DAILY MARKET UPDATES 22nd October 2008

Property sub-sales net $95m profits
Ninety-six per cent of owners who resold an uncompleted home between July and last month pocketed profits from the deals, according to data by Savills Singapore. 12 sub-sale transactions out of the 306 that Savills analysed in the quarter incurred a loss, amounting to just under $1 million. The rest made a total of $95.1 million in gains, Savills said. Profitable sub-sellers made an average of $323,420 in the third quarter, but this skewed upwards by a single $6.7 million profit deal from the sale of a 63rd-storey penthouse at The Sail @ Marina Bay. Excluding this sale, the average gain was $301,784 - almost 40 per cent lower than the average gain in the first half of the year - average profit for each seller of about 30 per cent over the purchase price. The biggest profits of more than $1 million each were units at The Sail @ Marina Bay, St Regis Residences and Cairnhill Residences. Sub-sellers who had bought their units at the peak, between June and September 07, bled the most. The Sail @ Marina Bay had the largest number of sub-sales in the quarter - 19 - with each deal netting its an average profit of $1.1 million and one loss, of $62,890, for a second-floor unit. Other projects with more than 10 sub-sales included Parc Emily in Dhoby Ghaut, Park Infinia at Wee Nam, Riveredge in Tanjong Rhu and The Esta in Marine Parade.
- The Straits Times, B26
(See attached – “Property Profits”)
CapitaMall (CMT) halts plans to overhaul 3 big malls
The redevelopment of three projects had yet to start when plans were announced. Jurong Entertainment Centre, set for a 62 per cent boost in gross floor area. Funan DigitaLife Mall, a purely retail property, was to be converted into a retail-cum-office complex. Tampines Mall purely retail was to see the creation of about 95,000 sq ft of office space. Yet, outlook for CMT remains positive with a total of $68.4 million set aside for capital expenditure. The increase in Sembawang Shopping Centre’s value after improvement is expected to be $31 million. The Reit also announced its distribution per unit (DPU) for the third quarter was 14.48 cents, 7.3 per cent higher than the DPU last year - 13.49 cents. CMT's portfolio occupancy rate in 08 to date was 99.7 per cent, 99.6 per cent in 31 Dec 07, 99.5 per cent in 2006 and 99.7 per cent in 2005. Third-quarter shopper traffic reported11.8 per cent higher than in the same period 07.
- The Straits Times, B20
(See also, The Business Times, P8 – “CMT puts works at three malls on hold”)
'Low' bid for Mohamed Sultan office site rejected
RSP Architects Planners & Engineers offered the only bid for the 6,176 sq m site at $4.65 million. With a15-year lease, the site is aimed at easing the office supply squeeze. At just $46.67 per sq ft of gross floor area, the bid fell far short of market expectations of $10 million to $18 million. URA earlier this year rejected the only bid - of $7.8 million or $38.35 per sq ft of gross floor area - for a transitional office site in Aljunied Road for the same reason. Confirmed list sites go up for tender on scheduled dates, regardless of developer interest. Another transitional office site - in Mountbatten Road - on the confirmed list was launched last month with the tender to close on Nov 18. Whether the URA will put out more transitional sites in the future will depend on the response to the recent tenders.
- The Straits Times, B24
(See also, The Business Times, P10 – “URA rejects sole bid for Mohd Sultan office site”)
First Reit's Q3 income up 12% to $5m
First Reit yesterday reported net distributable income of $5.3 million for the third quarter ended Sept 30, 2008 - 12.4 per cent more than a year ago. This was driven by a 7.4 per cent year-on-year hike in gross revenue to $7.6 million in Q308. Higher rentals from four Indonesian properties acquired in 2006 and rentals from another four local properties bought last year contributed to the revenue increase. First Reit's portfolio comprises eight properties in Singapore and Indonesia. Looking ahead, First Reit said that it will focus on improving the income-generating capacity of its existing healthcare properties. It will enhance assets and work with tenants to continually upgrade healthcare services. The trust's unit price ended 1.5 cents higher yesterday at 41.5 cents.
- The Business Times, P8
(See also, The Straits Times, B19 – “First Reit’s glowing results a healthy sign”)
Lower profits for property developers expected
Last Friday, GuocoLand, reported a net loss of $2.8 million for its first quarter ended Sept 30, compared with a net profit of $27.7 million a year earlier. Keppel Land will report its earnings today. The chief concern now is that tighter credit and declining capital values in all sectors may force companies to write down their assets and make provisions for land acquired at high prices. All developers except City Developments, which reflects investment properties at cost, also face the risk of revaluation losses against investment properties, analysts have said.
