students.
Nick Koh, 19 and in his third year in the School of Electrical and Electronic Engineering, plays pool there thrice a week.
He said: 'When we are stressed or tired, we come by here to chill out with friends.'
STUDENT HUB: The Moberly's original facade is the only thing that has been retained. It now has a LAN gaming room, music studios and a study area. -- PHOTOS: SINGAPORE POLYTECHNIC
Old army barracks now a hip hangout for students
Colonial building on S'pore Polytechnic campus revamped at a cost of $1m
By Sumathi V. Selvaretnam
A FORMER home of British and Malayan soldiers has been converted into a hip hangout for students of the Singapore Polytechnic's Dover Road campus.
Called Moberly, the old barracks, refurbished at a cost of over $1 million, is the last colonial building on the campus.
The building's original facade is the only thing that has been retained; its interior space has been revamped and reconfigured to accommodate a LAN gaming room, music studios and a study area.
A former British soldier in town for the official launch of the student hub last week said: 'I'm sure the old soldiers would love it! I'm glad they didn't knock it down.'
Fond memories came flooding back for the now 70-year-old Barry Hardy as he toured the place, which was his home for six months in 1963, eight years before the British armed forces pulled out of Singapore.
It was not a hard posting. Even back then, the facility was modern and comfortable, compared to tents. It had ceiling fans and mosquito nets were not needed.
Mr Hardy recalled: 'We had a boot boy to clean our boots, polish the brass and make the beds, a man to do our laundry and an old, very shy Chinese lady to do our mending.'
Singapore Polytechnic began occupying the 33ha Princess Mary Barracks in 1971, when its Shenton Way campus could no longer hold its growing student intake.
The polytechnic demolished most of the colonial buildings there, save for Moberly, which housed the Civil Engineering and Building Department and the School of Nautical Studies.
In the late 1990s, it was renovated and used for co-curricular activities and student camps.
The idea to convert it into a student hub was thus a natural progression from that, said Mr Liew Beng Keong, director of the department of student and alumni affairs at the polytechnic.
To connect current users of the place to history, a museum has been set up in Moberly to display memorabilia like old trophies, teaching aids and historical documents donated by alumni and former staff members. Military insignia donated by former soldiers also take pride of place.
Moberly is fast becoming a hangout for the students.
Nick Koh, 19 and in his third year in the School of Electrical and Electronic Engineering, plays pool there thrice a week.
He said: 'When we are stressed or tired, we come by here to chill out with friends.'
STUDENT HUB: The Moberly's original facade is the only thing that has been retained. It now has a LAN gaming room, music studios and a study area. -- PHOTOS: SINGAPORE POLYTECHNIC
Luxury home prices down 2.1%, says report
May 13, 2008
Luxury home prices down 2.1%, says report
Number of foreign purchases fall; many buying homes in suburban areas
By Fiona Chan
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.
fiochan@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Luxury home prices down 2.1%, says report
Number of foreign purchases fall; many buying homes in suburban areas
By Fiona Chan
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.
fiochan@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
To pay or not to pay
May 13, 2008
WHEN SELLER'S AGENT CLAIMS FEE FROM HOME BUYER
To pay or not to pay
By Tan Hui Yee
ONE week after The Straits Times reported that housing agency PropNex was suing two independent home buyers for not paying its agent a fee, the firm withdrew its case.
The agent, Mr Ricky Low Yong Sern, had been hired by the seller of a $400,000 terrace house in Whampoa which marketing specialist Loh Yi Min and his wife, polytechnic lecturer Ariel Wee, bought last year. The couple had acted on their own without hiring an agent. They refused to sign the commission agreement to pay Mr Loh a fee equivalent to 1 per cent of the price of the property, which was classified as an HDB flat. Mr Low claimed he was entitled to the commission or a fee commensurate with the services that he said he had provided.
PropNex dropped its landmark suit as part of a confidential deal both sides reached through mediation last Tuesday. Given that the sum at stake - about $4,000 or less - would have been dwarfed by the roughly $10,000-per-day cost of a trial, it was surprising the case went as far as it did.
But the case is not unique in the HDB resale market, where a growing proportion of buyers and sellers is transacting without agents. Last year, 3.6 per cent - or 1,060 people - submitted their applications through the HDB's e-Resale system, which caters to buyers and sellers without agents. This figure has been creeping up - it was 2 per cent in 2003 and 3 per cent in 2005.
Growing awareness of consumer rights has given momentum to the debate over whether independent buyers need to pay a fee to sellers' agents. Adding to the controversy are rogue agents who mislead buyers into signing commission forms at the last minute by claiming it is a 'rule'.
Although the law does not stipulate who should pay the fee and how much is payable, it is common for sellers to pay their agents a sum equivalent to 2 per cent of the property's price, while buyers foot 1 per cent. If both sellers and buyers are represented by agents in an HDB flat transaction, both parties pay the fee to their own agents. This practice is known as co-broking.
Questions crop up when buyers act on their own - which is more common than sellers acting on their own. Many agents hired by sellers then try to claim a 1 per cent cut from buyers. This fee, peculiar to the HDB resale market, is levied because the quantum of commission on HDB deals is lower than that for private property deals, says the Institute of Estate Agents.
Agents and agencies cite other arguments:
Firstly, by advertising a property for sale, helping the buyer to make contact with its owner and negotiating the deal, the seller's agent provides a service to the buyer.
Secondly, when the deal is inked, the seller's agent has to do paperwork for the buyer, such as filling up the sale and purchase agreement and submitting the document.
Thirdly, since this 1 per cent fee is 'market practice', it is up to independent buyers to declare upfront they do not wish to pay it. If the buyer seals a deal without bringing up the matter, he would be tacitly agreeing a fee is payable.
But in the absence of a written commission agreement between an independent buyer and the seller's agent, these arguments hold little weight, say lawyers. Under Singapore law, commission deals can be verbal, so refusing to sign a form does not solve the problem. The bigger question is whether both sides are aware of the commission and agree that it should be paid at all.
Drew & Napier director Hri Kumar says that while the courts will take note of the prevailing 'market practice', an agent will find it difficult to prove that the buyer was aware of this 'practice' if the buyer is a layman.
Ramdas & Wong consultant Ellen Lee says the agents - deemed the 'experts' in this scenario - are obliged to inform the buyer upfront that they are levying a fee. 'If someone doesn't know (about the fee), he doesn't even know that he should say he is not paying it.'
But the buyer who is informed of such a fee and does not intend to pay has to object to it at the earliest possible instance. If he does not, he can be said to have agreed implicitly to pay, says Mr Freddi Lim, a partner at Trinity Law Corporation.
Awareness aside, what kind of acts can be considered 'services' that sellers' agents render buyers? The lawyers found it unlikely that introducing a buyer to a seller could be considered a service. Ms Lee points out that the seller's agent places a property ad and makes contact with potential buyers because he is duty-bound to market the home on behalf of his client. His role as a liaison does not give him an inherent right to claim a fee from the buyer. However, if that potential buyer subsequently asks the agent to, say, recommend suitable properties, he may be said to be soliciting the agent's services.
The question of whether handling paperwork constitutes a service to buyers is less clear-cut. This is because only one set of sale and purchase documents needs to be submitted to the Housing Board for the resale of a flat. Although the HDB does not stipulate which party should submit the form, the design of its online application system - through which most applications are made - places the burden of submission on the seller's agent if the buyer is not represented by an agent. This often means that sellers' agents fill up the form and submit the applications for both parties.
Assuming that the independent buyer has done his own checks to make sure he qualifies to buy the particular apartment, it is questionable whether a fee can be levied for such paperwork. Infinitus Law Corporation director Leo Cheng Suan, for example, feels such paperwork is simply part and parcel of the steps needed to complete a deal.
The HDB says: 'The submission mode should not be misused by housing agents as a basis for charging commissions (which), like payment for all types of services, are subject to negotiation.'
A large part of the validity of housing agents' claims hinges on what the agents disclose and when they do so in the dealings leading up to a sale. Unfortunately, many agents today produce commission payment slips only after a purchase is sealed. As Ms Wee says after settling her lawsuit with PropNex: 'Agents should state clearly the services they are providing to justify the fee they are charging.'
Until that happens, the industry will continue to be dogged by doubts over the ethics of its rank and file.
WHEN SELLER'S AGENT CLAIMS FEE FROM HOME BUYER
To pay or not to pay
By Tan Hui Yee
ONE week after The Straits Times reported that housing agency PropNex was suing two independent home buyers for not paying its agent a fee, the firm withdrew its case.
The agent, Mr Ricky Low Yong Sern, had been hired by the seller of a $400,000 terrace house in Whampoa which marketing specialist Loh Yi Min and his wife, polytechnic lecturer Ariel Wee, bought last year. The couple had acted on their own without hiring an agent. They refused to sign the commission agreement to pay Mr Loh a fee equivalent to 1 per cent of the price of the property, which was classified as an HDB flat. Mr Low claimed he was entitled to the commission or a fee commensurate with the services that he said he had provided.
PropNex dropped its landmark suit as part of a confidential deal both sides reached through mediation last Tuesday. Given that the sum at stake - about $4,000 or less - would have been dwarfed by the roughly $10,000-per-day cost of a trial, it was surprising the case went as far as it did.
But the case is not unique in the HDB resale market, where a growing proportion of buyers and sellers is transacting without agents. Last year, 3.6 per cent - or 1,060 people - submitted their applications through the HDB's e-Resale system, which caters to buyers and sellers without agents. This figure has been creeping up - it was 2 per cent in 2003 and 3 per cent in 2005.
