Recession over, strong V-shaped recovery seen

THERE are tentative signs that Singapore’s worst ever recession is over and a strong V-shaped recovery is to follow over the rest of this year, according to HSBC’s Asian Economics report for the third quarter.

‘Unemployment is expected to peak at the end of this year at 4.2 per cent and then come down to 3.4 per cent at the end of 2010,’ said Robert Prior-Wandesforde, HSBC senior Asian economist, at a media briefing for Asian Outlook 2009.

‘For Singapore, we’re looking at negative 6 per cent GDP growth this year, towards the better end of the government’s forecast range. For 2010, we’re looking at positive 5.3 per cent growth.’

For Asia ex-Japan, GDP growth is expected to 4.2 per cent this year, and 6.9 per cent in 2010.
‘We are optimistic about the recovery and we see increased evidence that recovery has begun,’ Mr Prior-Wandesforde said.

In the Asian Economics report for Q3, three overlapping stages of the recovery process which underpin HSBC’s belief in a sustained pick-up in growth are discussed – initial post-crisis relief bounce, effects of various policy stimulus packages across Asia, and the self-sustaining phase of growth.

‘Since the collapse of Lehman Brothers, there was a feeling that we were heading into a second great depression, the end of the financial world as we know it,’ said Mr Prior-Wandesforde.

‘But thanks to the very aggressive policy action that is being taken by governments and central banks around the world, particularly the US, it seems to us that scenario is pretty much gone.’
Asia ex-Japan will see quarter-on-quarter annualised GDP growth of more than 8 per cent in the second quarter, the report says. ‘Omens are looking even better for the third quarter, with double-digit quarter-on-quarter annualised GDP growth.’

The HSBC coincident indicator includes Chinese and South Korean composite lead indicators, the Commodity Research Bureau index, German IFO business expectations and the S&P 500 equity market index.

This means that ‘we can rule out an L-shaped kind of recovery, and also an U-shaped one’, explained Mr Prior-Wandesforde.

The second phase relates to various policy stimulus packages put in place across Asia – the biggest and most synchronised easing of fiscal policy and monetary policy ever.

It is estimated that these will add ‘at least one per cent of GDP growth in the region this year and another 2 per cent in 2010’.

‘This reflects the length of time it often takes in Asia to get these infrastructural projects in place, and also the fact that monetary policy works with a significant lag in Asia – with 12 to 24 months’ lag being typical,’ noted Mr Prior-Wandesforde.

With all these policy effects stimulating domestic demands within Asia, it is expected to ‘at least create a regional trade recovery before world recovery’.

Tracking the level of Asia ex-Japan private consumption and investment as a proportion of the equivalent series for the US, the latter was actually 20 per cent higher than its American counterpart last year.

Asian private consumption came to just 40 per cent of the US level in 2008 but it has grown more in absolute terms in each of the last two years.

‘Our Asia ex-Japan and China export lead indicator points to a pick-up in year-on-year real export growth Q309,’ Mr Prior-Wandesforde said.

‘It’s typically the most open economies, like Singapore and Malaysia that crashed the most, which we think will see the greatest trade recovery kicking in.’

Source: Business Times, 14 July 2009

No ‘one size fits all’ land use pattern

IN land-scarce Singapore, maximising land use can spell cash. And because of this, the plot ratio of a development – the proportion of land occupied by build-ups – is a key criterion for lease renewal applications submitted to JTC.

But sometimes, hard and fast rules can be rigid and restrictive.

When High Q Pressure Vessel Products applied for a lease renewal at the end of last year, it was unable to meet the minimum build-up requirement.

A manufacturer of high-pressure oil and gas equipment and life-support equipment for the marine industry, High Q needs large open spaces to assemble its products, including diver compression chambers and diving chambers, which can be longer than 18 m.

With an overall plot ratio of 50 per cent for its Tuas factory site, High Q was 10 per cent short of the Urban Redevelopment Authority’s requirement, which is also adopted by JTC.

To make things worse, the factory is on two plots of land, one of which was erroneously filed with a plot ratio of zero in JTC’s records.

To correct this, High Q CEO Alfred Gan approached URA to retrieve factory drawings as proof of its plot ratio. The drawings cost him about $300, he said. At the same time, JTC took part in several rounds of talks and site visits to the High Q factory, a process that took two months.

But the hassles eventually paid off, when JTC approved High Q’s lease extension. ‘JTC recognises that there is no ‘one size fits all’ land use pattern as different industries require different built-up areas to operate optimally,’ said a JTC spokesman.

With all documentation fulfilled, final approval for High Q took just 13 days. The difference it made to the company could not be greater.

‘If we had had to put in more structures to suit JTC’s regulations, we would not have been able to continue our operations and assembly,’ Mr Gan said.

