(DUBAI, United Arab Emirates) A property arm of struggling state conglomerate Dubai World is backing out of a plan to build luxury homes in Malaysia as it looks to shore up its finances.

The cash-strapped company’s Limitless division is selling off its stake in a partnership with Malaysia’s Bandar Raya Developments to develop waterfront land in the southern city of Nusajaya.

Limitless will generate about US$23.8 million in the deal, according to a regulatory filing on Malaysia’s stock exchange. It said in a statement yesterday that it continues ‘to review our business activity to reflect market conditions’. The company’s parent Dubai World needs cash as it works to pay back US$23.5 billion in debt. — AP

Source: Business Times, 12 Jul 2010

Singapore’s high growth in 2010 is a one-off sharp bounce from 2009 lows

WITH a huge jump in growth already in the bag for the first half of the year, Singapore’s economy is all but certain to expand more than 10 per cent for the full year, economists said.

The Government is due to release preliminary estimates of second-quarter expansion on Wednesday and, with them, an expected upgrade of the growth forecast for this year.

The official forecast stands at 7 per cent to 9 per cent growth but economists think Singapore may even outstrip China to become Asia’s fastest-growing economy this year, with some tipping an expansion of up to 15 per cent.

With such stellar numbers, the question now is: Will Singapore’s economy overheat and experience sky-high inflation?

After all, the last time the economy grew so steeply – annual growth exceeded 13 per cent a year in the late 1960s and early 1970s – soaring prices followed.

Inflation hit a colossal 19.6 per cent in 1973 and went even higher to 22.3 per cent in 1974, according to Department of Statistics figures.

It was the same story in 1980 and 1981. Growth was 10 per cent and 10.7 per cent respectively, and inflation was 8.5 per cent and 8.2 per cent for those years.

Fortunately, Singapore looks to be spared this time round. Although May’s inflation came in slightly higher than forecast, at 3.2 per cent, economists believe it will hit no more than 5 per cent by year end, with full-year inflation still coming in within the Government’s expected range of 2.5 per cent to 3.5 per cent.

The reason: The extraordinary growth that is expected in Singapore this year is a one-off sharp bounce from the last year’s recessionary lows, and will probably not continue past this year, economists say.

‘Typically, when one talks of overheating, one would expect continuous or sustained periods of above-trend growth,’ said OCBC Bank economist Selena Ling, who is projecting 10.5 per cent growth this year.

‘In 2011, we expect headline growth to moderate to 5.5 per cent, which is back to medium-term trend growth range, so it’s hardly a case of overheating.’

The rapid pace of economic expansion is also expected to slow in the second half of the year, reining in inflationary pressures, said DBS Bank economist Irvin Seah, who has a growth forecast of 13 per cent this year and 4.5 per cent next year.

‘Beneath these rosy numbers lies a ‘not-so-pretty’ picture,’ he said.

‘After several quarters of exceptionally strong growth, a ‘pullback’ can be expected at some point in time. Moreover, the current strong growth pace is partially driven by the pharmaceutical segment and this industry is well known for its volatility – it could swing the other way any time.’

There is also the fact that the extraordinarily high growth numbers have been exaggerated by a low base, due to the sharp plunge in growth numbers in last year’s recession, economists said.

And despite the downturn, companies continued to build plants and factories that are due to open this year, adding plenty of spare capacity for the economy to grow without running out of room.

This means that on the one hand, domestic cost pressures – namely wages and property rents – have been fairly contained so far.

On the other hand, imported inflation is also being kept low, partly thanks to a pre-emptive move by the Monetary Authority of Singapore (MAS) to let the currency appreciate in April. The central bank performed an unprecedented double tightening, making a one-off upward shift in the Singapore dollar’s value as well as steepening the slope of its future appreciation.

‘The double-tightening by MAS in April looks prescient on hindsight, and probably helped to contain imported pricing pressures,’ said OCBC’s Ms Ling.

But she and other economists added that with global demand still fairly weak, inflationary pressures have been rather tame so far.

‘ I would downplay the immediate impact from the MAS tightening,’ said Mr David Cohen of Action Economics. ‘With a few exceptions, inflation has remained relatively subdued around the world.’

In short, as Mr Seah puts it: ‘Inflation will rise this year but it will not go out of proportion with the underlying fundamentals of the economy.’

