Strong expansion this year leading to ‘high base’ effect, moderating rate next year, say economists

THE Singapore economy, which may shoot off the charts with its searing expansion this year, is creating another sort of statistical problem – this time for next year’s growth.

Growth figures for this year are so scintillating that some economists have started downgrading the numbers for next year, no thanks to a ‘high base’ effect.

‘One way to think of the economy is like a pendulum: the stronger we swing in one direction – up – this year, the greater the risk of a pullback at some stage,’ said OCBC economist Selena Ling.

The economy ballooned by a formidable 18.1 per cent in the first half of this year over the same period last year, and is expected to grow by 13 to 15 per cent for the full year, the Ministry of Trade and Industry said on Wednesday.

But most economists expect this stupendous growth rate to moderate to between 4 and 5 per cent next year.

‘First-half growth was stellar, and the economy cannot sustain such rapid growth,’ said JP Morgan economist Matt Hildebrandt, who expects 5 per cent growth next year. ‘Thus, growth is going to cool in the second half and it will likely be closer to trend in 2011 than what we have seen over the last year.’

Economists say this year’s record growth is exaggerated by a low base last year due to the recession, but the opposite effect is expected to apply next year.

With such a high base this year, growth in the first half of next year could ‘easily’ go into negative territory, said Standard Chartered economist Alvin Liew. He expects Singapore to grow by 4 per cent for the whole of next year.

Citi economist Kit Wei Zheng on Wednesday ‘fine-tuned’ his forecast for next year to 4.6 per cent, from a previous projection of 5 per cent.

‘The high base in the first half of 2010 will set a high hurdle for growth in the first half of 2011,’ he said.

But the numbers are only part of the story. What is more important are the underlying economic trends that are expected to play out next year.

Economists such as DBS Bank’s Irvin Seah have highlighted a looming slowdown in the manufacturing sector, which has been powering the rebound so far.

‘Manufacturing growth on a sequential basis has cooled, and manufacturing indexes in Singapore and across key markets have peaked and are tapering off,’ said Mr Seah, whose growth forecast for next year is 4.5 per cent.

Agreeing, Mr Hildebrandt said: ‘Most of the demand for electronics and other manufacturing goods comes externally, so the clouded outlooks for the United States and European Union, and the more moderate growth expected in China, provide a lot of uncertainty.’

On the bright side, the domestic services industry should be supported by rising wages amid the tight labour market, said Ms Ling. ‘While the external headwinds are brewing, so far, domestic fundamentals remain healthy,’ she added.

The services sector has not surged as much as manufacturing, which stands it in good stead now, said Mr David Cohen of Action Economics. He is tipping 4.5 per cent growth next year.

‘The swing (in services) has been somewhat less pronounced, but the sector is still showing a healthy recovery to pre- crisis highs,’ he said.

‘It is presumably less vulnerable to a slowdown anytime soon, supported by demand from the region, which continues to pace global growth.’

The two integrated resorts should boost tourist spending and financial and business services are expected to continue doing well next year, said economists. But slower trade flows ahead could weigh down wholesale and transportation services, said Mr Seah.

Source: Straits Times, 16 Jul 2010

FLAT owners who sublet rooms in Housing Board flats have until the end of this month to register with the board if the subletting began before Feb 1.

For subletting that started from that date or later, registration must be done within seven days from when the subletting began.

This requirement is in line with ongoing efforts by the Ministry of Home Affairs (MHA) to eradicate loan-sharking activities and help protect HDB residents from being victimised by such activities.

When some people borrow money from loan sharks, they move to a new location but give the loan sharks their previous addresses. This way, if they fall behind on payments, those living at their former addresses will be the ones harassed by the loan sharks.

The new rule enables HDB to capture the particulars of those who rent rooms in HDB flats and allows MHA to trace the movement of borrowers.

HDB may impose a penalty on those who fail to register their subletting. The penalty could involve a fine of up to $3,000, and for recalcitrant cases, HDB could take back the flat.

For further information or inquiries, the public can call HDB’s toll-free Subletting of Flat & Rooms Enquiry Line on 1800-555-6370.

Source: Straits Times, 16 Jul 2010

THE cash premium paid by buyers chasing Housing Board (HDB) resale flats has risen islandwide in the second quarter, with many flat types attracting payments of between $30,000 and $40,000 above the market valuation.

