News Highlights Thursday 17 April 2008

Merill Lynch and CLSA announce Asia real estate funds
Merill Lynch and the Asian brokerage CLSA are separately raising investment funds focused on Asian property, in an indication of the confidence in the region’s economies. The US investment bank is raising a Pacific Rim real estate fund worth between $2.5bn and $3bn and would invest in properties in India, Australia, Japan and the rest of Asia. CLSA was raising a pan-Asia property fund of about $1bn that would focus on China, Japan, Taiwan, Hong Kong and Singapore. It is the Asia-focused brokerage and investment banking arm of Credit Agricole, the French bank. The launch comes at a time when many investors are looking to Asia as a safe haven in the wake of the credit crunch. CLSA’s fund would look to invest 20-30% of its cash in China. Other global investment banks are planning funds for Asian property. UBS plans to launch a fund of about $1bn for investing in China. Morgan Stanley and global investment firm Blackstone Group are also active in real estate in the region. Direct property investment in Asia jumped 26% to $121bn in 2007, according to Jones Lang LaSalle.

- The Financial Times, P18, 14 April




Strong fund activity in Asian property
Fund managers believe there are still attractive opportunities in Asia for those keen to invest in property outside the US and Europe. Investment in the region is being spurred by structural changes and urbanisation plans in strengthening developing and emerging economies. Aberdeen Property Investors Indirect Investment Management, the specialist indirect property investment arm of Aberdeen Asset Management, which invests in developed and developing property markets and in commercial, industrial and residential sectors, set up its second property fund of funds in September, the AIPP Asia Select. The closed-ended fund for institutional investors will have a target of $600m. It will provide exposure through funds across Asia Pacific and aims to provide an annual rate of return between 10 and 17%. Last week, Goodman Property Investors launched its Asia Pacific fund of funds which was triggered by increasing demand from institutional investors for exposure to real estate in the region, and by current performance, said the head of investment strategy at Goodman. The new fund focuses on developed and semi-developing markets and on a mix of office, retail and industrial property with some residential. The fund, aimed at institutional investors, has a target size of $500m. Its target average total return is 14% per annum over the 10-year life of the fund.

- The Financial Times, P7, 14 April




Price cuts help Far East sell 3 projects: sources
Property heavyweight Far East Organization has achieved encouraging sales for three 99-year leasehold suburban projects after it trimmed their prices by about 3-5% shortly after the Chinese New Year period. Price cuts were aimed at drawing bargain hunters who were keen on the three completed developments - La Casa executive condo, The Lakeshore and Hillview Regency. Far East cut prices because it was pretty sure of the demand for its product, said an industry observer. Far East is believed to have sold 50-plus units at The Lakeshore, around 20 units at Hillview Regency as well as the last 20-odd units at La Casa following the price cuts. Before the cuts, it had been selling units at The Lakeshore at prices ranging from the high $700 psf region to around $1,000 psf for apartments with views of Jurong Lake. At Hillview Regency, prices range from about $700-plus psf to the high $800s for apartments facing Little Guilin. Units at La Casa were priced at over $500 psf.

- The Business Times, P30



Penalty on the house as banks woo customers
As home sales slide, banks are going all out to hang on to their existing home loan borrowers and even poach from their rivals. Some are offering to pay the penalties that customers may incur making the switch. In anticipation of interest rates falling further, one new DBS home loan package offers two free repricings within 24 months. Standard Chartered Bank is repricing home loans downwards for existing customers on variable rate packages. Repricing can be a tricky business for borrowers still within their penalty periods because their banks have yet to recover their original costs of selling those loans. So banks know that one way to poach customers from rivals is by offering to pay the penalty rate which can be hefty - typically 1-1.5% of the outstanding loan.

- The Business Times, P1



Smart moves in home loan market
Banks have been creative in ways to retain and attract new home loan customers as refinancing has become the only game in town amid a dearth of new home sales. Therefore, mortgages, while low margin, is relatively risk-free in Singapore. United Overseas Bank (UOB) has launched a home loan package called UOB Clear where borrowers can fix their instalments for a three-year period, regardless of interest rate movements. If the interest rate goes down, more of the principal would be paid off. And if interest rates move higher, a higher amount of the instalment would be used to pay the interest portion. Customers who use their CPF to pay their home loans will appreciate the convenience since it is a hassle to inform the CPF board each time the instalment amount changes.

