CITY Developments Ltd (CDL) recently sold its stake in Chinatown Point, comprising the entire retail component (283 strata shop units) and four strata office units, for $250 million. The buyer is a consortium put together by Perennial Real Estate group – set up by Pua Seck Guan, the former CEO of CapitaMall Trust Management Ltd.

What made CDL, a seasoned developer, divest the asset it has held for two decades?

Located strategically at the intersection of New Bridge Road and Upper Cross Street, Chinatown Point is a mixed development comprising a mall (with six levels of retail space including part of Basement 1) and a 25-storey office tower. It stands on a 99-year leasehold site, which was sold by the Urban Redevelopment Authority in 1980 for $61 million to Ho Kok Cheong’s People’s Park Chinatown Development. Mr Ho had planned a hotel and mall development to be named Chinatown Centrepoint.

However, the project’s developer ran into financial difficulty and was ordered to be wound up in August 1986. The stalled project was then put up for tender the following year and that was when CDL entered the picture. It won the tender in September 1987 and later took a couple of partners. The project’s scheme was changed from retail-and-hotel to retail-and-office, along with a name change. Chinatown Point finally opened in 1990.

The location received a major boost when Chinatown MRT Station opened nearby, as part of the North East Line, in 2003. And shopper traffic in the area is set to grow further when the Chinatown Station becomes an interchange as part of the new Downtown Line.

Evolved market

But location alone is not enough in today’s retail market. The mall management business in Singapore has evolved to a new level in the past 10 years or so, especially since the listing of Singapore’s first real estate investment trust, CapitaMall Trust (CMT), in 2002.

It marked the dawn of a new breed of ‘professional mall managers’, with the mandate to extract as high a net property income as possible from the assets under their management.

One of their trademarks is the undertaking of creative asset enhancement works, such as the decanting of space from upper floors (where retail rents are lower) and the building of replacement shop space on lower levels, where rents are higher.

Mechanical and engineering equipment and sometimes even carpark space in basements are moved elsewhere to create new retail space.

Large-space tenants like department stores occupying prime spots are eschewed as these mall managers prefer to carve the area into smaller units which can generate higher per square foot rentals.

Tenants’ turnovers are tracked closely as they have to pay gross turnover rents, in addition to a fixed base monthly rent. Underperforming tenants are shown the door and higher-performing replacements are found in the merciless pursuit to generate maximum returns for the Reit’s unitholders, who include many mom-and-pop investors and retirees in additional to institutional investors.

This breed of aggressive professional mall managers has grown, as CMT’s listing has spawned other trusts holding shopping centres – such as Suntec Reit, Frasers Centrepoint Trust and the Asia Retail Mall funds.

In such a marketplace, CDL may have found it tougher to make Chinatown Point mall shine against the competition – unless it’s prepared to set up its own shopping centre Reit/trust and allied professional mall management business.

Sensible move

It makes good business sense for CDL to have sold Chinatown Point mall and redeploy sales proceeds to other aspects of the real estate business where it has a comparative advantage – such as, its ability to buy residential sites here and launch them within a short time, achieving relatively quick turnaround on its investment.

Chinatown Point isn’t the first mall that CDL has disposed of; back in 2003, it sold its stake in Lot One in Choa Chu Kang.

The group has a few other shopping centres in Singapore in its portfolio – including Central Mall at Havelock/Magazine roads; Palais Renaissance, next to the red-light haunt of Orchard Towers; and City Square Mall along Kitchener Road.

It should not be too surprising if some of these are divested in future.

Source: Business Times, 19 Jul 2010

(SINGAPORE) While Singapore’s latest growth forecast of 13-15 per cent had surpassed expectations, it reflects a short-term rebound, says Finance Minister Tharman Shanmugaratnam.

‘To put it in perspective, we’ve had two years averaging nearly zero per cent growth,’ Channel News Asia reported him as saying. ‘This year, assuming it’s 15 per cent – taking the upper end of the range – that’s 5 per cent over three years, which is a good performance but not out of sync with what we think is the underlying rate of growth of the Singapore economy, which is 3-5 per cent going forward.’

Mr Tharman added that the focus now was to ensure that an annual growth rate of 3-5 per cent can be sustained through productivity growth.

The Ministry of Trade and Industry last week bumped up the official forecast of Singapore’s 2010 GDP growth by an unprecedented six points to 13-15 per cent, after a sizzling 18 per cent pace in the first half.