- The Business Times, P8
Construction demand set to fall: Mah
'While the domestic construction demand this year is estimated to reach between $27 billion and $32 billion, it is expected to decline as we go forward.', Mr Mah said. In view of the expected economic downturn, there have been suggestions that the government should inject some $4.7 billion worth of public projects that had been deferred earlier to ease demand. Such measures have been adopted in previous economic crises. Mr Mah called on builders to exercise greater prudence in managing their financial resources and watch out against over-extending themselves on business risks. They should also redouble their efforts to improve their productivity and upgrade their capabilities, so as to be better placed to leapfrog competitors and exploit future growth opportunities. A greater emphasis on manpower development is needed, he said.
- The Business Times, P10
(See also, The Straits Times, B24 – “Construction sector in for tough times”)
Property and bank stocks hit by sell-off
STI gained as much as 86 points in morning trade, but dipped in the afternoon, mirroring movements in the Hong Kong market. Property developers lost ground after Deutsche Bank slashed their target prices by more than half. City Developments lost 23 cents to $7.05 after the brokerage downgraded the stock to a 'hold' and lowered its target price to $7.15. CapitaLand fell seven cents to $3.06 after it slashed the firm's target price to $2.33 from $5.90. Foreign funds continued to trickle out of the local market. In the week ended Oct15, US$32.1million (S$47.5million) was pulled out of Singapore equities. Over the past four weeks, the total withdrawals amounted to US$136.5million, according to data from EFPFR Global. Trading volume on the local bourse yesterday was 1.2billion shares worth $1.1billion.
- The Straits Times, B19
Credit agencies turn glum on 2 Reits
Credit rating agencies have turned more pessimistic on two real estate investment trusts (Reits) in Singapore: Frasers Commercial Trust (FCT) and MacarthurCook Industrial Reit (MI-Reit). Standard & Poor's (S&P) Ratings Services yesterday changed its CreditWatch status on BB-rated FCT from positive to developing. Revision arose from concerns over FCT's debt of $70 million, which will be due on Nov 22. S&P expects FCT to have firm committed refinancing arrangements ready by Oct 31. Otherwise, FCT's rating may be placed on CreditWatch negative or lowered. Separately, Moody's Investors Service yesterday placed MI-Reit's Baa3 corporate family rating on review for a possible downgrade. The trust has 91 per cent of its total debt or $201 million falling due next April, which is not covered by available committed facilities.
- The Business Times, P5
Travel industry still upbeat amid turmoil
Mr Raimund Hosch, head of Messe Berlin, said the global financial meltdown means travel will decline, but added that the industry had weathered similar storms, such as those which occurred after the Sars outbreak in Asia and the Sept11, 2001 terrorist attacks in the United States. The inaugural ITB Asia trade event starts today at Suntec Singapore. A key indicator is the level of interest in the three-day ITB Asia, which will see 651 exhibitors from 58 countries showing what they have to offer to 5,000 buyers from various companies and organisations. About 70per cent of hotels and tourism companies buying booths are from the region. In fact, interest is so keen that companies are already queueing to take part in next year's event, said Mr Hosch. ITB Asia will run till Friday.
- The Straits Times, B3
Cheaper power in January?
S. Iswaran said yesterday that despite the 21 per cent hike in this quarter's tariffs, households are paying less for electricity under the current pricing policy than if another formula had been used. He linked it to a three-month time lag in the current formula, which pegs tariffs to the price of fuel oil for delivery in three months' time. He added that the EMA ensures Singapore Power earns a rate of return that is reasonable by international standards. He also expects Temasek Holdings' sale of its power companies to add competition, keep a lid on electricity prices and promote innovation. Two were sold this year, one to a China company and the other to a Japanese-French consortium.
- The Straits Times, B11
Spending rules to force discipline in time to come
PM Lee told Parliament that a constitutional amendment to tap more of the gains from Singapore's reserves was not timed for the looming downturn. The new spending framework would allow the government to use half the net investment returns from the GIC and the MAS. Capital gains or losses will now be included in a computation of expected real returns. This will be based on a long-term investment horizon, with estimates to be reviewed yearly. He compared the situation to Australia, where a series of spending promises by both the government and the opposition party in the most recent general election resulted in packages worth over A$50 billion. Norway, too, has found it difficult to resist spending from its massive reserves, Mr Lee said. 'Therefore we need to put in place a system that will subject the government to tight fiscal discipline regardless of which party is in power,' he said.