- The Business Times, P5




S'pore residential rentals 5th highest in Asia: study
Singapore’s residential rental rates for a three-bedroom apartment have increased by 33% from 2006 to 2007. This makes Singapore the fifth most expensive location in terms of residential rentals in Asia and ninth globally, according to a recent survey by ECA International - a knowledge and solutions provider for international human resources professionals. The annual Accommodation Survey compares rental prices in 92 locations worldwide. A three-bedroom apartment in a popular expatriate area in Singapore costs about US$4,460 per month in 2007, up from US$3,364 the previous year. The 33% increase is also the largest in Asia. General manager of ECA International Hong Kong attributes the steep rise to rising demand and limited supply. Exchange-rate fluctuations also make a difference - rental prices have gone up where the local currency has strengthened against the US dollar, as in Singapore. Average rental prices in Asia are around US$3,820, well above the global average of US$2,950.

- The Business Times, P29




Property market seen growing on a strong Sing dollar
Canadian-based BCA Research has issued a Buy Singapore Property Stocks report, arguing that a strong Singapore dollar will depress interest rates, which will fuel the property market. It also pointed to strong income growth and other fundamentals - for instance, the transformation of Singapore's economy and favourable supply-demand dynamics - which will underpin the Singapore real estate bull market. The report also says that 'when measured against the long-term trend of income per capita, property prices are still in a catch-up phase’. Housing affordability has not yet deteriorated, due to fast income growth and plunge in interest rates. Rental yields have gone up as rent increases have been outpacing property prices. Given the supply-demand dynamics in Singapore's real estate market, a further increase in property prices is the most likely scenario. The Singapore economy is also unlikely to weaken substantially during this global growth downturn, as it has become more diversified.

- The Business Times, P30




Court directs Regent Garden sale to Allgreen to proceed
The en bloc sale of Regent Garden, a 31-unit West Coast Road condominium, to Allgreen Properties will go through after the High Court directed the majority owners to complete the agreement. The court also ruled that the Strata Titles Board's decision in January to reject the deal was irrelevant and ordered the majority owners to pay costs to Allgreen, the developer. The agreement with Allgreen, signed in April last year, was first delayed when 6 owners out of the 31 held out. When the six finally agreed to sell out by November, the majority owners, who over 80% of the share value in Regent Garden, tried to abort the deal, argued that the $34 million sale price was too low partly because of a wrongly estimated $7.2 million development charge. They wanted the High Court to void the agreement, or award damages or an addition to the sale price. Allgreen went to the High Court in mid-January to ask for an order requiring the majority owners to complete the sale deal.

- The Business Times, P5




Banyan Tree may set up more development funds
Banyan Tree Holdings may set up more real estate development funds to support expansion in Japan and the Middle East. Five growth regions were identified - the Americas, southern coastline of the Mediterranean, the Middle East, Indian Ocean and Asia-Pacific. Banyan Tree in January set up its first US$400 million Indochina hospitality fund to finance resort development in Hue, Vietnam. It plans to set up a China fund to raise US$500 million to US$700 million for its projects in China.

- The Business Times, P5




Brokers' Take - Residential Property Sector (DBS Group Research)
URA’s monthly price and sales data of new residential units sold in March reaffirmed DBS’s view that the economic uncertainty and the health of the US economy has taken a toll on the confidence of property buyers. On a q-o-q basis, Q1 2008 new sales declined 43% from the 1,397 units sold in Q4 2007. On a y-o-y basis, it was an 83% slide from the 4,565 new units that were sold by developers in Q1 2007. Prices were generally maintained across the broad market segments. In Q2 2008, DBS believes that the number of launches will continue to be thin, in line with the caution and volatility in global financial markets.

- The Business Times, P8




Alcon to build newest mfg plant in Tuas
Swiss eyecare company Alcon has picked Singapore to build its newest plant. It will break ground for a 250,000 sq ft facility in the Tuas Biomedical Park next year and will be built on a leasehold, 20-acre plot of land. To be completed by 2012, the new manufacturing plant will employ more than 150 employees.

- The Business Times, P9




China's GDP grows 10.6% in latest quarter
China’s gross domestic product (GDP) rose 10.6% in the three months to March 31, and consumer prices climbed 8.3% in March. The currency has gained more than 4% against the dollar this year, reducing import costs. China's economic growth of more than 10% for the ninth straight quarter, underlines the strength of the nation's expansion as a slump in the US drags down global growth.

- The Business Times, P10