July factory orders up, but economists are sceptical

July factory orders up, but economists are sceptical
By Robin Chan

THE latest survey of factory orders here suggests that the manufacturing sector is on its way to a recovery from a rough patch.
But economists are wary about reading too much into last month’s figures for the Purchasing Managers’ Index (PMI), a survey of purchasing executives at over 150 manufacturing companies.

They are now questioning the credibility of the closely-watched monthly survey, which is supposed to give a snapshot of industrial health. The PMI posted an improved reading for a second straight month in July.

Citigroup economist Chua Hak Bin said: ‘The index has lost credibility. There is some disconnect between what it suggests is happening and what is actually happening.’

United Overseas Bank economist Alvin Liew said: ‘We probably should not read too much into (last month’s) positive PMI report.’

Last month’s figure rose by a percentage point over June to 53.3. Any figure above 50 indicates expansion in the industrial sector.

The Singapore Institute of Purchasing and Materials Management produces the report. Its executive director, Ms Janice Ong, said the rise in last month’s PMI was ‘driven by continued healthy growth in the overall manufacturing and electronics new orders, as well as new export orders’.

In June, the PMI recorded its biggest one-month gain in more than five years but factory output that month turned out to be weak, according to data compiled by the Economic Development Board (EDB).

The June index showed that the key electronics sector expanded for the 12th consecutive month.

The electronics sector, however, has been in a slump for months. Last week, the EDB’s electronics output data showed that the sector shrank by 0.7 percentage points in June from a year earlier. This was its worst performance so far this year.

However, Action Economics director of Asian economic forecasting David Cohen said June’s output figures were low perhaps because orders for electronics were just coming in.

Despite the contradictory figures, he said: ‘Overall, the PMI is still in line with the message from around the region that manufacturing is entering the second half on a positive note
Source : Straits Times - 02 Aug 2007

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Five freehold projects in bid to sell as single lot

Five freehold projects in bid to sell as single lot
By Joyce Teo, Property Correspondent

OWNERS of five fairly small adjoining freehold residential developments in Mergui Road have banded together to sell the properties as one medium-sized lot for up to $125 million.
The properties - Norfolk Court, Mergui Lodge, Northern Mansion, Mergui Court and The Mergui - are located near Rangoon Road and Moulmein Road.

They are single apartment blocks and sit on relatively small plots of land.

But when combined, along with small pieces of state land in between, they will form a land area of about 93,355 sq ft.

This would allow the buyer to build a medium-scale condominium of up to 30 storeys and about 200 units, said Credo Real Estate.

The company yesterday put the properties up for sale through an expression of interest exercise, with an indicative price range of $115 million to $125 million.
This works out to between $488 per sq ft (psf) and $526 psf of potential gross floor area, including development charges of about $474,000 and a premium for the state land.

At this price, the buyer should be able to break even at about $800 psf to $850 psf, said Credo Real Estate’s executive director, Ms Yong Choon Fah.

In Mergui Road, Fragrance Properties’ new 60-unit freehold development Pristine Heights is selling well, with the 37 units sold in June achieving a median price of $981 psf.

Of the five developments, only Mergui Lodge does not yet have the required approval level of 80 per cent by share value to go ahead with a sale.

Mergui Lodge has only nine units, Northern Mansion and The Mergui have 18 units each, Norfolk Court has 20 units, while Mergui Court has 23 units.

Source : Straits Times - 02 Aug 2007

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Savills buys Granite Partners for US$84.6m

Savills buys Granite Partners for US$84.6m
It plans significant US investment, expects to double the size of Savills Granite within 12 months
(LONDON) UK property services firm Savills plc achieved the first stage of a long-term strategy to expand its presence in the US real estate market yesterday by buying Granite Partners in a deal worth up to US$84.6 million.
Building in America: Savills’ acquisition of Granite Partners is the first stage of a long-term strategy to expand its presence in the US real estate market
The move marks the UK company’s first independent venture into the US and consolidates its position as one of the world’s biggest property consultancy firms with more than 180 offices and affiliates worldwide.

Savills chief executive Aubrey Adams told Reuters that while market share gleaned after the takeover would be ’small’, the company planned ’significant investment’ in the US and hoped to double the size of the new entity, Savills Granite, within 12 months.

