Singapore Marketing of risky products under review

Singapore Marketing of risky products under review

MAS wants complex investments explained more clearly to public

By Francis Chan

CONFUSED by complex investment products sold at the bank? Well, help is on the way.
Singapore’s financial regulator said yesterday that it will review the way that structured investment products are marketed and sold to retail investors.

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The move comes in the wake of news that thousands of investors who had bought structured products linked to the now-bankrupt investment bank Lehman Brothers could now lose most of their money.

In a statement yesterday, the Monetary Authority of Singapore (MAS) said that areas under study include stronger suitability requirements for certain types of products, as well as clearer product labelling and risk rating.

And one outcome of the review could be simpler descriptions of the features and risks of products, so that they can be more easily understood.

Structured products refer to a class of investments that involve the use of complex financial derivatives to deliver a steady annual return above that of traditional fixed deposits.

Returns are also mathematically tied to the performance of certain companies and stock markets. In some structures, investors can end up losing all their money should one of these companies fail.

That is the quandary that investors in structured products such as DBS High Notes 5, Lehman Minibonds and Merrill Lynch Jubilee Series 3 LinkEarner Notes have found themselves in, following the collapse of Lehman.

While recognising the need for a review of the way these products are sold, MAS also cautioned against ’swinging to the extreme’ of over-regulation.

It urged sellers of investment products to practise fair dealing and customers to consider investment decisions carefully and understand the risks.

Aljunied GRC MP Cynthia Phua, who has received complaints from her constituents, welcomed the review. But she suggested that when drawing up guidelines, MAS should also factor in considerations like an investor’s educational level.

‘Structured products should be graded and only offered to retail investors who can fully understand all their implications,’ she said.

Separately, MAS also announced yesterday that it has identified three ‘well-respected’ individuals to oversee how complaints from customers stuck with Lehman-linked products are handled. The three will not be personally involved in settling individual complaints, but they will make sure the processes are independent, fair and transparent for customers.

Last night, DBS Bank, which sold the Lehman-linked High Notes 5, confirmed that it appointed Mr Gerard Ee as its independent external consultant.

Mr Law Song Keng will be appointed by ABN Amro, Hong Leong Finance and Maybank. And Mr Hwang Soo Jin will provide oversight at six local stockbrokers.

The Straits Times understands that all three men will be paid a fee by the various financial institutions for their work.

MAS added that investors who are still not satisfied with how their cases are being handled can refer their complaints to the Financial Industry Disputes Resolution Centre (Fidrec).

It also gave its assurance that it will take ‘firm and appropriate regulatory action’ if financial institutions or their staff have breached the law in the sale of these structured products to customers.

Source : Straits Times - 03 Oct 2008

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Grade A office vacancy doubles to 1.2% in Q3

Grade A office vacancy doubles to 1.2% in Q3

By ARTHUR SIM

GRADE A office vacancy has doubled in the third quarter of 2008, rising from 0.6 per cent in the previous quarter to the current 1.2 per cent.

This is also the first time in eight quarters since Q3 2006 that Grade A office vacancy has risen above the one per cent mark.

CB Richard Ellis (CBRE) says market fundamentals have changed and sentiments have ‘deteriorated’ with pre-commitment rent levels likely to come under pressure.

CBRE executive director Moray Armstrong added: ‘There is an increase in vacancy as certain occupiers have relocated to less expensive cost options in lower grade and, or, decentralised locations.’

According to CBRE, office rents have also plateaued with both Grade A and prime office rents remaining static at $18.80 per square foot per month (psf pm) and $16.10 psf pm respectively.

CBRE had earlier anticipated rents would only soften beyond 2010. But with the events of the past few weeks, it now believes that the correction will be fast- forwarded to early 2009.

‘Landlords are adopting more reasonable asking rents, although in the immediate term occupiers will still face rentals that are at all-time highs. We will continue to monitor the trend over the next few months to see how swiftly the fast approaching new office supply allied with slowing demand will combine to bring down rents from today’s levels,’ added Mr Armstrong.

There were increases in vacancy rates for most micromarkets in the third quarter of 2008 - with the exception being Orchard Road, which saw a one percentage point drop in vacancy due to higher occupancy at the newly completed Visioncrest and at StarHub Centre.

Mr Armstrong said that occupiers are ‘understandably cautious’ given the challenging financial and economic environment, but he pointed out that a number of recently announced pre-commitments demonstrate that there is underlying confidence in Singapore’s relative position.

Still, he noted that many occupiers are also chasing lower costs and are relocating to decentralised locations, built-to-suit facilities and business park space.

CBRE estimates the confirmed new office supply over the next five years is now slightly higher at 10.64 million sq ft.

CBRE said the increase stemmed from increases in proposed net lettable area from developments under construction.