An increasingly buoyant market sent the premiums – called cash-over-valuation (COV) – soaring across numerous towns.

The median outlay is now estimated to be well above the record $25,000 median in the first quarter, according to transaction figures from four property agencies.

The Straits Times has compiled median COV figures by flat type and estate based on the agencies’ second-quarter sales to get a snapshot of the market ahead of the official statistics out next week. These agencies – PropNex, ERA Realty, HSR Property and ECG Property – make up almost the entire HDB resale market share.

The median COV is a mid-point: Half the units were sold for a COV above that value, and half below. The figures show that median COVs of three-, four-, five-room and executive flats in many estates are now $30,000 to $40,000.

They were mostly below $30,000 in the first quarter.

Agency bosses predict that the official median COV will be above $30,000 for the second quarter – setting a record in the process.

An HDB spokesman told The Straits Times yesterday that ‘preliminary data indicates that the median COV is lower than $35,000′.

It noted that as COV is the result of negotiations between willing buyers and sellers, ‘in any market at any given time, there will be high COVs, low and even no COVs’.

Analysts said that high demand amid tight supply is driving up the cash premiums. Others attributed rising COVs to the ‘sell high, buy high’ phenomenon gripping the resale market.

This means that upgraders and downgraders are selling their flats at high prices and asking for high COVs because they face the same demands when they go into the market to buy.

‘This is a case of the cat chasing its tail and prices are spiralling upwards due to this situation,’ said ERA Asia Pacific associate director Eugene Lim.

PropNex chief executive Mohamed Ismail noted that there is now ‘a lot of lateral movement in the market from upgraders and downgraders’, with first-time home buyers mainly left out of the action.

‘These buyers are queueing for flats directly from HDB, which are more affordable. The resale market is also propped up by PRs who cannot buy new flats, but need a home urgently,’ he added.

Agency data shows that executive flats in estates such as Bishan and Toa Payoh are selling at a median COV of $55,000 to $65,000 respectively.

The Bishan figure is striking as it was only $40,000 in the official first quarter figures. The Toa Payoh median COV then was $63,500.

Median COV levels for four-roomers in the second quarter ranged from $20,000 in Woodlands to $42,000 in Queenstown according to agency data.

The official HDB figures for the first quarter had the range at $21,000, also in Woodlands, to $36,500 in Bukit Timah.

Agency numbers showed Bishan, Toa Payoh, Queenstown and Marine Parade are the red-hot estates, while there are still bargains to be found in Sembawang, Choa Chu Kang, Pasir Ris and Jurong West. The median COVs in these areas have generally stayed around $20,000.

The HDB reiterated yesterday that it is ramping up supply of new flats from 9,000 last year to 16,000 this year to help relieve pressure on the resale market and stabilise it.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said the effects of the fresh supply will be felt in the medium term, and that prices and COV levels might inch up further before stabilising.

While first-time buyers might feel the pinch of rising COV levels, some home owners are cheering.

HSR property agent James Choo, 47, said he recently sold a five-room Tampines flat for a couple in their 40s for $480,000 – $80,000 above valuation.

‘The sellers were very happy as they could downgrade to a three-room flat with the proceeds and buy it without any loans,’ he said.

Still, analysts say there will be a resistance level where buyers will stop buying if COVs get too high.

‘This could be above the $35,000 median COV level,’ added Mr Mak.

Source: Straits Times, 16 Jul 2010

SALES of new private homes slowed further last month as World Cup fever seemed to take its toll on buyer interest.

Homehunters bought 847 units in June, compared with 1,083 units in May and the near-record 2,208 units in April, according to Urban Redevelopment Authority (URA) data released yesterday.

The June figure brings new home sales to 8,518 units for the first half of the year – averaging 1,420 units per month and ahead of last year’s average monthly sales volume of 1,224 units, noted CBRE Research.

The URA figures show that launches were also down last month, with 1,010 units released, against 1,135 in May.

Property experts had factored in a quiet June, given that the four-week-long South Africa World Cup, school holidays and the euro zone crisis were likely to divert the attention of potential buyers.

