10,450 Singapore private residential units sold under DPS still uncompleted

10,450 Singapore private residential units sold under DPS still uncompleted

By Timothy Ouyang,

SINGAPORE: 10,450 private homes sold under the Deferred Payment Scheme are still uncompleted as of end-November, according to figures released by the Urban Redevelopment Authority for the first time.

The report comes amid concerns that a large number of uncompleted homes bought under the scheme may be sold at distressed prices as the property market softens.

68 per cent of uncompleted homes sold under the Deferred Payment Scheme will be built over the next two years. With falling property prices, there are concerns about whether home buyers have enough cash to complete their purchases.

Despite this, some property analysts said it is unlikely that home buyers will be forced to return their homes to developers.

Nicholas Mak, director, Consultancy and Research, Knight Frank, said: “I don’t think it will come to that drastic level where many of them would return their homes to the developers because if a buyer were to return the home to the developers, the developers could firstly sue them for completion of the contract.

“Or, the other thing is that the buyer would actually lose all their deposits, which could be 20 per cent or so.”

Under the scheme, selected developers were allowed to offer home buyers the option of deferring the progressive payments due after the initial 10 to 20 per cent down payment.

At the end of November, of the uncompleted units approved for sale under the scheme, 77 per cent or 18,208 units have been sold. Of these, 57 per cent or 10,450 units have not been fully paid for.

4,560 of these units will be completed next year, while another 2,540 will be completed in 2010.

Despite completion of the bulk of properties next year, market watchers said they do not expect home buyers to come under pressure to sell their properties below market value. They said home buyers would still be able to get good returns, despite the weak property market.

Mr Mak said: “Many of these homes were bought in 2005 and 2006 when prices were still relatively low. So the owners would actually have more leeway. If they were to take possession, they can still rent it out at a fairly attractive rate of return.”

A total of 72,384 private homes has been allowed for sale under the deferred payment scheme. The scheme was introduced in October 1997 to help the sluggish property market then and was subsequently withdrawn in October 2007. - CNA/vm

Source : Channel NewsAsia - 20 Dec 2008

Singapore Property - Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

The story of wealth management

The story of wealth management

Banks are a fiduciary and should place customers’ interests ahead of shareholders’. Banks are for transaction, not advice

By Christopher Tan
CEO, Providend

KNOW THY CLIENTS
Banks are not the place to get financial advice as their platform is a flawed one. To give good advice, banks must have a thorough understanding of their clients’ assets & liabilities, income and expenses and their goals in life
ONCE upon a time, on a sunny island in South-east Asia, lived more than four million people. The government took care of the people and the people trusted their leaders. Although outsiders were often jealous, and scoffed at it being a nanny state, it was the best model then for a young but growing nation.

The leaders planned for everything. Who you should marry, who your neighbour should be, how many children you should have, what language you should speak. Whatever the leadership did, the people believed in them and followed. When chewing gum was banned, the people only had them when they went overseas. When bird flu hit the country, people continued to eat poultry, because the leaders said it was safe to eat them. When the leaders said they will live beyond 85 years old and there is a need to plan for their financial life, the people followed.

Such was the trust between the leaders and their followers. The people depended on their leaders and submitted to them. So despite it being just a little red dot on the map, the country grew to become one of the richest nations in the world.

The earlier generation lived a simple life. They earned a salary, spent within their means and were careful never to be in debts unnecessarily. They were, after all, Asians. They were good savers and often go to the local banks to open a simple savings account to place a deposit or do some business transactions.

‘One department is getting you to spend your future money; another is getting you to save. That is not the principle of good financial planning. To give good advice requires at least 30 hours of discussion and analysis. You only have half an hour in the bank. How can you get good advice?’

Then one day, some smart people in the banks decided that this business model is too slow in bringing in profits. So they began selling investment products in the name of wealth management and financial planning, in line with what the government is encouraging: Take charge of your financial future. By selling investment products, they will receive lucrative front-end sales commissions and recurring streams of trail commissions, year after year.

But how do you get busy people who come into the banks for a simple transaction to buy investment products? The smart people came up with a bright idea: ‘When our customers do their transaction at the counter, ask them whether they are happy with the low interest rate they are receiving from their deposits. Most will say no. We will then tell them that we have a better product for them that give great upside potential but limited downside risk. That will interest them. Once they show interest, we will get them to sit at our comfortable wealth management area and have our relationship managers sell to them. To entice them further, offer them a free gift. The more they buy the more expensive gift they will get. Anyway, we are using part of the commissions we earn from them to buy the gift. We will still make a good profit. The entire sales process can be very fast. To cover ourselves legally, get them to answer some simple questions, add them up and tell them the product suit their risk appetite. If they sign, we are covered. The smart people were right. Tonnes of products (along with the free gifts) were sold.