Growing awareness of consumer rights has given momentum to the debate over whether independent buyers need to pay a fee to sellers' agents. Adding to the controversy are rogue agents who mislead buyers into signing commission forms at the last minute by claiming it is a 'rule'.
Although the law does not stipulate who should pay the fee and how much is payable, it is common for sellers to pay their agents a sum equivalent to 2 per cent of the property's price, while buyers foot 1 per cent. If both sellers and buyers are represented by agents in an HDB flat transaction, both parties pay the fee to their own agents. This practice is known as co-broking.
Questions crop up when buyers act on their own - which is more common than sellers acting on their own. Many agents hired by sellers then try to claim a 1 per cent cut from buyers. This fee, peculiar to the HDB resale market, is levied because the quantum of commission on HDB deals is lower than that for private property deals, says the Institute of Estate Agents.
Agents and agencies cite other arguments:
Firstly, by advertising a property for sale, helping the buyer to make contact with its owner and negotiating the deal, the seller's agent provides a service to the buyer.
Secondly, when the deal is inked, the seller's agent has to do paperwork for the buyer, such as filling up the sale and purchase agreement and submitting the document.
Thirdly, since this 1 per cent fee is 'market practice', it is up to independent buyers to declare upfront they do not wish to pay it. If the buyer seals a deal without bringing up the matter, he would be tacitly agreeing a fee is payable.
But in the absence of a written commission agreement between an independent buyer and the seller's agent, these arguments hold little weight, say lawyers. Under Singapore law, commission deals can be verbal, so refusing to sign a form does not solve the problem. The bigger question is whether both sides are aware of the commission and agree that it should be paid at all.
Drew & Napier director Hri Kumar says that while the courts will take note of the prevailing 'market practice', an agent will find it difficult to prove that the buyer was aware of this 'practice' if the buyer is a layman.
Ramdas & Wong consultant Ellen Lee says the agents - deemed the 'experts' in this scenario - are obliged to inform the buyer upfront that they are levying a fee. 'If someone doesn't know (about the fee), he doesn't even know that he should say he is not paying it.'
But the buyer who is informed of such a fee and does not intend to pay has to object to it at the earliest possible instance. If he does not, he can be said to have agreed implicitly to pay, says Mr Freddi Lim, a partner at Trinity Law Corporation.
Awareness aside, what kind of acts can be considered 'services' that sellers' agents render buyers? The lawyers found it unlikely that introducing a buyer to a seller could be considered a service. Ms Lee points out that the seller's agent places a property ad and makes contact with potential buyers because he is duty-bound to market the home on behalf of his client. His role as a liaison does not give him an inherent right to claim a fee from the buyer. However, if that potential buyer subsequently asks the agent to, say, recommend suitable properties, he may be said to be soliciting the agent's services.
The question of whether handling paperwork constitutes a service to buyers is less clear-cut. This is because only one set of sale and purchase documents needs to be submitted to the Housing Board for the resale of a flat. Although the HDB does not stipulate which party should submit the form, the design of its online application system - through which most applications are made - places the burden of submission on the seller's agent if the buyer is not represented by an agent. This often means that sellers' agents fill up the form and submit the applications for both parties.
Assuming that the independent buyer has done his own checks to make sure he qualifies to buy the particular apartment, it is questionable whether a fee can be levied for such paperwork. Infinitus Law Corporation director Leo Cheng Suan, for example, feels such paperwork is simply part and parcel of the steps needed to complete a deal.
The HDB says: 'The submission mode should not be misused by housing agents as a basis for charging commissions (which), like payment for all types of services, are subject to negotiation.'
A large part of the validity of housing agents' claims hinges on what the agents disclose and when they do so in the dealings leading up to a sale. Unfortunately, many agents today produce commission payment slips only after a purchase is sealed. As Ms Wee says after settling her lawsuit with PropNex: 'Agents should state clearly the services they are providing to justify the fee they are charging.'
Until that happens, the industry will continue to be dogged by doubts over the ethics of its rank and file.
Revamp for Shaw House, Shaw Centre?
Revamp for Shaw House, Shaw Centre?
Tuesday • May 13, 2008
ANOTHER landmark near Orchard Road may soon get a facelift: Channel NewsAsia understands that Shaw Organisation is considering a major redevelopment of Shaw House (picture) and its neighbouring Shaw Centre, with work to possibly start in the later half of next year.
According to sources, an official announcement is expected by August. The news comes even as some tenants have moved out in recent months following a spike in rentals from $6 to as much as $16 per square foot.
Plans are reportedly in the pipeline to expand Shaw Organisation's Lido Cineplex, and to add more retail space. The corporation is understood to be in talks with architects. But it has not decided if the redevelopment plans should include its office and retail spaces in Shaw Centre.
Market watchers said it is likely the new site would include new residential spaces, but they do not expect the redevelopment works to have a big impact on retail space and shop rentals.
Said Knight Frank's Mr Nicholas Mak: "In about 12 months, we're going to see some new developments coming up on Orchard Road. So, if a major retail mall were to temporarily be taken offline, I think that vacuum could be filled by some of these new malls."
Copyright MediaCorp Press Ltd. All rights reserved.
Tuesday • May 13, 2008
ANOTHER landmark near Orchard Road may soon get a facelift: Channel NewsAsia understands that Shaw Organisation is considering a major redevelopment of Shaw House (picture) and its neighbouring Shaw Centre, with work to possibly start in the later half of next year.
According to sources, an official announcement is expected by August. The news comes even as some tenants have moved out in recent months following a spike in rentals from $6 to as much as $16 per square foot.
Plans are reportedly in the pipeline to expand Shaw Organisation's Lido Cineplex, and to add more retail space. The corporation is understood to be in talks with architects. But it has not decided if the redevelopment plans should include its office and retail spaces in Shaw Centre.
Market watchers said it is likely the new site would include new residential spaces, but they do not expect the redevelopment works to have a big impact on retail space and shop rentals.
Said Knight Frank's Mr Nicholas Mak: "In about 12 months, we're going to see some new developments coming up on Orchard Road. So, if a major retail mall were to temporarily be taken offline, I think that vacuum could be filled by some of these new malls."
Copyright MediaCorp Press Ltd. All rights reserved.
Underground 'city' to free up space
Business Times - 13 May 2008
Underground 'city' to free up space
Possibilities include power stations and logistics centres beneath the surface
By RONNIE LIM
(SINGAPORE) Singapore is looking at building underground power stations, water reclamation plants, wafer fabs and R&D labs, data centres, warehouses and port and airport logistics centres to free up surface land for other economic uses.
Industrial landlord Jurong Town Corporation has called a tender for a wide-ranging 'underground rock cavern (URC) usage feasibility study' to see how best caverns beneath the island can be used.
The consultant awarded the study will have to work with various government agencies on possible uses for the caverns.
For instance, it will have to work with the Energy Market Authority on power stations, the Civil Aviation Authority of Singapore on airport logistics, or the Public Utilities Board on water reclamation plants.
The study will cover such 'space, technical and functional requirements, operation and maintenance requirements and identification of issues of concern', the tender document says.
The tender, called on Friday last week, closes on June 6. Due to the specialised nature of the project, only tenderers with proven URC expertise and experience are eligible.
The winning consultant will have to identify and study proven URC usage in other countries and determine the technical and operational feasibility of such usage here.
The consultant will also have to look at the environment, health and the likely public reaction on such matters as radiation and pollution, harmful airborne particles and damage to existing buildings or infrastructure, among other things.
A JTC spokeswoman said yesterday JTC will be the facilitator for the multi-agency study. 'The study will look at possible uses for URCs as well as costs,' she said. 'The latter include costs for excavation and facility construction for each specific use.'
JTC declined to say which areas of Singapore have potential for URCs. 'The latest feasibility study is looking just at usage, and not sites,' the spokeswoman noted.
Singapore has so far used underground caverns for munitions storage for the defence forces. It blasted caverns out of granite beneath the disused Mandai Quarry.
And it is currently constructing Phase 1 of the $700 million Jurong Rock Cavern (JRC) project beneath Jurong Island to store 1.485 million cu m of crude oil and oil products like naphtha, condensate and gas oil.
JRC will be used by petrochemical companies such as Jurong Aromatics Corporation, which is building a US$2 billion aromatics complex and is the first committed customer.
The first of five caverns being built under Phase 1 will start operating at end-2010. Phase 2 of the project will add another 1.3 million cu m of storage.
In March, when Defence Minister Teo Chee Hean commissioned the underground munitions facility at Mandai, he said it would free up 300 ha of land - half the size of Pasir Ris Town - and need 20 per cent less manpower to operate than a surface facility.
Likewise, JRC will free up 60 ha of surface space - bigger than Bishan Park - to accommodate the storage needs of the oil industry here.
Land on Jurong Island is being snapped up by new petrochemical investors. BT understands that no more land is available from JTC for above-ground oil storage terminals, after Hin Leong's Universal Terminal and Emirates National Oil Company's Horizon Terminal.
Industrial landlord Jurong Town Corporation has called a tender for a wide-ranging 'underground rock cavern usage feasibility study' to see how best caverns beneath the island can be used.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Underground 'city' to free up space
Possibilities include power stations and logistics centres beneath the surface
By RONNIE LIM
(SINGAPORE) Singapore is looking at building underground power stations, water reclamation plants, wafer fabs and R&D labs, data centres, warehouses and port and airport logistics centres to free up surface land for other economic uses.
Industrial landlord Jurong Town Corporation has called a tender for a wide-ranging 'underground rock cavern (URC) usage feasibility study' to see how best caverns beneath the island can be used.
The consultant awarded the study will have to work with various government agencies on possible uses for the caverns.