‘We do not consider this volume of supply excessive based on our estimated average annual demand of 1.6 million sq ft,’ said Mr Armstrong, highlighting that about 26 per cent of the new supply has already been pre-committed.

Mr Armstrong explained that the 1.6 million sq ft demand figure represents its projected five-year average office take-up level over the period 2008-2012.

He believes that this figure represents a realistic take-up figure that has factored in lower GDP going forward.

By comparison the past three-year average office take-up level was just under 2.2 million sq ft.

Source : Business Times - 03 Oct 2008

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Singapore URA revenue from land sales surges 80% to $8.3b

Singapore URA revenue from land sales surges 80% to $8.3b

By ARTHUR SIM

LAND sales revenue collected by the Urban Redevelopment Authority (URA) for the Singapore government reached $8.3 billion for FY07/08, up 80 per cent on the $4.6 billion collected during the property market peak of FY96/97.

According to URA’s Annual Report FY07/08, development charge collected by URA for the current period also hit a record $1.1 billion.

On a year-on-year basis, land sales revenue for the year rose about 200 per cent over the $2.7 billion collected for FY06/07, while development charge revenue increased by about 100 per cent over the $527 million collected. A total of 31 sites were sold in FY07/08 compared with 16 sites the previous year.

The key sites sold under the Government Land Sales programme in the past year include two Marina View land parcels and a site at Beach Road.

Operating surplus increased by 75 per cent or $11.1 million to $25.9 million. However, the lower investment income earned in FY07/08 resulted in a decrease in the total surplus by 74 per cent or $78.6 million to $28.3 million.

Current assets fell to $1.33 billion for the period, down from $1.38 billion the previous financial year.

Capital and development expenditure rose by $18.3 million or 96 per cent to $37.3 million. The rise was mainly due to higher development expenditure for implementing infrastructural and environmental enhancement works for the Downtown at Marina Bay and the Southern Ridges projects.

The net surplus of $23.2 million was lower than the previous year’s $85.5 million due to a drop in URA’s non-operating surplus.

URA said that this resulted from a shift of some of its surplus funds to more liquid and lower yielding assets such as bonds and bank deposits to fund its development projects, and also a reduced return from investment from the volatile equity market in FY07/08.

Operating income for the year increased by $29.7 million to $166.8 million. The increase was mainly due to higher agency fees from sale of site and agency projects, and income from processing more development applications.

Agency and consultancy fees increased by 54 per cent to $34.7 million, while income from development control rose 57 per cent to $30 million for the year.

Operating income from parking fees and related charges increased by 7 per cent to $59.3 million.

Source : Business Times - 03 Oct 2008

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Bailout plan sails through Senate - but here comes the hard part

Bailout plan sails through Senate - but here comes the hard part

Markets expected to be in nervous limbo until House clears bill on Friday

By ANDREW MARKS

NEW YORK CORRESPONDENT

WALL STREET is bracing itself for another ride on the see-saw of hope and fear even though the US Senate has on Wednesday overwhelmingly approved a US$700 billion bailout for the financial system.

Ending the uncertainty over how the federal legislature will respond to the crisis would be a big shot in the arm for investors who have seen the stock market panic on a scale not seen since 1987, said stock market analysts.

‘But no one’s going to be singing in the streets today,’ said John O’Donoghue, chief equity trader at S G Cowen. ‘If the House approves the deal, there will be a sigh of relief, but it’s been more than a week that we’ve had to digest the possibility of this rescue plan, and nobody believes that it’s going to solve this crisis all by itself,’ he said.

On Wednesday night the Senate approved a bill similar to the one voted down by the House of Representatives on Monday, but with several amendments that make it more appealing to House members who rejected the first one. This is read as the latest sign that Washington is finally getting in line with Wall Street on the severity of the financial crisis and the urgency of taking measures to prevent an outright collapse of the frozen credit market.

The revised bill before the Senate includes a temporary increase in the Federal Deposit Insurance Corp’s insurance on bank deposits to US$250,000 from $100,000. The bill also extends existing tax breaks for individuals and businesses for two years.

The bill also will temporarily let the FDIC borrow unlimited funds from the Treasury to further bolster its insurance of US bank deposits. Such a move could help alleviate strains on banks, as depositors have increasingly reduced deposit levels to the current US$100,000 FDIC insurance limit.

But the US stock market reacted with nervous scepticism in early trading yesterday morning, perhaps unsettled by the indecisive back and forth of the government’s moves to buy the banks’ worst assets and unfreeze the credit markets.

Shortly after the opening bell, all the major indices were moderately lower. The Dow Industrials, for example, was down 154 points, or 1.5 per cent, at 10,677. By noon, the Dow Industrials had slipped further, to 10,602.56, and the Nasdaq Composite was down 52.92 points at 2,016.48.