He said that the only other places with enough covered ground to fit his systems would have been shipyards, but it would have been impractical for the company to house its workshop and assembly area in two separate locations.

‘Besides logistics and other inconveniences, costs will also rocket,’ he explained.

Also, the certification that High Q has obtained from the American Society of Mechanical Engineers is non-transferrable to another industrial location.

With the lease issue overcome, Mr Gan can now heave a sigh of relief. In fact, he has already spent $150,000 renovating his factory – a move that would have been uneconomic otherwise.

Source: Business Times, 14 July 2009

Strong growth suggests Singapore emerging from recession

Singapore said Tuesday its economy grew for the first time in a year in the second quarter, led by biomedicals and electronics, suggesting the city was emerging from its worst ever recession.

The economy soared 20.4 per cent in the three months to June compared with the first quarter on a seasonally adjusted annualised basis, the Ministry of Trade and Industry said, while raising its
forecast for 2009.

A Dow Jones Newswires poll of 10 analysts had tipped an average 14.1 per cent economic expansion.

Gross domestic product (GDP) was now expected to contract 4-6 per cent for the year from an earlier projection of 6-9 per cent, the ministry said, while warning that any recovery would be weak due to the fragile global economy.

It was the first quarter-on-quarter growth in five quarters.

Trade-driven Singapore became the first Asian economy to slip into a recession in the second half of last year after a financial and economic crisis that started in the United States hit demand for its exports.

Tuesday’s data means Singapore is the first of the Asian countries hit by recession to release statistics pointing to a recovery.

Compared with the previous year, however, output in the June quarter was down 3.7 per cent, indicating that the economy remained weak.

“I guess technically the recession would have ended, the economy is growing again,” said David Cohen, an economist with research house Action Economics.

“Growth won’t be very strong but it should remain in an upward trajectory,” he told AFP.

“The Singapore economy registered a stunning turnaround in the second quarter, much in line with our expectation,” DBS Group said in a research note.

Despite the quarter-on-quarter growth, the trade ministry cautioned that “the outlook for the rest of the year remains largely unchanged: of a weak recovery susceptible to downside risks.”

“At this juncture, there is no evidence yet of a decisive improvement in final demand,” the ministry said in a statement, adding the second quarter surge “may not be sustained.”

The services sector, which accounts for two-thirds of the economy, continued to shrink with a decline of 5.1 per cent in the June quarter from a year ago, the ministry said.

It noted that rising unemployment and reduced consumer spending in Singapore’s major export markets like the United States and Europe reflected the continued weakness in the global economy.

Action Economics’ Cohen said however he was cheered by the second quarter numbers.
“I think this will be the first in a series of upbeat GDP reports for the second quarter from Asian economies,” he said, noting that China and South Korea would also be announcing their growth data in the next two weeks.

“Maybe this will provide some reassurance to the markets which have been jittery in the last few weeks about the sustainability of the recovery. It shows that Asian economies have turned the corner in the second quarter.”

Dariusz Kowalczyk, chief investment strategist with SJS Markets trading house, said the June quarter data suggested Singapore may not have been as hit hard by the global recession as initially thought.

“Production and exports account for such a large proportion of the Singapore economy that global trends will determine whether it grows or contracts but I am upbeat on the global economy so this bodes well for Singapore,” he said.

He added that he has revised the city-state’s 2009 growth outlook to a contraction of 4.3 per cent from 5.9 per cent previously forecast.

The June quarter figures are computed mainly from the April-May period and the ministry is expected to release a more detailed picture in the next few weeks.

Source: Channel News Asia, 14 July 2009

HDB flat prices likely to rise if selected for lift upgrading

Property agents said on Tuesday that flat prices in opposition-held wards, Hougang and Potong Pasir, are likely to rise if they are selected for lift upgrading.

This is after the government announced on Monday that the two are among the 65 precincts in Singapore that are eligible for the popular improvement programme this financial year.

Selected precincts will be announced in two to three months. Once their lifts are upgraded, realtors said flat owners would have more bargaining power to demand more cash over the valuation price.
They estimated that this cash amount over valuation could double from the current S$5,000 to S$10,000.

Hougang and Potong Pasir have a total of 120 blocks of flats that do not have lifts on every floor.
Some agents whom Channel NewsAsia spoke to said flats in opposition wards currently sell for 10 to 15 per cent less than other flats. But with lift upgrading in a year or two, the price gap would narrow.

David Poh, senior group district director, PropNex, said: “After they are upgraded, I think it’ll be good news to residents. Property prices will start to rise slightly, in the region of maybe 5 per cent.”

Source: Channel News Asia, 14 July 2009

HDB valuation hike may have led to higher resale prices

THE resale prices of Housing Board flats have risen by 10 to 15 per cent in the past one to two years, despite the recession that began in September last year.