Savills has been searching for a platform upon which to build its US business since the dissolution of its strategic partnership with US property firm Trammell Crow Company after it was taken over by rival CB Richard Ellis in November.

‘We’ve spent a long time looking for the right US partner,’ MrAdams said.

‘We’re going to transfer people from the UK and we’re really going to work at building this business up,’ he said.

Under the terms of the deal, Savills will pay an initial consideration of US$54 million and could pay up to US$84.6 million for Granite, depending on the New York-based firm’s financial performance over a two-year period.

Savills shares were down 1.5per cent to 516.5 pence at 0930GMT, against a fall of almost 2.1 per cent in the FTSE 350 Real Estate Index .

The acquisition coincides with turmoil in US credit markets triggered by a collapse in the subprime mortgage sector.

Some market commentators have said that the subprime crisis will reduce demand for direct investment but Mr Adams was optimistic Savills Granite would not suffer.

‘I think we’re all concerned about subprime but the underlying factors in the commercial real estate business haven’t really changed. There is still a lot of money out there. The US is still a very active market,’ Mr Adams said.

‘This is a long-term strategy play and if you believe that these markets will turn around by September 2008, then this business will be well-placed to take advantage.’

Granite was founded by John Lyons and Gerard Mason in 1996 and offers investment sales, debt and equity placement and advisory services on commercial property in North America - home to some of the world’s most active private equity, corporate and institutional real estate buyers.

Granite has executed property transactions totalling more than US$21 billion on behalf of clients including Blackstone and Morgan Stanley since inception.

It generated turnover of US$15.4 million in the year to Dec31.

Mr Adams said Granite had relationships with a number of New York’s biggest high-end residential brokers and that he would consider using those links as a springboard in expansion of its upmarket residential business. — Reuters

Source : Business Times - 02 Aug 2007

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The Majestic expected to fetch in excess of $43m

The Majestic expected to fetch in excess of $43m
Five adjoining projects in Mergui/ Thomson area up for collective sale
By KALPANA RASHIWALA
CATHAY Realty has put The Majestic in the Chinatown area up for sale. And marketing agent Knight Franks expects to receive offers in excess of $43 million for the three-storey restored freehold conservation building.
 
The Majestic: It is being marketed through a tender that closes on Sept 13. The property has a gross floor area of 42,181 sq ft and a site area of 15,666 sq ft. It is suitable for use as shops and food outlets. 
Over in the Mergui/Thomson road area, Credo Real Estate is marketing five adjoining freehold projects for joint collective sale. The properties are Norfolk Court, Mergui Lodge, Northern Mansion, Mergui Court and The Mergui.

‘The developments have land areas ranging from 10,061 sq ft to 18,524 sq ft,’ said Credo Real Estate executive director Yong Choon Fah. ‘But upon amalgamation with one another, along with some remnant state land (of about 20,000 sq ft) in between and adjoining them, the developer could potentially build on an aggregate land area of 93,355 sq ft.’

Under Master Plan 2003, the site is zoned for residential development with a 2.8 plot ratio. Based on the height control for the site, the developer should be able to build up to 30 storeys, Credo reckons.

‘The indicative price range for the five plots combined is between $115 million and $125 million,’ MsYong said. ‘Some $474,000 is payable as development charges (DC). Including DC and land premium for the state land, if an approval is granted for their alienation, the indicative price range reflects $488 psf per plot ratio to $526 psf ppr.
Based on this range, the developer should be able to break even at about $800 psf to $850 psf (for a new project on the site).’

Norfolk Court comprises 20 units, Mergui Lodge nine units, Northern Mansion 18 units, Mergui Court 23 units and The Mergui 18 units. More than 80 per cent of the owners by share value in four of the five projects have agreed to the sale. At the last project, consent from two more owners is needed to cross the 80 per cent mark, said Credo.

As a result, marketing is by way of an expression-of-interest exercise that closes on Sept 3.

The Majestic is being marketed through a tender that closes on Sept 13. The property has a gross floor area of 42,181 sq ft and a site area of 15,666 sq ft. It is suitable for use as shops and food outlets.

The Majestic’s rich and colourful history dates back to the 1920s. Eu Tong Sen, a wealthy tin miner and rubber planter from Perak, built it in 1927 on a whim for his wife, an opera fan.