Commenting on the Senate action, Art Hogan, chief investment strategist at Jeffries & Company, said: ‘This should be a positive for the stock market. But we’ve been down this road before and no one’s going to be celebrating until the rescue is a done deal.

‘The Senate vote is meaningless unless until Wall Street sees the House of Representatives getting on board and voting for the rescue plan too.’

And that final and crucial element is unlikely to happen before Friday, when the House of Representatives is scheduled to vote on the new version of the bill.

In the meantime, market watchers are expecting another day of high volatility and reversals, as was the case on Wednesday, when the blue chip index sank as much as 200 points before rallying to finish the day just 19.59 points down, or 0.2 per cent, to 10,831.07. The S&P 500 lost 5.3 points, or 0.5 per cent, to close at 1,161.06, while the Nasdaq was Wednesday’s biggest loser with a fall of 22.48 points, or 1.1 per cent, to 2,069.4.

Further weighing on stocks was the latest sign of how heavily the credit crisis is hurting the economy, as the government reported that the number of people seeking unemployment benefits rose last week to 497,000, a seven-year high.

If it’s any consolation to the market, Swiss bank UBS has announced it would net a small third-quarter profit after four consecutive quarters of big losses and massive write-downs.

But until the House of Representatives votes on Friday, said Mr Hogan, ‘the only thing Wall Street is interested in is what happens in Washington.’

Source : Business Times - 03 Oct 2008

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Singapore Private home prices ease after 4 years

Singapore Private home prices ease after 4 years

Strength in HDB resale prices in Q3 anchors market overall while private residential prices dip 1.8%, flash estimates show

By EMILYN YAP

(SINGAPORE) Third-quarter private property prices fell for the first time after 17 straight quarters of growth.

And with financial and economic headwinds working their way through, market watchers reckon this could be the start of further price falls ahead.

Urban Redevelopment Authority flash estimates for July to September released yesterday show the private residential property price index dipped 1.8 per cent from Q2.

But strength in the public housing resale market is supporting the property sector overall. The Housing and Development Board resale flat index advanced an estimated 4.2 per cent in Q3 from Q2, exceeding its previous peak in 1996.

The 1.8 per cent fall in private home prices was largely driven by declines in the Core Central and Rest of Central regions. Prices of non-landed private housing in these areas slid 2 per cent and 2.1 per cent respectively. Holding up, with support from HDB upgraders, were prices in the Outside Central Region (OCR), which edged up 0.1 per cent in Q3.

The fall in private property prices comes as no surprise to Knight Frank’s director of consultancy and research Nicholas Mak. ‘US financial problems and the global economic slowdown already weighed down investment sentiment and caused the local transaction volume of private homes to diminish since H2 2007,’ he said. ‘As (these) problems persisted, it was only a matter of time before overall private home prices started to fall as well.’

DTZ’s senior director of research Chua Chor Hoon also anticipated the slide. But she noted that ‘the index has not fallen significantly because many developers are still holding firm on prices for their projects’.

URA’s private residential property price index rose just 0.2 per cent in Q2 2008. Taking the Q3 estimate into account, prices have increased 2.1 per cent this year.

But there is unlikely to be any let-up in price pressure, according to market watchers. ‘Prices, which are now under tremendous pressure, are likely to decline again in Q4,’ said CB Richard Ellis’ executive director Li Hiaw Ho.

Reflecting this sentiment, Knight Frank’s Mr Mak said: ‘Whatever price gain was achieved in the first half of this year will be given up in H2, resulting in flat prices for the whole of 2008.’

With worldwide financial turmoil eating into Singapore’s GDP growth prospects and threatening job losses, Citi has projected respective price falls of 25 and 15 per cent in the high-end and mid-tier private residential housing over the next six to 18 months.

Even the OCR is unlikely to be immune. ‘While it has been performing better, prices in that area will also drop if the economic slowdown continues,’ said DTZ’s Ms Chua.

Explaining how the HDB resale market performed so strongly in Q3, ERA Asia Pacific’s assistant vice-president Eugene Lim said there was robust demand from upgraders, downgraders and permanent residents.

Including the Q3 estimates, the HDB resale price index has jumped 12.4 per cent this year. And the rise will now probably be ‘in the region of 15 per cent for the whole year’, said Propnex CEO Mohd Ismail.

ERA’s Mr Lim said the HDB resale market could see an overall price increase of 15-17 per cent in 2008. But he noted that Q3’s estimated 4.2 per cent increase in the resale price index was a shade lower than the 4.5 per cent in Q2. ‘(This) may be a sign that prices have begun to moderate,’ he said.

Source : Business Times - 03 Oct 2008

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