Source: Straits Times, 12 Jul 2010

It has produced a series of undesirable economic, social and even political consequences

DURING the last decade, China’s housing bubble has been a serious concern. The average house price in big cities like Shanghai and Beijing is now over 25,000 yuan (S$5,100) per square metre (by comparison, the resale price of HDB flats is around 15,000 yuan per square metre). Ten years ago, it was only around 5,000 yuan.

In what was an unexpected but nationwide trend, there was a quick recovery of the housing market in China after the world economic crisis in 2008. The crisis had only caused China’s housing market to stagnate for half a year. In the previous 10 years, China had barely experienced any downturn in its housing market.

How was it that the housing bubble in China could last for so long? A simple explanation is market disequilibrium caused by the quick expansion of demand but limited land supply. The main factors behind the high housing demand in urban China are clear. They include rapid urbanisation over the past decade which resulted in about 200 million people moving from the rural areas to the cities; fast economic growth, which has given rise to a growing class of suddenly-rich households with strong purchasing power; and the idle capital which entered the property market – both as a store of value and for speculation due to the scarcity of other investment opportunities.

The restricted land supply, on the other hand, is simply due to the government’s land supply control and China’s land laws.

In view of the housing bubble, the central government has tried repeatedly to use policies to curb housing price increases. It has restricted land use for low density buildings and independent house construction. It has also restricted housing loans, as well as foreign home purchases. Unfortunately, all these policies have failed. Increasing land supply seems to be the last measure in the government’s attempts to moderate the market pressure.

But supplying more land for urban development affects China’s other long term national objective – protection of arable land for food security. China now faces a dilemma of whether to loosen the restrictions on land supply and forego food security or live with the housing bubble but maintain food security. Both are unappealing options.

Alongside the sizzling housing market, a series of undesirable economic, social and even political consequences are becoming evident. The society is bewildered and angered by frequent instances of corruption, huge profits of property developers, and the violence sometimes associated with land acquisition, among other issues.

The immediate economic impact of the housing bubble is the deterioration of housing affordability for low-income citizens. Official figures in China reveal that the average housing price in big cities is around eight times the average annual household income, which is much higher than the international standard of five times. In the top few big cities, the actual situation is even worse than the average. The big gap between high housing prices and low purchasing power of the majority of people has resulted in a very strange phenomenon in China, in which the vacancy rate of new housing has remained at a very high level of around 20 per cent.

In September 2008, I visited a suburb in Tianjin City, the Baodi District, where one of the largest property projects in China, comprising 8,000 independent houses, is located. Most of the completed houses were vacant. They were either purchased but not occupied, or not sold. Such developments reflect a huge waste of resources.

Why do housing prices not go down with such high vacancy rates? Part of the answer lies in the abnormally high profits of land developers in China due to their monopoly power over the limited land supply. Developers have become an obvious target among people who allege that China’s wealth distribution mechanism is unfair.

How high are developers’ profits? When I visited Nanjing city in January 2009 and asked one of my former students who was a CEO of a land development firm about the profit margin, his response was that even if prices were to fall by 50 per cent, his company’s profit could still be maintained. This may not be true of all developers, but it does support the common belief.

Given high demand and limited land supply, the profits of developers are simply determined by the land cost. The land supply in China is, however, controlled by the government. Local governments are the only authorised direct land suppliers for urban development.

In the early years, many developers got land at low cost from local governments. Indeed, most of the biggest corruption scandals in China were related to local government land supplies. Only in recent years has strict open-bidding systems resulted in higher land prices for developers. However, even with the high land cost, developers can still partially enjoy monopoly power as housing demand expands faster.

Also, while urban municipal governments in China have the right to acquire land from villagers for urban development with central government approval, rural farmers do not have the right to sell their land, even when they are the owners. This is partly why land acquisition disputes have become one of the most high-profile social issues in China.

As a result of paying low compensation to farmers for land and charging high prices to developers, local governments have been able to use land as a significant source of capital. It is said that land profits could account for as much as two thirds of many local governments’ revenue. Local governments have also relied on the housing construction as a rapid means to spur the development of other industries, especially after the crisis.

