0030 GMT [Dow Jones] Singapore property stocks could come under selling pressure today after GuocoLand (F17.SG) announces its sale of 97 apartments in its Singapore Goodwood Residence project to Kuwait Finance House for S$818.4 million has stalled. “This piece of news is likely to create further near term pressure on Singapore developers’’ stock prices,” says Lehman Brothers in note. But broker adds developers’’ share prices already depressed, have priced in big falls for property prices; “we think the market is already factoring in 20%-40% downside in house prices.” Nevertheless, news is likely to hit sentiment and further falls for broad market after Wall Street continued to slide overnight likely to add to bearish mood on property chips. (KIG)
2218 GMT [Dow Jones] WALL STREET: Stocks finished sharply lower, with Dow closing at its lowest level in more than a year as fears about fallout from subprime crisis weighed; “If you had told me two years ago or a year ago that (a big broker) could succumb to severe pressure of defaults, (I would have cited) the mantra that “they’re too big to fail,”” said Peter McCorry, senior equity trader at Keefe Bruyette & Woods. Now, “in light of the way the velocity of these write-offs has started to pick up, it’s not out of the realm of possibility.” Bear Stearns fell 11% after Moody’s downgraded dozens of securities issued by one of the broker’s trusts, triggering rampant selling. Lehman Brothers fell 7.3% on plans to cut about 5% of its overall work force; Fannie Mae tumbled 13% after Barron’s magazine reported the government-backed home lender may be in need of a bailout; Fannie peer Freddie Mac shed 12%. Countrywide Financial plunged 14% on WSJ story saying FBI probing allegations mortgage lender misrepresented its financial position, quality of its loans. Among gainers were McDonald’s +2.9% on 12% rise in February same-store sales. Dow closed down 1.3%, Nasdaq off 2%, Philly semicons off 1.4%. (SHN)
China's CPI hits new 11-year high of 8.7% in February
BEIJING, March 11 (Xinhua) -- China's inflation continued to accelerate, as the Consumer Price Index (CPI) rose 8.7 percent year on year in February, the National Bureau of Statistics (NBS) said on Tuesday.
The figure was the fastest monthly rate in more than 11 years. The major inflationary index once rose by an annual rate of 14.11 percent from 1992 to 1996.
According to the Straits Times, Property developers and banks have started offering a modified form of the deferred payment scheme known as the interest absorption scheme in an attempt to revive the cooling property market. It works similar to the deferred payment scheme except that the loan needs to be taken up at the point of purchase and the interest is absorbed by the developer until completion. In effect, it would shift the credit risk of the buyer from the developer to the bank. We think that the interest absorption scheme will benefit the genuine buyers planning to shift into newer homes. However, we don’t expect it swing the weak investor sentiment at this stage as the risks of downward asset repricing are high in the current uncertain economic environment. We expect the buyers to continue to adopt the wait and watch approach until the economic outlook gets clearer.
Rising market pressures may trigger third wave of credit crisis
11 March 2008
Nervous investors hanging on to pronouncements of central bankers
(LONDON) Tight money markets and tumbling stocks and the US dollar are expected to increase worries for investors this week as pressure mounts on central banks facing what looks like the third wave of a global credit crisis.
Last week, money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.
In response, the Federal Reserve unveiled new measures to ease liquidity strains on Friday - injecting US$200 billion into the banking system - and said that it was in close consultation with central bank counterparts.
However, the Fed failed to lift the mood much. Investors, keen to see if any further plan is in the works to prevent a financial market seizure, will scrutinise words from key central bankers including Fed officials this week.
‘It’s another round of the credit crisis. Some markets are getting worse than January this time,’ said Jesper Fischer-Nielsen, interest rate strategist at Danske Bank in Copenhagen. ‘There is fear that something dramatic will happen and that fear is feeding itself. Central banks have shown great resolve to try to solve the problems (on money markets) and I’m sure they will do again.’
Philipp Hildebrand, vice-chairman of the Swiss National Bank, warned last week that the world might be in a new, more dangerous phase of the crisis.
If that is the case, the latest wave is the third one.
The first round began in August when interbank lending dried up as banks realised they did not know which was dangerously exposed to the meltdown in the US sub-prime mortgage market.
Then, late last year, pressure intensified again in the money markets - after some of the world’s biggest banks began writing off colossal sums of money - prompting top central banks to inject billions of dollars into the system.
Renewed problems in the credit market - including fears that US mortgage lender Thornburg might go bankrupt and acute cash flow problems at a Dutch fund - and concerns over slowing world growth led to a sell-off in stocks last week.
World stocks, as measured by MSCI, fell more than 3 per cent on the week while the dollar lost more than one per cent to hit record lows against a basket of six major currencies at one point last week.
Also reflecting investor jitters, two-year US Treasury yields hit a four-year low below 1.5 per cent as investors flocked to government bonds.
The cost of corporate bond insurance hit record high levels on Friday and parts of the debt market are also getting hit.
‘A funding freeze by lenders, that appears already in progress, could cause first-round casualties in Spain, Italy, Ireland, Portugal, Greece and Austria, countries collectively identified as the euro zone liability group,’ a UBS note said.
The G-10 policymakers came up with a cash injection plan late last year, with the top five central banks injecting liquidity into banks.
However, after weeks of calm, stress is building up again in money markets.
‘The level of financial stress is ... likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut,’ Goldman Sachs said in a note to clients. -- Reuters
IT IS astonishing to read news reports quoting experts debating whether or not the US economy is headed for a recession. To most stockmarket investors, this is no longer an issue; with soaring commodity prices, a crashing US dollar, a collapsed housing market, weak consumer spending amidst surging personal debt, shrinking manufacturing and simmering inflation, a US recession has surely already arrived and the debate should instead centre on how bad it is and how long it might last.
However, the fact that analysts are still quibbling over whether or not current conditions satisfy the technical definition of a recession - which is two consecutive quarters of economic contraction - raises the interesting question: has Wall Street fully priced in a recession yet? The disconcerting answer is: probably not.
Assume for argument’s sake that all recessions are foreshadowed by a bear market in stocks and that bear markets occur when prices fall by at least 20-25 per cent from their highs. (Hong Kong’s Hang Seng and Singapore’s Straits Times Index are about 30 per cent off their highs, placing them firmly in bear territory.)
The Dow Jones Industrial Average’s all-time high was 14,198 reached last October, so a 20-25 per cent correction would take it down to 10,600-11,300. Considering that the Dow ended at around 11,900 last Friday, the conclusion has to be that the US market, from a purely technical viewpoint, has still not fallen into a bear phase yet.
Unrealistic figures
Technical definitions aside, the fundamental picture is also not overly encouraging.
Bloomberg’s analytics give the Dow’s current price-earnings (PE) ratio as an amazing 55 times with a price/book of 3.7 - inordinately high numbers and clearly not supported by a dividend yield of just 2.6 per cent.
Even if the 30 stocks in the Dow are seen as not being representative of the broad market, the S&P 500’s figures are not much better.
The S&P’s forecast PE appears moderate at 13.34 but this is based on anticipated earnings per share (EPS) of US$0.97 versus the current EPS of US$0.68. How likely is it that in a vastly slowing environment shrouded in sub-prime uncertainty, US corporates will enjoy such a huge jump in EPS?
Incidentally, the S&P 500’s dividend yield is as weak as the Dow’s at 2.3 per cent while the equivalent numbers for the Nasdaq Composite make for even worse reading. The current PE is 32 versus a virtually non-existent dividend yield of under one per cent, while its forecast PE of 20 might appear less demanding but rests on EPS rising from US$0.70 currently to US$1.10 this year - surely an impossible task given the present soft climate.
In a nutshell, it appears both from technical and fundamental views that Wall Street has not yet fully priced in a recession, nor have its overly-optimistic analysts factored in the slowdown ahead - earnings estimates still appear too ambitious and there is every likelihood of more downgrades in the months to come.
Crash unlikely
Having said that, an all-out crash is unlikely. Apart from the fact that the Federal Reserve will probably slash interest rates to as low as one per cent (currently 3 per cent) in order to prop the market up in an election year, Wall Street will remain fairly well supported for the simple reason that it is the default market for every large fund manager or institution in the world.
Commodity prices are at an all-time high, bonds are yielding next to nothing in real terms, currencies are hugely volatile, real estate bubbles are rapidly deflating in the US and Europe and stock markets around the world are being brought back to earth after several years of excesses.
If risks have risen in markets everywhere as well as in most asset classes, it stands to reason that the big money will have little choice but to park itself in its home turf - or at least the market that it is most familiar with, which is the US. As a result, sheer liquidity and an absence of viable alternatives will ensure Wall Street avoids a major blowout.
For now, though, investors should take note that despite its wobbles since last October, the US stock market does not appear to have fully priced in an impending slowdown. Until this becomes apparent - or at least until the numbers look more reasonable - Wall Street could still be looking at more downside in the weeks ahead.