For instance, it will have to work with the Energy Market Authority on power stations, the Civil Aviation Authority of Singapore on airport logistics, or the Public Utilities Board on water reclamation plants.
The study will cover such 'space, technical and functional requirements, operation and maintenance requirements and identification of issues of concern', the tender document says.
The tender, called on Friday last week, closes on June 6. Due to the specialised nature of the project, only tenderers with proven URC expertise and experience are eligible.
The winning consultant will have to identify and study proven URC usage in other countries and determine the technical and operational feasibility of such usage here.
The consultant will also have to look at the environment, health and the likely public reaction on such matters as radiation and pollution, harmful airborne particles and damage to existing buildings or infrastructure, among other things.
A JTC spokeswoman said yesterday JTC will be the facilitator for the multi-agency study. 'The study will look at possible uses for URCs as well as costs,' she said. 'The latter include costs for excavation and facility construction for each specific use.'
JTC declined to say which areas of Singapore have potential for URCs. 'The latest feasibility study is looking just at usage, and not sites,' the spokeswoman noted.
Singapore has so far used underground caverns for munitions storage for the defence forces. It blasted caverns out of granite beneath the disused Mandai Quarry.
And it is currently constructing Phase 1 of the $700 million Jurong Rock Cavern (JRC) project beneath Jurong Island to store 1.485 million cu m of crude oil and oil products like naphtha, condensate and gas oil.
JRC will be used by petrochemical companies such as Jurong Aromatics Corporation, which is building a US$2 billion aromatics complex and is the first committed customer.
The first of five caverns being built under Phase 1 will start operating at end-2010. Phase 2 of the project will add another 1.3 million cu m of storage.
In March, when Defence Minister Teo Chee Hean commissioned the underground munitions facility at Mandai, he said it would free up 300 ha of land - half the size of Pasir Ris Town - and need 20 per cent less manpower to operate than a surface facility.
Likewise, JRC will free up 60 ha of surface space - bigger than Bishan Park - to accommodate the storage needs of the oil industry here.
Land on Jurong Island is being snapped up by new petrochemical investors. BT understands that no more land is available from JTC for above-ground oil storage terminals, after Hin Leong's Universal Terminal and Emirates National Oil Company's Horizon Terminal.
Industrial landlord Jurong Town Corporation has called a tender for a wide-ranging 'underground rock cavern usage feasibility study' to see how best caverns beneath the island can be used.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
A bull market is still some way away
Business Times - 13 May 2008
A bull market is still some way away
STOCK market bulls have been quick to proclaim the end of the bear market and the re-emergence of a fresh bull. The turning point, it is said, came in March when the US Federal Reserve helped bail out failed US bank Bear Stearns and announced various extraordinary term lending facilities that flooded credit markets with liquidity, thus helping ease strains. Since then, stocks have rebounded smartly, by an average of 10-15 per cent worldwide in the hope that the worst is over. Last week, US Treasury Secretary Henry Paulson spoke of the worst being behind us and that he is 'feeling better about the markets'.
Should everyone share this optimism? While there is some room for encouragement today compared to two months ago, there is still plenty to worry about that investors may have glossed over. An easing of pressure in credit markets may mean that credit conditions have improved, which in turn suggests that this particular facet of the crisis may be over. However, it does not necessarily mean that the impact on earnings and the economy has been fully discounted, nor does it herald an immediate return of strong, bull market-quality growth.
A skyrocketing oil price at around US$125 now is one problem that markets have under-appreciated. Even the most optimistic observers now concede that a price of US$200 per barrel within the next few years is a realistic possibility, a level which was inconceivable as recently as four years ago when the price was US$35. Needless to say, oil at such high levels would seriously damage growth. Combined with record-high commodity prices, the resultant inflationary pressure means that central banks everywhere will find their hands tied when it comes to lowering interest rates.
The Fed was among the first monetary authority to signal this when it cut its federal funds rate from 2.25 per cent to 2 per cent at its April 30 Open Market Committee meeting but said that 'uncertainty about the inflation outlook remains high', a statement that may be interpreted to mean that the present easing cycle is at, or very near, an end.
Furthermore, the Bank of England last Thursday left rates at 5 per cent, dashing hopes that a string of weak UK economic data might have prompted an easing, while the European Central Bank also kept rates unchanged at 4 per cent. If these moves are an indication of things to come, then it's possible that the months ahead would see higher interest rates. The full effects of the sub-prime crisis may not be reflected in the economic numbers yet. Moreover, there is the possibility that a severe slowdown could trigger a second wave of defaults, this time in corporate and consumer debt. If this occurs, the consequences for banks could be painful.
All told, the best that can be said is that although pressures have eased in credit markets, the repercussions of the sub-prime crisis may not have fully played out yet and it would be premature to assume that a bull market has returned.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
A bull market is still some way away
STOCK market bulls have been quick to proclaim the end of the bear market and the re-emergence of a fresh bull. The turning point, it is said, came in March when the US Federal Reserve helped bail out failed US bank Bear Stearns and announced various extraordinary term lending facilities that flooded credit markets with liquidity, thus helping ease strains. Since then, stocks have rebounded smartly, by an average of 10-15 per cent worldwide in the hope that the worst is over. Last week, US Treasury Secretary Henry Paulson spoke of the worst being behind us and that he is 'feeling better about the markets'.
Should everyone share this optimism? While there is some room for encouragement today compared to two months ago, there is still plenty to worry about that investors may have glossed over. An easing of pressure in credit markets may mean that credit conditions have improved, which in turn suggests that this particular facet of the crisis may be over. However, it does not necessarily mean that the impact on earnings and the economy has been fully discounted, nor does it herald an immediate return of strong, bull market-quality growth.
A skyrocketing oil price at around US$125 now is one problem that markets have under-appreciated. Even the most optimistic observers now concede that a price of US$200 per barrel within the next few years is a realistic possibility, a level which was inconceivable as recently as four years ago when the price was US$35. Needless to say, oil at such high levels would seriously damage growth. Combined with record-high commodity prices, the resultant inflationary pressure means that central banks everywhere will find their hands tied when it comes to lowering interest rates.
The Fed was among the first monetary authority to signal this when it cut its federal funds rate from 2.25 per cent to 2 per cent at its April 30 Open Market Committee meeting but said that 'uncertainty about the inflation outlook remains high', a statement that may be interpreted to mean that the present easing cycle is at, or very near, an end.
Furthermore, the Bank of England last Thursday left rates at 5 per cent, dashing hopes that a string of weak UK economic data might have prompted an easing, while the European Central Bank also kept rates unchanged at 4 per cent. If these moves are an indication of things to come, then it's possible that the months ahead would see higher interest rates. The full effects of the sub-prime crisis may not be reflected in the economic numbers yet. Moreover, there is the possibility that a severe slowdown could trigger a second wave of defaults, this time in corporate and consumer debt. If this occurs, the consequences for banks could be painful.
All told, the best that can be said is that although pressures have eased in credit markets, the repercussions of the sub-prime crisis may not have fully played out yet and it would be premature to assume that a bull market has returned.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Bubble, bubble, is oil really in trouble?
Business Times - 13 May 2008
Bubble, bubble, is oil really in trouble?
By PAUL KRUGMAN
'THE oil bubble: set to burst?' That was the headline of an October 2004 article in National Review, which argued that oil prices, then US$50 a barrel, would soon collapse.
Ten months later, oil was selling for US$70 a barrel. 'It's a huge bubble,' declared Steve Forbes, the publisher, who warned that the coming crash in oil prices would make the popping of the technology bubble 'look like a picnic'. All through oil's five-year price surge, which has taken it from US$25 a barrel to last week's close above US$125, there have been many voices declaring that it's all a bubble, unsupported by the fundamentals of supply and demand.
So here are two questions: Are speculators mainly, or even largely, responsible for high oil prices? And if they aren't, why have so many commentators insisted, year after year, that there's an oil bubble? Now, speculators do sometimes push commodity prices far above the level justified by fundamentals. But when that happens, there are telltale signs that just aren't there in today's oil market.
Imagine what would happen if the oil market were humming along, with supply and demand balanced at a price of US$25 a barrel, and a bunch of speculators came in and drove the price up to US$100.
Even if this were purely a financial play on the part of the speculators, it would have major consequences in the material world.
Faced with higher prices, drivers would cut back on their driving; homeowners would turn down their thermostats; owners of marginal oil wells would put them back into production.
As a result, the initial balance between supply and demand would be broken, replaced with a situation in which supply exceeded demand. This excess supply would, in turn, drive prices back down again - unless someone were willing to buy up the excess and take it off the market.
The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding - an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.
But it hasn't happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels.
This tells us that the rise in oil prices isn't the result of runaway speculation; it's the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.
Saying that high-priced oil isn't a bubble doesn't mean that oil prices will never decline. I wouldn't be shocked if a pullback in demand, driven by delayed effects of high prices, sends the price of crude back below US$100 for a while. But it does mean that speculators aren't at the heart of the story.
Why, then, do we keep hearing assertions that they are? Part of the answer may be the undoubted fact that many people are now investing in oil futures - which feeds suspicion that speculators are running the show, even though there's no good evidence that prices have gotten out of line.
But there's also a political component.
Traditionally, denunciations of speculators come from the left of the political spectrum. In the case of oil prices, however, the most vociferous proponents of the view that it's all the speculators' fault have been conservatives - people whom you wouldn't normally expect to see warning about the nefarious activities of investment banks and hedge funds.
The explanation of this seeming paradox is that wishful thinking has trumped pro-market ideology. After all, a realistic view of what's happened over the past few years suggests that we're heading into an era of increasingly scarce, costly oil.