In dealing with all the complaints related to China’s long-drawn housing bubble, the Chinese government must balance food security considerations, implications of the distorted housing market with economic growth imperatives. Trade-offs must be made, but change can only happen at a gradual pace. Some moderation of housing market pressure can be expected via increased land supply, the removal of incentives for speculation and provision of subsidised housing for low-income citizens. But achieving this goal could take five to ten years.

The writer is Associate Professor at the Department of Economics, Nanyang Technological University

Source: Business Times, 12 Jul 2010

AS soon as Jamie Dimon, CEO and chairman of JPMorgan Chase, sat next to me at Beijing’s Grand Hyatt Hotel after delivering his keynote address at an investment conference, he popped an abrupt question to me: ‘So, are you worried about the Chinese government’s recent measures to manage the property bubble?’

Somewhat to his surprise, I replied: ‘I would be worried if the government doesn’t do anything about it.’ To clarify, I added: ‘We are a long-term player in China. We have been here for 15 years, and have seen several cycles including the painful Asian crisis. We prefer a more orderly and stable property market instead of an excessively speculative one.’

I then asked him: ‘Is there a stronger property market in the world than China?’ He thought for a short moment and said: ‘No.’

As one of the most well-known Wall Street bankers in the world today, Jamie Dimon is not alone in his concern about China’s property boom. Many alarm bells have been raised previously, the most stirring being the remark by James Chanos, a hedge fund short-selling expert who proclaimed early this year that the property boom in China looked like ‘Dubai times 1000 – or worse’.

Jim Rogers, a well-known international investor, rebutted that Mr Chanos’ remarks showed ‘a lack of understanding about Dubai and China. Dubai’s economy is built on real estate speculation, whereas China’s is not. It is just part of the Chinese economy’.

So what is our view then? How do the recently introduced measures affect CapitaLand?

Unstoppable growth

China is a huge country with the world’s largest population. It is a continent economy with 1.3 billion people, and had not too long ago embraced a ‘market’ economy. Over the last 30 years, it has grown ‘miraculously’ at an average of 10 per cent per annum. It is now the largest manufacturer and exporter in the world and enjoys huge trade surpluses.

It has prudently built up the world’s largest foreign exchange reserves of US$2.4 trillion. With a GDP per capita of US$3,687 in 2009, up from about US$100 in 1965, the country has progressed exponentially. In every sense, its growth seems unstoppable.

Urbanisation & housing demands

With such growth, China is experiencing the largest urbanisation in human history. Currently, the urbanisation level in China is still relatively low at 46.6 per cent which was Japan’s in 1965. Between 1990 and 2030, China’s urban population is forecast to increase by 560 million, more than 100 million larger than the combined population of the United States (309 million) and Japan (128 million). Given such rapid urbanisation, China will easily need 10 to 15 million new homes every year.

The China Economic Information Network estimates that with such urbanisation, the number of cities in China will increase from the current 660 to beyond 1,000 by 2014. This has resulted in the property sector playing catch-up to meet the housing needs required in China’s cities. It did not help that more than 20 years ago, the government halted its subsidised public housing programme to let the private sector take over the massive housing needs of the country. The physical demand for homes is growing acutely without adequate supply, particularly for the non high-end housing sector.

Is there a housing bubble?

The answer is not so straightforward.

First, it is important to understand that China is not one big homogeneous market. Home prices vary from first to third-tier cities and for different spectrum of homes. For example, a mid-end apartment in Shanghai can cost five times more than a similar one in Zhengzhou, the capital of Henan province. Even in Shanghai, where every affluent Chinese in the country aspires to own an apartment, there is a huge price discrepancy between different tiers of apartments. High-end apartments may cost up to five or seven times a mid-tier apartment. The market is very segmented.

Next, we must look at affordability for the average Chinese. A practical measure is the affordability ratio, defined as the mortgage debt payable per month over monthly household income. Banks will not lend if the buyer’s affordability ratio exceeds 50 per cent. Surveys show that now, the average affordability ratio is around 40 per cent for 70 major cities. This is similar to Singapore.

For the key gateway cities, namely Beijing, Shanghai, Guangzhou and Shenzhen, the ratios have exceeded 50 per cent. But only about 50 per cent of homebuyers will take up a mortgage. Also, statistics have shown that only 20 per cent of buyers are ‘bubble building’ investors or speculators. My conclusion is that there is a property bubble building up but it is limited to the four gateway cities. The same cannot be said of the other cities, or when considering the mid-end market.