‘Then known as Tin Yin Moh Toi or Tin Yin Dance Stage, it attracted glamorous opera stars from China, who performed to capacity audiences,’ said Knight Frank. ‘Some of them came especially to perform and raise money for China’s war against Japan.’

Source : Business Times - 02 Aug 2007

Lippo Group donates $21m to NUS Business School

Lippo Group donates $21m to NUS Business School

By GRACE CHUA
THE National University of Singapore’s business school has received a record $21 million donation from Indonesia’s business conglomerate Lippo Group.
The donation, announced yesterday, is the single largest private donation to NUS Business School, and the Lippo Group’s first gift to a Singaporean varsity.

About $15 million of the sum will help fund the business school’s new eightstorey Mochtar Riady building, named after Lippo Group’s founder, while $6 million will fund two endowed professorships named after Stephen and James Riady, the group’s president and CEO respectively.

The donation will be matched dollar-for-dollar by the Singapore government.

NUS president Shih Choon Fong said: ‘This gift will take us a step closer to realising our aspiration to transform NUS from a good to a great university.’

He added that NUS and the Lippo Group share a vision of Singapore as an international base, preparing graduates for the region and beyond.

‘As a business that has its roots in Asia, Lippo Group shares with the NUS Business School a common passion in the nurturing of global business talents through Asia,’ said Lippo Group’s Dr Stephen Riady.
Though this is the Lippo Group’s first donation to NUS, the NUS Business School last year signed a pact with the Riady family’s Universitas Pelita Harapan in Indonesia to enable faculty and student exchanges.

The Riady family has a strong commitment to social services and education, with donations to or involvement in schools in Indonesia, Hong Kong and the region.

And Dr Riady is no stranger to Singapore’s education system, having spent his childhood years here. He is now based in Singapore
Source : Business Times - 02 Aug 2007

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One Raffles Quay: A good deal for buyers

One Raffles Quay: A good deal for buyers

By KALPANA RASHIWALA
KEPPEL Land and Cheung Kong (Holdings)’ sales of their respective one-third stake in One Raffles Quay (ORQ) to K-Reit Asia and Suntec Reit have generated much interest in the property market, with many seasoned observers saying the deals are underpriced.

‘Selling the asset to K-Reit allows Keppel Land to control the asset in a more tax-efficient structure.’

- UBS Investment Research

KepLand and Cheung Kong are each selling their one-third stake for a headline figure of $941.5 million. In addition, the vendors are providing ‘income support’ to the respective buyers of up to $103.4 million through 2011 in the case of K-Reit Asia’s purchase, and $103.48 million spread over 54 months for Suntec Reit’s acquisition.

The acquisition price works out to $2,109 per square foot of net lettable area based on the headline price of $941.5 million. Stripping out the $103.4 million income support provided by the vendors reflects a lower net purchase price of $1,877 psf.

Office industry players generally regard this price as low. 1 Finlayson Green was transacted recently at over $2,600 psf. No doubt it is freehold but the 99-year leasehold ORQ, completed last year, is considered a superior property, with bigger floor plates and a top-grade tenant list including UBS, Credit Suisse, ABN Amro and Deutsche Bank.

Talk is rife that a deal is close to being struck for Chevron House (formerly Caltex House), a much older 99-year leasehold property, for $2,700 psf. The buyer is not expected to be a Reit.

Based on this, market watchers say such a non-Reit buyer would have offered at least the same price as Chevron House, if not around 10 per cent higher, or nearly $3,000 psf, for a new Grade A office property like ORQ.

By selling their stakes in ORQ to Singapore Reits (S-Reits), KepLand and Cheung Kong are getting a much lower price.

Reits (real estate investment trusts) need any acquisition to be immediately yield-accretive. Otherwise, there is a risk of the unit price on the stock market falling. This limits the price that a Reit can pay for a property - all other factors being equal.

However, non-Reit buyers, including foreign private equity and unlisted funds, can bid more aggressively. They are prepared to look beyond poor initial yields, on expectation that Singapore office rentals and capital values will continue to increass leases are renewed at higher market rents, and there is also a possibility of selling the asset a few years down the road, to crystallise capital appreciation.

Based on a $2,700 psf price, Keppel Land could have sold its one-third stake in ORQ for $1.2 billion. Assuming a higher $3,000 psf, its divestment could have been for $1.34 billion.