Selected S-Shares Up Sharply On Bottom Fishing (2008/03/11 16:13PM)
0813 GMT [Dow Jones] Selected Singapore-listed China plays, or S-shares, seeing good gains as market rally brings bargain hunters out. STI heading for biggest gain in almost a month; many stocks that have been badly sold down in recent weeks, including S-shares, now attracting bottom fishers. CIMB says S-shares offer value; “Despite China’s strong underlying economy and an appreciating currency, valuations for many of these companies have fallen to single-digit levels.” FTSE ST China index still just underperforming wider market (+0.5% at 451.94 vs FTSE FT All Share index +0.8%) but several component stocks enjoying big bounces after recent sharp share price corrections. China Sky Chemical Fibre (E90.SG) +7% at S$1.07; Jiutian Chemical (C8R.SG) +6.5% at S$0.165; Synear (Z75.SG) +5.7% at S$0.555. S-shares fortunes tend to be closely tied to wider market moves, reflect investor risk appetite so potential to continue making gains depends on whether market can sustain rally. (KIG)
China plans rules on return of HK-listed companies
SHANGHAI - China’s securities regulator will issue rules this year to allow Chinese firms incorporated overseas and listed in Hong Kong to issue shares on the domestic stock market, state media reported.
Regulators are preparing rules for the listing of these companies, known as red chips, on the yuan-denominated A share market, the Xinhua news agency said late on Monday, citing Fan Fuchun, vice chairman of the China Securities Regulatory Commission.
Mr Fan said that the regulation would be released ‘soon’, adding that red chips would be allowed to issue shares on the mainland stock market ahead of foreign companies.
‘The A-share listing of foreign companies should happen only after the return of the red chips has been digested by the market,’ he was quoted as saying.
Red chips were originally introduced in the 1990s when China’s own stock markets were tiny, to allow well-connected state-owned companies access to foreign funding.
However, as mainland stock markets have become much more active, they have also become attractive as a means for raising money, and many Hong Kong-listed Chinese firms now wish to launch initial public offerings in China as well.
State media reported in June last year that the first batch of eligible firms to return would include the country’s top handset operator China Mobile and petroleum giant China National Offshore Oil Corporation. -- AFP
SINGAPORE (Dow Jones)--Singapore’s red-hot property market may be ready for a reality check.
For most of last year Singapore developers were on a sale spree, as demand drove property prices to multi-year highs while new projects were being aunched almost daily, making the island nation one of the darlings of the Asia property boom.
But weakening demand, rising construction costs and inflation are threatening to bring the skyrocketing market closer back to earth. Even though nobody expects the market to collapse, 2008 is likely to prove tough for the sector, analysts warn.
“At the same time last year, things were a bit crazy, to say the least. Prices were going straight through the roof, there was a lot of euphoria,” said Joseph Tan, senior strategist at Fortis Bank in Singapore. “But the slowdown in the equities market, in the U.S. and Singapore economy has definitely taken some shine off the (property) market.”
According to property consultancy firm Knight Frank, developers launched 410 new private housing units in January, down from 445 units in December and a monthly average of 500 private units in the first 11 months of 2007.
“The relatively thinner volume in January was a result of some developers delaying their project launches,” said Nicholas Mak, head of research at Knight Frank.
The number of units sold also dropped in January and December, to 316 and 304 respectively, from above 500 sold monthly in the first 11 months of 2007.
Mak said median prices for new residential units fell in January to S$1,088 per square foot from S$1,124 in December. Not a single unit was sold in January for above S$4,000 per square foot, compared with five in December and 72 in July, one of strongest months of last year.
Analysts say the market is likely to go down further, causing property prices to fall for the year after rallying in the past two years.
“My most bullish outlook for the entire year is that property prices will be flat. Being realistic, we are expecting a 10% to 20% price decline across all segments,” said CLSA analyst Yew Kiang Wong.
About 85% of Singaporeans live in public housing built by the government’s Housing and Development Board. Private developers compete to provide housing for the remaining 15% of Singapore nationals, along with a sizable foreign population.
Private-home prices rose 31.2% in 2007, fuelled by the country’s ambition to become a business and entertainment hub in Asia.
With demand on the rise, developers fought for land through collective sales and site offerings from the government. Singapore turned into a construction site, and many projects were sold out within hours of being launched.
In an effort to cool the sizzling market, the government implemented measures including raising a tax charged on developers and withdrawing a scheme that allowed buyers of uncompleted properties to defer part of the progress payments.
The scheme, implemented when the island’s property market crashed in 1997, fuelled speculation among investors who secured properties with minimum downpayments and quickly resold them.
“Looking forward, the current weakness in the U.S. housing market and economy and the tight credit environment will likely cast a cloudy outlook over the general economy and business conditions for at least the first half of 2008,” Richard Hu, chairman of CapitaLand Ltd. (C31.SG), Southeast Asia’s largest property developer by market capitalization, said recently.
Signs of a slowdown are already emerging.
Shares of property developers briefly fell Tuesday following news that Kuwaiti firm Kuwait Finance House K.S.C. (KFIN.KW) didn’t exercise options to buy 97 units of a condominium being developed by Singapore’s GuocoLand Ltd. (F17.SG) for S$818 million.
GuocoLand said Monday that the parties are in discussions for new options for units in the development, adding that the residential property market “appears to be cautious in Singapore.”
Market heavyweight, City Developments Ltd. (C09.SG) also said recently that it may delay launches of new projects while the market is subdued.
When exactly property demand will pick up is everyone’s guess. Some developers have suggested business will get back on track in the second half of this year, but some analysts and economists disagree.
“We don’t believe this is a half-year thing. It is the start of a more prolonged recession that will have an impact on developers down the line,” said CLSA’s Yew.
The analyst is also bearish on the office market, which boomed last year as demand from companies trying to expand outpaced supply.
“We believe the tightening credit environment will slow down any aggressive headcount expansion plans in the financial services sector, resulting in an anemic demand for office space over the next two years,” he said.
Inflation is also becoming a problem for the Singapore government, which has relied on foreigners to increase the island’s population to over six million, from 4.6 million, over the next 20 years. Traditionally, foreigners are the first to leave a country when the cost of living becomes a problem.
Inflation reached a 25-year high of 6.6% in January.
“Although general affordability is still better than that of 1996, our ground feel suggests that foreigners are starting to show resistance to rising costs of living in Singapore,” CIMB analyst Donald Chua said in a Jan. 29 note.
But not everything is gloomy. Developers are likely to post strong earnings for the year, as they will continue to recognize profits from sold projects.
In addition, the slower rise last year of the mass property market means there is still room for growth in that segment.
“Because of the low interest rate environment and high rental costs, people might still be buying completed properties in the resale market and especially in the end that is more affordable,” said UOB Kay Hian analyst Vikrant Pandey.
“But overall, in terms of the residential property prices, I am quite bearish, especially when talking about subsales and new sales.”
The long and deep recession I’ve been forecasting has commenced, even though the statisticians haven’t called it yet. It was triggered by the subprime mortgage market collapse, as predicted in my June 19, 2006 column. The zeal for high investment returns that was born in the dot-com mania of the late 1990s didn’t vanish in the 2000-02 stock market busts. It came back to life in the housing bubble. Now we’re paying the price.
After the subprime market disintegrated, markets for asset-backed commercial paper and collateralized debt obligations followed. The resulting shortage of credit translates into a crimp in spending. The recession will also be propelled by an extraordinary retrenchment among consumers who were financing their spending sprees on home equity extraction. Refinancings and home equity lines of credit are drying up. House prices are down 10% from their October 2005 peak, and I look for another 16% drop to reach my long-held target of a 25% peak-to-trough slide.
The recession will continue at least until December. It will probably rank with the 1957-58 and 1973-75 declines, the worst of the ten recessions since World War II. It will be global as exports sold to U.S. consumers shrink, thus slashing the primary growth source for the rest of the world.
The decoupling theory said that emerging markets and other foreign economies can keep growing while the U.S. dips. The theory is about to be disproven.
My firm’s analysis and my recent two-week trip to China convince me that China does not yet have a big enough middle class of free spenders to sustain growth in the face of weak exports. Define middle income as a family with at least $20,000 a year in the U.S. or $5,000 in China. By that definition 80% of Americans are in the middle or upper classes, but only 8% of Chinese and 5% of Indians.
Don’t expect either the recent panicky cut in rates by the Federal Reserve or the hastily enacted tax rebates to save the economy. Interest rates are irrelevant when a scared lender withdraws amidst unknown and perhaps unknowable further writedowns and trading losses. Some of the rebate checks will be spent, but too late - toward the end of the year when the recession likely will be bottoming. The rest will be saved by chastened consumers or used to reduce debt.
What to do? Sell or short commodities, perhaps via exchange-traded funds, stocks in companies that produce them or futures. Commodity prices, still high, are poised to fall hard as the worldwide recession takes hold.
Chinese demand, terrorism and talk of peak oil drove crude prices. Agricultural prices were hyped by biofuel’s popularity, droughts and the prospect of a shift in demand in poorer countries from grain to meat. So institutional investors rushed into commodities, believing they are a relatively stable asset class like stocks and bonds. Individuals bought commodity-backed ETFs. That enthusiasm will soon be history.
With global recession, demand for industrial commodities and oil will fade. It will become clear that much of China’s demand for commodities was not primarily to supply its citizens but to supply its export market.