China’s experience of rising property prices is quite unlike those experienced in the US and other developed countries. In China, household income growth today still outpaces its house price growth. This was not so for US, UK and Japan before their property prices crashed.

Between 2004 and 2009, cumulative property prices growth in China rose by 72 per cent, while cumulative household income growth increased by 82 per cent. Contrast this with the household income growth against house prices from 1995 to 2007 for the US and UK respectively (48 per cent vs 114 per cent and 36 per cent vs 220 per cent) and for Japan between 1976 and 1990 (126 per cent vs 190 per cent).

As long as demand for housing remains unmet and household income continues to grow faster than home prices, property prices will continue to escalate.

The Chinese government has intervened with rapid cooling measures such as restricting apartment sizes to 90 sq m, curbing speculation by raising deposits to as much as 50 per cent for second-home buyers and restricting lending for third-home buyers, banning non-resident foreign buyers, restricting bank lending capacity, and aggressively supplying more land for ‘economical’ housing. The government further demonstrated their seriousness here by only allowing 16 out of 94 of their major state owned enterprises to continue with their non-core property business.

Will there be a subprime crisis?

Unlike other developed countries, China’s housing mortgages constitute 12.5 per cent of the total financial institution RMB loans, whilst RMB loans to real estate developers constitute only 6.7 per cent of their entire RMB loan portfolio. The total exposure to the property sector is therefore less than 20 per cent of the total financial intended RMB loan. Another comforting view is that China’s outstanding mortgage constitutes 14.3 per cent of her GDP, whilst the Eurozone figure is at 40 per cent and US at 97 per cent. As loans are limited to 70 per cent of the value of the property, its capital value will have to drop substantially before negative equity hurts the buyers.

On this basis, Chinese buyers with large household savings will be able to hold their properties unless prices drop drastically. Even if this happens, on the strength of the Chinese economy, the impact on China will not be as grave as what the US has experienced. I should add that because of the loan to value mortgage lending limits and the credit checks by banks in China, a sub-prime problem like the one in US is not a likelihood.

The rail project

An analysis of China’s future would not be complete without mentioning China’s ambitions to connect the country with a high speed railway (HSR) network. China already has 6,500 km of these HSR lines, effectively shrinking the entire country to 80 per cent of its original size by travel time (excluding Tibet, Xinjiang, Qinghai and the Inner Mongolia region, which account for only 5 per cent of China’s population).

By 2012, there will be 13,488 km HSR network (shrinking China to 50 per cent of original size), and 28,538 km by 2014. Overall, it is estimated that the HSR will finally shrink China to 9 per cent of her original size in terms of travelling time! With this increased accessibility as part of China’s overall economic development, it is believed that urbanisation and the property market will go through another enhanced phase of dramatic economic transformation.

When Dr Sun Yat Sen founded New China a century ago, he envisioned a railway network to bring economic wealth to the country, just as the railway network started the transformation of 19th century America into the world’s largest economy. Now China is actively putting that strategy into reality.

Price potential

There is still immense opportunity for CapitaLand to grow in China, especially in the mid-tier property market. As at 1Q 2010, prices in Singapore’s mid-end homes are 2.2 times that of Shanghai, and 2.5 times of Beijing.

When compared with Hong Kong prices, the corresponding multiples are 3.6 times and 4 times respectively. Since Beijing and Shanghai have a much larger population and with higher growth rate, the potential for growth is much greater than Singapore’s or Hong Kong’s.

How much longer do you think it will take for them to catch up with us on housing capital values? My guess is five to seven years! In fact, prices of some luxury apartments in Shanghai are already on par with those in Singapore.

Affordability

Looking ahead, a new segment with tremendous potential is affordable housing. Building affordable housing will somewhat ease the escalating prices that delay home ownership for middle income families. With smaller, affordable properties as their first homes, they can scale up to larger, higher-priced homes as household income increases.

CapitaLand will be looking to build affordable housing in any city where there is demand. Acquiring land at reasonable prices is very important and we will need the support of local government and local partners to source for housing sites at the right price.

Conclusion

China’s rapid economic expansion is unstoppable. CapitaLand has been successful in China for the past 16 years. We have the experience, track record, reputation, capabilities and capacity to participate in the growth of China’s real estate market. With all the new government controls, the property market will be harder to deal with. And local Chinese developers are getting more competitive.