Why did Keppel Land feel compelled to sell its stake for a much lower price to its 40.7 per cent- owned associate K-Reit Asia, which is also listed on the Singapore Exchange?

Of course, there are some merits to the deal from KepLand’s perspective. As UBS Investment Research notes: ‘Selling the asset to K-Reit allows Keppel Land to control the asset in a more tax-efficient structure.’ Reits do not pay corporate tax at the vehicle level if they distribute all their income to unit holders.

But even after factoring the tax saving, KepLand will book a smaller contribution from ORQ following the divestment of its stake to K-Reit.

Of course, many KepLand shareholders may still hold units in K-Reit. The trust was not listed through an initial public offering; instead, KepLand shareholders were given 200 K-Reit units for every 1,000 KepLand shares they held, as at April 18 last year.

At the time that K-Reit was introduced to the Singapore Exchange last year, around 60 per cent of the total number of units went to KepLand shareholders, with KepLand itself holding the remaining 40 per cent stake.

Of course, there may be some KepLand shareholders who do not own any K-Reit units, because they sold them or they bought their KepLand shares after last year’s distribution-in-specie of the K-Reit units.

From their perspective, the argument that KepLand could have fetched a much higher price for its ORQ stake had it sold it to a non-Reit buyer, is even stronger.

The situation is even more complex for Cheung Kong’s sale of its ORQ stake to Suntec Reit. Cheung Kong itself does not hold a stake in Suntec Reit but its ultimate controlling shareholder Li Ka-shing owns some units in Suntec Reit. However, Cheung Kong has a 30 per cent interest in the entity that manages Suntec Reit and, through this, would get a share of the acquisition fee for the deal, usually 1 per cent.

But on a more positive note the deals are attractive to K-Reit and Suntec. They may not have found such attractive acquisitions elsewhere in Singapore.

Source : Business Times - 02 Aug 2007

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Property companies could be hit by deferred tax provision issues

Property companies could be hit by deferred tax provision issues
Revaluation gain on investments to be booked as profit, resulting in tax liability
By MICHELLE QUAH
(SINGAPORE) The way in which companies have to account for revaluation gains on their investment properties - broadly defined as properties held to earn rent or capital appreciation or both - has changed this year, thanks to the introduction of a new accounting standard.
 
‘It’s important to note that it’s a deferred tax provision which companies will have to reflect in their books - there is no actual tax paid in the year when the provision is made.’
- Yeoh Oon Jin, PwC partner and assurance leader
 
But what some may not have realised is that the new standard could also introduce a tax element into the equation - which will hit bottomlines, in a significant way, from this financial year.

In a nutshell, it could mean that companies would have to account for revaluation gains and losses on their investment properties through the income statement, together with the related deferred tax provisions.

And with property prices soaring as much as they have this year, it will mean substantial revaluation gains for most - and also substantial deferred tax provisions.

Property companies are expected to be the most affected, because they have extensive portfolios of investment property.

Some have played down the move as no more than an accounting adjustment. But others have expressed their displeasure with the need to provide for deferred tax on revaluation gains.

From Jan 1, 2007, companies will have to adopt Financial Reporting Standard (FRS) 40 - which prescribes accounting and disclosure treatments for investment properties.

Under FRS 40, any changes in the fair value of an investment property held have to be taken to the profit and loss account - instead of to a revaluation reserve in the balance sheet, as previously allowed. In other words, an upward revaluation of investment property will add to the bottomline, while a downward revaluation will eat into earnings.

Then, there’s the tax effect of that.

Under another standard already in place - FRS 12, on income taxes - companies should have to account for the future tax related to this increase in property value. In accounting-speak, it’s to ensure that there is proper matching of the timing of the recognition of an event and its tax effect.

Looking at future rental stream

It would mean that an upward revaluation of any investment property would indicate an increase in the amount of future rental income or proceeds from disposal of the property. This increase is recognised in the income statement and, hence, there would need to be a corresponding recognition of the deferred income tax expense in the income statement.

PricewaterhouseCoopers (PwC) partner and assurance leader, Yeoh Oon Jin, who supports this position, explains: ‘It’s essentially a deferred tax position that’s been created in conjunction with the revaluation of the property. But it’s important to note that it’s a deferred tax provision which companies will have to reflect in their books - there is no actual tax paid in the year when the provision is made.’

