US property to rebound this year: Deutsche chief -ZURICH

US property to rebound this year: Deutsche chief -ZURICH

ZURICH - THE end of the global credit crisis is getting closer and the United States real estate market should recover in the second half of the year, Deutsche Bank chief executive (CEO) Josef Ackermann said in a newspaper interview.
‘I think that we are getting closer to the end of the financial crisis,’ he told the Swiss Sunday newspaper SonntagsBlick. ‘It is not fully over yet, but the signs from the US are encouraging.’

He said the pragmatic approach being taken in the US to resolve the crisis should start to pay off soon.

‘We should feel the effects in the second half of the year already and should see a strong recovery of the US real estate market,’ he told the paper.

His comments add to growing optimism among analysts who say the worst might be over for the US economy, even if it still struggles for some time because of weak housing, tight credit and high energy costs.

The latest data suggests the world’s largest economy might have averted a calamitous downturn and could even escape a recession, by the most common definition, Agence France-Presse reported.

‘Remarkably, the economy has been able (barely) to keep its head above water despite all the negative shocks - a testament to its underlying resiliency, an aggressive policy response and the relative strength of global growth,’ said Mr Josh Feinman, the chief economist with Deutsche Bank’s DB Advisors.

He predicts the US economy, which saw sluggish growth at a 0.6 per cent pace in the past two quarters, will grow 1 per cent for the second quarter and 2 per cent for the July to September quarter.

But Mr Paul Kasriel, the director of economic research at Northern Trust, cautions against reading too much into recent data.

‘Any blue skies you see are likely to be short-lived. The economy is in the relative calm of the eye of the business-cycle hurricane. The mortgage credit problems are not over. And credit problems in other sectors are just beginning as the housing recession spreads to the rest of the economy.’

REUTERS, AGENCE FRANCE-PRESSE

Source : Straits Times - 19 May 2008

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Singapore Punggol to have new shopping mall, more flats

Singapore Punggol to have new shopping mall, more flats

RESIDENTS in Punggol will have a new shopping mall and more fellow residents within the next three years.
The new town, which already has 16,700 flats, has another 2,100 being built now.

The Housing Board also recently launched 1,700 flats and will launch another 4,000 by year’s end, said National Development Minister Mah Bow Tan last Saturday at the launch of a two-day exhibition on the progress in Punggol.

He added that, with more residents calling Punggol home, it would become feasible to build more commercial and public facilities.

One being planned is a shopping mall about the size of Junction 8 in Bishan.

The first sale site for a mixed commercial and private residential development will be launched in the town centre in the next two to three years.

Punggol’s 4.2km waterway through the town will be used to bring water closer to the community. The Housing Board recently completed technical studies on it and works will begin next year.

A landscape masterplan design competition is being held to tap the expertise of urban planners, architects and landscape architects, who will be expected to contribute designs and concepts for the waterway, two tributaries and 10m-wide promenades along the waterway and town park.

The HDB plans to launch the first public housing site along a waterfront after major works of the waterway are completed in the next two to three years.

Several plots of land will also be set aside for private residential projects.

Work on the coastal promenade will begin soon, while the development of a rustic park on Coney Island will start next year. Other facilities being worked on include a horse-riding centre and a golf range.

SUJIN THOMAS

Source : Straits Times - 19 May 2008

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Pre-sold projects lend support as developers undergo correction - Singapore

Pre-sold projects lend support as developers undergo correction - Singapore

Greater blow from weaker sales will be felt only over next few years: analysts

By LYNETTE KHOO

PROPERTY developers were mostly hit by slower residential sales in their first quarter results, and for some, they also suffered a lack of fair value gains in investment properties. But even as the residential segment undergoes a correction this year, analysts do not foresee significant earnings weakness as revenue from pre-sold projects is still lending support.

For developers with a large amount of pre-sold projects and are able to hold back new units to await better prices, the greater blow from the weaker home sales will only kick in over the next few years if market sentiment does not pick up, analysts say.