But the market is immense there. To answer Jamie Dimon, we are more confident that CapitaLand will benefit from the Chinese government’s measure to render stability to the property market.

To us, there is no stronger market in the world than China.

The writer is president & CEO, CapitaLand Group

Source: Business Times, 12 Jul 2010

(SINGAPORE) UOL Group and City Developments Ltd (CDL) continued to sell units over the weekend at their new condos released last week.

UOL and LaSalle Investment Management sold a further 46 units over the weekend (as of 7 pm yesterday) at The Terrene at Bukit Timah, in addition to the 50 that they had sold as of 10 pm last Friday.

Thus far, 130 of the condo’s total 172 units have been put on the market. While the initial 85 units released by Friday were priced at about $1,250 per square foot on average, the further 45 apartments offered on Saturday and Sunday were at marginally higher prices. The five-storey, 999-year leasehold condo is in the Toh Tuck/Jalan Jurong Kechil vicinity.

‘We’re keeping the balance 42 units for our official launch later this week, which will be tied with the start of our ad campaign. What we’re most pleased about is that our penthouses and big units are still selling well. More than half of the 30 penthouses in the project have been taken up,’ UOL’s chief operating officer Liam Wee Sin told BT yesterday evening.

‘We’ve combined a bit of luxury with a rustic feel,’ he added. Prices of penthouses in the condo range from $1.7 million to $2.9 million.

Singaporeans form the majority of buyers, buying mainly for owner occupation, according to Peter Ow, managing director (residential services) at Knight Frank, one of the project’s two marketing agents.

‘Demand is still there; it’s only a matter of pricing. People who are walking out of the showflat without making a purchase are doing so because the price is beyond their budget,’ he added.

CDL sold another 32 units at its 368 Thomson up to 6 pm yesterday, taking total sales to 128 units. Last Friday, the group said, it had sold 96 of the 120 units released initially in the 157-unit freehold condo, which will be 36 storeys high.

Yesterday, a CDL spokeswoman said that the group released the remaining 37 units progressively over the weekend at a marginal price increase of 2-3 per cent from the initial average selling price of $1,350 per square foot.

‘The majority of the 32 units we sold over the weekend were one-plus-study units. We also sold three and four bedders,’ she added.

Singaporeans made up 75 per cent of the 128 units sold at the District 11 condo.

The next project CDL plans to release is likely to be a 642-unit, joint venture condo in Pasir Ris located next to the fully-sold Livia. ‘It is planned for release in phases in Q3 2010,’ she added.

Source: Business Times, 12 Jul 2010

Golden Jasmine boasts wide range of facilities

The studio apartments in Bishan, Golden Jasmine, boasts a service centre to tend to the needs of its elderly residents – the first of its kind here.

Among the facilities for residents are health talks, games as well as a physiotherapy and a traditional Chinese medicine clinic. Service centre staff will also be on hand to respond to emergency calls by residents.

Deputy Prime Minister Wong Kan Seng, who was the Guest-of-Honour at the completion ceremony for Golden Jasmine yesterday, said the centre will also provide information and referral services for residents as well as manage the communal space where activities for the residents can be held.

Through these avenues, the hope is that it will encourage active ageing as well as mutual care and support among residents, said Mr Wong, who is also Member of Parliament for Bishan.

The Housing and Development Board (HDB) and the Ministry of Community Development, Youth and Sports (MCYS) spearheaded this pilot project.

Econ Healthcare manages the centre and its services come free, said chief executive officer Chua Song Khim.

Pitched as a housing option for seniors seeking an independent lifestyle, there are 176 units at Golden Jasmine which come in two sizes, 35 and 45 square metres.

HDB said the units provide sufficient living space for a one- or two-person household.

All the apartments are sold in a ready-to-move-in condition with elderly-friendly fittings such as kitchen cabinets and gas stove, wardrobe, light fittings as well as features like grab bars, which aid mobility.

They are also located within established towns with convenient access to commercial facilities and which are well served by public transport.

These apartments come with a 30-year-lease and are meant for those who are at least 55 years old with a monthly household income of up to $8,000.

It was these features, as well as the affordability, that prompted Mr M Vallasamy, 57, to downgrade from his five-room flat in Bishan for a unit at Golden Jasmine.