In addition, some companies won’t actually have to physically hand over this amount in tax, for example in the case when they sell their properties and recognise a capital gain. Still, they will have to recognise these deferred taxes as an expense in their income statement as long as there is no plan to sell the properties - hurting their bottomlines.

And the impact could be significant.

Before FRS 40, Singapore companies didn’t account for deferred taxes on revaluation gains of investment properties because the effect to the financial statements could be immaterial.

Mr Yeoh explains: ‘As the revaluation gain of an investment property is accounted for in the revaluation reserve, under FRS 12, the related deferred tax would be accounted for against the revaluation reserve. Therefore, the amount of deferred tax vis-a-vis the net asset value of companies would generally be less significant and may be immaterial.’

‘However, under FRS 40, the changes in fair value have to be included in the profit and loss account - and generally, the amount of profit and loss for the year is only a fraction of the net asset value of many companies, especially the property-owning companies. Therefore, the deferred tax expense on fair value gains would be more material on adoption of FRS 40.’

Tham Sai Choy, incoming regional Asia Pacific head of audit at KPMG, emphasises that there has been no change in the accounting standard for deferred tax. ‘What has changed is that the new FRS 40 will see revaluation gains on investment properties being taken up as profit. This has focused the spotlight on the tax effect arising from that profit,’ he said.

It’s not a change that’s sitting too well with property companies here. It’s not just the potential negative impact to their bottomlines that they’re concerned about - it’s also what appears to be a departure from the current treatment that bothers them.

Currently, companies don’t pay tax on the gain from the sale of any property - as there is no capital gains tax in Singapore. And some property companies feel that revaluation gains in investment property should be treated as a capital gain, and not subject to tax.

Under FRS 12, deferred income tax is recognised in the books - but companies are only taxed when the profit is realised. But since gains from the sale of properties are not taxed even when the property is sold - because there is no capital gains tax - some feel that the deferred tax shouldn’t even be reflected in the accounts.

CapitaLand’s group CFO, Olivier Lim, comments: ‘Accounting standards require deferred tax to be provided for even when the tax liabilities are not immediately payable. That is entirely correct. However, where there is no expectation of a tax liability payable now or in future, it would be inappropriate to book a liability.’

But as PwC’s Mr Yeoh sees it: ‘One cannot dismiss that an increase in the fair value of the property is a representation of an expected increase in the future rental stream and/or proceeds from the ultimate disposal of the property.’

KPMG’s Mr Tham, however, is concerned that this complex issue may be over-simplified. ‘As with any complex accounting standard, it is tempting to over-simplify its interpretation. The accounting standard on deferred tax is one of the more complex standards, dealing with an area that is difficult for accountants as well as the companies that issue the accounts,’ he says.

He told BT that KPMG has had some ‘very involved discussions’ with property companies here - and is aware that there is a wide range of issues that will crop up from this.

One property company that foresees an issue with the new standard is City Developments Ltd (CDL). A CDL spokesman told BT: ‘Some accountants have interpreted the standard to mean that a deferred tax liability should be recorded immediately for the tax payable on future rental income. Yet, when the rental income is received, a further tax liability is set aside again. The tax is payable just once, but the liability would be set up twice. This distorts the accounts. When the asset is sold and assuming this is a non-taxable capital gain, it becomes clear that there is no tax liability to pay from the disposal. A gain gets recorded as a result of the reversal of the deferred tax liability previously recorded.’

Hidden gains and losses

Mr Tham believes the tax gain arising on disposal is an unintended effect of the accounting standards, and goes against the point of fair value accounting.

Other anomalies could also arise from careless interpretations of the standard, such as a company recording a loss immediately when it buys a property because of the deferred tax liability that will be recorded. And a property that requires no deferred tax provision might require one when the business decides it is no longer held for sale but is to be rented out instead.

Mr Tham also worries that the issue could be blind-sided by the current buoyant property market in Singapore.

‘Booking a deferred tax liability which is not payable means that the liability is reversed when the property is sold, creating an artificial gain. If property prices are falling, the reverse could happen, so that a ‘hidden’ loss arises when a property is sold,’ he said.