The government’s stunningly strong growth forecast on Wednesday caught many by surprise – and prompted an upward revision in the estimates of many private sector economists.The last time Singapore’s full-year growth crossed 13 per cent was in 1972 when the economy grew 13.5 per cent – not far from the all-time high of 13.8 per cent in 1970. Still, MTI made it clear that the first half’s ‘exceptionally strong growth’ is unlikely to be sustained into the second half, with a ‘more subdued outlook’ up ahead.

Source: Business Times, 19 Jul 2010

Return of expat professionals becoming apparent: director of HR firm

(SINGAPORE) A sizeable proportion of foreign workers entering Singapore this year could be highly skilled, some economists say. Recruiters’ observations of the rising number of expatriate professionals now being hired point the same way.

The strong economic rebound, coupled with a tightening labour market, could mean Singapore will need more than 100,000 extra foreign workers this year, Prime Minister Lee Hsien Loong said last week. While the bulk of these foreigners are likely to take on lower- wage jobs in manufacturing with ramped-up production as well as the retail, F&B (food and beverage) and construction sectors, a good number will also be needed for top posts in sectors such as finance and IT.

Economists point to available data on jobs this year which shows surprisingly weak job creation in the hospitality-related sectors and the contrasting strength in sectors like financial services.

Citi economist Kit Wei Zheng noted that the official first-quarter labour market report showed 100 net job losses in hospitality, reflecting either tighter enforcement of existing foreign worker quotas or front-loaded hiring for the integrated resorts in 2009′s last quarter. In contrast, the financial sector added 5,500 jobs in Q1.

‘Financial sector job creation could be sustained partly by relocation of some activities away to Singapore, as financial regulatory reform dampens profitability of such activities in the developed market,’ said Mr Kit.

Rising wages, another sign of labour market tightening, were also seen in the financial services sector, said OCBC economist Selena Ling. In Q1, overall real earnings rose 2.8 per cent. For the services sector the rise was 2.4 per cent but average real earnings in the financial sub-sector rose 4 per cent.

This demand for manpower is looking abroad for highly-skilled labour now.

‘The return of post-recession expatriate professionals has only become apparent in the last quarter,’ said Karin Clarke, regional director (Singapore & Malaysia) of global recruitment and HR services company Randstad.

It is a ‘candidate-short market’ now, said specialist recruitment firm Ambition Singapore’s managing director Paul Endacott. ‘Investment banks, private banks, asset management, wealth management institutions are finding it much more difficult to hire locally for vice-president levels and above,’ he said.

The rise in foreign top talent joining banks in higher level roles has also been witnessed at specialist professional recruiter Robert Walters. Elaine Truong, senior consultant of the firm’s financial services division, said: ‘Talent in top demand include those with specialised skills set to fill the shortage of candidates available locally.’

Outside of finance, there is also high demand for ‘foreign white-collar professionals’ to fill ‘specialist IT posts, engineering positions within the oil & gas sector and specialist healthcare professionals’, Randstad’s Ms Clarke said.

The general trend is one of ‘expats coming to Singapore willing to work, although there are signs that expat pay package expectations are relaxing, though this is not yet the norm’, said Mark Sparrow, managing director of Kelly Services Singapore.

And though hiring usually slows in Q4 due to impending bonuses, Robert Walters’ finance and risk manager Neil Dyball expects this year to be an exception for mid to senior- level appointments, as companies look to source talent from the UK, US, Hong Kong and Australia.

Source: Business Times, 19 Jul 2010

The benchmark Straits Times Index see-saws amid soft trading volumes

(SINGAPORE) Even as Singapore’s strong second- quarter GDP numbers sent economists rushing to raise their forecasts for the full year, the stock market barely stirred.

The real popping of the champagne will probably come only when Q2 corporate earnings show that economic boom has indeed found its way to companies’ revenues and bottom lines, which in turn would provide a strong impetus for wage hikes, analysts say.

The benchmark Straits Times Index (STI) has see-sawed amid soft trading volumes, rising by 24.11 points or 0.8 per cent on Wednesday when the Q2 economic data was released, before slipping 9.26 points or 0.3 per cent the following day on fears of a slowing US recovery and a potential slowdown in China. Last Friday, the STI edged up 14.17 points or 0.5 per cent to 2,957.72, closing the week 0.99 per cent higher.