He will be moving into the apartment this week with his 50-year-old wife and 24-year-old son, he added.

“Everything has been done for us, which is good,” said Mr Vallasamy, who is self-employed. “The flats are smaller and easier for us to maintain,” he added.

To date, HDB has launched about 3,400 studio flats. It will continue to build more such flats in various locations to meet the needs of the ageing population.

Source: Today, 12 Jul 2010

Four strata titled units in the central business district have been put up for sale.

The four units occupy the top floors of GB Building, which is located at 143 Cecil Street.

The building comprises a 3-storey podium with a 23-storey office tower and is within two to three minutes’ walk from Tanjong Pagar MRT.

Sizes of the four units for sale range from 5,210 square feet to 5,500 square feet per floor, with a total strata area of some 21,500 square feet.

The units feature column-free space on all the typical office floors.

Located on the top floors of the building, the units command good views of the surroundings.

The indicative price is $30.18 million.

Based on the indicative price, this works out to $1,400 per square foot over strata floor area.

Property consultant CB Richard Ellis is the sole marketing agent for this private treaty sale.

Source: Channel News Asia, 12 Jul 2010

Mainboard-listed BBR Holdings plans to acquire a plot of freehold land at Simon Lane, near Serangoon Gardens, for S$86 million.

BBR said it aims to develop a low-rise condominium project on the over 9,000 square metre site which currently houses Goodrich Park Condominium.

Under the URA 2008 Master Plan, the site is zoned for residential development with an allowable height of up to 5 storeys and a Gross Plot Ratio of 1.4.

Based on this plot ratio, BBR said the cost of the land works out to about S$629 per square foot per plot ratio.

By including an additional 10 per cent of balcony gross floor area, the cost will be about S$572 per square foot per plot ratio.

BBR said development charges are not payable for the redevelopment of this site.

The group intends to develop a 5-storey condominium comprising some 120 units of around 1,200 square feet each, due to be completed by the end of next year.

BBR’s order book stood at S$520 million as at May 11 this year.

New projects won since then have boosted its gross order book to approximately S$605 million, mainly from civil engineering and building projects in Singapore and Malaysia.

Source: Channel News Asia, 12 Jul 2010

Sales are still going strong for so-called Mickey Mouse apartments or those that measure 500 square feet or less.

According to Credo Real Estate, transactions of Mickey Mouse units made up 9.5 per cent of total transactions in the first half of this year.

This is a three percentage point increase from the same period last year. But analysts are divided on whether demand for these units can be sustained.

Shoebox living in apartments of 500 square feet or under has become somewhat of a talking point in property circles.

Experts said the popularity of these units is due to their lower price quantum, making them affordable to young professional and expats.

They also tend to be located in the prime districts, luring buyers with their attractive location.

According to Credo Real Estate, pricing of Mickey Mouse units in the CBD area could range between S$1,800 to S$2,000 per square foot while those outside the CBD area could range between $1,200 to $1,400 psf.

This is about a 20 per cent increase compared to last year.

Liang Thow Ming, executive director Residential Services, Credo Real Estate, said: “I would think that this trend will continue to increase. I would not be surprised if we see Mickey Mouse units making up 10% of total sales in the second half of this year, and probably going up to 11 or 12% next year.”

But other market watchers said these apartments cater mainly to investors who want to cash in on rising property prices.

Last year, sub sales in the broad residential market was 12 per cent and have come down to 10 per cent in the first half of this year.

Speculative sales of Mickey Mouse units have increased from 13 per cent last year to 17 per cent in the first six months of this year alone.

Nicholas Mak, lecturer, School of Engineering, Ngee Ann Polytechnic, said: “Starting from May, Singapore private home sales market is starting to slow down. So they are concerned that there could be a correction on the horizon. As a result, they are selling off their investments. Some of these investors of small apartments are actually speculators. They are not intending to hold their investment for long term rental gains but rather just for speculative short term capital gains.”

As for rental gains, the views are also divided.

Some said the rentals are hard to predict as most of these units are still under construction.

But others said that rents for Mickey Mouse units in the prime districts could fetch up to S$7 per square foot.

This represents a 4.2 per cent return on rents, when compared to a 3.5 per cent per cent return on rent for a 1,200 square foot three-bedroom apartment.

Source: Channel News Asia, 12 Jul 2010