No bubble in Singapore property market: NUS study

No bubble in Singapore property market: NUS study

By Erica Tay
FINDING: The rise in home prices is below the market’s long-run ‘equilibrium’ level, according to the study led by Prof Abeysinghe.

DESPITE Singapore’s red-hot property prices, no bubble is forming in the property market here, according to a study by National University of Singapore (NUS) economists.
In fact, the rise in home prices is below the market’s long-run ‘equilibrium’ level, based on factors such as income and property supply, preliminary findings of the ongoing study show.

In other words, the pace of housing price rises is still below the level that would be expected based on market fundamentals, according to the study conducted by a team led by Associate Professor Tilak Abeysinghe.

This is unlike the case in the early 1980s and mid-1990s, when property price inflation shot up above its long-term equilibrium levels, the study noted.

Early findings from the study, still a work-in-progress, was presented to a small audience at the Singapore Economic Policy conference yesterday.

House-price inflation is expected to hit 18 per cent this year, before easing to 13.7 per cent next year, and then to 3.2 per cent in 2009 and 3.4 per cent in 2010, the NUS team’s model predicted.

Factors used to determine the equilibrium price level include disposable income per person, housing stock and the new supply of property.

The study also found that it takes a long time for property price inflation to adjust to its long-run equilibrium.

And a rise in property price inflation would lead to a spike in construction investment a year or so down the road, but its effect fades after that.

The study concluded that price bubbles should be avoided, as they affect private consumption as well as income redistribution, among other things.

Prof Abeysinghe is the deputy director of the Singapore Centre for Applied and Policy Economics at the NUS, which organised yesterday’s meet.

The one-day conference also saw speakers examine issues ranging from fertility, migration and labour market trends, to CPF savings and the elderly.

Source : Straits Times - 19 Oct 2007

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Singapore Temasek puts Tuas Power up for sale

Singapore Temasek puts Tuas Power up for sale

Bid may go up to $3b; sale draws eyes of SembCorp, Keppel and Tokyo Electric
By Bryan Lee
POWER DEAL: Temasek’s three genco assets - Tuas Power, PowerSeraya and Senoko Power - could fetch $9 billion in all. — PHOTO: TUAS POWER

TEMASEK Holdings yesterday launched the first sale of Singapore’s three major power generation companies (gencos), putting Tuas Power on the block.
The long-awaited deal could be valued at as much as $3 billion and will set the pace for later sales of Temasek’s two other gencos: PowerSeraya and Senoko Power.

Already, potential buyers - both local and foreign - have begun talking to bankers to raise funds for the deal, according to newswire reports.

But they are keeping their cards close to their chests.

SembCorp Industries, Keppel Corp, CitySpring Infrastructure Trust and Tokyo Electric Power said they were interested in the gencos, but stopped short of confirming that they would take part in the tender.

The sale of the three gencos is a key step in the liberalisation of the domestic energy market and has been in the pipeline for six years.

‘We feel that this is an optimal time to divest, primarily because there’s a favourable merger and acquisition environment out there,’ said Temasek assistant director Chuah Kee Heng at a press conference.

‘The Singapore economy continues to show strong results and should do so in the near future as well,’ he added.

The launch of the Tuas tender comes four months after Temasek announced plans to sell off the gencos within 12 to 18 months.

The utility assets had been transferred from the state to the investment company between 1995 and 2001 on the understanding that it would eventually sell all three companies.

Power generation is considered to be a ‘contestable’ part of the energy market. In other words, competition is healthy and should be introduced.

Private ownership of the gencos should ensure a competitive market, and more players can be expected as Singapore’s power needs grow.

But for now, market watchers say a change in ownership will not affect electricity prices as the three gencos have been operating independently, competing against each other.

Temasek is seeking indicative offers by the end of the year and intends to complete the Tuas deal by next March.

Tuas was chosen for the first sale as it has drawn the strongest investor interest.

‘This would help us bring more investors into the process and help us educate them upfront,’ said investment managing director Wong Kim Yin. ‘Hopefully, they will get interested in the second and third one.’

He said the next genco sale will be launched, possibly in March, once the company is confident that the first transaction will go through. He declined to reveal which genco would be up for sale next.

Price aside, Mr Wong said the bids will be judged on how they could affect the later genco sales. For example, an investor that can complete the deal earlier would get extra points as Temasek would be able to start selling the other gencos earlier.

‘We don’t want to finish one and be left with the other two,’ he said.

He dismissed notions that Temasek-linked entities would be favoured. ‘If we wanted to do such a sale, we could have gone direct and cut a bilateral deal.’

Tuas produced about 26.1 per cent of Singapore’s electricity last year, behind Seraya at 28.3 per cent and Senoko at 32.2 per cent.

It generated profits of $177 million in the year ended March 31 from revenues of $2.28 billion.

Based on the average price-earnings ratio of all Singapore-listed companies of 17.21, the genco could be valued at $3 billion, three times the $1 billion that its assets are worth on its books. Analysts quoted by Reuters valued the three gencos at a combined $9 billion.