The consequences of that scarcity likely won't be apocalyptic: France consumes only half as much oil per capita as America, yet the last time I looked, Paris wasn't a howling wasteland. But the odds are that we're looking at a future in which energy conservation becomes increasingly important, in which many people may even - gasp - take public transit to work.
I don't find that vision particularly abhorrent, but a lot of people, especially on the right, do. And so they want to believe that if only Goldman Sachs would stop having such a negative attitude, we'd quickly return to the good old days of abundant oil.
Again, I wouldn't be shocked if oil prices dip in the near future - although I also take seriously Goldman's recent warning that the price could go to US$200. But let's drop all the talk about an oil bubble. -- NYT
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Bubble, bubble, is oil really in trouble?
By PAUL KRUGMAN
'THE oil bubble: set to burst?' That was the headline of an October 2004 article in National Review, which argued that oil prices, then US$50 a barrel, would soon collapse.
Ten months later, oil was selling for US$70 a barrel. 'It's a huge bubble,' declared Steve Forbes, the publisher, who warned that the coming crash in oil prices would make the popping of the technology bubble 'look like a picnic'. All through oil's five-year price surge, which has taken it from US$25 a barrel to last week's close above US$125, there have been many voices declaring that it's all a bubble, unsupported by the fundamentals of supply and demand.
So here are two questions: Are speculators mainly, or even largely, responsible for high oil prices? And if they aren't, why have so many commentators insisted, year after year, that there's an oil bubble? Now, speculators do sometimes push commodity prices far above the level justified by fundamentals. But when that happens, there are telltale signs that just aren't there in today's oil market.
Imagine what would happen if the oil market were humming along, with supply and demand balanced at a price of US$25 a barrel, and a bunch of speculators came in and drove the price up to US$100.
Even if this were purely a financial play on the part of the speculators, it would have major consequences in the material world.
Faced with higher prices, drivers would cut back on their driving; homeowners would turn down their thermostats; owners of marginal oil wells would put them back into production.
As a result, the initial balance between supply and demand would be broken, replaced with a situation in which supply exceeded demand. This excess supply would, in turn, drive prices back down again - unless someone were willing to buy up the excess and take it off the market.
The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding - an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.
But it hasn't happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels.
This tells us that the rise in oil prices isn't the result of runaway speculation; it's the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.
Saying that high-priced oil isn't a bubble doesn't mean that oil prices will never decline. I wouldn't be shocked if a pullback in demand, driven by delayed effects of high prices, sends the price of crude back below US$100 for a while. But it does mean that speculators aren't at the heart of the story.
Why, then, do we keep hearing assertions that they are? Part of the answer may be the undoubted fact that many people are now investing in oil futures - which feeds suspicion that speculators are running the show, even though there's no good evidence that prices have gotten out of line.
But there's also a political component.
Traditionally, denunciations of speculators come from the left of the political spectrum. In the case of oil prices, however, the most vociferous proponents of the view that it's all the speculators' fault have been conservatives - people whom you wouldn't normally expect to see warning about the nefarious activities of investment banks and hedge funds.
The explanation of this seeming paradox is that wishful thinking has trumped pro-market ideology. After all, a realistic view of what's happened over the past few years suggests that we're heading into an era of increasingly scarce, costly oil.
The consequences of that scarcity likely won't be apocalyptic: France consumes only half as much oil per capita as America, yet the last time I looked, Paris wasn't a howling wasteland. But the odds are that we're looking at a future in which energy conservation becomes increasingly important, in which many people may even - gasp - take public transit to work.
I don't find that vision particularly abhorrent, but a lot of people, especially on the right, do. And so they want to believe that if only Goldman Sachs would stop having such a negative attitude, we'd quickly return to the good old days of abundant oil.
Again, I wouldn't be shocked if oil prices dip in the near future - although I also take seriously Goldman's recent warning that the price could go to US$200. But let's drop all the talk about an oil bubble. -- NYT
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
NZ house sales slump to 16-yr low
Business Times - 13 May 2008
NZ house sales slump to 16-yr low
(WELLINGTON) New Zealand house sales fell to their lowest level in 16 years in April, the Real Estate Institute of New Zealand (REINZ) said yesterday.
Sales by Real Estate Institute members fell to 4,464 houses in the month, a fall of 13 per cent on March. The figure was 45.5 per cent lower than a year earlier.
It was the lowest monthly sales total since January 1992, when 4,427 properties were sold, REINZ said.
'April shows that the loss of confidence in the housing market is deeper than we had anticipated,' national president Murray Cleland said in a statement.
The REINZ national median house price fell 1.1 per cent to NZ$345,000 (S$363,195) from the month before, to end 1.1 per cent lower than a year earlier.
Business and consumer confidence has eroded sharply over the past two months in the face of high interest rates and reduced activity, leading some commentators to talk of the economy going into recession.
The median number of days taken to sell a house was 44 from 40 in March and 28 days a year ago.
The Reserve Bank of New Zealand, which has kept its official cash rate at a record 8.25 since July last year, has noted the slowing housing market.
Last week, it said if credit conditions become too tight because of a re-emergence of financial market turmoil, the economic and housing slowdown could be exacerbated.
The latest Reuters poll has 12 of the 16 economists surveyed expecting rate cuts to begin by September this year.
Prices fell in five of the REINZ's 12 regions and rose in seven.
'About the only glimmer of hope was the fact that a number of regions saw their median prices recover, suggesting that the March figures were something of an aberration. However, the trend overall is for declining house values,' Mr Cleland said.
Prices in the Auckland region, the country's biggest population and commercial centre, rose 3 per cent, although sales tumbled 16.7 per cent. Prices in the capital Wellington slipped 8.5 per cent\. \-- Reuters
NZ house sales slump to 16-yr low
(WELLINGTON) New Zealand house sales fell to their lowest level in 16 years in April, the Real Estate Institute of New Zealand (REINZ) said yesterday.
Sales by Real Estate Institute members fell to 4,464 houses in the month, a fall of 13 per cent on March. The figure was 45.5 per cent lower than a year earlier.
It was the lowest monthly sales total since January 1992, when 4,427 properties were sold, REINZ said.
'April shows that the loss of confidence in the housing market is deeper than we had anticipated,' national president Murray Cleland said in a statement.
The REINZ national median house price fell 1.1 per cent to NZ$345,000 (S$363,195) from the month before, to end 1.1 per cent lower than a year earlier.
Business and consumer confidence has eroded sharply over the past two months in the face of high interest rates and reduced activity, leading some commentators to talk of the economy going into recession.
The median number of days taken to sell a house was 44 from 40 in March and 28 days a year ago.
The Reserve Bank of New Zealand, which has kept its official cash rate at a record 8.25 since July last year, has noted the slowing housing market.
Last week, it said if credit conditions become too tight because of a re-emergence of financial market turmoil, the economic and housing slowdown could be exacerbated.
The latest Reuters poll has 12 of the 16 economists surveyed expecting rate cuts to begin by September this year.
Prices fell in five of the REINZ's 12 regions and rose in seven.
'About the only glimmer of hope was the fact that a number of regions saw their median prices recover, suggesting that the March figures were something of an aberration. However, the trend overall is for declining house values,' Mr Cleland said.
Prices in the Auckland region, the country's biggest population and commercial centre, rose 3 per cent, although sales tumbled 16.7 per cent. Prices in the capital Wellington slipped 8.5 per cent\. \-- Reuters
Japan's housing glut adding to growth fears
Business Times - 13 May 2008
Japan's housing glut adding to growth fears
Scandal over falsified engineering data at root of housing problem
(TOKYO) When a regulatory hitch hit Japan's housing sector last year, Tokyo assumed the crunch would be short-lived. But almost a year later, a growing backlog of unsold apartments threatens to dent already feeble economic growth.
Rather than making a modest positive contribution to overall growth as the government had hoped, housing is now likely to offer little or no help, with one pessimist suggesting it could knock a full percentage point off growth this year.
'Developers are running their businesses on a hand-to-mouth basis. We cannot sit back on condominiums that are not selling,' said Hiroyuki Ito of developer Azel Corporation.
At the root of Japan's housing debacle is not loose lending or the popping of a price bubble, as in the US, but a scandal over falsified engineering data for new apartment buildings that prompted an overhaul of regulations.
The new rules, in force since last June, require additional checks of structural calculations for new buildings and have extended a checking period, delaying construction approvals by several months.
Furthermore, bureaucrats had failed to get the guidelines on the new rules ready in time, keeping the market in a limbo for two months. As a result, housing starts in the second half of last year plunged 30 per cent from the same period of 2006, shaving 0.4 per centage points of overall economic growth in 2007.
The downturn has knocked down real estate stocks, such as Mitsui Fudosan and Mitsubishi Estate, and is blamed for the bankruptcy of more than 60 smaller firms and lost jobs of hundreds of workers, from plumbers to printers.
The government has bet on a recovery once builders got used to the new rules, predicting that housing investment would rise 9 per cent over the next year after a 12.7 per cent plunge in the year to March, adding 0.3 percentage point to overall economic growth.
But just as the effect of the new regulations began tapering off, so did demand, and developers found it hard to sell completed apartments to increasingly tight-fisted consumers, worried by stagnant wages and worsening business prospects.
The growing backlog of unsold homes in turn hit new construction and the latest available data from March showed that housing starts plunged 15.6 per cent from a year earlier.
Housing investment accounts for only about 3 per cent of the economy, says Takashi Ishizawa, chief real estate analyst at Mizuho Securities Co. But he warns that the slump's ripple effect on sectors ranging from interior decorators to makers of cars and furniture could cut total investment by up to five trillion yen (S$66 billion) - about one per cent of the economy - in the year to March 2009.