But the smart people were not satisfied. ‘How can we make more money?’ they thought. They came up with another bright idea. ‘We have now made money by getting them to save and invest. Let’s make more money by getting them to spend their future money!’ So they started organising road shows all over Singapore to sell credit cards. They even enticed students in campuses (who hadn’t earned an income) to sign up for credit cards. To make even more money, they sent cheques to customers and encouraged them to use the cheques to buy what they liked. Telemarketers called the people every day and encouraged them to make use of the credit facilities to indulge themselves. The idea was simple: Enjoy first, pay later.

This went on for many years. Times were good during that period. The global economy was booming and the stock markets were skyrocketing. More and more complicated products (along with the free gifts) left the shelves of the banks. More and more people were spending beyond their means. The banks became richer, more powerful and the smart people received fat bonuses. Everyone was happy.

The year is 2008. Lehman Brothers has fallen. AIG went to the Fed for help and Merrill Lynch sold itself to Bank of America. A financial crisis second only to the Great Depression is in full force. Many have lost money buying products they never really understood. Many have over extended and are in serious debt. Fingers are pointing all over the place. People expressed shock that their leaders allowed such a thing to happen and blamed the banks for mis-selling. Banks said the customers went in with open eyes (remember they signed the questionnaire?). Leaders said the people should know that if they want higher returns, they should take more risks. The people are sad. They have lost their hard-earned money. Many lamented: ‘How would we know? We thought if it is from the banks, governed by our leaders, it would be safe.’

Unfortunately, there is no ‘happily ever after’ ending to this story. The moral of the story is:

Although we have high trust in our government as they have taken care of our every need, don’t over-rely on them. It is time we grow up and make our own judgement.

Banks are not the place to get financial advice. Their platform is a flawed one. One department is getting you to spend your future money; another is getting you to save. That is not the principle of good financial planning. To give good advice, you must know your need for the product, your ability to bear the risk and determine your willingness to bear the risks. That requires a thorough understanding of your assets and liabilities, your income and expenses and your goals in life. That requires at least 30 hours of discussion and analysis. You only have half an hour in the bank. How can you get good advice?

Take care of your children; they are being influenced to spend future money, which is wrong. Otherwise, we will be building a generation of spenders.

Banks are a fiduciary and should place customers’ interests ahead of shareholders’. Banks are for transaction, not advice.

Source : Business Times - 20 Dec 2008

Singapore Property - Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

Bush throws carmakers US$17.4b lifeline - Washington

Bush throws carmakers US$17.4b lifeline - Washington

Paulson urges release of second US$350b tranche for big financial institutions

Email this article
Print article
Feedback

(Washington)

RIDING TO THE RESCUE
Mr Bush said that bankruptcy would deal an unacceptably painful blow to hardworking Americans across the economy
THE Bush administration came to the rescue of the country’s car industry yesterday, offering US$17.4 billion in emergency loans in exchange for concessions from the deeply troubled carmakers and their workers.

At the same time, Treasury Secretary Henry Paulson said that Congress should authorise the use of the second US$350 billion from the financial rescue fund that it approved in October to rescue huge financial institutions.

President George W Bush said: ‘Allowing the auto companies to collapse is not a responsible course of action.’ Bankruptcy, he said, would deal ‘an unacceptably painful blow to hardworking Americans’ across the economy.

One official said that US$13.4 billion of the money would be available this month and next, US$9.4 billion for General Motors Corp and US$4 billion for Chrysler LLC. Both companies have said that they soon might be unable to pay their bills without federal help. Ford Motor Co has said it does not need immediate help.

Mr Bush said that the rescue package demanded concessions similar to those outlined in a bailout plan that was approved by the House but rejected by the Senate a week ago. It would give the carmakers three months to come up with restructuring plans to become viable companies.

If they fail to produce a plan by March 31, the carmakers will be required to repay the loans, which they would find very difficult.

The money will be drawn from the Troubled Asset Relief Program (TARP) and the carmakers will get an additional US$4 billion from the fund in February for a total of US$17.4 billion in assistance, according to a statement from the Bush administration.

In exchange for the money, the carmakers must provide warrants for non-voting stock; accept limits on executive pay; give the government access to financial records and not issue dividends until the debt is repaid. The government will have the authority to block transactions larger than US$100 million.

The carmakers must cut their debt by two-thirds in an equity exchange; make half of the payments to a union retirement fund in equity; eliminate a programme that pays union workers when they don’t have work; and have union costs and rules competitive with foreign carmakers by Dec 31, 2009. The requirements could be modified by negotiations with the union and debt holders.