The HDB may have contributed to the spike when it decided to raise the valuation prices of its flats last year, saying it would help buyers as a lower cash-above-valuation payment would result.

The fact is, most buyers still ask for cash-above-valuation payment and the amount does not vary much from that before HDB increased the valuation tag.

When I helped a friend who wanted to buy a flat, the valuation of a four-room HDB flat in Tampines was about $300,000 in 2007 and early last year, with buyers asking for about $30,000 cash. The price was therefore $330,000.

I now hope to buy a resale HDB flat and the valuation of a similar flat is about $350,000 with a demand of about $20,000 cash above valuation.

While the cash request is slightly lower, the valuation price has leapt. The price of a four-room flat in Tampines is about $370,000 now, some $40,000 more than the price early last year – and this is largely due to the higher valuation price.

Instead of helping to stabilise prices, the HDB’s spike in valuation has been instrumental in increasing resale prices.

Tan Say Yin (Ms)

Source: Straits Times, 14 July 2009

Strong demand at two weekend condo previews

DEMAND for new private property developments remains strong, judging by the interest generated at two previews held over the weekend.

At high-end condominium Ascentia Sky’s preview for selected clientele, over 90 per cent of the 80 units released were snapped up for as much as $1,250 per sq ft (psf), according to developer Wing Tai’s spokesman.

‘We received strong public demand at the launch,’ said the spokesman, citing the prime location in the Alexandra-Tanglin area as a key selling point.

A public preview is set to be held this weekend before the official launch, which is likely to take place over the following weeks.

The high-rise development has 373 units comprising two- to four-bedroom units, two five-bedroom penthouses and three super penthouses.

Mass-market-priced freehold condominium The Gale, located at Flora Road, was already 65 per cent taken up after its preview that began last Friday. Units were sold at an average price of between $650 and $700 psf.

Hong Leong Holdings had originally planned to release 80 units at the preview, out of a total of 329, but ended up opening 135 more units to interested buyers.

It had employed a novel marketing strategy by setting up a Facebook page featuring information about the property and the preview dates.

The official launch will be held on Saturday, where units including one-bedroom and two-plus-one types – the largest being four-bedroom apartments with a roof terrace – can be viewed.

Buyers have the option to join the Interest Absorption Scheme, meaning they have to pay only 20 per cent of the price of the unit upfront and the remainder upon the condominium’s completion.

The Gale is the latest project from Tripartite Developers’ Upper Changi properties. Tripartite Developers is a joint venture involving Hong Leong Holdings, City Developments, and Trade and Industrial Development.

Source: Straits Times, 14 July 2009

Property plays fall on tax concerns

Uncertainty over how tax proposal will hit top-end of residential market

A PROPOSED tax change designed to make the rules clearer on profits made from the sale of property was still creating a stir yesterday about a week after news of it first broke.

Even though the Government has clarified that the proposal is not intended to stifle speculation, traders are still concerned that it might have a detrimental impact on the property sector.

Under the proposed change, an individual will escape tax on gains made from selling a property if he has not sold any other property over the preceding four years.

But there remain lingering fears among analysts that home buyers might interpret it negatively, despite government assurances that there are no plans to change the tax treatment of individuals selling more than one property within a four-year period.

Market watchers spent the weekend carefully gauging the mood at showflats. And, going by the carnival atmosphere witnessed by many, some analysts have concluded that sentiment remains positive – especially for condos targeted at mid-range buyers and HDB upgraders.

This positivity, however, has not allayed concern that the planned tax change – set to become law in January – may well dent the top-end of the residential market, where condos are invariably bought for investment purposes.

So it was not surprising to find property counters caught in a fierce tug-of-war between the bulls and bears as the tax-change debate continued to rage.

Among the property sector’s big losers of the day were City Developments which fell 20 cents to $8, CapitaLand which lost eight cents to $3.31, United Overseas Land which slipped nine cents to $3.21, and Wing Tai Holdings which was down four cents at $1.23.

Elsewhere, local banks were hit by selling activity as investors looked forward with some apprehension to United States lenders, such as Citigroup and JPMorgan Chase, reporting their quarterly earnings later this week.

DBS Group Holdings fell 22 cents to $11.42, United Overseas Bank lost 16 cents to $14.42, and OCBC Bank was down 20 cents at $6.86.

Given somewhat reduced investor appetites, even the telcos – which were being snapped up last week because of their high dividend yields – came under selling pressure. SingTel lost four cents to $3.12 and StarHub fell six cents to $2.13.

The general sell-off caused the benchmark Straits Times Index to plummet 41.34 points, or 1.8 per cent, to 2,266.64. Because of the lacklustre investor interest, only 1.05 billion shares worth $863.2 million changed hands.