‘The earnings for this year have been locked in by the sales done in the past two to three years,’ said UOB KayHian analyst Vikrant Pandey. ‘Sales have slowed down this year, but the impact will only be felt two, three years down the line when the actual construction takes place.’

Investors have been greeted with a mixed bag of earnings results from property developers for the first quarter. The impact of the US housing problems and global economic slowdown was felt in terms of lower transaction volumes as developers held back new launches in a quiet market.

There was also the timing issue in recognising earnings from development projects on a percentage of completion basis, which added to the earnings volatility, analysts say.

‘Q1 is typically a slower quarter for developers simply because of the holiday season and development is slower,’ said CIMB-GK analyst Donald Chua. The recognition of earnings from developments that are at the initial stages of construction is hence slower.

Keppel Land reported a 3.5 per cent dip in net profit to $60.3 million due mainly to lower contribution from property trading with the completion of several projects in Singapore and overseas and a writeback on provision in its property investment segment.

In the absence of fair value gains, CapitaLand’s first-quarter net profit fell 59.3 per cent year on year to $247.47 million; Overseas Union Enterprise’s (OUE) net profit slipped 69.2 per cent to $23.67 million and United Engineers’ (UE) net profit slumped 90 per cent to $1.2 million. Excluding fair value adjustments, CapitaLand’s net profit would have jumped 36.5 per cent year on year, while OUE and UE would have marked smaller net profit declines.

City Developments, however, which adopts the policy of stating net profit at cost less accumulated depreciation and impairment losses, posted a net profit growth of 30.8 per cent to $164.97 million in its fiscal first quarter despite its revenue falling 1.3 per cent from a year ago to $758.75 million.

Analysts noted that the practice of booking in revaluation differences in investment properties under the Financial Reporting Standard 40 is adding to the earnings volatility. This accounting method is seen inflating developers’ bottomlines last year and cutting into their bottomlines in a poorer market condition like now.

But analysts added that they do not treat revaluation gains as part of core earnings and strip off revaluation gains from headline numbers before analysis. While there has been suggestions that FRS40 may not be an accurate reflection of earnings, it does provide a clearer picture of the actual values of properties owned by developers.

For the rest of this year, analysts do not expect developers to report fair value losses as there is room for rental upside, particularly in the office segment where new supply is not coming through yet. ‘Rentals are coming from a very low base. There’s still a lot of catching up to do,’ Mr Pandey said, pointing to the heady asking prices for some prime grade office that have shot up to $17 per square foot.

But developers that lack strong cashflow from pre-sold projects will likely find the going tougher in an environment of low or zero revaluation surplus and slower home sales, analysts caution. Without holding power to defer launches, they will have to slash prices for new projects and accept lower margins.

For this year, Mr Pandey is factoring in a 20 per cent correction in the high-end segment, 13 per cent for the mid-end segment and 5 per cent for the mass market segment.

Source : Business Times - 19 May 2008

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Singapore Retailers expect more belt tightening at this year’s GSS

Singapore Retailers expect more belt tightening at this year’s GSS

By SARA LIM

(SINGAPORE) As Singaporeans tighten their belts amid higher inflation and concerns about a slowing economy, mass and mid-market brands are expecting to do better than their luxury counterparts in this year’s Great Singapore Sale.

Cautious spending? Expectations for this year’s sale are less rosy amid concerns about a slowing economy
‘With a less vibrant economic outlook, consumers are more inclined to spend cautiously at mass and mid-priced boutiques with more savings, rather than on luxury items,’ said a spokesman for Wing Tai, which distributes popular fashion brands such as Topshop and Fox.

While the distributor was unable to provide any figures, it is ‘conservatively optimistic’ that overall sales this year will be higher than last year’s. It expects new stores added to its mass and mid-market chains - G2000, Topshop, Dorothy Perkins, Ms Selfridge and Warehouse - to perform well.