No one will be talking anymore about how oil production is peaking. Look at Petrobras’ huge oilfield discovery off Brazil and consider the gigantic energy supplies that will come from tar sands, nuclear, coal liquefaction and maybe shale. More supply equals lower prices.
Good weather and weak ethanol prices may knock down ag prices. A recent report in Science magazine has discredited many biofuel schemes as environmental salvations. We’re going to stop fuelling our cars with taco ingredients.
My favourite commodity to bet against is copper. This is an excellent proxy for global industrial production since it’s found in manufactured goods from cars to computers to faucets. The worldwide housing collapse makes copper prices especially vulnerable, as does the shift from copper tubing to plastics in plumbing. Copper’s price on the New York Commodities Exchange was $1.90 two years ago. The Comex March 2008 futures contract is $3.56.
Unlike oil, copper has no cartel to prop it up. Because the metal is produced in developed countries and relatively safe emerging lands, no sudden shortage - as we’ve seen with rioting in Nigeria’s oil-producing area - will suddenly tighten supplies and spike prices. Sure, earthquakes and strikes can threaten to disrupt copper mining, but these problems always have been temporary.
Other industrial commodities are interesting on the downside, too, but copper is my best choice for a swoon.
A. Gary Shilling is president of A. Gary Shilling & Co., economic consultants and investment advisers.
Burden of debt weighs heavily on the buyout industry
By Michael J. De La Merced Published: March 11, 2008
NEW YORK: With their big paydays and bigger egos, private equity moguls came to symbolize an era of hyper-wealth on Wall Street.
Now their fortunes are plummeting.
Celebrated buyout firms like the Blackstone Group and Kohlberg Kravis Roberts, hailed only a year ago for deal-making prowess, are seeing their profits collapse as the credit crisis spreads through the financial markets.
Investors fear that some of the companies that these firms bought on credit could, like millions of American homeowners, begin to buckle under their heavy debts, now that a recession seems almost certain. The buyout lords themselves suddenly confront multibillion-dollar losses on their investments.
On a day in which the stock market tumbled to its lowest point in two years and there was speculation that a major Wall Street firm might be in trouble, Blackstone said Monday that its profit had plunged. The firm said earnings tumbled 89 percent in the final three months of 2007 and warned that the deep freeze in the credit markets - and, by extension, in the private equity industry - was unlikely to thaw soon.
"They see the handwriting on the wall," said Martin Fridson, a leading expert on junk bonds, said of buyout firms. "They're staring into the jaws of hell."
It is a major turn of events for Blackstone and its chief executive, Stephen Schwarzman, who took the firm public last year at the height of the buyout binge. On paper, Schwarzman has personally lost $3.9 billion as the price of Blackstone's stock sank.
Even so, Schwarzman is still worth billions, more than rich enough to pledge $100 million to the New York Public Library, as he planned to do Tuesday.
In recent years, private equity firms have bought thousands of companies, mostly with borrowed money. Blackstone and others argue that they can run these businesses more efficiently - and therefore more profitably - than they could be run as public companies.
Now, the bankers and investors who financed the boom in corporate takeovers are running for the exits. Loans and junk bonds that deal makers used to pay for the acquisitions - debts that must be repaid by the companies, not the deal makers - are sinking in value.
The speed and ferocity of the industry's reversal has taken even Wall Street by surprise. On Monday, Carlyle Capital, a highly leveraged fund linked to another buyout firm, Carlyle Group, confronted the prospect of insolvency. Carlyle's troubles, along with talk that Bear Stearns may be running short of cash, helped drive stocks lower. Bear Stearns denied the speculation.
But companies far from Wall Street are feeling the pain of the private equity crisis. In 2006, for example, Freescale Semiconductor, which makes computer chips, found itself the object of the biggest buyout battle ever in the technology industry.
Two groups of private equity firms vied for Freescale, a spinoff of Motorola that builds most of the computer chips for that company's cellphones. Ultimately, the winning group, led by Blackstone, paid a staggering $17.6 billion, most of that with borrowed money.
That was then. Now Freescale is plagued by falling demand from Motorola and billions of dollars in debt related to its takeover. It replaced its chief executive nearly three weeks ago, and its junk bonds recently traded at levels that suggest that the company might be unable to pay its debts. The company has said that although times are challenging, it can meet its debts.
"No one saw this kind of outcome," Michael Holland, chairman of the New York investment firm Holland and a former Blackstone executive, said of the buyout industry's troubles.
Freescale is far from alone, as the private equity industry reels from the shocks to the credit markets and the broader economy. Since last summer, financing for the multibillion-dollar deals has withered, depriving buyout firms of the headlines and, more important, the returns to which they had grown accustomed.
Bonds and loans of newly private companies as diverse as Realogy, a real estate company based in Minneapolis, and OSI Restaurant Partners, which owns the Outback Steakhouse chain, have plunged so far in value that bankers consider the debt distressed.
While these and many other companies are current on their debts, their bonds now trade at 70 or 80 cents on the dollar, suggesting that investors are worried about these businesses' financial health. Some bonds are selling at even lower prices, and a few companies have gone bankrupt.
As a financial firm, Blackstone is just one of many that have suffered over the past eight months. But unlike banks and mortgage lenders, Blackstone is the only major American buyout firm that is publicly traded. Its stumbles are more clearly tracked than those of any of its peers, as shown by a stock price that has dropped more than 50 percent since its debut
On Monday, Blackstone reported soft results in its private equity and corporate real estate businesses, its two biggest divisions.
Stripped of the cheap debt that girds its deal making, Blackstone said it would now focus on smaller transactions. Yet the firm has not struck any deal for more than $2 billion since last July, when it announced a $25 billion takeover of Hilton Hotels. Since then, it has seen two buyouts crumble: those of PHH, a mortgage lender, and Alliance Data Systems, a credit card processor.
Blackstone also took an accounting charge related to its investment in Financial Guaranty Investment, a troubled bond insurance company.
But private equity firms' problems now extend well beyond themselves. Banks, for example, are saddled with billions of dollars in buyout-related debt they cannot sell, serving as the next possible wave of write-downs after the subprime mortgage debacle. Citigroup, Goldman Sachs and Lehman Brothers are holding what some analysts estimate is $130 billion in leveraged loans, or those supporting private equity deals.
And the companies that private equity firms have acquired may be the next to suffer. Emboldened by the availability of cheap debt, private equity firms borrowed more and more as they paid higher prices to strike more deals. That has left many companies like Freescale to cope with more debt to pay off.
Surveying junk debt offerings since 2002, Fridson, the junk-bond expert, found that companies taken private tended to suffer more distress than their peers. According to his firm, FridsonVision, Blackstone had the fourth-most-distressed companies of major private equity firms, with nearly 34.8 percent of its holdings falling into that category, compared with the average, 27.7 percent.
Calling a bottom to the industry's problems is a difficult task, even for sophisticated investors like Blackstone. Executives from the firm argue that these are times to buy things cheaply, be they stakes in companies or real estate properties.
Blackstone recently raised $1.4 billion from investors for a fund devoted to buying bonds and loans at fire-sale prices. But in a conference call Monday, Hamilton James, the firm's president, said the fund was "100 percent dry powder" and so far had not been tapped for investments.
"Our view is that things will get worse before they get better," James said.
U.S. Slowdown to Be Deeper, Rebound Weaker, Says Poll (Update1)
By Bob Willis and Alexandre Tanzi
March 11 (Bloomberg) -- The economic slowdown in the U.S. will be deeper and the recovery weaker than previously forecast, according to a Bloomberg News monthly survey.
The world's largest economy will grow at an annual rate of 0.3 percent from January through June, a half point less than projected in February, according to the median estimate of 62 economists polled from March 3 to March 10.
Rising fuel prices, shrinking payrolls and falling home values will weaken consumer spending and blunt the impact of tax rebates that start going out in May. The Federal Reserve, struggling to offset the credit crunch and housing contraction, will cut the benchmark interest rate by another percentage point and keep it at 2 percent through December, the survey predicts.
``We're now more pessimistic about the pace of recovery into 2009,'' said Richard Berner, co-head of global economics at Morgan Stanley in New York. ``We now see the Fed pursuing a slightly more accommodative path for monetary policy than just a week ago.''
The odds of a recession over the next 12 months were pegged at 50 percent, the same as in the February survey, according to the median estimate of 42 economists that responded to the question.
``The debate is shifting from whether it is a downturn to how long and how deep it will be,'' said Kurt Karl, chief U.S. economist at Swiss Re in New York. ``We have a 55 percent probability of recession. Now it looks like it's starting in the current quarter.''
Stocks, Bonds Gain
U.S. stock futures climbed, indicating the Standard & Poor's 500 Index will rebound from the lowest since 2006, as investors speculated the Fed will accelerate rate cuts and introduce new measures to boost the economy. Treasuries fell with the 10-year note's yield rising 5 basis points, or 0.05 percentage point, to 3.51 percent as of 9:58 a.m. in London.
A report today is forecast to show the trade deficit widened in January to $59.5 billion from $58.8 billion the prior month as an increase in the cost of imported oil outpaced gains in exports, a separate survey of economists showed. Increasing demand from overseas is one factor still supporting growth.