Source : Straits Times - 19 Oct 2007

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Singapore’s wealthy ahead in investible assets: report

Singapore’s wealthy ahead in investible assets: report

They allocate 36% of funds to property, next to Korea, say Merrill, Capgemini
By GENEVIEVE CUA
THE average high net worth individual (HNWI) in Singapore has US$4.9 million of investible assets, slightly more than the regional and global average, the Merrill Lynch-Capgemini Asia Pacific Wealth Report has found.
Globally, HNWIs have investible assets of about US$3.9 million, while the regional average at end-2006 was US$3.3 million.

Singapore’s wealthy allocated most of their investible funds - 36 per cent - to real estate. This was second only to South Korea, where the wealthy invested 42 per cent in property.

Other allocations by Singaporeans were 18 per cent cash and 26 per cent equities.

On real estate, Merrill Lynch Asia-Pacific investment strategist Stephen Corry told reporters yesterday the region’s property cycle is ‘closer to the bottom than to the top’.

A recent report by the firm found the boom is still in its early stages and said prices do not appear excessive relative to income. Asian property prices have also lagged global prices.

But Mr Corry said there are two exceptions: ‘High-end Hong Kong and Singapore properties are looking expensive. I actually see good value in the mass residential side. The price gap between high-end and lower-end property has reached unprecedented levels.’
The Merrill Lynch-Capgemini Asia-Pacific wealth report aims to give a detailed profile of the region’s HNWIs and their investment preferences.

The report found that Singapore has about 928 ultra HNWIs, comprising 1.39 per cent of the population.

These are people whose investible assets exceed US$30 million, as opposed to ‘ordinary’ HNWIs whose qualifying threshold is US$1 million.

The number of ultra HNWIs in the region grew 12.2 per cent to 17,500 at end-2006, said Gregory Smith, Capgemini Australia’s vice-president for wealth management.

‘We are seeing a sharp rise in the number of ultra HNWIs,’ he said. ‘This is particularly evident in China, where that country’s phenomenal economic growth is reflected in a high concentration of ultra HNWIs.’

The study found that more than 28 per cent of the region’s ultra HNWIs are in China.

In terms of the sources of Singaporeans’ wealth, 36 per cent was derived from businesses and 22 per cent inherited. In total, wealthy Singaporeans’ assets are estimated at US$320 billion, giving them a 4 per cent share of the Asia-Pacific’s total wealth pie.

About 43 per cent of HNWIs in Singapore are aged 41 to 55 and 39 per cent aged 56 to 70. Merrill Lynch market managing director (South Asia) Kong Eng Huat said: ‘(Singapore) individuals tend to be more active investors and are continuing to build their wealth. They are also actively planning or in the process of transferring wealth to their beneficiaries and children.’

‘Those with inherited wealth tend to have a more complex portfolio structure and restrictions. They tend to focus on capital preservation.’

The Merrill Lynch-Capgemini report expects the wealthy in the region to diversify into fixed-income and alternative investments and to increase their international exposure. At the moment, 51 per cent of their assets are invested in the Asia-Pacific.
Source : Business Times - 19 Oct 2007

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Singapore Property booms, busts make economy vulnerable

Singapore Property booms, busts make economy vulnerable

Bubble cuts private spending, raises reliance on volatile foreign demand
By CONRAD TAN
PROPERTY price booms and busts make Singapore’s economic growth more vulnerable to volatile factors and should be prevented, an economist at a think-tank said here yesterday.
While the impact of a spike in property prices on overall GDP growth is ‘quite subdued’, a property price bubble causes private consumption expenditure to shrink, making the economy more dependent on foreign demand and business spending which are much more volatile, said Tilak Abeysinghe.

The deputy director of the Singapore Centre for Applied and Policy Economics (Scape) at the National University of Singapore, was speaking at the inaugural Singapore Economic Policy Conference organised by Scape at Four Seasons Hotel.

His team’s research found that while higher property prices spur construction investment, an accompanying dip in private consumption means overall economic growth does not change much as a direct result of property price inflation.

But the overall effect is still undesirable as it makes the economy far more dependent on business spending and foreign demand for its exports, both of which are more volatile than domestic consumption, he said.
The consumption expenditure share of Singapore’s GDP has fallen from more than two-thirds in 1997 to about 40 per cent today. ‘If consumption expenditure in Singapore falls further, GDP growth will be very vulnerable to external demand and investment demand,’ he said.

Research found that in contrast with economies such as the US, higher housing prices here do not seem to encourage more personal spending.

In Singapore, ‘housing wealth is relatively illiquid,’ he said. ‘You just can’t sell your house and move to a suburban house.’ This means the ‘wealth effect’ of housing price inflation seen in countries such as the US - when people spend more as the value of their homes rise - is much less noticeable in Singapore.

Also, ‘when housing prices go up, mortgage payments also increase, so people have less to spend on consumption,’ he said.

He believes policymakers here should ‘do their best’ to prevent a property price bubble because of its effect on private consumption spending and its tendency to widen the income gap between the rich and poor.

‘It should be possible’ to prevent another bubble from building by identifying the main cause of the recent run-up in property prices - likely to be people buying properties for investment rather than owner-occupiers - and introducing measures to dampen demand from this source, he said.

But he also cautioned against flooding the market with a vast supply of new homes, which could trigger a price crash and set the conditions for a new bubble.
Source : Business Times - 19 Oct 2007

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