Some developers may turn residential projects into serviced apartments

Some developers may turn residential projects into serviced apartments

By Ng Baoying

SINGAPORE: Some private property developers are thinking of turning their residential projects into serviced apartments.

Ascott Hospitality said it has been approached by some developers recently, but declined to say which were considering such a move.

Experts, however, said such conversions are unlikely to gain popularity in Singapore anytime soon as there are many factors against it.

Private home sales may have been on the rebound over the past two months, but that has largely been restricted to the mass to mid-market segment where developers used various pricing strategies to attract buyers.

Many developers are grappling with a poor global economic outlook and tighter credit conditions.

Gerald Lee, chief executive officer, Ascott Hospitality, said: “Now at a time where it’s more challenging for them to sell, they may want to do something about that.

“So one good solution is to convert them to serviced residences so it can be rented out for people relocating to the city. So there are more owners coming to… (ask) us to manage those properties for them.”

Ascott Hospitality said it is still evaluating proposals as not all properties fit the bill. For example, location is extremely important as the target clientele tends to have specific needs. Proximity to areas like shopping centres, or business parks is almost essential.

Projects found in central locations like the business district with small units and good amenities could consider going the serviced apartment route.

The Urban Redevelopment Board also needs to approve the change in land use. And if some units in the development are already sold, the property’s management committee must agree to the plan.

Some analysts said the numbers do not look good for such a conversion.

Karamjit Singh, managing director, Credo Real Estate, said: “It’s really a question of the operating cost here in Singapore. They are quite high. At the same time property costs are very high to a point where the net revenue accrued from operations of a serviced apartment won’t necessarily yield as much returns as an investor would be happy with.

“In the context of our capital values here, it is not very popular because yields for serviced apartments range from three to four per cent or so. So it is not very attractive unless they were designed right from scratch for serviced apartments and they were bought for that purpose, factored right from day one.”

To date, Ascott Hospitality has already turned down one proposal in Singapore.

But it said that conditions in markets outside Singapore, such as China and the Middle East, look very attractive for this trend. - CNA/vm

Source : Channel NewsAsia - 21 April 2009

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20 units of The Arte sold over weekend

20 units of The Arte sold over weekend

This takes total sales since the official launch to 170 units

By ZHANG YI TING

CITY Developments Ltd (CDL) sold 20 units at The Arte at Thomson over the weekend. This takes total sales since the property’s official launch to 170 units, with last weekend’s sales fetching a total of $30 million.

‘The sales volume indicates that buyers have greater confidence in the property market and in the future of their investment. This reinforces CDL’s view that the current market is now attracting savvy but cautious investors,’ said Chia Ngiang Hong, Group general manager of CDL.

Buyers’ interest was also evidenced by the strong turnover of over 1,000 visitors at The Arte’s showroom over the weekend.

Among other factors, these prospective buyers were drawn by the property’s location and proximity to a MRT station, according to a CDL release.

The Arte is located within the Thomson area with convenient connections to the City and the expressways. It is also a short walk from Toa Payoh MRT station.

Priced at $880 psf on average, the freehold project comprises two 36-storey towers and will be completed in 2012. Most of the 336 units available are going for under $2 million.

Buyers can opt for CDL’s interest absorption scheme (IAS), which allows them to defer the bulk of their purchase until The Arte’s completion on the condition that they take up a housing loan at the point of sale.

A majority of buyers of The Arte have private home addresses and many say they want to invest in another property or to move into a new and upscale residence.

Singaporeans’ renewed interest in private property saw the sales of 2,660 private homes in the first three months of 2009, which is about 62 per cent of total new home sales in 2008, according to the CDL release.

Source : Business Times - 21 April 2009

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AIG’s future in hands of three little-known trustees

AIG’s future in hands of three little-known trustees

They hold voting power even though the US Treasury has a near 80% stake

(WASHINGTON) In an early sign of just how tricky corporate governance has become in the era of taxpayer bailouts, three little-known trustees with no office, no staff and almost no mission will soon be deciding questions that affect the fate of American International Group, the giant insurance company.

The trustees include a retired Wall Street executive, the head of a Texas pipeline company and the chairwoman of a firm in Bermuda that provides administrative services to hedge funds.

Even though the government has bailed out AIG with US$170 billion in federal money, and even though the Treasury owns nearly 80 per cent of its shares, the voting power is in the hands of the three trustees.

Yet for all their responsibility, the trustees have studiously remained invisible to the public. Even after the nationwide uproar last month over bonus payments made to AIG executives at a time when taxpayers were rescuing the company from collapse, the trustees have said nothing in public about their activities or their plans.

The unusual arrangement will face its first test next month, when AIG holds its annual shareholders meeting. Dissident shareholders, led by labour unions, are pushing for shareholder votes to oust an AIG board member and to further restrict executive pay.