About half of the sales in June were for homes in suburban areas, according to URA, while prime areas proved to be the quietest, accounting for 17 per cent of sales.

Colliers International sees the geographical breakdown of new sales volumes showing intensified price resistance in June.

It points out that mid-tier units in city-fringe areas – or what the URA calls Rest of Central Region – dipped by a sharp 74 per cent to just 275 units from April’s peak level of 1,044 units.

The firm’s director of research and advisory, Ms Tay Huey Ying, said that this was not surprising, considering URA preliminary data had showed prices in that region gaining the most in the first half, compared to prices in the city centre or suburban areas. And overall, the prices have crossed the previous peaks.

The Minton in Hougang proved to be June’s top seller, moving another 173 units at a median price of $871 per sq ft. CBRE Research said that this was higher than the median price of $849 psf reported for the first 204 units sold in May.

A new launch, Waterfront Gold, had a weaker showing with 157 units launched and 77 units sold at a median price of $996 psf.

Jones Lang LaSalle said the total quantum demanded at the project – more than $1 million for a three-bedder – was possibly larger than what the market was willing to absorb.

At the 84-unit La Brisa in Geylang, where most of the units range from 409 sq ft to 689 sq ft, buyers snapped up 82 units at a median price of $960 psf.

Looking ahead, experts expect to see stronger sales in July, noting that already two new launches – 368 Thomson and Terrene in Bukit Timah – have done well.

Yesterday, NOL Group reported selling more than 100 units at Terrene since a private preview started on July 8.

Buyers could come out to buy before the inauspicious Hungry Ghost Festival in August, they said.

Still, CBRE Research predicts buying interest will remain selective, and depend on location, product attributes and price points.

Jones Lang LaSalle said a more moderate buying mood backed by conservative global economic conditions, and hence a continual slowdown in price growth, can be expected.

Source: Straits Times, 16 Jul 2010

Over 520,000 homes repossessed in H1 as banks step up effort to clear backlog

(LOS ANGELES) More than one million American households are likely to lose their homes to foreclosure this year, as lenders work their way through a huge backlog of borrowers who have fallen behind on their loans.

Nearly 528,000 homes were taken over by lenders in the first six months of the year, a rate that is on track to eclipse the more than 900,000 homes repossessed in 2009, according to data released yesterday by RealtyTrac Inc, a foreclosure listing service.

‘That would be unprecedented,’ said Rick Sharga, a senior vice-president at RealtyTrac.

By comparison, lenders have historically taken over about 100,000 homes a year, Mr Sharga said.

The surge in home repossessions reflects the dynamic of a foreclosure crisis that has shown signs of levelling off in recent months, but remains a crippling drag on the housing market.

The pace at which new homes falling behind in payments and entering the foreclosure process has slowed as banks continue to let delinquent borrowers stay longer in their homes rather than adding to the glut of foreclosed properties on the market.

At the same time, lenders have stepped up repossessions in an effort to clear out the backlog of distressed inventory on their books.

The number of households facing foreclosure in the first half of the year climbed 8 per cent versus the same period last year, but dropped 5 per cent from the last six months of 2009, according to RealtyTrac, which tracks notices for defaults, scheduled home auctions and home repossessions.

In all, about 1.7 million homeowners received a foreclosure-related warning between January and June. That translates to one in 78 US homes.

Foreclosure notices posted monthly declines in April, May and June, but Mr Sharga said one shouldn’t read too much into that.

‘The banks are really sort of controlling or managing the dial on how fast these things get processed so they can ultimately manage the inventory of distressed assets on the market,’ he said.

On average, it takes about 15 months for a home loan to go from being 30 days late to the property being foreclosed and sold, according to Lender Processing Services Inc, which tracks mortgages.

Assuming the US economy doesn’t worsen, aggravating the foreclosure crisis, Mr Sharga projects it will take lenders through 2013 to resolve the backlog of distressed properties that have on their books right now.

And a new wave of foreclosures could be coming in the second half of the year, especially if the unemployment rate remains high, mortgage-assistance programmes fail, and the economy doesn’t improve fast enough to lift home sales.

The prospect of lenders taking over more than a million homes this year is likely to push housing values down, experts say.

Foreclosed homes are typically sold at steep discounts, lowering the value of surrounding properties.