The economy's rate of expansion anticipated for all of 2008 fell to 1.4 percent, the weakest since the last recession in 2001. Economists cut the projected rate for the first quarter to a 0.1 percent annual pace, from a 0.5 percent rate in the prior survey. They saw second-quarter growth at 0.5 percent, down from the 1 percent forecast last month.
The growth rate in the last since months of the year was reduced to 2.2 percent from an average 2.4 percent forecast in February.
Recession `Likely'
A recession ``looks quite likely,'' Harvard University economics professor Jeffrey Frankel said in a March 7 interview on Bloomberg Television. Frankel, a member of the National Bureau of Economic Research panel that determines when downturns begin and end, said he was speaking for himself, not as a member of the committee.
Consumer spending, which accounts for more than two-thirds of the economy, will rise at a 0.5 percent annual rate from January through March, down from a 1.9 percent pace in the fourth quarter of 2007 and the weakest since it declined in the last three months of 1991.
`Worse Than Expected'
``We're seeing the drop in home prices accelerate, and we're seeing persistent energy-cost pressures,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``Both of those developments have been worse than expected.''
The unemployment rate will climb to 5.5 percent by year- end, according to the survey median. It unexpectedly fell to 4.8 percent last month as some people gave up looking for work and left the labor force. The economy lost 63,000 jobs in February, the most in five years, the Labor Department said last week.
Economists in the Bloomberg survey forecast the Fed will lower the benchmark rate by a half point to 2.5 percent by its next meeting on March 18. Investors are betting policy makers will be more aggressive and cut the rate by three-quarters of a point on or before the gathering, futures trading shows.
The central bank cut the rate by 1.25 point to 3 percent over nine days in January, the fastest reduction since the federal funds rate became the main policy tool around 1990.
Fed Chairman Ben S. Bernanke has repeated in recent weeks that, while the Fed won't ignore inflation risks, it is ready to continue to act in a ``timely manner'' to combat ``downside risks'' to the economy.
Analysts surveyed forecast consumer prices would rise 2.6 percent this year, more than projected in February.
``We're going to get recession and inflation,'' John Ryding, chief U.S. economist at Bear Stearns & Co. in New York, said in an interview with Bloomberg Television. ``The best-case scenario is two-to-three quarters of mild recession followed by a tepid recovery.''
Since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again. We all continue to work together and will take appropriate steps to address those liquidity pressures.
To that end, today the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing specific measures.
Federal Reserve Actions
The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.
In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.
The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.
Information on Related Actions Being Taken by Other Central Banks Information on the actions that will be taken by other central banks is available at the following websites:
Bank of Canada Bank of England European Central Bank Swiss National Bank
Oil Hits Record Above $109/bbl as Weak Dollar Triggers Buying
AFX News March 11, 2008
Oil prices hit a record above 109 usd per barrel as dollar weakness triggered buying, extending a rally which has seen the price of crude surge around 15 pct in just one month.
A weaker dollar, which again hit a fresh record low against the euro and is vulnerable to further weakness, helped the rally. Commodities priced in the dollar have become relatively cheaper for those trading in stronger currencies, which has induced buying.
Stephen Schork, editor of The Schork Report, said there was "no end in sight" for the current rally, as speculative interest has increased for four weeks in a row.
At 10.42 am, New York's WTI crude for April delivery was up 1.07 usd at 108.97 usd per barrel, having hit a record of 109.20 usd.
In London, Brent crude for April delivery was up 1.01 at 105.17 usd per barrel, having hit a record of 105.40 usd earlier.
Prices were already well underpinned, as investors continued to favour the commodity sector, which is offering them better returns than ailing equity markets.
"The key to the outperformance lies in the huge amount of funds flowing into commodities, as the spectre of a US recession casts an ominous shadow over the markets," said Paul Harris, Bank of Ireland analyst. "Investors see the commodity suite as the only game in town which will deliver attractive returns."
LONDON, March 11 (Reuters) - Gold fell in the afternoon session on Tuesday, as the dollar rose sharply after the U.S. Federal Reserve announced new coordinated liquidity actions.
Gold was quoted at $973.10/974.00 at 1348 GMT after hitting a high of $985.30, against $974.10/974.90 late in New York on Monday. It rose to a record high of $991.90 on March 6.
"It's a reaction to the Fed announcement and the euro/dollar move. It reflects that the Fed is taking care of the fears for a liquidity crisis," said Michael Blumenroth, metals trader at Deutsche Bank.
The dollar rose after the Fed announced global coordinated measures to inject liquidity into the financial system, easing concern about a deepening credit crisis and U.S. recession.
Before the Fed's move, markets were expecting the U.S. central bank to reduce its benchmark interest rate from 3 percent to 2.25 percent at its next policy meeting on March 18. There are 100 basis points in a percentage point.
A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
But gold was expected to get support from strong oil prices, which rose to a record high for the fifth day in a row, boosted by investor flows into oil and other commodities.
"We have been battling here for quite a while now and if we don't manage to see a prompt move towards $1,000, we might see the market losing further momentum," said Frederic Panizzutti, analyst at MKS Finance.
GOLD STRUGGLES
Gold has struggled to sustain the uptrend after a failure to break through the $1,000 barrier last week. It has risen 19 percent in 2008, driven by record high oil and expectations of further rate cuts in the United States.
"With persistent problems in the U.S. economy, rising crude oil prices and fund investors chasing the metal, it's easy to discern that gold is headed higher in the coming sessions," said Pradeep Unni, analyst at Vision Commodities.
"But it is also crucial to remember that this over-extended bull market is not devoid of a near term pull-back. In times of sharp rally, markets have a tendency to slide on their own weight, when the selling gets triggered."
In industry news, the World Gold Council chief executive James Burton said the organisation was looking to cross-list its New York-listed StreetTRACKS Gold Shares fund in Japan and Hong Kong by September.
Spot platinum hit a high of $2,060 an ounce before falling to $2,045/2,055, against $1,980/1,990 late in New York on Monday, when it tumbled to a 4-week low at $1,926 on news that miners in South Africa would get more power supply.
Supply concerns triggered by mining disruptions in South Africa, the world's top producer, lifted platinum to a record high of $2,290 on March 4. The metal, used in auto catalysts and jewellery, has risen as much as 50 percent in 2008.
"Platinum remains very volatile. On the one hand, we have positive news about the power supply and on the other, we have some production cuts, which are going to further imbalance the supply demand this year," said Panizzutti said.
South African power utility Eskom is in the process of restoring power to 95 percent of normal levels to the mining industry. [ID:nL07262637]
Analysts say the global platinum deficit could widen to 500,000 to 600,000 ounces by the end of 2008, compared with about 265,000 ounces in 2007. The market had a surplus of 65,000 ounces in 2006, following seven successive years of deficits.
Silver was at $19.57/19.62, against $19.64/19.69 an ounce in New York, while palladium rose to $483/488 an ounce from $467/472 in the U.S. market.
Public housing demand continues to be brisk in 2008
By Wong Siew Ying 11 March 2008
SINGAPORE: The demand for public housing continues to be brisk. HDB's first build-to-order project this year at Punggol Spring is already four times oversubscribed.
New flats aside, property agents have also described the HDB resale market as the kingpin for the real estate sector in 2008.
The application for Punggol Spring, where 494 units of four-room flats will be built, will not close until 17 March, but the project is already oversubscribed with 2,093 applications.
Punggol Spring is part of the 4,500 new flats that the Housing and Development Board (HDB) has committed to build for the first half of this year. Prices of the Punggol Spring flats range from S$204,000 to S$259,000.
Apart from this build-to-order development, HDB's bi-monthly sale of four-room and larger flats in February also drew overwhelming response, with over 10,000 flat buyers vying for just 278 units.
Eugene Lim, associate director of ERA, said: "They are usually the first timers and they do not have so much cash with them, so as the norm is cash over value for the resale market, so inevitably, they are being pushed to the new flat market where they don't have to come up with as much cash or don't need to come up with any cash at all."
Still, transaction volume in the HDB resale market is expected to remain strong. Industry players project 30,000 units to be sold in 2008, 1,000 more than last year.
Price-wise, it is estimated to increase by about ten per cent in 2008, compared to over 17 per cent in 2007.
Property agents said the spike was partly due to the sharp rise in cash over valuation (COV). But they added this is likely to change as buyers have hit a threshold when it comes to forking out more cash.
Propnex CEO Mohamed Ismail said: "The central areas were getting as high as S$100,000 for Queenstown, Bukit Merah, Toa Payoh, but such prices are not sustainable in the long term. Therefore, I do foresee (for) the very high-end side in the central location, the COV (will) dip quite drastically."
Some property agents said the COV for flats in the central region will dip by 20 per cent within the next three months. As of the fourth quarter of last year, the average COV for the area was about S$35,000 to S$40,000.
Despite the high demand for flats, agents are confident there will be enough to go around, whether it is for families or singles.
They also welcome HDB's new incentive to offer an extra S$9,000 grant to singles who buy a resale flat and live with their parents.