Fed and Treasury officials are likely to resist additional pay restrictions, fearing they would aggravate the exodus of crucial employees and make it even harder for AIG to repay taxpayers. That could leave the trustees, who are each being paid US$100,000 a year, in the awkward position of having to vote on a proposal that many taxpayers might support but that the government opposes.

The arrangement has raised questions about who really is in charge when the government bails out a major financial institution. Those questions could soon spread far beyond AIG.

The Treasury Department is poised to become Citigroup’s biggest shareholder, obtaining as much as 36 per cent of its voting shares, and officials plan to turn over those shares to outside trustees as well.

And if any of the 18 other large banks now undergoing government ’stress tests’ are told they need more capital, the government is likely to acquire more voting shares and turn them over to trustees, too.

Some analysts say the setup provides cover for officials who, despite the government’s large stake in various banks, want to preserve the notion that neither the Treasury nor the Fed ‘owns’ AIG or controls any major banks.

‘This was the best idea they could come up with at 4 in the morning on how to avoid the conflicts of government ownership,’ said Karen Shaw Petrou, president of Federal Financial Analytics, a consulting firm in Washington.

Their public debut at AIG’s next shareholder meeting could also reinforce doubts that anybody - the government or the trustees - is really in control.

‘If you own 77.9 per cent of the shares, you’re an owner and you should act like an owner,’ said Espen Eckbo, director of the Lindenauer Center for Corporate Governance at Dartmouth.

All three trustees were recruited by the New York Fed and have extensive business backgrounds.

One of them is Jill M Considine, a former chief executive of the Depository Trust and Clearing Corp and a former banking regulator, now chairwoman of the Butterfield Fulcrum Group in Bermuda, a firm that provides administrative support to hedge funds.

The two other trustees are Chester B Feldberg, a former senior official at the New York Fed and a former chairman of Barclays Americas; and Douglas L Foshee, the chief executive of the El Paso Corp, a natural gas producer and pipeline operator.

The Treasury’s peculiar form of non-controlling control over AIG reflects a deeply rooted, bipartisan political aversion in Washington about ‘nationalising’ private enterprises, or having the government actively control them.

According to government documents, the trustees are legally independent of the Treasury and the Federal Reserve. They cannot be fired or replaced simply because their votes clash with the positions of policymakers.

And though they are not supposed to get involved in day-to-day management or set AIG’s broad strategy, they have full power to vote the government shares. If they wanted to oust AIG’s current board and chief executive, for example, they would have ample power to do so. — NYT

Source : Business Times - 21 April 2009

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Combined effort to help start-ups, entrepreneurs

Combined effort to help start-ups, entrepreneurs

By CHEN HUIFEN

THREE organisations that lend assistance to start-ups and entrepreneurs in Singapore are joining forces to extend their reach and strengthen support for one another.

The three parties will jointly organise networking events and refer eligible companies and mentors to one another.

The Business Angel Network South East Asia (Bansea), the Singapore Venture Capital and Private Equity Association (SVCA), and The Indus Entrepreneurs Singapore (TiE) have signed a memorandum of understanding to link their members and facilitate co-investment opportunities and the sharing of resources and information to generate deal flow.

‘The recession has presented new challenges for everyone, including venture capital and private equity players,’ said SVCA chairman Eugene Wong. ‘Organisations like us must play a greater role in helping our members and the business community at large to emerge stronger after this financial crisis.

‘In the longer term, we hope our MOU will bring Singapore closer to becoming a regional venture capital and private equity hub for fund managers operating here and limited partners investing in the Asia-Pacific region.’

The pact will formalise cooperation among the three not-for-profit organisations, which have been working with one another on an ad hoc basis. It will leverage on their strengths, synergies and best practices to better help Singapore start-ups and SMEs grow their business locally and globally.

Bansea and SVCA members will be able to tap a wider entrepreneurial network through TiE Singapore, one of the 52 chapters of TiE globally. TiE is one of the world’s largest not-for-profit organisations for entrepreneurs, with over 12,000 members. Conversely, TiE members can tap the funding and mentor networks of Bansea and SVCA.

The three parties will jointly organise networking events and refer eligible companies and mentors to one another. They will also explore the relocation of their offices to a common site to share facilities and serve as a one-stop centre for both investors and entrepreneurs.

The MOU will be effective for two years, after which it may be extended by mutual agreement.

Source : Business Times - 21 April 2009

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Citigroup, UBS say economy may have bottomed

Citigroup, UBS say economy may have bottomed

Former suggests growth possible in Q4; both overweight on banking sector

By OH BOON PING

STRIKING a positive note, Citigroup and UBS predict that the economy may have turned the corner, with the former predicting a recovery as early as the fourth quarter of this year.