On the overall retail scene, however, expectations for this year’s sale are less rosy compared with 2006 and 2007, when strong consumer confidence and economic growth kept cash registers ringing. Takings during the sale period in June and July last year totalled $5.5 billion, up from $4.9 billion for the same period in 2006.

‘While takings from the GSS might not necessarily fall, I would expect growth to slow compared with the same period last year, when we saw retail sales jump more than 15.4 per cent in June,’ said Citigroup economist Kit Wei Zheng.

Mr Kit cited the ‘artificial’ surge in purchases of big-ticket items ahead of the two-point GST hike and lower consumer confidence in July last year as reasons for his less sunny outlook.

He also warned: ‘Rising costs of living could continue to erode the purchasing power of households, and may be a drag on retail sales volumes.’

Retailers are hoping that deep discounts and other promotions available during the sale will entice more cost-conscious shoppers to hunt for bargains.

‘Certainly, people are understandably more cautious about their spending, but this is exactly why they should take advantage of the Great Singapore Sale for the great buys and great value, and benefit from the savings that they can achieve,’ said Lau Chuen Wei, executive director of the Singapore Retail Association.

Andre Lobo, senior advertising and promotions manager of mall operator Frasers Centrepoint Malls, agreed. ‘Shoppers will respond to real bargains and attractive offers which will translate into overall savings, especially with the rise in the cost of living,’ said Mr Lobo.

Frasers Centrepoint will offer a 7 per cent rebate in the form of shopping vouchers at its seven malls, including its flagship, The Centrepoint, at Orchard Road.

Mall operators in particular are pulling out all stops to draw the crowds.

Instead of relying on the usual lucky draw prizes to attract shoppers, CapitaLand Retail, is bringing six giant robots developed by the creators of science fiction film E T to its IMM, Junction 8 and Plaza Singapura malls.

CapitaLand hopes that the robots, which will appear in Asia for the first time, will ‘provide education through entertainment’.

Shoppers at Frasers Centrepoint malls will be treated to stand-up comedy acts by Hossan Leong and Pamela Oei of the Dim Sum Dollies and have a chance to participate in talent shows hosted by MediaCorp artistes Kym Ng, Chen Li Ping and Pornsak.

As tourists dollars accounted for 40 per cent of retail sales in last year’s GSS, retailers also hope that tourists will continue to bolster demand.

With a total of 10.3 million tourist arrivals in Singapore last year, the Singapore Tourism Board (STB) expects the GSS to attract even more visitors. It has been focusing its marketing efforts on the Asia-Pacific and Middle Eastern markets in particular.

‘Even as the Singapore dollar strengthens against the US dollar, we hope visitors will continue spending at the GSS with the many promotions and exclusive tourist privileges available,’ said Andrew Phua, the STB’s director of cluster development, tourism shopping and dining.

Visitors will be treated to exclusive privileges, including a range of ‘Best Buys’, ‘Hot Deals’ and a privilege card which offers additional perks and free gifts.

Source : Business Times - 19 May 2008

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Profiteering adds to construction woes - Singapore

Profiteering adds to construction woes - Singapore

As costs of materials rise, some suppliers default on earlier contracts to make more

By ARTHUR SIM

(SINGAPORE) The last thing the construction industry needs now is another roadblock. But with the cost of materials and shortages soaring, the opportunity to inflate prices is too much for some errant suppliers and sub-contractors to resist.

‘Prices have moved up and there is no point lamenting…It’s a choice of either negotiating or just walking away.’

- Straits Construction director Wong Chee Herng

Sources told BT that some suppliers of building materials have been opting to default on earlier contracts because the current demand and prices are so strong, they can easily secure more profitable contracts elsewhere, stock piling materials in the meantime.

To add to the strain, labour supply has become so tight that crane operators, for instance, are said to be commanding salaries upwards of $8,000 per month.

A check with the Building and Construction Authority (BCA) reveals, however, that this opportunistic behaviour is not widespread - yet.

A BCA spokesman also said it has not received feedback of contract defaults by suppliers of steel and other construction materials, or of any delay in construction works due to such default of contractual obligations.