Some analysts note that the revised Q1 growth of 16.9 per cent and the record 19.3 per cent Q2 surge were partly a technical bounce from a low base last year. But the average person has yet to feel the benefits, they added.

‘The numbers themselves are not telling the full picture,’ said UOB KayHian executive director Chan Tuck Sing. ‘I have not seen the economic impact from these numbers filtering through to the man in the street.

‘I would be more excited if companies reporting second-quarter earnings show significant improvements in earnings. Then, that’s real money flowing through to the companies.’

The Q2 economic numbers have raised hopes of positive surprises in the upcoming earnings reporting season and provided a snapshot of the type of sectors that are likely to have done well.

Mr Chan expects manufacturing and biomedical companies to post sterling Q2 results.

SIAS Research vice-president Roger Tan anticipates rosy report cards from consumer plays – both domestic and export-oriented – particularly those in the consumer discretionary sector.

‘Technology companies would continue to show strong numbers either matching or beating analysts’ expectations,’ he added. ‘The banks also look like they could come in with strong numbers.’

If the reporting season yields strong earnings and bullish outlooks from company managements, the STI could breach the 3,000 mark, Mr Tan said. SIAS has an STI target of 3,100-3,200 points by year-end.

Credit Suisse maintains ‘market weight’ on the Singapore market following the release of the Q2 GDP numbers, which is one level below ‘overweight’. It expects wages to start picking up over the next two to three quarters, which would boost demand for consumer-related sectors.

‘The key beneficiaries on which we are positive include SPH, SIA, CapitaLand, FCT (Frasers Centrepoint Trust) and Raffles Medical. The robust economic environment also augurs well for the banks,’ Credit Suisse said in a report last week.

‘Banks’ earnings could be boosted by 2 per cent for every 5 per cent incremental loan growth. Asset quality should also benefit,’ Credit Suisse analysts said.

On the other hand, they noted that companies that are wage-sensitive and not in a strong position to pass on the incremental costs immediately include Hi-P, ST Engineering, ComfortDelgro, Cosco Corp, SATS, Hong Leong Asia and SMRT.

CIMB head of research Kenneth Ng said he believes the hospitality, airline and Reit sectors will surprise on the upside, while potential disappointments could come from plantation companies.

Calling equities a ‘strong buy’, Wong Kok Hoi, managing director and chief investment officer of APS Asset Management, noted that equities are currently not expensive relative to other asset classes. In the current low interest rate environment, equities offer attractive yields of about 10 per cent compared with bond yields of about 2 per cent.

Historically, Singapore’s GDP and the STI have been strongly correlated. A Barclays Capital research report on Singapore published last year, for instance, showed a graph of the quarter-on-quarter changes in the Singapore GDP and STI since 1997, and the two lines tracked each other well.

But in the near term, market performance continues to hinge on macro issues such as the effects of deleveraging, said Mr Ng. ‘Until those issues are resolved, the markets will find it difficult to forge significantly higher.’

Mr Ng is in no hurry to upgrade his market earnings per share (EPS) forecast. In fact, CIMB downgraded its rating on Singapore from ‘overweight’ to ‘neutral’ in June as a result of those macro concerns.

Though the World Cup season – blamed for taking some of the steam out of the stock market – has ended, the market still lacks a catalyst right now, said Mr Chan of UOB KayHian.

Should corporate earnings turn out to be mediocre and fail to excite investors, the market would remain in range-bound trading, he added.

Source: Business Times, 19 Jul 2010

K-REIT Asia says its second quarter distribution per unit rose 24.2 per cent to 1.64 Singapore cents compared to a restated DPU of 1.32 cents recorded in the same period last year.

Distributable income for the three months ended June, rose 25.5 per cent to about S$22 million due mainly to higher net property income and lower interest expense.

For the first half, K-REIT announced a DPU of 2.97 cents, a 19.3 per cent increase on year.

Distributable income for the first half came in at S$39.8 million, a 20 per cent jump compared to a year ago.

Meanwhile, net property income for the group in the first half increased 39.5 per cent year on year to S$32.3 million.

This was mainly due to contributions from its additional six floors of Prudential Towers and its George Street property in Brisbane, Australia.

The Keppel Land sponsored REIT says it is well-positioned to benefit from the strong economic growth in Singapore, positive office sector and increased pace of white collared employment going forward.