'Housing starts will not rebound much this year because we cannot expect an improvement in condominium sales,' he said.
Sales of new apartments fell to a 14- year low in Tokyo and neighbouring prefectures in the year to March, while average prices hit a 15-year high, according to the Real Estate Economic Institute, a property market research firm.
The fate of a condominium block in Higashimurayama in Western Tokyo seems to justify Mr Ishi-zawa's pessimism. Last year, several such apartments were sold ahead of completion. Now prices are being cut as the builders pack up.
'We had sold only half the 249 blocks that went on sale last year,' said Mikiko Yoshida of developer Nippon Steel City Produce Inc. 'We have cut the prices by around 20 per cent to boost sales.'
The central bank, which has already dropped its interest rate tightening bias in the face of the global credit crunch and economic slowdown, has also become sceptical about the health of the Japanese housing sector. It said issues such as a rising inventory of unsold condominiums and stalling investment in rental homes by real estate funds facing a less favourable financial environment would allow only a modest recovery.
Analysts expect a slightly positive contribution from housing investment to first quarter economic growth, seen at 0.6 per cent, but some have cut their longer-term outlooks.
Morgan Stanley last week cut its forecast for housing investment to a fall of 0.5 per cent for the year to March 2009, from a previous prediction of 3 per cent growth.
'The impact of the change that has caused delays in work on new buildings may run its course,' said Takehiro Sato, chief economist at Morgan Stanley. 'But lack of consumer demand will weigh on housing investment.'
Today's weakness contrasts with a period a few years ago when rising interest rates and higher home prices in Tokyo had real estate agents pushing people to buy while they could.
For developers, the squeeze is likely to get worse before it gets better as higher costs of oil, steel and other raw materials, and rising land prices in urban areas make it harder to cut prices aggressively and clear out inventories. But industry officials say consumers are unlikely to budge and will hold out for substantial price cuts, delaying a much-anticipated recovery. -- Reuters
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Japan's housing glut adding to growth fears
Scandal over falsified engineering data at root of housing problem
(TOKYO) When a regulatory hitch hit Japan's housing sector last year, Tokyo assumed the crunch would be short-lived. But almost a year later, a growing backlog of unsold apartments threatens to dent already feeble economic growth.
Rather than making a modest positive contribution to overall growth as the government had hoped, housing is now likely to offer little or no help, with one pessimist suggesting it could knock a full percentage point off growth this year.
'Developers are running their businesses on a hand-to-mouth basis. We cannot sit back on condominiums that are not selling,' said Hiroyuki Ito of developer Azel Corporation.
At the root of Japan's housing debacle is not loose lending or the popping of a price bubble, as in the US, but a scandal over falsified engineering data for new apartment buildings that prompted an overhaul of regulations.
The new rules, in force since last June, require additional checks of structural calculations for new buildings and have extended a checking period, delaying construction approvals by several months.
Furthermore, bureaucrats had failed to get the guidelines on the new rules ready in time, keeping the market in a limbo for two months. As a result, housing starts in the second half of last year plunged 30 per cent from the same period of 2006, shaving 0.4 per centage points of overall economic growth in 2007.
The downturn has knocked down real estate stocks, such as Mitsui Fudosan and Mitsubishi Estate, and is blamed for the bankruptcy of more than 60 smaller firms and lost jobs of hundreds of workers, from plumbers to printers.
The government has bet on a recovery once builders got used to the new rules, predicting that housing investment would rise 9 per cent over the next year after a 12.7 per cent plunge in the year to March, adding 0.3 percentage point to overall economic growth.
But just as the effect of the new regulations began tapering off, so did demand, and developers found it hard to sell completed apartments to increasingly tight-fisted consumers, worried by stagnant wages and worsening business prospects.
The growing backlog of unsold homes in turn hit new construction and the latest available data from March showed that housing starts plunged 15.6 per cent from a year earlier.
Housing investment accounts for only about 3 per cent of the economy, says Takashi Ishizawa, chief real estate analyst at Mizuho Securities Co. But he warns that the slump's ripple effect on sectors ranging from interior decorators to makers of cars and furniture could cut total investment by up to five trillion yen (S$66 billion) - about one per cent of the economy - in the year to March 2009.
'Housing starts will not rebound much this year because we cannot expect an improvement in condominium sales,' he said.
Sales of new apartments fell to a 14- year low in Tokyo and neighbouring prefectures in the year to March, while average prices hit a 15-year high, according to the Real Estate Economic Institute, a property market research firm.
The fate of a condominium block in Higashimurayama in Western Tokyo seems to justify Mr Ishi-zawa's pessimism. Last year, several such apartments were sold ahead of completion. Now prices are being cut as the builders pack up.
'We had sold only half the 249 blocks that went on sale last year,' said Mikiko Yoshida of developer Nippon Steel City Produce Inc. 'We have cut the prices by around 20 per cent to boost sales.'
The central bank, which has already dropped its interest rate tightening bias in the face of the global credit crunch and economic slowdown, has also become sceptical about the health of the Japanese housing sector. It said issues such as a rising inventory of unsold condominiums and stalling investment in rental homes by real estate funds facing a less favourable financial environment would allow only a modest recovery.
Analysts expect a slightly positive contribution from housing investment to first quarter economic growth, seen at 0.6 per cent, but some have cut their longer-term outlooks.
Morgan Stanley last week cut its forecast for housing investment to a fall of 0.5 per cent for the year to March 2009, from a previous prediction of 3 per cent growth.
'The impact of the change that has caused delays in work on new buildings may run its course,' said Takehiro Sato, chief economist at Morgan Stanley. 'But lack of consumer demand will weigh on housing investment.'
Today's weakness contrasts with a period a few years ago when rising interest rates and higher home prices in Tokyo had real estate agents pushing people to buy while they could.
For developers, the squeeze is likely to get worse before it gets better as higher costs of oil, steel and other raw materials, and rising land prices in urban areas make it harder to cut prices aggressively and clear out inventories. But industry officials say consumers are unlikely to budge and will hold out for substantial price cuts, delaying a much-anticipated recovery. -- Reuters
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
A bull market is still some way away
Business Times - 13 May 2008
A bull market is still some way away
STOCK market bulls have been quick to proclaim the end of the bear market and the re-emergence of a fresh bull. The turning point, it is said, came in March when the US Federal Reserve helped bail out failed US bank Bear Stearns and announced various extraordinary term lending facilities that flooded credit markets with liquidity, thus helping ease strains. Since then, stocks have rebounded smartly, by an average of 10-15 per cent worldwide in the hope that the worst is over. Last week, US Treasury Secretary Henry Paulson spoke of the worst being behind us and that he is 'feeling better about the markets'.
Should everyone share this optimism? While there is some room for encouragement today compared to two months ago, there is still plenty to worry about that investors may have glossed over. An easing of pressure in credit markets may mean that credit conditions have improved, which in turn suggests that this particular facet of the crisis may be over. However, it does not necessarily mean that the impact on earnings and the economy has been fully discounted, nor does it herald an immediate return of strong, bull market-quality growth.
A skyrocketing oil price at around US$125 now is one problem that markets have under-appreciated. Even the most optimistic observers now concede that a price of US$200 per barrel within the next few years is a realistic possibility, a level which was inconceivable as recently as four years ago when the price was US$35. Needless to say, oil at such high levels would seriously damage growth. Combined with record-high commodity prices, the resultant inflationary pressure means that central banks everywhere will find their hands tied when it comes to lowering interest rates.
The Fed was among the first monetary authority to signal this when it cut its federal funds rate from 2.25 per cent to 2 per cent at its April 30 Open Market Committee meeting but said that 'uncertainty about the inflation outlook remains high', a statement that may be interpreted to mean that the present easing cycle is at, or very near, an end.
Furthermore, the Bank of England last Thursday left rates at 5 per cent, dashing hopes that a string of weak UK economic data might have prompted an easing, while the European Central Bank also kept rates unchanged at 4 per cent. If these moves are an indication of things to come, then it's possible that the months ahead would see higher interest rates. The full effects of the sub-prime crisis may not be reflected in the economic numbers yet. Moreover, there is the possibility that a severe slowdown could trigger a second wave of defaults, this time in corporate and consumer debt. If this occurs, the consequences for banks could be painful.
All told, the best that can be said is that although pressures have eased in credit markets, the repercussions of the sub-prime crisis may not have fully played out yet and it would be premature to assume that a bull market has returned.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
A bull market is still some way away
STOCK market bulls have been quick to proclaim the end of the bear market and the re-emergence of a fresh bull. The turning point, it is said, came in March when the US Federal Reserve helped bail out failed US bank Bear Stearns and announced various extraordinary term lending facilities that flooded credit markets with liquidity, thus helping ease strains. Since then, stocks have rebounded smartly, by an average of 10-15 per cent worldwide in the hope that the worst is over. Last week, US Treasury Secretary Henry Paulson spoke of the worst being behind us and that he is 'feeling better about the markets'.
Should everyone share this optimism? While there is some room for encouragement today compared to two months ago, there is still plenty to worry about that investors may have glossed over. An easing of pressure in credit markets may mean that credit conditions have improved, which in turn suggests that this particular facet of the crisis may be over. However, it does not necessarily mean that the impact on earnings and the economy has been fully discounted, nor does it herald an immediate return of strong, bull market-quality growth.
A skyrocketing oil price at around US$125 now is one problem that markets have under-appreciated. Even the most optimistic observers now concede that a price of US$200 per barrel within the next few years is a realistic possibility, a level which was inconceivable as recently as four years ago when the price was US$35. Needless to say, oil at such high levels would seriously damage growth. Combined with record-high commodity prices, the resultant inflationary pressure means that central banks everywhere will find their hands tied when it comes to lowering interest rates.