‘The time to make hard decisions to become viable is now, or the only option will be bankruptcy,’ Mr Bush said. ‘The carmakers and unions must understand what is at stake and make hard decisions necessary to reform.’ Mr Bush’s plan is designed to keep the car industry running in the short term, passing the longer-range problem on to the incoming administration of President-elect Barack Obama.

The White House package is the lifeline desperately sought by US carmakers, who warned they were running out of money as the economy fell deeper into recession, car loans became scarce and consumers stopped shopping for cars.

The carmakers have announced extended holiday shutdowns. Chrysler is closing all 30 of its North American manufacturing plants for four weeks because of slumping sales; Ford will shut 10 North American assembly plants for an extra week in January; and General Motors will temporarily close 20 factories - many for the entire month of January - to cut vehicle production.

Mr Bush said the car manufactures have faced serious challenges for many years: burdensome costs, a shrinking share of the market and plunging profits. ‘In recent months, the global financial crisis has made these challenges even more severe,’ he said. The president said that on the one hand, the government has a responsibility not to undermine the private enterprise system, yet on the other hand, it must safeguard the broader health and stability of the US economy.

‘If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers,’ he said. ‘Under ordinary economic circumstances, I would say this is the price that failed companies must pay. And I would not favour intervening to prevent the automakers from going out of business. But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the US auto industry to collapse is not a responsible course of action.’

Chrysler CEO Bob Nardelli thanked the administration for its help. In a statement yesterday morning, Mr Nardelli said that the initial injection of capital will help the company get through its cash crisis and eventually return to profitability. — AP, Bloomberg

Source : Business Times - 20 Dec 2008

Singapore Property - Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

Singapore Projects in the works will see value shrink

Singapore Projects in the works will see value shrink

Drop of 20-30% in 2009 partly due to halted residential developments

By ARTHUR SIM

THE value of projects under construction in Singapore could fall by 20-30 per cent to some $17 billion in 2009. And according to construction information services provider BCI Asia, about 45 new residential developments in various stages of design and development have been put on hold this year, exacerbating the contraction of construction contracts.

SLOWDOWN
Public building works worth about $4.7 billion were deferred in 2008. These were reported as ranging from $10 million to $400 million
BCI Asia’s database is derived from developers, architects, engineers and contractors who have reported project delays. These occur at various stages of development, including design, documentation, tender and the awarding of contracts.

For 2008, it estimated that the value of projects under construction here was about $25 billion.

BCI Asia’s figure is also more conservative than official figures which put the total value of contracts in 2008 at between $27 billion and $32 billion.

Thor Kerr, managing director at BCI Asia, added that the decline in construction follows a significant rise in construction contracts over the last year and any drop in the figures should be judged in this context.

He also said that compared to other South-east Asian countries, Singapore’s construction industry has the most to gain from government spending including infrastructure projects. BCI Asia estimates that for 2008, there were about $4 billion worth of infrastructure projects alone.

The government has also recently said that it could bring public construction contracts forward.

Public building works worth about $4.7 billion were deferred in 2008. These were reported as ranging in value from $10 million to $400 million and included the Jurong General Hospital, the National Art Gallery, the National Addiction Management Centre, the Communicable Disease Centre and an extension of Changi Prison.

The total public construction demand for 2008 has been reported to reach between $10.5 billion and $13.5 billion this year.

On the downside, BCI Asia expects construction spending in cities such as Singapore and Hong Kong to suffer most from the slowdown in the global economy, attributed to a slowdown in construction in the CBDs.

In its survey of Asian markets consisting of Singapore, Hong Kong, Indonesia, Malaysia, Philippines, Thailand and Vietnam, it estimates that, out of the total US$140 billion of construction projects, a fall of 16 per cent in 2009 to US$118 billion is possible, assuming a ‘low-growth economic trough’ scenario.

Mr Kerr said: ‘All data indicates that construction spending in this region peaked in 2008. The value of projects at design and documentation phases has contracted by 2 per cent this year and we have seen major projects abandoned for lack of finance.’

In a worst-case scenario, if the economies of these cities suffer a ‘deep recession’, BCI Asia believes the total value of construction contracts could fall to US$96 billion, representing a contraction of over 30 per cent.

BCI Asia’s forecast is from an upcoming study of how the construction sector has reacted to changing economic conditions since the 1997 Asian financial crisis. In this study, it was noted that during the recent trough of 2002, the total value of construction projects had fallen to $47.9 billion, 66 per cent lower than the 2008 peak. However, Mr Kerr said that it is unlikely that the value of construction contracts would fall to this level again.

Source : Business Times - 20 Dec 2008

Singapore Property - Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com