‘The downward pressure from foreclosures will persist and prices will be very weak well into 2012,’ said Celia Chen, senior director of Moody’s Economy.com.

She projects home prices will fall as much as 6 per cent over the next 12 months from where they were in the first-quarter.

Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. Now, homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.

There are more than 7.3 million home loans in some stage of delinquency, according to Lender Processing Services.

Lenders are offering to help some homeowners modify their loans. But many borrowers can’t qualify or they are falling back into default.

The Obama administration’s US$75 billion foreclosure prevention effort has made only a small dent in the problem.

More than a third of the 1.2 million borrowers who have enrolled in the mortgage modification programme have dropped out. That compares with about 27 per cent who have received permanent loan modifications and are making payments on time. — AP

Source: Business Times, 16 Jul 2010

FAR East Organization has signed a deal to buy 31 Parbury Avenue off Upper East Coast Road for $55 million – a price that works out to $898 per sq ft of land area.

A two-storey bungalow stands on the sprawling 61,240 sq ft freehold site, which can be redeveloped into eight luxury bungalows or a strata landed-housing scheme comprising either 14 bungalows or 28 semi-detached houses or 37 terrace houses, according to CB Richard Ellis, which brokered the sale.

Depending on how intensively Far East redevelops the site – beyond a baseline plot ratio of 0.7 – a development charge may be payable.

The plot is zoned for three-storey mixed landed use under Master Plan 2008.

There are also a few condos in the area, such as Parbury Hill Condominium and Riviera Residences, although these are on residential sites with a 1.4 plot ratio – on which non-landed residential developments are allowed – under Master Plan 2008.

CBRE marketed 31 Parbury Avenue through a tender that closed in late May and is said to have attracted a handful of bids.

The property is being sold by the family of the late Goh Seong Pek, one of the founders of Tat Lee Bank.

Sales of residential sites have been picking up as developers seek to restock landbanks following strong housing sales last year. Besides the Government Land Sales Programme, collective sales and other private-sector sources have been providing residential land for developers.

BS Capital recently bought the Colourscan Building in Kim Keat Road in the Balestier area with a view to redeveloping the 32,544 sq ft freehold site into a 20-storey apartment project. The Urban Redevelopment Authority has approved a rezoning of the site from Business 1 to residential use with 2.8 plot ratio – the ratio of maximum potential gross floor area to land area. BS Capital’s purchase price of just over $36 million reflects a unit land price of $670 per sq ft of potential gross floor area, including an estimated Development Charge (DC) of almost $25 million.

In District 9, Cavenagh Mansions, which comprises 21 apartments, has been sold by Teck Jin – which developed the project about 20 years ago – to Selangor Dredging for $42.38 million or about $1025 per sq ft of potential gross floor area including an estimated $267,000 DC. The Malaysian company plans to redevelop the freehold site.

Source: Business Times, 16 Jul 2010

Pharma volatility, weird maths may join hands

ONE year after coming off a recession of global proportions, the Singapore economy is headed for possibly a new all-time high growth rate, with GDP expected to surge by between 13 and 15 per cent in 2010. But a technical recession – defined as two consecutive quarters of sequential contraction – within the same year of historic high growth?

That may well be the peculiar scenario shaping up, going by the newly hoisted 13-15 per cent official growth forecast.

As the economists who have dug into the data – just working out the maths, actually – point out, with 18 per cent growth for the first six months in the bag, even if the growth momentum or sequential pace stays flat through the third and fourth quarters, full-year growth would still round out to 17 per cent or a bit more.

Market forecasts of Singapore’s 2010 growth, newly bumped up following the release of the latest quarterly estimates on Wednesday, are now mostly in line with the official 13-15 per cent projection, with at least five – from Goldman Sachs, Daiwa Capital Markets, Morgan Stanley, Citigroup and Credit Suisse – going beyond. Goldman Sachs has the highest forecast at 16.5 per cent. Which means that everyone is expecting at least one negative quarter (in sequential or quarter-on-quarter terms) – or what most describe as a ‘technical pull-back’ from the heady heights of the first six months.