The scheme, however, is unlikely to have any impact on the market, given the small segment it serves. - CNA/ac
16 comments:
0030 GMT [Dow Jones] Singapore property stocks could come under selling pressure today after GuocoLand (F17.SG) announces its sale of 97 apartments in its Singapore Goodwood Residence project to Kuwait Finance House for S$818.4 million has stalled. “This piece of news is likely to create further near term pressure on Singapore developers’’ stock prices,” says Lehman Brothers in note. But broker adds developers’’ share prices already depressed, have priced in big falls for property prices; “we think the market is already factoring in 20%-40% downside in house prices.” Nevertheless, news is likely to hit sentiment and further falls for broad market after Wall Street continued to slide overnight likely to add to bearish mood on property chips. (KIG)
2218 GMT [Dow Jones] WALL STREET: Stocks finished sharply lower, with Dow closing at its lowest level in more than a year as fears about fallout from subprime crisis weighed; “If you had told me two years ago or a year ago that (a big broker) could succumb to severe pressure of defaults, (I would have cited) the mantra that “they’re too big to fail,”” said Peter McCorry, senior equity trader at Keefe Bruyette & Woods. Now, “in light of the way the velocity of these write-offs has started to pick up, it’s not out of the realm of possibility.” Bear Stearns fell 11% after Moody’s downgraded dozens of securities issued by one of the broker’s trusts, triggering rampant selling. Lehman Brothers fell 7.3% on plans to cut about 5% of its overall work force; Fannie Mae tumbled 13% after Barron’s magazine reported the government-backed home lender may be in need of a bailout; Fannie peer Freddie Mac shed 12%. Countrywide Financial plunged 14% on WSJ story saying FBI probing allegations mortgage lender misrepresented its financial position, quality of its loans. Among gainers were McDonald’s +2.9% on 12% rise in February same-store sales. Dow closed down 1.3%, Nasdaq off 2%, Philly semicons off 1.4%. (SHN)
China's CPI hits new 11-year high of 8.7% in February
BEIJING, March 11 (Xinhua) -- China's inflation continued to accelerate, as the Consumer Price Index (CPI) rose 8.7 percent year on year in February, the National Bureau of Statistics (NBS) said on Tuesday.
The figure was the fastest monthly rate in more than 11 years. The major inflationary index once rose by an annual rate of 14.11 percent from 1992 to 1996.
According to the Straits Times, Property developers and banks have started offering a modified form of the deferred payment scheme known as the interest absorption scheme in an attempt to revive the cooling property market. It works similar to the deferred payment scheme except that the loan needs to be taken up at the point of purchase and the interest is absorbed by the developer until completion. In effect, it would shift the credit risk of the buyer from the developer to the bank. We think that the interest absorption scheme will benefit the genuine buyers planning to shift into newer homes. However, we don’t expect it swing the weak investor sentiment at this stage as the risks of downward asset repricing are high in the current uncertain economic environment. We expect the buyers to continue to adopt the wait and watch approach until the economic outlook gets clearer.
Rising market pressures may trigger third wave of credit crisis
11 March 2008
Nervous investors hanging on to pronouncements of central bankers
(LONDON) Tight money markets and tumbling stocks and the US dollar are expected to increase worries for investors this week as pressure mounts on central banks facing what looks like the third wave of a global credit crisis.
Last week, money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.
In response, the Federal Reserve unveiled new measures to ease liquidity strains on Friday - injecting US$200 billion into the banking system - and said that it was in close consultation with central bank counterparts.
However, the Fed failed to lift the mood much. Investors, keen to see if any further plan is in the works to prevent a financial market seizure, will scrutinise words from key central bankers including Fed officials this week.
‘It’s another round of the credit crisis. Some markets are getting worse than January this time,’ said Jesper Fischer-Nielsen, interest rate strategist at Danske Bank in Copenhagen. ‘There is fear that something dramatic will happen and that fear is feeding itself. Central banks have shown great resolve to try to solve the problems (on money markets) and I’m sure they will do again.’
Philipp Hildebrand, vice-chairman of the Swiss National Bank, warned last week that the world might be in a new, more dangerous phase of the crisis.
If that is the case, the latest wave is the third one.
The first round began in August when interbank lending dried up as banks realised they did not know which was dangerously exposed to the meltdown in the US sub-prime mortgage market.
Then, late last year, pressure intensified again in the money markets - after some of the world’s biggest banks began writing off colossal sums of money - prompting top central banks to inject billions of dollars into the system.
Renewed problems in the credit market - including fears that US mortgage lender Thornburg might go bankrupt and acute cash flow problems at a Dutch fund - and concerns over slowing world growth led to a sell-off in stocks last week.
World stocks, as measured by MSCI, fell more than 3 per cent on the week while the dollar lost more than one per cent to hit record lows against a basket of six major currencies at one point last week.
Also reflecting investor jitters, two-year US Treasury yields hit a four-year low below 1.5 per cent as investors flocked to government bonds.
The cost of corporate bond insurance hit record high levels on Friday and parts of the debt market are also getting hit.
‘A funding freeze by lenders, that appears already in progress, could cause first-round casualties in Spain, Italy, Ireland, Portugal, Greece and Austria, countries collectively identified as the euro zone liability group,’ a UBS note said.
The G-10 policymakers came up with a cash injection plan late last year, with the top five central banks injecting liquidity into banks.
However, after weeks of calm, stress is building up again in money markets.
‘The level of financial stress is ... likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut,’ Goldman Sachs said in a note to clients. -- Reuters
Has Wall St priced in a recession yet?
By R SIVANITHY
IT IS astonishing to read news reports quoting experts debating whether or not the US economy is headed for a recession. To most stockmarket investors, this is no longer an issue; with soaring commodity prices, a crashing US dollar, a collapsed housing market, weak consumer spending amidst surging personal debt, shrinking manufacturing and simmering inflation, a US recession has surely already arrived and the debate should instead centre on how bad it is and how long it might last.
However, the fact that analysts are still quibbling over whether or not current conditions satisfy the technical definition of a recession - which is two consecutive quarters of economic contraction - raises the interesting question: has Wall Street fully priced in a recession yet? The disconcerting answer is: probably not.
Assume for argument’s sake that all recessions are foreshadowed by a bear market in stocks and that bear markets occur when prices fall by at least 20-25 per cent from their highs. (Hong Kong’s Hang Seng and Singapore’s Straits Times Index are about 30 per cent off their highs, placing them firmly in bear territory.)
The Dow Jones Industrial Average’s all-time high was 14,198 reached last October, so a 20-25 per cent correction would take it down to 10,600-11,300. Considering that the Dow ended at around 11,900 last Friday, the conclusion has to be that the US market, from a purely technical viewpoint, has still not fallen into a bear phase yet.
Unrealistic figures
Technical definitions aside, the fundamental picture is also not overly encouraging.
Bloomberg’s analytics give the Dow’s current price-earnings (PE) ratio as an amazing 55 times with a price/book of 3.7 - inordinately high numbers and clearly not supported by a dividend yield of just 2.6 per cent.
Even if the 30 stocks in the Dow are seen as not being representative of the broad market, the S&P 500’s figures are not much better.
The S&P’s forecast PE appears moderate at 13.34 but this is based on anticipated earnings per share (EPS) of US$0.97 versus the current EPS of US$0.68. How likely is it that in a vastly slowing environment shrouded in sub-prime uncertainty, US corporates will enjoy such a huge jump in EPS?
Incidentally, the S&P 500’s dividend yield is as weak as the Dow’s at 2.3 per cent while the equivalent numbers for the Nasdaq Composite make for even worse reading. The current PE is 32 versus a virtually non-existent dividend yield of under one per cent, while its forecast PE of 20 might appear less demanding but rests on EPS rising from US$0.70 currently to US$1.10 this year - surely an impossible task given the present soft climate.
In a nutshell, it appears both from technical and fundamental views that Wall Street has not yet fully priced in a recession, nor have its overly-optimistic analysts factored in the slowdown ahead - earnings estimates still appear too ambitious and there is every likelihood of more downgrades in the months to come.
Crash unlikely
Having said that, an all-out crash is unlikely. Apart from the fact that the Federal Reserve will probably slash interest rates to as low as one per cent (currently 3 per cent) in order to prop the market up in an election year, Wall Street will remain fairly well supported for the simple reason that it is the default market for every large fund manager or institution in the world.
Commodity prices are at an all-time high, bonds are yielding next to nothing in real terms, currencies are hugely volatile, real estate bubbles are rapidly deflating in the US and Europe and stock markets around the world are being brought back to earth after several years of excesses.
If risks have risen in markets everywhere as well as in most asset classes, it stands to reason that the big money will have little choice but to park itself in its home turf - or at least the market that it is most familiar with, which is the US. As a result, sheer liquidity and an absence of viable alternatives will ensure Wall Street avoids a major blowout.
For now, though, investors should take note that despite its wobbles since last October, the US stock market does not appear to have fully priced in an impending slowdown. Until this becomes apparent - or at least until the numbers look more reasonable - Wall Street could still be looking at more downside in the weeks ahead.