The Fed was among the first monetary authority to signal this when it cut its federal funds rate from 2.25 per cent to 2 per cent at its April 30 Open Market Committee meeting but said that 'uncertainty about the inflation outlook remains high', a statement that may be interpreted to mean that the present easing cycle is at, or very near, an end.
Furthermore, the Bank of England last Thursday left rates at 5 per cent, dashing hopes that a string of weak UK economic data might have prompted an easing, while the European Central Bank also kept rates unchanged at 4 per cent. If these moves are an indication of things to come, then it's possible that the months ahead would see higher interest rates. The full effects of the sub-prime crisis may not be reflected in the economic numbers yet. Moreover, there is the possibility that a severe slowdown could trigger a second wave of defaults, this time in corporate and consumer debt. If this occurs, the consequences for banks could be painful.
All told, the best that can be said is that although pressures have eased in credit markets, the repercussions of the sub-prime crisis may not have fully played out yet and it would be premature to assume that a bull market has returned.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
'Walkaway' homeowners in US market might be an urban myth
Business Times - 13 May 2008
'Walkaway' homeowners in US market might be an urban myth
No hard evidence solvent borrowers are voluntarily defaulting on their loans
(LOS ANGELES) Bankers and housing market analysts are warning of a chilling new trend in the mortgage world: homeowners voluntarily defaulting on their loans even though they can actually afford to make the payments.
It's known colloquially as 'walking away', or more jocularly as 'jingle mail', from the sound your house keys supposedly make when you mail them back to your bank.
It's a way of saying that Americans are beginning to apply a cold financial calculation to home ownership: When a home's value has fallen below what is owed on its mortgage, they feel it makes no sense to keep up the payments.
'That is going on, clearly, and there's lots of evidence of that in the market,' Don Truslow, senior executive vice-president of Wachovia Bank, said in a conference call with investors last month.
A few weeks earlier, US Treasury Secretary Henry M Paulson had waggled a stern finger at homeowners contemplating walking away from affordable mortgages: Do that, and you're no better than a 'speculator', he said.
Elsewhere, media reports and Internet postings are rife with stories about the trend and a supposed sea change in American attitudes toward debt. But there's a major problem with all this talk about the phenomenon of solvent homeowners 'walking away': There doesn't appear to be any hard evidence that it's happening.
When pressed for the number of borrowers who could afford their mortgage payments, major banks and lender groups could not produce figures. Nor could the Mortgage Bankers Association, the leading trade group for housing lenders.
Wachovia's Mr Truslow acknowledged during the bank's conference call on April 14 that walkaways were 'hard to quantify'. A bank spokesman said last week that, 'We have heard anecdotally that people are walking away', but his bank had no hard numbers.
Bank of America (BOA) chairman and chief executive Kenneth Lewis, whose company is acquiring mortgage lender Countrywide Financial Corp, decried 'a change in social attitudes toward default' in an interview with The Wall Street Journal in December.
In response to questions from the Los Angeles Times, BOA spokesman Terry Francisco said the bank had seen indications that some homeowners were taking pains to keep their credit card accounts current at the expense of their mortgage balances, often by raiding their home equity lines to pay their cards, a reversal of traditional customer priorities. But he said the bank did not have 'firm figures' on how many homeowners were unnecessarily defaulting on their mortgages.
Some people suggest that it might be impossible to find out. 'How would you know what someone's true ability to pay would be?' asked Todd Sinai, an associate professor of real estate at the Wharton School of the University of Pennsylvania. 'I'm not sure you could even come up with a definition.'
At Fannie Mae, the government-chartered company that owns or guarantees billions of dollars in home mortgages, senior vice-president Marianne Sullivan conceded that there was growing 'folklore' about residential walkaways but said that the phenomenon probably was connected more to investors than people who live in their homes, or 'owner-occupants'. 'The vast majority of borrowers we find have been acting in good faith,' she said. 'If they get behind, they are interested in working with their lender.'
Bruce Marks, CEO of Neighbourhood Assistance Corp, a Boston-based non-profit agency that helps strapped homeowners, says flat out that the notion that legions of borrowers are simply deciding not to pay is an 'urban myth' that largely reflects the mortgage industry's desire to blame homeowners, rather than their lenders, for the surge in problem loans.
Mr Marks and others assert that mortgage bankers have an incentive to blame the rise in delinquencies and foreclosures on borrowers skipping out on obligations they're financially able to meet, because that diverts attention from the lenders' own role in the mortgage crisis.
'So many of the loans made were irresponsible - for the borrowers and for the lenders,' said Kurt Eggert, an expert on predatory lending at Chapman University Law School in Orange County, California. 'Lenders have an interest in painting themselves as responsible, even caring entities. They want to cast blame for the sub-prime meltdown as much as possible on their borrowers.'
It is generally agreed that the real culprit in the meltdown is the proliferation of exotic mortgages that hit borrowers - many with paltry down payments and therefore almost no equity in the home - with huge payment shocks in the early years of the loan. The new payments are often raised to levels that the borrowers never could have afforded but expected to escape via a refinancing or a sale of the house into a rising market.
When home values fell instead, their exit strategy evaporated. But that does not necessarily mean that they can afford to keep paying.
Experts say some supposed owner-occupants who are 'walking away' might be speculators in disguise: buyers who acquired properties as investments to resell for a fast profit. Investors, unlike genuine homeowners, will treat their purchases strictly as economic transactions; their decisions to abandon payments shouldn't be seen as a sign that American homeowners no longer feel obligated to pay their debts, says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles's Anderson School of Management.
'A number of (foreclosed) properties are actually investor-owned, not owner-occupied, and we have to be careful that we're not attributing to homeowners the actions of investors,' Mr Gabriel said.
Prof Sinai of the Wharton school points out that homeowners have long been known to do whatever it takes to avoid foreclosure - they're concerned with maintaining their credit ratings and building equity in their homes, and are typically invested not only in their property but in their communities.
Historically, owner-occupants didn't default on their mortgages except in a handful of extraordinary situations, such as death, divorce, illness or job loss. Their predictable behaviour helped keep mortgage rates low.
'If it's correct that there's a change in behaviour, all the default and credit risk models will have to be recalibrated,' Mr Gabriel said. But he added: 'I have not seen one shred of data that conclusively or systematically speaks to that point.' - LAT-WP
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
'Walkaway' homeowners in US market might be an urban myth
No hard evidence solvent borrowers are voluntarily defaulting on their loans
(LOS ANGELES) Bankers and housing market analysts are warning of a chilling new trend in the mortgage world: homeowners voluntarily defaulting on their loans even though they can actually afford to make the payments.
It's known colloquially as 'walking away', or more jocularly as 'jingle mail', from the sound your house keys supposedly make when you mail them back to your bank.
It's a way of saying that Americans are beginning to apply a cold financial calculation to home ownership: When a home's value has fallen below what is owed on its mortgage, they feel it makes no sense to keep up the payments.
'That is going on, clearly, and there's lots of evidence of that in the market,' Don Truslow, senior executive vice-president of Wachovia Bank, said in a conference call with investors last month.
A few weeks earlier, US Treasury Secretary Henry M Paulson had waggled a stern finger at homeowners contemplating walking away from affordable mortgages: Do that, and you're no better than a 'speculator', he said.
Elsewhere, media reports and Internet postings are rife with stories about the trend and a supposed sea change in American attitudes toward debt. But there's a major problem with all this talk about the phenomenon of solvent homeowners 'walking away': There doesn't appear to be any hard evidence that it's happening.
When pressed for the number of borrowers who could afford their mortgage payments, major banks and lender groups could not produce figures. Nor could the Mortgage Bankers Association, the leading trade group for housing lenders.
Wachovia's Mr Truslow acknowledged during the bank's conference call on April 14 that walkaways were 'hard to quantify'. A bank spokesman said last week that, 'We have heard anecdotally that people are walking away', but his bank had no hard numbers.
Bank of America (BOA) chairman and chief executive Kenneth Lewis, whose company is acquiring mortgage lender Countrywide Financial Corp, decried 'a change in social attitudes toward default' in an interview with The Wall Street Journal in December.
In response to questions from the Los Angeles Times, BOA spokesman Terry Francisco said the bank had seen indications that some homeowners were taking pains to keep their credit card accounts current at the expense of their mortgage balances, often by raiding their home equity lines to pay their cards, a reversal of traditional customer priorities. But he said the bank did not have 'firm figures' on how many homeowners were unnecessarily defaulting on their mortgages.
Some people suggest that it might be impossible to find out. 'How would you know what someone's true ability to pay would be?' asked Todd Sinai, an associate professor of real estate at the Wharton School of the University of Pennsylvania. 'I'm not sure you could even come up with a definition.'
At Fannie Mae, the government-chartered company that owns or guarantees billions of dollars in home mortgages, senior vice-president Marianne Sullivan conceded that there was growing 'folklore' about residential walkaways but said that the phenomenon probably was connected more to investors than people who live in their homes, or 'owner-occupants'. 'The vast majority of borrowers we find have been acting in good faith,' she said. 'If they get behind, they are interested in working with their lender.'
Bruce Marks, CEO of Neighbourhood Assistance Corp, a Boston-based non-profit agency that helps strapped homeowners, says flat out that the notion that legions of borrowers are simply deciding not to pay is an 'urban myth' that largely reflects the mortgage industry's desire to blame homeowners, rather than their lenders, for the surge in problem loans.