Goldman Sachs, for instance, is looking at a 5 per cent adjusted and annualised q-on-q contraction in Q3, while Citigroup – with a 15.5 per cent growth forecast for the year – reckons it will be more like an 11 per cent pull-back in Q3. In any case, it will be quite a comedown from the blistering 46 per cent and 26 per cent growth notched up in Q1 and Q2.

But at least two forecasters – Capital Economics and JP Morgan – whose full-year growth estimates of 14-14.5 per cent are within the official projection, are looking at two sequential contractions, in Q3 and Q4. A ‘technical’ recession, in other words.

As a Morgan Stanley research report puts it: ‘Our mathematical exercise shows that even if sequential declines of the type seen during the Lehman event in 2008 were to happen, annual 2010 growth would still come round to 13-14 per cent.’

So the official forecast of 13-15 per cent growth necessarily assumes a negative quarter in either Q3 or Q4 – or both. And the Ministry of Trade and Industry has, in fact – though in not quite such words – flagged so as well.

In its statement on the revised 2010 growth forecast, MTI said: ‘While year-on-year growth rates in the second half will be healthy, sequential growth from current levels of economic activity will be low.’

It also hinted at what would likely cause the sharp slowdown in growth momentum in the second half. Industry-specific factors, such as plant maintenance shutdowns in the biomedical manufacturing cluster, will drag down growth, it said.

The pharmaceutical volatility that powered the stratospheric surges in manufacturing output in Q1 and Q2 is also likely to plunge the sector into the red, in sequential terms, in the second half. Payback time.

In other words, the second half ‘recession’ – if it ensues – should be one that is merely statistical beyond the technical sense, with the rest of the economy hopefully still healthy, with no loss of jobs nor decline in incomes and welfare.

Here, prospects are mostly externally driven. On the one hand, Singapore’s GDP is now way past its pre-recession peak in Q1 2008 – a good 13 per cent higher, as a couple of economists note. The economy has recouped its recession losses – and scaled new heights.

But the stream of new data out of the US, even in the past couple of days, points increasingly to ‘imminent slowdown’ ahead.

For now, MTI reckons a double-dip recession in the major economies ‘remains unlikely at this juncture’, even if the pace of the global recovery has moderated. But that probably accounts for the cautionary stance behind its 13-15 per cent growth forecast – which some see as characteristically ‘conservative’. And one that does not preclude the peculiar phenomenon of a ‘recession’ in a boom year.

Source: Business Times, 16 Jul 2010

Volumes fell during school hols, World Cup; July spurt expected before Hungry Ghost Month starts

(SINGAPORE) Students were not the only ones taking a break during the mid-year school holidays. Home seekers also slowed their pace, buying just 847 private homes from developers in June.

This is the smallest number of new sales in a month since the start of the year. It is 22 per cent lower than the 1,083 units sold in May, and 62 per cent below April’s 2,208 units.

But market watchers are hardly fretting as they expect purchases to pick up slightly in July before the Hungry Ghost Festival is celebrated.

Also, overall sales for the first half of the year have been strong. Developers offloaded 8,584 units from January to June – an average of 1,431 monthly. They did better compared with the same period last year, when they sold 7,374 units in total or an average of 1,229 monthly.

‘The momentum of new home sales slowed down in June as expected,’ said CBRE Research executive director Li Hiaw Ho.

Purchases had started falling in May as the euro debt crisis and high prices caused interested buyers to think twice.

According to flash estimates from the Urban Redevelopment Authority (URA) two weeks ago, the private residential property prices index hit a new high in Q2, past the pre-Asian financial crisis peak.

Then there were other distractions – the football World Cup and the school holidays – which could have persuaded developers to hold back launches. They rolled out 1,010 homes in June, down 11 per cent from 1,135 in May.

Buying activity was concentrated in the suburbs, reflecting market caution. Home hunters bought 429 homes in the outside central region, accounting for 51 per cent of total sales. These included 77 units from Waterfront Gold at Bedok, which made its debut in June.

In the rest of central region, developers sold 275 units or 32 per cent of the total. Activity was quietest in the core central region with 143 units or 17 per cent sold.

New launches included Far East Organization’s Skyline @ Orchard Boulevard, where two units changed hands for a median price of $3,839 per square foot (psf).

Property consultants believe developers may sell slightly more homes this month, with the World Cup and school holidays over.