Both houses are now overweight on the local banking sector, and their top picks include DBS, United Overseas Bank and Singapore Exchange.

In a report, Citi said that the worst may be over - after gross domestic product shrank 11.5 per cent in Q1 - as several economic indicators appear to be stabilising.

For example, non-oil domestic exports went up month-on-month on a seasonally adjusted basis for two consecutive months in February and March, after a sharp fall in January.

Also, industrial production declined at a slower pace of -22.4 per cent in February, versus January’s -29.8 per cent.

UBS said that global and local data, including non-oil retained imports and the PMI, support its view that Q1 marked the bottom of the GDP growth cycle.

Additionally, aggressive global fiscal and monetary easing, coupled with the Singapore Government’s fiscal measures and the two integrated resorts, should lend substantial support to any economic recovery.

Therefore, Citi economist Kit Wei Zheng expects smaller contractions of -8.2 per cent in Q2 and -6.2 per cent in Q3. Tepid growth could come in Q4, before the economy expands 6.7 per cent in Q1 next year.

UBS economist Chiou- Yi Chang believes that the economy will contract 5 per cent this year, with a substantial trough of -9 per cent in Q1, and then recover incrementally to -7 per cent in Q2 and -2.2 per cent in the second half.

Plus, says Citi, the stock market appears to be in the late stage of a bear cycle, and valuations have become attractive, ‘trading at 1.15x price-to-book, about one-and-a-half standard deviations below our adjusted historical price-to-book value (P/B) mean of 1.63 times, and among the cheapest in Asia ex-Japan’.

The research house has a target for the Straits Times Index of 2,400 by March next year, while UBS forecasts a year-end STI of 2,100.

Both banks are also overweight on financial stocks, including the banking sector here.

Based on past cycles, the banks tend to lead stock market recoveries and ‘reversion to ‘normal’ bank price-book trading ranges, which at the minus-one standard deviation level is one to 1.4, is a key factor’, said Citi.

Although the weak Q1 GDP figures may suggest that poor bank results are on the cards, ‘consensus may have already factored this in, with estimates cut 42 to 53 per cent from their peak. Robust net interest margins may support the top line and greater clarity on provisions may prove to be a positive (our 2009E assumption: 85 basis points of loans). Book value erosion is less of a risk as markets rise.’

UBS pointed out that Singapore banks remained profitable through the Asian financial crisis - ‘a track record we expect to be maintained in this cycle’.

Also, ‘the competitive positioning of the three local banks is likely to be at its best in the past six years. Latest refinancing (figures) suggest that even blue-chip government-linked companies now have to pay interest spreads of 180-200 basis points, up from a low in 2006 of 15-30 basis points’.

Citi’s target prices for DBS, UOB and SGX are $12, $14 and $8 respectively.

As for UBS, its price targets for those stocks are $10.30, $13.40 and $6.50.

Besides financials, Citi is overweight on commodity stocks, while UBS is bullish on property. Both are underweight on telcommunications.

Source : Business Times - 21 April 2009

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DPS buyer with 20 units at The Fernhill drags feet on payment

DPS buyer with 20 units at The Fernhill drags feet on payment

Episode watched by developers that had sold multiple units to foreigners under DPS

By KALPANA RASHIWALA

(SINGAPORE) A China investor that bought 20 units at MCL Land’s The Fernhill condo has failed to pay roughly $30 million that became due when the project received Temporary Occupation Permit recently.

MCL sent the notice seeking payment to buyer Concordia Overseas Pte Ltd 14 days ago. By the due date yesterday, the payment had still not been made, BT understands.

This development on the deferred payment scheme (DPS) - which was scrapped in October 2007 - is being closely watched.

Under the Sale and Purchase Agreement (SPA), MCL will now wait for another 14 days and if the payment is still not made by then, the developer can serve a 21-day notice on Concordia to repudiate the SPA. After that, if there’s no payment, MCL would be entitled to treat the 20 per cent paid so far by Concordia as forfeited and resell the units.

Concordia, controlled by Hong Kong resident Chan Ki, who has developed commercial buildings in Shanghai, had bought all 25 apartments in The Fernhill in January 2007 at $1,410 per square foot.

It flipped five of these units to foreigners at an average price of nearly $2,200 psf later the same year. JTResi brokered both sets of deals for the five-storey freehold project at the corner of Orange Grove and Fernhill roads.

Concordia bought the units from MCL on DPS, and paid an initial 20 per cent of purchase price in 2007. The 20 units it still holds were purchased for nearly $47 million and it was asked to pay another 65 per cent - around $30 million - after the project received TOP last month.

In case there is a hitch in receiving the payment, analysts say, MCL Land is pretty well covered, as it can walk away with the 20 per cent downpayment from Concordia. Its ‘breakeven cost’ so to speak on the 20 units would be $1,128 psf ($1,410 psf sale price to Concordia less the 20 per cent collected so far).