Selected S-Shares Up Sharply On Bottom Fishing (2008/03/11 16:13PM)
0813 GMT [Dow Jones] Selected Singapore-listed China plays, or S-shares, seeing good gains as market rally brings bargain hunters out. STI heading for biggest gain in almost a month; many stocks that have been badly sold down in recent weeks, including S-shares, now attracting bottom fishers. CIMB says S-shares offer value; “Despite China’s strong underlying economy and an appreciating currency, valuations for many of these companies have fallen to single-digit levels.” FTSE ST China index still just underperforming wider market (+0.5% at 451.94 vs FTSE FT All Share index +0.8%) but several component stocks enjoying big bounces after recent sharp share price corrections. China Sky Chemical Fibre (E90.SG) +7% at S$1.07; Jiutian Chemical (C8R.SG) +6.5% at S$0.165; Synear (Z75.SG) +5.7% at S$0.555. S-shares fortunes tend to be closely tied to wider market moves, reflect investor risk appetite so potential to continue making gains depends on whether market can sustain rally. (KIG)
March 11, 2008
China plans rules on return of HK-listed companies
SHANGHAI - China’s securities regulator will issue rules this year to allow Chinese firms incorporated overseas and listed in Hong Kong to issue shares on the domestic stock market, state media reported.
Regulators are preparing rules for the listing of these companies, known as red chips, on the yuan-denominated A share market, the Xinhua news agency said late on Monday, citing Fan Fuchun, vice chairman of the China Securities Regulatory Commission.
Mr Fan said that the regulation would be released ‘soon’, adding that red chips would be allowed to issue shares on the mainland stock market ahead of foreign companies.
‘The A-share listing of foreign companies should happen only after the return of the red chips has been digested by the market,’ he was quoted as saying.
Red chips were originally introduced in the 1990s when China’s own stock markets were tiny, to allow well-connected state-owned companies access to foreign funding.
However, as mainland stock markets have become much more active, they have also become attractive as a means for raising money, and many Hong Kong-listed Chinese firms now wish to launch initial public offerings in China as well.
State media reported in June last year that the first batch of eligible firms to return would include the country’s top handset operator China Mobile and petroleum giant China National Offshore Oil Corporation. -- AFP
Singapore’s Property Market Gets A Reality Check
SINGAPORE (Dow Jones)--Singapore’s red-hot property market may be ready for a reality check.
For most of last year Singapore developers were on a sale spree, as demand drove property prices to multi-year highs while new projects were being aunched almost daily, making the island nation one of the darlings of the Asia property boom.
But weakening demand, rising construction costs and inflation are threatening to bring the skyrocketing market closer back to earth. Even though nobody expects the market to collapse, 2008 is likely to prove tough for the sector, analysts warn.
“At the same time last year, things were a bit crazy, to say the least. Prices were going straight through the roof, there was a lot of euphoria,” said Joseph Tan, senior strategist at Fortis Bank in Singapore. “But the slowdown in the equities market, in the U.S. and Singapore economy has definitely taken some shine off the (property) market.”
According to property consultancy firm Knight Frank, developers launched 410 new private housing units in January, down from 445 units in December and a monthly average of 500 private units in the first 11 months of 2007.
“The relatively thinner volume in January was a result of some developers delaying their project launches,” said Nicholas Mak, head of research at Knight Frank.
The number of units sold also dropped in January and December, to 316 and 304 respectively, from above 500 sold monthly in the first 11 months of 2007.
Mak said median prices for new residential units fell in January to S$1,088 per square foot from S$1,124 in December. Not a single unit was sold in January for above S$4,000 per square foot, compared with five in December and 72 in July, one of strongest months of last year.
Analysts say the market is likely to go down further, causing property prices to fall for the year after rallying in the past two years.
“My most bullish outlook for the entire year is that property prices will be flat. Being realistic, we are expecting a 10% to 20% price decline across all segments,” said CLSA analyst Yew Kiang Wong.
About 85% of Singaporeans live in public housing built by the government’s Housing and Development Board. Private developers compete to provide housing for the remaining 15% of Singapore nationals, along with a sizable foreign population.
Private-home prices rose 31.2% in 2007, fuelled by the country’s ambition to become a business and entertainment hub in Asia.
With demand on the rise, developers fought for land through collective sales and site offerings from the government. Singapore turned into a construction site, and many projects were sold out within hours of being launched.
In an effort to cool the sizzling market, the government implemented measures including raising a tax charged on developers and withdrawing a scheme that allowed buyers of uncompleted properties to defer part of the progress payments.
The scheme, implemented when the island’s property market crashed in 1997, fuelled speculation among investors who secured properties with minimum downpayments and quickly resold them.
“Looking forward, the current weakness in the U.S. housing market and economy and the tight credit environment will likely cast a cloudy outlook over the general economy and business conditions for at least the first half of 2008,” Richard Hu, chairman of CapitaLand Ltd. (C31.SG), Southeast Asia’s largest property developer by market capitalization, said recently.
Signs of a slowdown are already emerging.
Shares of property developers briefly fell Tuesday following news that Kuwaiti firm Kuwait Finance House K.S.C. (KFIN.KW) didn’t exercise options to buy 97 units of a condominium being developed by Singapore’s GuocoLand Ltd. (F17.SG) for S$818 million.
GuocoLand said Monday that the parties are in discussions for new options for units in the development, adding that the residential property market “appears to be cautious in Singapore.”
Market heavyweight, City Developments Ltd. (C09.SG) also said recently that it may delay launches of new projects while the market is subdued.
When exactly property demand will pick up is everyone’s guess. Some developers have suggested business will get back on track in the second half of this year, but some analysts and economists disagree.
“We don’t believe this is a half-year thing. It is the start of a more prolonged recession that will have an impact on developers down the line,” said CLSA’s Yew.
The analyst is also bearish on the office market, which boomed last year as demand from companies trying to expand outpaced supply.
“We believe the tightening credit environment will slow down any aggressive headcount expansion plans in the financial services sector, resulting in an anemic demand for office space over the next two years,” he said.
Inflation is also becoming a problem for the Singapore government, which has relied on foreigners to increase the island’s population to over six million, from 4.6 million, over the next 20 years. Traditionally, foreigners are the first to leave a country when the cost of living becomes a problem.
Inflation reached a 25-year high of 6.6% in January.
“Although general affordability is still better than that of 1996, our ground feel suggests that foreigners are starting to show resistance to rising costs of living in Singapore,” CIMB analyst Donald Chua said in a Jan. 29 note.
But not everything is gloomy. Developers are likely to post strong earnings for the year, as they will continue to recognize profits from sold projects.
In addition, the slower rise last year of the mass property market means there is still room for growth in that segment.
“Because of the low interest rate environment and high rental costs, people might still be buying completed properties in the resale market and especially in the end that is more affordable,” said UOB Kay Hian analyst Vikrant Pandey.
“But overall, in terms of the residential property prices, I am quite bearish, especially when talking about subsales and new sales.”
Sell Commodities
A. Gary Shilling 03.10.08
The long and deep recession I’ve been forecasting has commenced, even though the statisticians haven’t called it yet. It was triggered by the subprime mortgage market collapse, as predicted in my June 19, 2006 column. The zeal for high investment returns that was born in the dot-com mania of the late 1990s didn’t vanish in the 2000-02 stock market busts. It came back to life in the housing bubble. Now we’re paying the price.
After the subprime market disintegrated, markets for asset-backed commercial paper and collateralized debt obligations followed. The resulting shortage of credit translates into a crimp in spending. The recession will also be propelled by an extraordinary retrenchment among consumers who were financing their spending sprees on home equity extraction. Refinancings and home equity lines of credit are drying up. House prices are down 10% from their October 2005 peak, and I look for another 16% drop to reach my long-held target of a 25% peak-to-trough slide.
The recession will continue at least until December. It will probably rank with the 1957-58 and 1973-75 declines, the worst of the ten recessions since World War II. It will be global as exports sold to U.S. consumers shrink, thus slashing the primary growth source for the rest of the world.
The decoupling theory said that emerging markets and other foreign economies can keep growing while the U.S. dips. The theory is about to be disproven.
My firm’s analysis and my recent two-week trip to China convince me that China does not yet have a big enough middle class of free spenders to sustain growth in the face of weak exports. Define middle income as a family with at least $20,000 a year in the U.S. or $5,000 in China. By that definition 80% of Americans are in the middle or upper classes, but only 8% of Chinese and 5% of Indians.
Don’t expect either the recent panicky cut in rates by the Federal Reserve or the hastily enacted tax rebates to save the economy. Interest rates are irrelevant when a scared lender withdraws amidst unknown and perhaps unknowable further writedowns and trading losses. Some of the rebate checks will be spent, but too late - toward the end of the year when the recession likely will be bottoming. The rest will be saved by chastened consumers or used to reduce debt.
What to do? Sell or short commodities, perhaps via exchange-traded funds, stocks in companies that produce them or futures. Commodity prices, still high, are poised to fall hard as the worldwide recession takes hold.
Chinese demand, terrorism and talk of peak oil drove crude prices. Agricultural prices were hyped by biofuel’s popularity, droughts and the prospect of a shift in demand in poorer countries from grain to meat. So institutional investors rushed into commodities, believing they are a relatively stable asset class like stocks and bonds. Individuals bought commodity-backed ETFs. That enthusiasm will soon be history.
With global recession, demand for industrial commodities and oil will fade. It will become clear that much of China’s demand for commodities was not primarily to supply its citizens but to supply its export market.