Also, the Hungry Ghost Festival arrives in the second week of August. There might be ‘superstitious buyers looking to pick up homes in July ahead of the inauspicious home-buying period’, said Colliers International research and advisory director Tay Huey Ying.

DTZ executive director (consulting) Ong Choon Fah added that strong economic growth in Q2 could boost market sentiment. On Wednesday, the government revised its GDP growth forecast for the year to a range of 13-15 per cent, up from 7-9 per cent.

CBRE’s Mr Li noted that sales in the third quarter have ‘started well’.

At UOL Group’s Terrene in Bukit Timah, more than 100 homes out of 130 soft-launched since July 8 have been sold. The average price is $1,250 psf and demand came mainly from Singaporeans, especially those with private home addresses. UOL will officially release 42 units for sale today.

While the market could get better in July, few consultants expect buying activity in the coming months to revisit highs reached earlier in the year.

‘Buying interest will remain selective, depending on the location and product attributes as well as price points of new launches,’ CBRE’s Mr Li said.

Price resistance could keep some buyers on the sidelines. ‘Bargain hunting is likely to be the main focus of buyers,’ said Chua Yang Liang, South-east Asia and Singapore research head at Jones Lang LaSalle.

To some extent, home sales are driven by the number of property launches, said DTZ’s Mrs Ong. She expects launches in the mass market to continue because developers who recently won tenders for state land may want to roll out their projects before more government sites and more competition come onstream.

But developers of prime freehold projects could hold back launches because there have been fewer collective sales of such sites. They may consider waiting ‘for a little while more when they have a bit more pricing power’, Mrs Ong said.

Source: Business Times, 16 Jul 2010

Property giant City Developments (CDL) has officially launched 368 Thomson today. The freehold residential development is located in the prime District 11 residential enclave and occupies the sites of the former Concorde Residences, Balestier Court and Bright Building.

It is a quick stroll to Novena MRT station and a stone’s throw away from the MacRitchie Reservoir. The development has a 36-storey tower with 157 apartment units. It also features Therma jet pools, children’s aqua treat areas, a gymnasium, a social lounge and a club house.

CDL said more than 85 per cent of the units have already been snapped up. It added that the price per square foot had increased marginally by 2 to 3 per cent since the previews last week. During the previews, the units were priced at an average of $1,350 per sq ft translating to a price tag which ranges from $918,000 for the one+study apartments to $4.4 million for the five-bedroom penthouses.

CDL said that the majority of buyers are Singaporeans with Permanent Residents and foreigners making up about 25 per cent of the buyers. CDL’s group general manager, Mr Chia Ngiang Hong, said: “With its prime District 11 location, freehold status and attractive pricing, 368 Thomson represents an excellent investment opportunity and also good rental potential.”

Source: Today, 16 Jul 2010

The Housing and Development Board is extending its Revitalisation of Shops (ROS) Scheme – introduced in 2007 – to even more heartland retailers.

Announcing the extension, Senior Minister of State for National Development, Grace Fu, said the extension of the scheme will involve 35 sites with an estimated budget of S$6 million.

Thirty-four sites with more than 3,000 shops have already benefited from S$17 million of funding under the two previous batches.

Speaking at a HDB retail seminar on Friday, Ms Fu said all the sites are progressing well in their revitalisation efforts.

Three sites – Teck Whye Shopping Centre, Serangoon North Neighbourhood Centre and Bedok Town Centre – have completed their upgrading works, and more than 100 events have been organised by the Merchant Associations.

She said shopkeepers reported a 10 to 20 per cent boost in sales, and greater vibrancy after the upgraded works and the promotional events.

Ms Fu said that beyond the ROS scheme, HDB will also help other shop tenants enhance their shops, by granting a half-month rent-free period for them to carry out renovation works within their shops during tenancy renewals and where rejuvenation plans, such as Town Council improvement works, have been announced.

She said the government will set aside S$2 million each year for this, benefiting more than 6,000 shop tenants.

HDB has also launched Where2Shop@HDB Mobile. Consumers can now access information on Where2Shop on their mobile devices.

Ms Fu said these new measures announced on Friday will help the HDB retailers to position themselves better for their business.

Source: Channel News Asia, 16 Jul 2010