- The Business Times, P2
Help for S'poreans to cope with downturn
PM Lee said the Government is preparing measures to help cut business costs, lighten households' burden, especially the low-income, and help workers cope with the downturn. He did not elaborate on what form the measures will take. Mr Lee warned the next one or two years will be difficult but he is confident Singapore can deal with the fallout on the economy brought on by the global financial crisis. Also, he does not foresee the need to draw on past reserves in this recession, barring 'exceptional contingencies'. Now, it can spend up to 50 per cent of net investment income (NII) from the reserves, interest and dividends. With the change, it can spend up to 50 per cent of net investment returns (NIR) - long-term expected real returns that include capital gains. With the new rule, total returns from the reserves will form 3 per cent to 3.5 per cent of Gross Domestic Product, which was $243 billion last year. This yields $7.3 billion to $8.5 billion, or one-fifth of total revenue.
- The Straits Times, A1
Local banks get reprieve from auditor rule
Banks can now reappoint the same audit firm beyond five years to have some degree of audit continuity. Currently, DBS, UOB and OCBC Bank are not allowed to appoint the same audit firm for more than five consecutive years, except with the approval of MAS. Temporarily suspending the requirement for the three local banks to change their audit firms after five years will minimise the disruption that could arise when appointing a new audit firm. UOB will benefit immediately from the suspension as current auditor Ernst & Young is in its fifth year. DBS's auditor PwC took over only a year ago while KPMG has been auditing OCBC since 2006. MAS said to avoid concentration risk, no single audit firm would be allowed to undertake the audit of all the local banks at any one time.
- The Business Times, P1
Move afoot to help SMEs get loans easily
The plan, through Spring Singapore, will make credit more freely available to SMEs by bearing a bigger share of the risk of default on loans. Interest rates on these loans are also likely to be lower than the current 6.25 per cent offered by banks. Apart from financial assistance, Lawrence Leow, president of ASME also said that relevant government agencies could help by keeping business costs down. 'Many SMEs are worried that rentals will keep going up,' he added. Currently, there are about 130,000 SMEs that give jobs to 60 per cent of Singapore's 2.75 million-strong workforce.
- The Business Times, P1
S'pore's future is in intellectual capitalism
Through building a strong foundation in education, physicist and author Michio Kaku foresees that Singapore will be able to benefit in the transition from commodity capitalism - underlined by food produce and natural resources - to intellectual capitalism. Already, its students regularly beat Americans in mathematics and science. And the republic is looking at emerging technologies - nanotechnology, biotechnology, artificial intelligence - which he predicts will be key to the future economy. While Singapore stands in good stead to ride the next technology wave, it lacks originality. If it wants to compete on the same level as the US, it will need to breed a pool of people who are highly imaginative and nourish them, he said.
- The Business Times, P12
Fewer bankrupts - but things may change soon
MinLaw says there were 290 petitions for bankruptcies in September, bringing the total petitions to 2,314 for the first nine months of the year, down from the 2,514 cases seen a year ago. However, a month-on-month comparison indicates that bankruptcy figures have started rising. September's individual bankruptcy petitions rose 21 per cent over August, which recorded 240 petitions, while the number of bankruptcy orders was 206, up slightly from 205 orders a month ago. Meanwhile, the number of bankrupts continues to climb, with a total of 26,677 undischarged bankrupts as at the end of September. In terms of corporate insolvencies, the number of companies wound up in the first nine months was 92 - up from 89 in the year-ago period. There were 17 petitions in September, while nine firms were wound up, compared with 11 in the previous month.
- The Business Times, P2
Changi handles fewer passengers
The airport handled fewer passengers in September, compared to 07. A total of 2.89 million passengers went through Changi, a 0.4 per cent year-on-year dip, the for first time traffic volumes slipped since February 2004 said a Civil Aviation Authority of Singapore spokesman. Like Changi, SIA too recorded a year-on-year dip - the first such slide in three years - from 1.539 million passengers to 1.514 million. June was down 4.1 per cent over last year, July dipped 3.8 per cent and August, the steepest at 7.7 per cent. In Asia, Hong Kong seems to be the worst hit with traffic last month down 4.7 per cent compared to 07. Frankfurt Airport has also recorded a fall in traffic while in India, Bangalore's five-month-old airport is scaling back on future expansion plans in the face of a traffic decline.
- The Straits Times, A6
At least 20 Merrill staff here let go
About 10 members of the equity team were axed on Monday - about 25 per cent of the unit's workforce. Sources say that around the same number from the fixed income desk and several from the energy trading team were told to leave yesterday. The axe has also fallen on Singaporeans based in Merrill's HK office. At UBS Singapore, two employees from commodities have been asked to go, while the investment banking team has seen reductions, sources say.