No one will be talking anymore about how oil production is peaking. Look at Petrobras’ huge oilfield discovery off Brazil and consider the gigantic energy supplies that will come from tar sands, nuclear, coal liquefaction and maybe shale. More supply equals lower prices.
Good weather and weak ethanol prices may knock down ag prices. A recent report in Science magazine has discredited many biofuel schemes as environmental salvations. We’re going to stop fuelling our cars with taco ingredients.
My favourite commodity to bet against is copper. This is an excellent proxy for global industrial production since it’s found in manufactured goods from cars to computers to faucets. The worldwide housing collapse makes copper prices especially vulnerable, as does the shift from copper tubing to plastics in plumbing. Copper’s price on the New York Commodities Exchange was $1.90 two years ago. The Comex March 2008 futures contract is $3.56.
Unlike oil, copper has no cartel to prop it up. Because the metal is produced in developed countries and relatively safe emerging lands, no sudden shortage - as we’ve seen with rioting in Nigeria’s oil-producing area - will suddenly tighten supplies and spike prices. Sure, earthquakes and strikes can threaten to disrupt copper mining, but these problems always have been temporary.
Other industrial commodities are interesting on the downside, too, but copper is my best choice for a swoon.
A. Gary Shilling is president of A. Gary Shilling & Co., economic consultants and investment advisers.
Burden of debt weighs heavily on the buyout industry
By Michael J. De La Merced Published: March 11, 2008
NEW YORK: With their big paydays and bigger egos, private equity moguls came to symbolize an era of hyper-wealth on Wall Street.
Now their fortunes are plummeting.
Celebrated buyout firms like the Blackstone Group and Kohlberg Kravis Roberts, hailed only a year ago for deal-making prowess, are seeing their profits collapse as the credit crisis spreads through the financial markets.
Investors fear that some of the companies that these firms bought on credit could, like millions of American homeowners, begin to buckle under their heavy debts, now that a recession seems almost certain. The buyout lords themselves suddenly confront multibillion-dollar losses on their investments.
On a day in which the stock market tumbled to its lowest point in two years and there was speculation that a major Wall Street firm might be in trouble, Blackstone said Monday that its profit had plunged. The firm said earnings tumbled 89 percent in the final three months of 2007 and warned that the deep freeze in the credit markets - and, by extension, in the private equity industry - was unlikely to thaw soon.
"They see the handwriting on the wall," said Martin Fridson, a leading expert on junk bonds, said of buyout firms. "They're staring into the jaws of hell."
It is a major turn of events for Blackstone and its chief executive, Stephen Schwarzman, who took the firm public last year at the height of the buyout binge. On paper, Schwarzman has personally lost $3.9 billion as the price of Blackstone's stock sank.
Even so, Schwarzman is still worth billions, more than rich enough to pledge $100 million to the New York Public Library, as he planned to do Tuesday.
In recent years, private equity firms have bought thousands of companies, mostly with borrowed money. Blackstone and others argue that they can run these businesses more efficiently - and therefore more profitably - than they could be run as public companies.
Now, the bankers and investors who financed the boom in corporate takeovers are running for the exits. Loans and junk bonds that deal makers used to pay for the acquisitions - debts that must be repaid by the companies, not the deal makers - are sinking in value.
The speed and ferocity of the industry's reversal has taken even Wall Street by surprise. On Monday, Carlyle Capital, a highly leveraged fund linked to another buyout firm, Carlyle Group, confronted the prospect of insolvency. Carlyle's troubles, along with talk that Bear Stearns may be running short of cash, helped drive stocks lower. Bear Stearns denied the speculation.
But companies far from Wall Street are feeling the pain of the private equity crisis. In 2006, for example, Freescale Semiconductor, which makes computer chips, found itself the object of the biggest buyout battle ever in the technology industry.
Two groups of private equity firms vied for Freescale, a spinoff of Motorola that builds most of the computer chips for that company's cellphones. Ultimately, the winning group, led by Blackstone, paid a staggering $17.6 billion, most of that with borrowed money.
That was then. Now Freescale is plagued by falling demand from Motorola and billions of dollars in debt related to its takeover. It replaced its chief executive nearly three weeks ago, and its junk bonds recently traded at levels that suggest that the company might be unable to pay its debts. The company has said that although times are challenging, it can meet its debts.
"No one saw this kind of outcome," Michael Holland, chairman of the New York investment firm Holland and a former Blackstone executive, said of the buyout industry's troubles.
Freescale is far from alone, as the private equity industry reels from the shocks to the credit markets and the broader economy. Since last summer, financing for the multibillion-dollar deals has withered, depriving buyout firms of the headlines and, more important, the returns to which they had grown accustomed.
Bonds and loans of newly private companies as diverse as Realogy, a real estate company based in Minneapolis, and OSI Restaurant Partners, which owns the Outback Steakhouse chain, have plunged so far in value that bankers consider the debt distressed.
While these and many other companies are current on their debts, their bonds now trade at 70 or 80 cents on the dollar, suggesting that investors are worried about these businesses' financial health. Some bonds are selling at even lower prices, and a few companies have gone bankrupt.
As a financial firm, Blackstone is just one of many that have suffered over the past eight months. But unlike banks and mortgage lenders, Blackstone is the only major American buyout firm that is publicly traded. Its stumbles are more clearly tracked than those of any of its peers, as shown by a stock price that has dropped more than 50 percent since its debut
On Monday, Blackstone reported soft results in its private equity and corporate real estate businesses, its two biggest divisions.
Stripped of the cheap debt that girds its deal making, Blackstone said it would now focus on smaller transactions. Yet the firm has not struck any deal for more than $2 billion since last July, when it announced a $25 billion takeover of Hilton Hotels. Since then, it has seen two buyouts crumble: those of PHH, a mortgage lender, and Alliance Data Systems, a credit card processor.
Blackstone also took an accounting charge related to its investment in Financial Guaranty Investment, a troubled bond insurance company.
But private equity firms' problems now extend well beyond themselves. Banks, for example, are saddled with billions of dollars in buyout-related debt they cannot sell, serving as the next possible wave of write-downs after the subprime mortgage debacle. Citigroup, Goldman Sachs and Lehman Brothers are holding what some analysts estimate is $130 billion in leveraged loans, or those supporting private equity deals.
And the companies that private equity firms have acquired may be the next to suffer. Emboldened by the availability of cheap debt, private equity firms borrowed more and more as they paid higher prices to strike more deals. That has left many companies like Freescale to cope with more debt to pay off.
Surveying junk debt offerings since 2002, Fridson, the junk-bond expert, found that companies taken private tended to suffer more distress than their peers. According to his firm, FridsonVision, Blackstone had the fourth-most-distressed companies of major private equity firms, with nearly 34.8 percent of its holdings falling into that category, compared with the average, 27.7 percent.
Calling a bottom to the industry's problems is a difficult task, even for sophisticated investors like Blackstone. Executives from the firm argue that these are times to buy things cheaply, be they stakes in companies or real estate properties.
Blackstone recently raised $1.4 billion from investors for a fund devoted to buying bonds and loans at fire-sale prices. But in a conference call Monday, Hamilton James, the firm's president, said the fund was "100 percent dry powder" and so far had not been tapped for investments.
"Our view is that things will get worse before they get better," James said.
U.S. Slowdown to Be Deeper, Rebound Weaker, Says Poll (Update1)
By Bob Willis and Alexandre Tanzi
March 11 (Bloomberg) -- The economic slowdown in the U.S. will be deeper and the recovery weaker than previously forecast, according to a Bloomberg News monthly survey.
The world's largest economy will grow at an annual rate of 0.3 percent from January through June, a half point less than projected in February, according to the median estimate of 62 economists polled from March 3 to March 10.
Rising fuel prices, shrinking payrolls and falling home values will weaken consumer spending and blunt the impact of tax rebates that start going out in May. The Federal Reserve, struggling to offset the credit crunch and housing contraction, will cut the benchmark interest rate by another percentage point and keep it at 2 percent through December, the survey predicts.
``We're now more pessimistic about the pace of recovery into 2009,'' said Richard Berner, co-head of global economics at Morgan Stanley in New York. ``We now see the Fed pursuing a slightly more accommodative path for monetary policy than just a week ago.''
The odds of a recession over the next 12 months were pegged at 50 percent, the same as in the February survey, according to the median estimate of 42 economists that responded to the question.
``The debate is shifting from whether it is a downturn to how long and how deep it will be,'' said Kurt Karl, chief U.S. economist at Swiss Re in New York. ``We have a 55 percent probability of recession. Now it looks like it's starting in the current quarter.''
Stocks, Bonds Gain
U.S. stock futures climbed, indicating the Standard & Poor's 500 Index will rebound from the lowest since 2006, as investors speculated the Fed will accelerate rate cuts and introduce new measures to boost the economy. Treasuries fell with the 10-year note's yield rising 5 basis points, or 0.05 percentage point, to 3.51 percent as of 9:58 a.m. in London.
A report today is forecast to show the trade deficit widened in January to $59.5 billion from $58.8 billion the prior month as an increase in the cost of imported oil outpaced gains in exports, a separate survey of economists showed. Increasing demand from overseas is one factor still supporting growth.