Mr Marks and others assert that mortgage bankers have an incentive to blame the rise in delinquencies and foreclosures on borrowers skipping out on obligations they're financially able to meet, because that diverts attention from the lenders' own role in the mortgage crisis.
'So many of the loans made were irresponsible - for the borrowers and for the lenders,' said Kurt Eggert, an expert on predatory lending at Chapman University Law School in Orange County, California. 'Lenders have an interest in painting themselves as responsible, even caring entities. They want to cast blame for the sub-prime meltdown as much as possible on their borrowers.'
It is generally agreed that the real culprit in the meltdown is the proliferation of exotic mortgages that hit borrowers - many with paltry down payments and therefore almost no equity in the home - with huge payment shocks in the early years of the loan. The new payments are often raised to levels that the borrowers never could have afforded but expected to escape via a refinancing or a sale of the house into a rising market.
When home values fell instead, their exit strategy evaporated. But that does not necessarily mean that they can afford to keep paying.
Experts say some supposed owner-occupants who are 'walking away' might be speculators in disguise: buyers who acquired properties as investments to resell for a fast profit. Investors, unlike genuine homeowners, will treat their purchases strictly as economic transactions; their decisions to abandon payments shouldn't be seen as a sign that American homeowners no longer feel obligated to pay their debts, says Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles's Anderson School of Management.
'A number of (foreclosed) properties are actually investor-owned, not owner-occupied, and we have to be careful that we're not attributing to homeowners the actions of investors,' Mr Gabriel said.
Prof Sinai of the Wharton school points out that homeowners have long been known to do whatever it takes to avoid foreclosure - they're concerned with maintaining their credit ratings and building equity in their homes, and are typically invested not only in their property but in their communities.
Historically, owner-occupants didn't default on their mortgages except in a handful of extraordinary situations, such as death, divorce, illness or job loss. Their predictable behaviour helped keep mortgage rates low.
'If it's correct that there's a change in behaviour, all the default and credit risk models will have to be recalibrated,' Mr Gabriel said. But he added: 'I have not seen one shred of data that conclusively or systematically speaks to that point.' - LAT-WP
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
S'poreans prefer relocation to 45-minute commute to work
Business Times - 13 May 2008
S'poreans prefer relocation to 45-minute commute to work
By CHUANG PECK MING
WORKERS in Singapore will grumble if they have to commute some distance to work. Yet they will readily pack their bags and hop on a plane to fly to the ends of the earth to find the right job, according to a poll by Kelly Services.
Two in three of more than 2,000 employees here polled by the recruitment firm indicated they were not prepared to commute more than 45 minutes each way to work.
Nearly eight in 10 of those polled would consider relocating to another country to work. This shows that despite their reluctance to spend more time commuting, Singapore workers are highly mobile when it comes to securing the right job.
More than half - 56 per cent - of the workers polled were even ready to uproot and move to unfamiliar territories where they don't speak the local lingo.
'With a more globalised workforce, there is increasingly a recognition that people may have to relocate to find the right work, or to advance their career,' said Dhirendra Shantilal, Kelly's senior vice-president for Asia-Pacific. 'There are many skills that are easily transferable across borders, including in areas such as banking and finance, IT, science and engineering.'
Those willing to move, not surprisingly, fell into the younger age group, 25-34 years, according to the poll.
'Typically, they have fewer family and other commitments that prevent them from relocating,' Kelly said in a media release yesterday. 'Males were more willing to relocate than females.'
'Family' was the overwhelming issue when workers polled were asked to rank the main obstacles for them to work overseas. Seventy-two per cent of those polled cited the family factor.
Other 'complicating factors' were language barriers (49 per cent), children's schooling (27 per cent), tax complications (24 per cent), property ownership (20 per cent) and pension/superan-nuation rights (14 per cent).
'The finding that many workers are willing to be highly mobile in their search for work is good news for employers,' Kelly said. 'At a time of relative skills shortage, globally, targeting employees from another city or internationally can be one of the most effective ways of filling gaps in the labour market.'
Two in five of the workers polled also indicated they would like to shift from the place they now live and work before they retired.
'This suggests that significant numbers of people will be actively looking to change their jobs, homes and lifestyles, with implications for employment, urban planning and transport infrastructure,' Mr Shantilal said.
Some 13 per cent of the workers polled said that they had already relocated to a country where they did not speak the language, to find the right job.
S'poreans prefer relocation to 45-minute commute to work
By CHUANG PECK MING
WORKERS in Singapore will grumble if they have to commute some distance to work. Yet they will readily pack their bags and hop on a plane to fly to the ends of the earth to find the right job, according to a poll by Kelly Services.
Two in three of more than 2,000 employees here polled by the recruitment firm indicated they were not prepared to commute more than 45 minutes each way to work.
Nearly eight in 10 of those polled would consider relocating to another country to work. This shows that despite their reluctance to spend more time commuting, Singapore workers are highly mobile when it comes to securing the right job.
More than half - 56 per cent - of the workers polled were even ready to uproot and move to unfamiliar territories where they don't speak the local lingo.
'With a more globalised workforce, there is increasingly a recognition that people may have to relocate to find the right work, or to advance their career,' said Dhirendra Shantilal, Kelly's senior vice-president for Asia-Pacific. 'There are many skills that are easily transferable across borders, including in areas such as banking and finance, IT, science and engineering.'
Those willing to move, not surprisingly, fell into the younger age group, 25-34 years, according to the poll.
'Typically, they have fewer family and other commitments that prevent them from relocating,' Kelly said in a media release yesterday. 'Males were more willing to relocate than females.'
'Family' was the overwhelming issue when workers polled were asked to rank the main obstacles for them to work overseas. Seventy-two per cent of those polled cited the family factor.
Other 'complicating factors' were language barriers (49 per cent), children's schooling (27 per cent), tax complications (24 per cent), property ownership (20 per cent) and pension/superan-nuation rights (14 per cent).
'The finding that many workers are willing to be highly mobile in their search for work is good news for employers,' Kelly said. 'At a time of relative skills shortage, globally, targeting employees from another city or internationally can be one of the most effective ways of filling gaps in the labour market.'
Two in five of the workers polled also indicated they would like to shift from the place they now live and work before they retired.
'This suggests that significant numbers of people will be actively looking to change their jobs, homes and lifestyles, with implications for employment, urban planning and transport infrastructure,' Mr Shantilal said.
Some 13 per cent of the workers polled said that they had already relocated to a country where they did not speak the language, to find the right job.
Condo won't prune trees over MRT tracks
May 12, 2008
Condo won't prune trees over MRT tracks
Branches deemed safety hazard, but condo won't foot bill
By Esther Tan
THE problem: About a dozen 12m-tall trees on the premises of a condominium in the east coast area, encroaching on the raised MRT tracks.
SMRT says the overgrown branches may be a safety hazard to train operations.
But the condominium, Stratford Court, has balked at spending over $2,000 to prune them.
It noted that the Land Transport Authority (LTA) guide classified the planting of trees with full-grown height extending above the railway barrier as a restricted activity.
However, the condominium's management committee (MC) added that the guide dated back to August 2000 - and those trees were planted in 1998.
The condominium was therefore not obliged to comply with the demands of the guide, said MC chairman Lionel De Souza.
SMRT could not provide 'legal justification' for the condominium to foot the tree-pruning bill, he said.
The face-off marks the first time a tree- pruning request by the MRT operator has been challenged.
An SMRT spokesman said the company had notified and made arrangements with various landowners and maintenance agents to prune overgrown trees or vegetation 64 times last year.
The Stratford Court matter first arose in late March, when SMRT first contacted its MC, asking it to prune the branches of its khaya trees near the tracks between the Simei and Tanah Merah MRT stations.
The condominium, which sits at the junction of Upper Changi Road East and Bedok Road, duly obtained quotations for the job.
Its regular landscaping contractor asked for $2,145.
Mr De Souza, 65, said of the quoted price: 'That is not a small amount, so I checked up on the matter myself. As chairman, I have a duty to protect the money in the condominium's fund. I must be very careful with how I spend this money.'
This was when he found out that the guide put out by the LTA - which owns the train viaducts - went back to 2000, and that Stratford Court's trees pre-dated that.
In its reply on April 4, SMRT agreed that, going by the LTA guide, the condominium was not obliged to engage a contractor to prune the trees and pay for it as well.
But it later cited the Parks and Trees Act, which gives the Commissioner of Parks and Recreation - the chief operating officer of the National Parks Board (NParks) - the right to issue an order for the condominium to prune its trees if they are obstructing MRT trains.
The cost of non-compliance: A fine of up to $20,000.
NParks said the Commissioner has never had to issue such an enforcement notice before - and he is not about to do so if the matter can be resolved in other ways.
The Stratford Court MC is standing its ground.
Mr De Souza said the MC had so far not received any notice from the Commissioner, and that until it did, it would not arrange to prune the trees.
SMRT has passed the matter to LTA.
When contacted, LTA said it was working with SMRT, NParks and the condominium to resolve the matter amicably.
tansle@sph.com.sg
Condo won't prune trees over MRT tracks
Branches deemed safety hazard, but condo won't foot bill
By Esther Tan
THE problem: About a dozen 12m-tall trees on the premises of a condominium in the east coast area, encroaching on the raised MRT tracks.
SMRT says the overgrown branches may be a safety hazard to train operations.
But the condominium, Stratford Court, has balked at spending over $2,000 to prune them.
It noted that the Land Transport Authority (LTA) guide classified the planting of trees with full-grown height extending above the railway barrier as a restricted activity.
However, the condominium's management committee (MC) added that the guide dated back to August 2000 - and those trees were planted in 1998.