K-REIT Asia had a portfolio size of S$2.3 billion as at June 30 this year.

Source: Channel News Asia, 19 Jul 2010

3,200 applicants for Boon Lay Grove Built-to-Order (BTO) flats are from first-timer households.

These are households which have never bought a flat with housing subsidies – the priority group that BTO sale exercises seek to cater for.

Among them, 53 per cent have not applied for any BTO projects in non-mature estates prior to Boon Lay Grove.

Also, 12 per cent are third-time applicants while nine per cent are fourth-or-more time applicants.

National Development Minister Mah Bow Tan says 95 per cent of new flats are set aside for first-timers and the Government is committed to help Singaporeans own their first homes.

To meet the demand for new flats, some 9,000 BTO flats were launched in the first half of 2010.

The Housing and Development Board says it is prepared to launch an additional 7,200 BTO flats by year-end.

In all, 2010′s BTO flat supply of 16,000 units is almost twice that of last year’s, says the HDB.

Source: Channel News Asia, 19 Jul 2010

The government has plugged loopholes in the law to prevent moneylenders from egging homeowners to use HDB flats as collaterals for any debt other than as mortgage for the purpose of financing the purchase of the flat.

Changes to the Housing and Development Bill were passed on Monday under a “certificate of urgency”, which means it was read and passed in one Parliamentary sitting.

There has been an increasing number of HDB homeowners using their flats as collateral to pay off loans.

In 2008, there were 12 registered resale applications with caveats lodged by moneylenders.

One year later, the figured jumped to 546.

In the first six months of this year alone, there were 556 cases.

It is a worrying trend that the government wants to put an immediate stop to.

“A HDB flat is for long-term homeownership. I cannot over-emphasize this fact,” said Minister for National Development, Mah Bow Tan.

But this approach will only work if people do not encash their retirement asset prematurely.

The old law had allowed moneylenders to use a seller’s flat as collateral for debt repayment.

“Instead of just the 1.5 per cent interest that was touted before they took the loan, they ended up paying as much as 15 per cent interest rates in some cases. Their shock starts when they discover that they have nothing left after paying off their debts to the moneylenders, which they had to clear first since it is protected by the caveat,” said Mdm Halimah Yacob, MP for Jurong GRC.

MP for Holland-Bukit Timah GRC, Christopher de Souza added: “These lenders have hence made agreements with their borrowers to lodge caveats against their flats. This way, they have the first claim on the sales proceeds. It is all perfectly legal and above board; and the lenders have security in recovering the principle sums loaned, plus an obscene amount of interest.”

Minister Mah said: “Some homeowners may want to get a quick personal loan and therefore allow moneylenders to lodge a caveat on their flats. Moneylenders are more willing to give loans, especially to low-income borrowers, if they are able to secure the loan on the sale proceeds of the flat, as this reduces their risk.

“If the flat owners already plan to sell their flat and take a loan from a licensed moneylender, for example as a bridging loan to meet some urgent needs, the caveat ensures that the loan would be paid from the sales proceeds.

“However, there are some flat owners who originally had no intention to sell their flats, but still allowed moneylenders to lodge caveats against their flat. These flat owners may be pressured to sell their flats to raise money quickly to repay debts.”

So the seller who has sold off his flat and repaid the moneylender, may not be able to afford to buy his next flat.

Some may also join HDB’s queue for rental flats when they do not in fact qualify for rental housing.

With the amended Bill, moneylenders can now no longer claim caveats to have first cut of the sales proceeds of a seller’s flat.

Mr Mah said existing contracts with valid caveats lodged will not be affected. This is in recognition of the sanctity of contracts already legally entered into.

The changes also do not affect banks and financial institutions, which can continue to grant loans on the security of the flat for the purpose of financing its purchase.

“This policy change does not mean that HDB flat owners can no longer borrow from moneylenders. They can continue to do so. But they cannot use their HDB flat as a security and they must find other ways to ensure that they can repay their debts,” said Mr Mah.

The Moneylenders Association of Singapore said a lot of the cases involve real estate agents who are also licensed moneylenders.

It added the new law will mean less protection for moneylenders, which may drive them to raise interest rates.

Interest rates are now between 18 to 25 per cent and this may go up to more than 30 per cent.

Source: Channel News Asia, 19 Jul 2010