Based on recent transactions at Gallop Gables on Farrer Road and The Verdure on Holland Road, MCL should easily be able to sell the units individually for more than that sum. An average resale price of $1,250 or so could mean another round of profits.

BT understands that MCL did not extend DPS to the buyers of the five units who picked up their apartments from Concordia in the subsale market. They have been making normal progress payments to MCL.

While MCL is on a firm footing, other developers who sold their projects on DPS at peak prices in 2007 and early 2008, may have reason to worry in case buyers do not pay up once the projects are completed in the coming months.

This is because the values of many such units could be down more than the 20 per cent initial payment and the developer would be out of pocket if it were to treat the SPA as being repudiated. Such developers may have to sue buyers for specific performance - complete the SPA at the contracted price.

But some developers may agree to a payment extension or restructuring for local buyers in hardship.

Developers may find it tough to take legal action against foreign buyers domiciled offshore who walk away from purchases. ‘The practical thing to do may be to treat the SPA as repudiated, take possession of the units and try to resell them or lease them out. Once you go down the route of suing defaulting buyers for specific performance, it will be some time before you can take possession of the units,’ a developer said.

In case The Fernhill units end up being resold by MCL, the price could have implications for neighbouring projects. The price benchmark may hit DPS buyers in these projects who have yet to secure a loan. Even those that have secured loans may be affected as the bank may now assume a lower value for the properties and ask borrowers to top up more equity.

Some analysts said that the latest development at Fernhill may be a sign of things to come as more projects are completed. The situation of multiple unit buyers, especially if they are foreigners, will be keenly watched.

Source : Business Times - 21 April 2009

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US govt may become bank shareholder: report

US govt may become bank shareholder: report

By converting loans into stock, it would not have to seek more bailout money

(WASHINGTON) US President Barack Obama’s economic advisers have determined that they can shore up top US banks without asking Congress for more money by converting loans into stock, The New York Times reported yesterday.

Mr Emanuel: Asserts that the government has enough money to shore up the 19 banks without asking Congress for more bailout funds
Citing unnamed administration officials, the newspaper said the move would convert the US government into part owner of some key banks.

White House and Treasury Department officials now say they can stretch what is left of the US$700 billion financial bailout fund further than they had expected a few months ago, the report said.

They believe this could be achieved simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock, the paper noted.

But converting those loans to common shares would turn the federal aid into available capital for a bank - and give the government a large ownership stake in return, NYT pointed out.

While the option appears to be a quick and easy way to avoid a confrontation with congressional leaders, some critics would consider it a back door to nationalisation since the government could become the largest shareholder in several banks, the report said.

The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than US$100b.

According to the report, the Treasury Department has already negotiated this kind of conversion with Citigroup and said it would consider doing the same with other banks.

The administration would have to decide how to handle its considerable voting rights on the boards of banks included in the programme. Taxpayers would also be taking on more risk, because there is no telling what the common shares might be worth when it comes time for the government to sell them.

Treasury officials estimate that they will have about US$135 billion left after they follow through on all the loans that have already been announced. But the nation’s banks are believed to need far more than that to maintain enough capital to absorb all their losses from soured mortgages and other recession-induced loan defaults.

The change to common stock would not require the government to contribute any additional cash, but it could increase the capital of big banks by more than US$100 billion.

The White House chief of staff, Rahm Emanuel, alluded to the strategy on Sunday in an interview on the ABC programme This Week With George Stephanopoulos. Mr Emanuel flatly asserted that the government had enough money to shore up the 19 banks without asking Congress for more.

The Treasury has already negotiated this kind of conversion for Citigroup. Under a plan announced in January, Citigroup would convert up to US$25 billion of preferred stock, which is like a loan, to common stock, which represents equity.

After the conversion, the Treasury would end up with about 36 per cent of Citigroup’s common shares, which come with full voting rights. That would make the government Citigroup’s biggest shareholder, effectively nudging the government one step closer to nationalising major banks.

Nationalisation, or even just the hint of nationalisation, is a politically explosive step that White House and Treasury officials have fought hard to avoid.

Despite encouraging signs of stability, ‘risks remain real and significant’ for the US economy, President Barack Obama cautioned in an interview published on Sunday.

‘History has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last for many years instead of many months,’ Mr Obama told Fortune magazine.

‘My hope is that by taking the steps we are taking today, from stabilising our financial system to helping our auto industry restructure to become more competitive, it will help speed the day that the government can get out of the way and let the private sector do what it does best - innovate, create jobs, and grow the economy,’ he said.

But the president cautioned that the US economy still faced major challenges and that further reforms were needed, notably to beef up regulatory powers over the finance industry. — AFP, NYT

Source : Business Times - 21 April 2009

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