The condominium was therefore not obliged to comply with the demands of the guide, said MC chairman Lionel De Souza.
SMRT could not provide 'legal justification' for the condominium to foot the tree-pruning bill, he said.
The face-off marks the first time a tree- pruning request by the MRT operator has been challenged.
An SMRT spokesman said the company had notified and made arrangements with various landowners and maintenance agents to prune overgrown trees or vegetation 64 times last year.
The Stratford Court matter first arose in late March, when SMRT first contacted its MC, asking it to prune the branches of its khaya trees near the tracks between the Simei and Tanah Merah MRT stations.
The condominium, which sits at the junction of Upper Changi Road East and Bedok Road, duly obtained quotations for the job.
Its regular landscaping contractor asked for $2,145.
Mr De Souza, 65, said of the quoted price: 'That is not a small amount, so I checked up on the matter myself. As chairman, I have a duty to protect the money in the condominium's fund. I must be very careful with how I spend this money.'
This was when he found out that the guide put out by the LTA - which owns the train viaducts - went back to 2000, and that Stratford Court's trees pre-dated that.
In its reply on April 4, SMRT agreed that, going by the LTA guide, the condominium was not obliged to engage a contractor to prune the trees and pay for it as well.
But it later cited the Parks and Trees Act, which gives the Commissioner of Parks and Recreation - the chief operating officer of the National Parks Board (NParks) - the right to issue an order for the condominium to prune its trees if they are obstructing MRT trains.
The cost of non-compliance: A fine of up to $20,000.
NParks said the Commissioner has never had to issue such an enforcement notice before - and he is not about to do so if the matter can be resolved in other ways.
The Stratford Court MC is standing its ground.
Mr De Souza said the MC had so far not received any notice from the Commissioner, and that until it did, it would not arrange to prune the trees.
SMRT has passed the matter to LTA.
When contacted, LTA said it was working with SMRT, NParks and the condominium to resolve the matter amicably.
tansle@sph.com.sg
Economists grow more pessimistic
May 12, 2008
Economists grow more pessimistic
WASHINGTON - EVEN with some signs of improvement in the United States financial markets and a temporary boost from the economic stimulus package, the growth outlook for the second half of the year has deteriorated, according to a panel of economic forecasters.
The weakest annual consumer spending since 1991 will lead to a darker outlook, the Blue Chip Economic Indicators has found.
The consensus of economists polled between May 5 and 6 in the survey said the economy would grow at a 1.7 per cent annual rate in the third quarter, down from the 2 per cent forecast a month ago.
For the fourth quarter, gross domestic product is expected to grow by 1.5 per cent, down from 1.9 per cent seen earlier.
The outlook for next year has also darkened, with economists expecting growth of just 2 per cent, down from 2.2 per cent forecast earlier.
Consumer spending, which accounts for 70 per cent of US economic growth, is expected to grow by a weak 1.5 per cent for the year. That will be the smallest rise since 1991 and will, in turn, impact corporate profits.
'Given the erosion in the outlook for consumer spending and business investment, the consensus now predicts pre-tax corporate profits will contract by 2.9 per cent this year and register growth of 5.3 per cent in 2009,' the newsletter said.
Even so, economists do not expect the Federal Reserve to lower interest rates any further. The US central banks has reduced its target interest rate by 3.25 percentage points since last September.
'Indeed, the consensus, seems to think the Federal Open Market Committee will begin to raise interest rates by late next spring,' the newsletter wrote.
REUTERS
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Economists grow more pessimistic
WASHINGTON - EVEN with some signs of improvement in the United States financial markets and a temporary boost from the economic stimulus package, the growth outlook for the second half of the year has deteriorated, according to a panel of economic forecasters.
The weakest annual consumer spending since 1991 will lead to a darker outlook, the Blue Chip Economic Indicators has found.
The consensus of economists polled between May 5 and 6 in the survey said the economy would grow at a 1.7 per cent annual rate in the third quarter, down from the 2 per cent forecast a month ago.
For the fourth quarter, gross domestic product is expected to grow by 1.5 per cent, down from 1.9 per cent seen earlier.
The outlook for next year has also darkened, with economists expecting growth of just 2 per cent, down from 2.2 per cent forecast earlier.
Consumer spending, which accounts for 70 per cent of US economic growth, is expected to grow by a weak 1.5 per cent for the year. That will be the smallest rise since 1991 and will, in turn, impact corporate profits.
'Given the erosion in the outlook for consumer spending and business investment, the consensus now predicts pre-tax corporate profits will contract by 2.9 per cent this year and register growth of 5.3 per cent in 2009,' the newsletter said.
Even so, economists do not expect the Federal Reserve to lower interest rates any further. The US central banks has reduced its target interest rate by 3.25 percentage points since last September.
'Indeed, the consensus, seems to think the Federal Open Market Committee will begin to raise interest rates by late next spring,' the newsletter wrote.
REUTERS
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Sales of strata offices down, may fall further
May 12, 2008
Sales of strata offices down, may fall further
Prices holding for now but may suffer if wider market weakens
By Fiona Chan
THE dispirited housing market has claimed another casualty: Sales of strata-titled offices have taken a nosedive this year.
And while prices are holding steady for now, they might start to dip in the coming months, predicted property firm CB Richard Ellis (CBRE).
It analysed data for seven major strata-titled office buildings and found that, in the first three months of the year, only 11 sales of strata office units took place. These properties are not sold as entire office blocks; instead, units are sold singly.
The figure is less than half of that in the previous quarter and a fifth of that for the same period a year ago. In the first quarter, most of the buildings saw only one sale or none at all.
The slowdown in deals comes despite a continuing shortage of office supply, which helped boost sales and prices of strata office units to record highs last year. Some $1.7 billion of offices changed hands last year.
Since the office crunch has not improved much, this implies that the sombre mood in the market is behind the lacklustre activity, said Mr Jeremy Lake, CBRE's executive director of investment properties.
'In the strata-titled market, most transactions are relatively small, so buyers are high net worth individuals or companies rather than property funds,' he said.
'They are more likely to be sentiment-driven, and no doubt, sentiment now is not as strong as it was a year ago.'
The stalled office activity echoes the current housing market situation in Singapore, Mr Lake added.
Homebuyers and sellers are at a stand-off now, after private property prices soared 31 per cent last year only to hit the brakes towards year-end following the sub-prime mortgage crisis in the United States.
'For the secondary markets in the residential and office segments, most vendors will hold on if they can't get their price,' said Mr Lake.
'Because rentals are very good and mortgage rates are low, investors have strong holding power.'
Across property types, offices saw the smallest increase in prices in the first three months of this year, perhaps because of the slowdown in activity. They inched up 1.1 per cent in the January to March period.
Mr Lake said he believes office prices are now 'largely flat' rather than on an uptrend.
CBRE data shows that in some buildings, the average price of offices sold has actually come down this year.
At International Plaza, for instance, the average price of units sold in January to March was $1,375 per sq ft (psf), down from $1,449 psf in the previous three months.
But Mr Lake said it is too soon yet to say if prices are peaking. 'It's a lull at the moment. Whether it will turn into a peak, we shall see.'
However, he added that investors 'should not expect to see exciting capital gains going forward'.
'We're likely to see easing of activity and easing of capital values with the market stalled as it is,' he said.
fiochan@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Sales of strata offices down, may fall further
Prices holding for now but may suffer if wider market weakens
By Fiona Chan
THE dispirited housing market has claimed another casualty: Sales of strata-titled offices have taken a nosedive this year.
And while prices are holding steady for now, they might start to dip in the coming months, predicted property firm CB Richard Ellis (CBRE).
It analysed data for seven major strata-titled office buildings and found that, in the first three months of the year, only 11 sales of strata office units took place. These properties are not sold as entire office blocks; instead, units are sold singly.
The figure is less than half of that in the previous quarter and a fifth of that for the same period a year ago. In the first quarter, most of the buildings saw only one sale or none at all.
The slowdown in deals comes despite a continuing shortage of office supply, which helped boost sales and prices of strata office units to record highs last year. Some $1.7 billion of offices changed hands last year.
Since the office crunch has not improved much, this implies that the sombre mood in the market is behind the lacklustre activity, said Mr Jeremy Lake, CBRE's executive director of investment properties.
'In the strata-titled market, most transactions are relatively small, so buyers are high net worth individuals or companies rather than property funds,' he said.
'They are more likely to be sentiment-driven, and no doubt, sentiment now is not as strong as it was a year ago.'
The stalled office activity echoes the current housing market situation in Singapore, Mr Lake added.
Homebuyers and sellers are at a stand-off now, after private property prices soared 31 per cent last year only to hit the brakes towards year-end following the sub-prime mortgage crisis in the United States.
'For the secondary markets in the residential and office segments, most vendors will hold on if they can't get their price,' said Mr Lake.
'Because rentals are very good and mortgage rates are low, investors have strong holding power.'
Across property types, offices saw the smallest increase in prices in the first three months of this year, perhaps because of the slowdown in activity. They inched up 1.1 per cent in the January to March period.
Mr Lake said he believes office prices are now 'largely flat' rather than on an uptrend.
CBRE data shows that in some buildings, the average price of offices sold has actually come down this year.
At International Plaza, for instance, the average price of units sold in January to March was $1,375 per sq ft (psf), down from $1,449 psf in the previous three months.
But Mr Lake said it is too soon yet to say if prices are peaking. 'It's a lull at the moment. Whether it will turn into a peak, we shall see.'
However, he added that investors 'should not expect to see exciting capital gains going forward'.
'We're likely to see easing of activity and easing of capital values with the market stalled as it is,' he said.
fiochan@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
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