Mr Tham concludes: ‘We do not think the accounting standard, as with any standard, was meant to create accounts that are far removed from business realities. It falls on everyone concerned to apply business sense and professional judgement so that this accounting standard is applied correctly, ultimately so that the accounts make sense when they are issued.’
Source : Business Times - 02 Aug 2007

Property firms split over tax from new accounting rule

Property firms split over tax from new accounting rule

By MICHELLE QUAH
(SINGAPORE) A new accounting rule has put frowns on the faces of some property companies here, as it could mean slimmer bottom lines for them from this financial year.
From Jan 1 this year, companies have had to comply with a new accounting standard for their investment properties - broadly defined as properties held to earn rent or capital appreciation or both. But what some don’t know is that there is a related tax element that is set to eat into earnings.

Property companies are expected to be the most affected, because they have extensive portfolios of investment property.

The issue stems from this year’s adoption of Financial Reporting Standard (FRS) 40. It says that companies who choose the fair value method of accounting for their investment properties will have to take any changes in the fair value of an investment property held to their profit and loss account. This is instead of taking the gain or loss to a revaluation reserve in the balance sheet, as previously allowed. This means, an upward revaluation of investment property will add to the bottom line, while a downward revaluation will whittle down earnings.

Companies are familiar with this new standard, but a debate is now raging about a related tax effect that comes with this new accounting treatment.
Some accountants believe that, according to another standard already in place - FRS 12, on income taxes - companies should account for the tax that is payable on any increase in the fair value of investment property. The logic is that an increase in the fair value of the property represents an expected increase in the future rental stream and/or proceeds from the ultimate disposal of the property.

And with FRS 40 saying that revaluation gains should be taken to the income statement, some are arguing that it is only right that the deferred tax payable is also taken to the income statement.

While there won’t be any actual tax paid, the sum will be recognised as an expense in the books from this year on.

The impact could be significant, with property prices soaring as much as they have this year - it will mean substantial revaluation gains for most property firms, and also substantial deferred tax provisions.

But property companies and some accountants don’t agree with this treatment. CapitaLand’s group chief financial officer, Olivier Lim, says: ‘Where there is no expectation of a tax liability payable now or in future, it would be inappropriate to book a liability.’

Some feel that since gains from the sale of properties are not taxed even when the property is sold - because there is no capital gains tax - the deferred tax shouldn’t even be reflected in the accounts.

Some accountants - and property companies like City Developments - also worry that the new suggested treatment would distort financial accounts unnaturally.

Source : Business Times - 02 Aug 2007

En bloc sales have peaked, says CapitaLand

En bloc sales have peaked, says CapitaLand
Property owners must be realistic about what is marketable: CEO

(SINGAPORE) CapitaLand Ltd, the biggest buyer of enbloc projects in Singapore in the past year, said that such property sales have ‘peaked’, as owners ask for record prices for their homes.
 
‘There will come a time when the market cannot bear’ the prices.
 
- Liew Mun Leong 
 
 
 
 
The market for existing buildings has hit a high ‘in terms of pricing’, said Liew Mun Leong, chief executive officer of CapitaLand. The developer, South-east Asia’s largest, had 18.3 per cent share of the $13.49 billion of such collective sales from July 2006 to June 2007, according to data from real estate consultant Knight Frank.

A frenzy of redevelopment of prime condos around the main Orchard Road shopping district and the neighbouring prime residential area of Holland Road prompted the government to raise the development charge, which must be paid for enhancing a site’s use.

‘The problem now is that en bloc owners’ expectations are raising the hurdles,’ Mr Liew, 61, said in an interview on Tuesday. ‘Going forward, en bloc owners must be realistic about what is marketable.’

Developers were buying older homes in the city’s prime areas to redevelop and resell at prices that were more than four times higher as demand for luxury apartments pushed some residential units to record prices.

A record of 70 older apartment developments were sold last year for $8.1 billion, according to data from Knight Frank. In the first half of this year, there were 48 transactions amounting to $9.48 billion.
 
‘En bloc sales are about derived demand,’ said Nicholas Mak, Knight Frank’s research director. ‘As long as high-end property demand continues, the en bloc sales would continue.’ CapitaLand in June said that it’s buying Farrer Court, an existing apartment complex in the Holland Road area, which is a five-minute drive from the shopping district, for a record $1.3 billion.

SC Global Developments, a builder of luxury homes, said earlier in June that it had agreed to buy apartments next to the shopping district for $262 million, or $2,338 a square foot, the highest price for an existing complex.