The economy's rate of expansion anticipated for all of 2008 fell to 1.4 percent, the weakest since the last recession in 2001. Economists cut the projected rate for the first quarter to a 0.1 percent annual pace, from a 0.5 percent rate in the prior survey. They saw second-quarter growth at 0.5 percent, down from the 1 percent forecast last month.
The growth rate in the last since months of the year was reduced to 2.2 percent from an average 2.4 percent forecast in February.
Recession `Likely'
A recession ``looks quite likely,'' Harvard University economics professor Jeffrey Frankel said in a March 7 interview on Bloomberg Television. Frankel, a member of the National Bureau of Economic Research panel that determines when downturns begin and end, said he was speaking for himself, not as a member of the committee.
Consumer spending, which accounts for more than two-thirds of the economy, will rise at a 0.5 percent annual rate from January through March, down from a 1.9 percent pace in the fourth quarter of 2007 and the weakest since it declined in the last three months of 1991.
`Worse Than Expected'
``We're seeing the drop in home prices accelerate, and we're seeing persistent energy-cost pressures,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``Both of those developments have been worse than expected.''
The unemployment rate will climb to 5.5 percent by year- end, according to the survey median. It unexpectedly fell to 4.8 percent last month as some people gave up looking for work and left the labor force. The economy lost 63,000 jobs in February, the most in five years, the Labor Department said last week.
Economists in the Bloomberg survey forecast the Fed will lower the benchmark rate by a half point to 2.5 percent by its next meeting on March 18. Investors are betting policy makers will be more aggressive and cut the rate by three-quarters of a point on or before the gathering, futures trading shows.
The central bank cut the rate by 1.25 point to 3 percent over nine days in January, the fastest reduction since the federal funds rate became the main policy tool around 1990.
Fed Chairman Ben S. Bernanke has repeated in recent weeks that, while the Fed won't ignore inflation risks, it is ready to continue to act in a ``timely manner'' to combat ``downside risks'' to the economy.
Analysts surveyed forecast consumer prices would rise 2.6 percent this year, more than projected in February.
``We're going to get recession and inflation,'' John Ryding, chief U.S. economist at Bear Stearns & Co. in New York, said in an interview with Bloomberg Television. ``The best-case scenario is two-to-three quarters of mild recession followed by a tepid recovery.''
Press Release
Release Date: March 11, 2008
For immediate release
Since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again. We all continue to work together and will take appropriate steps to address those liquidity pressures.
To that end, today the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing specific measures.
Federal Reserve Actions
The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.
In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.
The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.
Information on Related Actions Being Taken by Other Central Banks
Information on the actions that will be taken by other central banks is available at the following websites:
Bank of Canada
Bank of England
European Central Bank
Swiss National Bank
Statements by Other Central Banks
Bank of Japan
Oil Hits Record Above $109/bbl as Weak Dollar Triggers Buying
AFX News
March 11, 2008
Oil prices hit a record above 109 usd per barrel as dollar weakness triggered buying, extending a rally which has seen the price of crude surge around 15 pct in just one month.
A weaker dollar, which again hit a fresh record low against the euro and is vulnerable to further weakness, helped the rally. Commodities priced in the dollar have become relatively cheaper for those trading in stronger currencies, which has induced buying.
Stephen Schork, editor of The Schork Report, said there was "no end in sight" for the current rally, as speculative interest has increased for four weeks in a row.
At 10.42 am, New York's WTI crude for April delivery was up 1.07 usd at 108.97 usd per barrel, having hit a record of 109.20 usd.
In London, Brent crude for April delivery was up 1.01 at 105.17 usd per barrel, having hit a record of 105.40 usd earlier.
Prices were already well underpinned, as investors continued to favour the commodity sector, which is offering them better returns than ailing equity markets.
"The key to the outperformance lies in the huge amount of funds flowing into commodities, as the spectre of a US recession casts an ominous shadow over the markets," said Paul Harris, Bank of Ireland analyst. "Investors see the commodity suite as the only game in town which will deliver attractive returns."
Gold, silver decline after Fed liquidity move
By Atul Prakash
LONDON, March 11 (Reuters) - Gold fell in the afternoon session on Tuesday, as the dollar rose sharply after the U.S. Federal Reserve announced new coordinated liquidity actions.
Gold was quoted at $973.10/974.00 at 1348 GMT after hitting a high of $985.30, against $974.10/974.90 late in New York on Monday. It rose to a record high of $991.90 on March 6.
"It's a reaction to the Fed announcement and the euro/dollar move. It reflects that the Fed is taking care of the fears for a liquidity crisis," said Michael Blumenroth, metals trader at Deutsche Bank.
The dollar rose after the Fed announced global coordinated measures to inject liquidity into the financial system, easing concern about a deepening credit crisis and U.S. recession.
Before the Fed's move, markets were expecting the U.S. central bank to reduce its benchmark interest rate from 3 percent to 2.25 percent at its next policy meeting on March 18. There are 100 basis points in a percentage point.
A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
But gold was expected to get support from strong oil prices, which rose to a record high for the fifth day in a row, boosted by investor flows into oil and other commodities.
"We have been battling here for quite a while now and if we don't manage to see a prompt move towards $1,000, we might see the market losing further momentum," said Frederic Panizzutti, analyst at MKS Finance.
GOLD STRUGGLES
Gold has struggled to sustain the uptrend after a failure to break through the $1,000 barrier last week. It has risen 19 percent in 2008, driven by record high oil and expectations of further rate cuts in the United States.
"With persistent problems in the U.S. economy, rising crude oil prices and fund investors chasing the metal, it's easy to discern that gold is headed higher in the coming sessions," said Pradeep Unni, analyst at Vision Commodities.
"But it is also crucial to remember that this over-extended bull market is not devoid of a near term pull-back. In times of sharp rally, markets have a tendency to slide on their own weight, when the selling gets triggered."
In industry news, the World Gold Council chief executive James Burton said the organisation was looking to cross-list its New York-listed StreetTRACKS Gold Shares fund in Japan and Hong Kong by September.
Spot platinum hit a high of $2,060 an ounce before falling to $2,045/2,055, against $1,980/1,990 late in New York on Monday, when it tumbled to a 4-week low at $1,926 on news that miners in South Africa would get more power supply.
Supply concerns triggered by mining disruptions in South Africa, the world's top producer, lifted platinum to a record high of $2,290 on March 4. The metal, used in auto catalysts and jewellery, has risen as much as 50 percent in 2008.
"Platinum remains very volatile. On the one hand, we have positive news about the power supply and on the other, we have some production cuts, which are going to further imbalance the supply demand this year," said Panizzutti said.
South African power utility Eskom is in the process of restoring power to 95 percent of normal levels to the mining industry. [ID:nL07262637]
Analysts say the global platinum deficit could widen to 500,000 to 600,000 ounces by the end of 2008, compared with about 265,000 ounces in 2007. The market had a surplus of 65,000 ounces in 2006, following seven successive years of deficits.
Silver was at $19.57/19.62, against $19.64/19.69 an ounce in New York, while palladium rose to $483/488 an ounce from $467/472 in the U.S. market.
Public housing demand continues to be brisk in 2008
By Wong Siew Ying
11 March 2008
SINGAPORE: The demand for public housing continues to be brisk. HDB's first build-to-order project this year at Punggol Spring is already four times oversubscribed.
New flats aside, property agents have also described the HDB resale market as the kingpin for the real estate sector in 2008.
The application for Punggol Spring, where 494 units of four-room flats will be built, will not close until 17 March, but the project is already oversubscribed with 2,093 applications.
Punggol Spring is part of the 4,500 new flats that the Housing and Development Board (HDB) has committed to build for the first half of this year. Prices of the Punggol Spring flats range from S$204,000 to S$259,000.
Apart from this build-to-order development, HDB's bi-monthly sale of four-room and larger flats in February also drew overwhelming response, with over 10,000 flat buyers vying for just 278 units.
Eugene Lim, associate director of ERA, said: "They are usually the first timers and they do not have so much cash with them, so as the norm is cash over value for the resale market, so inevitably, they are being pushed to the new flat market where they don't have to come up with as much cash or don't need to come up with any cash at all."
Still, transaction volume in the HDB resale market is expected to remain strong. Industry players project 30,000 units to be sold in 2008, 1,000 more than last year.
Price-wise, it is estimated to increase by about ten per cent in 2008, compared to over 17 per cent in 2007.
Property agents said the spike was partly due to the sharp rise in cash over valuation (COV). But they added this is likely to change as buyers have hit a threshold when it comes to forking out more cash.
Propnex CEO Mohamed Ismail said: "The central areas were getting as high as S$100,000 for Queenstown, Bukit Merah, Toa Payoh, but such prices are not sustainable in the long term. Therefore, I do foresee (for) the very high-end side in the central location, the COV (will) dip quite drastically."
Some property agents said the COV for flats in the central region will dip by 20 per cent within the next three months. As of the fourth quarter of last year, the average COV for the area was about S$35,000 to S$40,000.
Despite the high demand for flats, agents are confident there will be enough to go around, whether it is for families or singles.
They also welcome HDB's new incentive to offer an extra S$9,000 grant to singles who buy a resale flat and live with their parents.
The scheme, however, is unlikely to have any impact on the market, given the small segment it serves. - CNA/ac
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