- The Straits Times, A9
Global unemployment set to rise to 210m
At least 20 million people will lose their jobs between now and the end of next year, the UN labour agency said. World unemployment will rise to 210 million people by the end of next year, its highest rate in the past decade, officials of the International Labour Organisation (ILO) said on Monday. ILO director-general Juan Somavia said global leaders need to focus on the impact of the crisis on individuals. He said measures should be taken to provide unemployment compensation and other social protection.
- The Straits Times, A9
New tax-haven blacklist soon
French Budget Minister Eric Woerth said that the 17 governments at the Paris meeting agreed to task the Organisation for Economic Cooperation and Development (OECD) with drafting a new expanded blacklist of countries that fail to cooperate on tax evasion and transparency. OECD will have until mid-2009 to draft the new list and a conference will take place in Berlin in May or June to decide on further steps. OECD lists 38 countries that have adopted tight banking secrecy laws and are tax-free, or have very low taxation. But only three of those - Andorra, Liechtenstein and Monaco - are on the OECD blacklist for refusing to share any information on their finance sectors. Some financial centres in Asia may find themselves on the list while others that were taken off a few years ago may once again be singled out for failing to follow through on pledges of more transparency, said the official.
- The Business Times, P23
Small firms in Asia may face big debt problems
Exporters, and property, shipping and retail companies could be hit because they racked up debt and expanded aggressively in the boom times, leaving them ill-equipped for the bust being seen across Asia, analysts said. Slowing economies are crimping cash flow and profits in the region. At the same time, access to capital has been severely constrained as the global financial crisis sparks widespread risk aversion, choking off lending for smaller companies which are in most need of funds.
- The Business Times, P23
Australia won't guarantee deposits in foreign banks
Australia has ruled out extending a government guarantee to deposits held at foreign investment banks,including JPMorgan Chase and UBS, and the banks say that the exclusion is harming their ability to source funds. The rate that banks charge each other for three-month loans rose to 5.87 per cent, the highest since Oct 15. The difference between that rate and the overnight indexed swap rate, a measure of funding availability, rose the most since Oct 10 to 76.25 basis points at 10.25 am in Sydney.
- The Business Times, P23
Japan ready to help big banks recapitalize
Japan has said it will pump money into its banking system to prevent failures and keep credit flowing, especially to small and medium-size firms that form the backbone of Japanese industry. But analysts say Japan's banking system has not been hit as hard by the credit crisis as those elsewhere and there is no credit crunch in Japan, contrasting the situation with that in South Korea, Hong Kong and Australia. Japan has a strong domestic deposit base, they say. Nevertheless, the authorities fear credit could dry up in the currently stressed financial environment - especially that provided by regional banks to the small and medium-size enterprises that account for most output and employment in the manufacturing and service sectors. This week, both the Japanese government and the Bank of Japan have downgraded their view of the nation's immediate economic outlook.
- The Business Times, P4
China drafts plans to stimulate growth
As part of the new policy, the State Council announced that it would increase export tax rebates for everything from labour-intensive products like garments and textiles to high-value products like mechanical and electrical products. Banks will be encouraged to lend more money to small and medium-size enterprises and support programmes will be drafted to help farmers, the government said. Government agencies will also spend more to rebuild earthquake-damaged areas of south-western China, to improve transportation links and other infrastructure and to improve the social welfare system, the Xinhua news agency said.
- The Business Times, P14
(See also, The Straits Times, A10 – “Beijing takes steps to keep economy growing at a good pace”)
Jitters in the region as China reports slowdown
While 9 per cent growth is still very healthy, that trend is bad news for a host of Asian countries, many of which have seen China climb to be their No. 1 export market. In Japan, economists worry that Japanese capital investments will be affected by the drop in exports to China, as a result of global economic slowdown. A drop in demand has already hit commodity prices, causing a sharp slide in share prices of Australia's biggest mining companies, BHP Billiton and Rio Tinto. Even Australian wool farmers are affected. About 65 per cent of Australia's wool is sold to China, with about a third of that re-exported as textile products. Likewise with other mineral-exporting nations such as Indonesia and India. The drop in iron-ore demand from China has left some 30 million tonnes of the commodity stuck in Indian ports. China accounts for eighty per cent of Indian iron-ore exports. At some point, all of Asia will be hurt by a China slowdown. But Beijing is also taking counter-measures to limit the damage to the economy and prop up spending.
- The Straits Times, A10