However, BCA said: ‘We do understand that the suppliers have increased their importation and stocking up of steel rebars in view of the surging prices. Suppliers have also shortened the period of supply contract for rebars from the previous 12 months to the current six months.’

‘Contractors and developers have to resolve the price issue based on their business practices, relationship and understanding. For projects which adopt price fluctuation for these materials, the cost impact on the contractors will be minimal,’ added BCA.

Construction companies that BT spoke with had mixed reactions to the situation.

A spokesman for United Engineers Ltd said: ‘The industry is particularly seeing some delays in projects, either in the midst of or commencing construction, that were awarded before the construction boom as prices negotiated at that time were definitely lower compared to now.’

Straits Construction director Wong Chee Herng said the industry has seen some smaller suppliers defaulting on contracts and causing delays but the level is still ‘manageable’.

He added: ‘Prices have moved up and there is no point lamenting . . . It’s a choice of either negotiating or just walking away.’

With so much uncertainty, Straits Construction is more selective about tendering for jobs. ‘If we feel we can’t deliver, we won’t tender,’ Mr Wong said.

Other construction companies like Hiap Hoe and Sim Lian say they are not facing any delays.

Giving an insight into how suppliers are also facing the same challenges, Lee Metal Group executive director Lee Heng Thiam revealed how a steel supplier for Marina Bay Sands was contracted to supply 85,000 tonnes over a two- year period at US$600 per tonne. However, the price of this steel has since risen to US$1,000. ‘It is too much for anyone to bear,’ he said. And while the particular supplier was able to renegotiate the contract, Mr Lee said: ‘I think they will still make a loss.’

To mitigate the risks, Lee Metal has to hedge its position. ‘In the past, the practice was to sell first and buy later; now, it’s the other way around,’ he explained. This means it keeps a stockpile of 6-8 months worth of supply to ensure it can fulfil its obligations.

Price fluctuation clauses are not a big help to suppliers who stockpile. ‘If prices are on a downward trend, we are in trouble,’ he explained. ‘Buying and selling needs to be managed tightly.’

HG Metal manages its stock on a tighter basis by maintaining 3-4 months worth of inventory amounting to as much as $200 million worth in stock at any one time. HG Metal CEO Wee Piew also said that it does not ‘lock in’ its prices. ‘Most major suppliers don’t set contracts,’ he added.

‘The only issue is when a big contractor wants to lock in prices. Then they have to deal with steel mills directly,’ he added.

These mills are usually in China but both HG Metal and Lee Metal say their supply comes from international traders instead because of the uncertain supply from Chinese mills.

PSL Holdings, a foundation engineering specialist contractor, says that its operators of construction cranes and other vehicles are commanding ‘very high salaries’ but it has managed to factor increasing manpower costs into its contracts. ‘The effect on our margins is minimal,’ added a PSL spokesman.

PSL says it has not encountered delays so far but apart from rising salaries, it is faced with rising costs due to surging diesel prices as well as shortage of personnel. PSL said: ‘We have managed to mitigate the higher costs because of the short duration of our projects.’

Developers that BT spoke too also say they are not facing delays.

City Developments Ltd (CDL) says it has not encountered any significant delays from its contractors. ‘Perhaps they have made early confirmation orders on the construction materials and are not really affected by the present rising costs of materials,’ added CDL’s spokesman.

Frasers Centrepoint COO Cheang Kok Kheong did say that to counter rising costs, it has had to take certain steps including continuously reviewing its plans and specifications to ensure that cost-effective construction methods and alternatives are considered. ‘In addition, we have improved and streamlined our procurement methods to get bulk pricing for construction supplies from our associates,’ he added.

The construction industry is perhaps beginning to show signs of strain, and may need more help.

To this end, BCA says it is also working with the Real Estate Developers’ Association of Singapore to encourage their member developers to make prompt payment to help ease the cashflow of the contractors.

Source : Business Times - 19 May 2008

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Mindy Yong

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