‘There will come a time when the market cannot bear’ the prices, CapitaLand’s Mr Liew said.

SC Global, which paid $1,064 a square foot for a downtown apartment complex last year, sold new homes on the same site in June for as much as $5,100 a square foot, a record.

CapitaLand’s shares fell 15 cents, or 2 per cent, to $7.35 yesterday. The stock has risen 19 per cent this year, compared with the 15 per cent gain in the ST Index.

Some apartment developments in the city’s downtown districts are having a harder time with en bloc sales. Pacific Mansions, a 10-minute walk from the shopping district, had an asking price of $1.18 billion, or $2,400 a square foot, its marketing agent Savills Singapore said in June.

The Straits Times reported on Tuesday that the owners didn’t get bids that met their asking price and are negotiating with possible buyers to achieve their reserve or minimum price, which is 10 to 20 per cent lower than the asking price.

‘We are seeing vendors adapting to be more accommodating,’ said Donald Han, managing director of Cushman & Wakefield.

‘Instead of expecting record price after record price, there is some price stabilisation, which will be good for the market.’ - Bloomberg
Source : Business Times - 02 Aug 2007

Markets slide as US property fears spread

Markets slide as US property fears spread
Singapore stocks shed 116 points in face of troubling news from US credit markets
By CONRAD TAN
(SINGAPORE) Stock markets around the world plunged yesterday following sharp losses in US equities on Tuesday, as the problems which began in the subprime mortgage market there continued to infect other parts of the financial markets.
 
 
The Straits Times Index fell 115.95 points or 3.3 per cent to end at 3,431.71, the lowest since May2.

In Australia, shares declined by more than 3 per cent, as reports said that two funds managed by Macquarie Bank, Australia’s largest securities firm, were facing losses of up to A$300 million due to US subprime mortgage exposure.

Meanwhile, US investment bank Bear Stearns stopped investors from withdrawing money from another of its funds. Two of its other funds nearly collapsed in June after suffering massive losses linked to subprime mortgages.

Fears that the problems have now spread to the wider markets fuelled the bout of selling yesterday.
 
 
 
‘There’s currently a flight to safety caused by more troubling news in the US credit markets,’ said economist David Cohen at Action Economics.

Rising defaults and delays on payments by homeowners in the United States have led to losses by hedge funds and banks investing in securities backed by these payments.

This has in turn driven up borrowing costs for companies and buyout funds, as creditors tighten conditions for lending and investors shy away from new debt issues.

Low-cost debt has played a large part in financing private equity buyouts of public-listed firms in recent months. Speculation surrounding the deals and other potential targets has in turn driven up share prices in major markets.

Fears about how wide the subprime contagion has spread is now unsettling investors worldwide.

‘No one knows where the ultimate subprime risk resides so investors across the globe are ducking for cover,’ Simon Carter, head of North American equities at Aegon Asset Management in Edinburgh, told Bloomberg. Some of them hit the panic button yesterday.

In Japan, the Nikkei-225 index fell 2.2 per cent, while Hong Kong’s Hang Seng Index fell 3.2 per cent. China’s indices in Shanghai and Shenzhen both lost 3.8 per cent, while South Korea’s Kospi index dived 4 per cent.

In South-east Asia, the Kuala Lumpur Composite Index ended 2.5 per cent lower, while key indices in Thailand, Indonesia and the Philippines also lost more than 2 per cent.

In Europe too, shares got off to a weak start, with London’s FTSE-100 index trading 1.5 per cent lower at noon in the UK.

Mr Cohen said Asian investors would now be looking to see if the turmoil in the financial markets would dampen consumer confidence in the US, which would in turn affect demand for Asian exports. ‘That’s clearly the biggest concern right now.’

But economic fundamentals around the region and the world have been ‘very solid’, he added.

Kevin Scully, managing director of NetResearch Asia, said he expects to see more selling in the stock market here in the next few days, forced by margin calls. ‘I think it’s a good correction back to fundamentals.’

Jimmy Koh, United Overseas Bank’s head of economics and treasury research, said financial markets were adjusting for a global repricing of credit risk.

‘This is an issue of confidence. Once the dust settles, it’s important to note that the fundamentals have not been eroded.’

The current sell-off would create a ‘cleaner, more robust’ financial system, he said.
Source : Business Times - 02 Aug 2007