Across the region, a general state of uncertainty saw both Hong Kong’s Hang Seng and Japan’s Nikkei-225 dropping about 2.6 per cent each.

Citigroup Investment Research noted in a report yesterday that funds investing in Asian markets suffered a net outflow of US$365 million (S$534 million) last week. Although trifling when compared to the second-quarter net inflow of US$13.2 billion, the outflow raised fears that it might signal the shape of things to come.

Source: Straits Times, 14 July 2009

Smaller drop in prime Orchard Road rents expected

PRIME Orchard Road rents are tipped to fall about 10 per cent to 12 per cent this year, and not up to 20 per cent as forecast earlier, said CB Richard Ellis (CBRE).

The consultancy pointed to the healthy demand for existing shop space and the high pre-commitment levels seen at yet-to-be completed malls.

Mandarin Gallery, for instance, is 93 per cent pre-committed.

Prime Orchard Road rents fell 6 per cent in the first half of this year and now average $33.90 per sq ft (psf).

CBRE painted a gloomy picture of the retail market in March, saying it was looking at a 15 per cent to 20 per cent fall in Orchard Road prime rents this year.

It cited a weakening economy, a shift away from luxury goods and falling visitor arrivals. Many retailers were then crying out for rent cuts.

Major retailer RSH Group recently said that it is still renewing shop rents at higher levels even though its profits have fallen. At some locations, it may have to downsize its stores.

But CBRE has since become more upbeat. The retail landscape along Orchard Road is about to hot up with plush new malls – which are said to be signing leases at rents lower than last year’s – nearing completion.

Orchard Central has ‘soft-opened’ while Ion Orchard, Mandarin Gallery and 313@Somerset look ready to open in the next six months.

And existing malls on Orchard Road are trying to keep up with the new arrivals.

The Heeren has announced revamp plans, while Ngee Ann City is sprucing up the former Sparks space into a chic lifestyle cluster catering to young adults, said CBRE.

Suburban malls are doing far better. Rents fell just 2.4 per cent in the first half.

Prime suburban rents remained unchanged at $28.30 psf a month on average in the second quarter. Support came from the limited upcoming suburban supply, said CBRE.

Suburban malls owned by real estate investment trusts are under pressure to be yield-accretive and are therefore less likely to drop rents drastically, said CBRE.

The consultancy has also moderated its forecasts for suburban mall rents, saying they are likely to contract by 5 per cent to 6 per cent this year, down from an earlier estimate of a 10 per cent to 15 per cent decline.

Source: Straits Times, 14 July 2009

33,000 HDB flats to be upgraded over 3 years

$1 billion to be spent to speed up improvement to homes

THE Government is ramping up a programme to spruce up older HDB flats over the next three years – a move that is expected to benefit 33,000 households.

It will spend about $1 billion to speed up the Home Improvement Programme (HIP) to take advantage of lower construction costs and to create more work for the construction industry, Senior Minister of State (National Development) Grace Fu said yesterday.

‘It is a good time not only because there is manpower, materials and capacity in the construction industry, but it is also for us to benefit more residents and give more jobs to the industry,’ she said after visiting the first block of 103 flats at Yishun Street 21 completed under HIP.

The nationwide upgrading initiative, announced by Prime Minister Lee Hsien Loong at the 2007 National Day Rally, covers flats built in 1986 or earlier.

It provides for optional improvements within a flat such as new toilets and metal grille gates, as well as compulsory upgrades such as repairs for spalling concrete and ceiling leaks.

In all, 300,000 households islandwide are eligible for the improvements.

More than 13,000 have been selected in the past two years from estates such as Tampines, Toa Payoh and Ang Mo Kio. This year, at least another 8,000 households will be selected.

It is timely to expand the programme as construction costs, as reflected in bidding prices, have fallen by about 10 per cent to 15 per cent, Ms Fu said.

The decline is in line with estimates by analysts that bidding prices would drop this year compared to last year.

But plans to ramp up HIP raised the question of whether residents can afford it, given that the economy is in recession.

Responding, Ms Fu said she did not think there would be a problem as government subsidies were ‘very significant’.

‘Residents generally pay about 5 per cent to 12.5 per cent depending on the room type. On top of that, they can use their CPF or they can even discuss paying by instalments through CPF,’ she said.

According to the HDB website, cost estimates range from $630 for a one- to three-room flat, to $1,575 for an executive flat.

Madam Lee Kwai Heng, 55, paid less – $550 – for upgrades to her three-room flat at Block 228 in Yishun Street 21.

She went for all the optional upgrades, including new toilets, and a new entrance door and grille gate. The cost is three-quarters of her $700 monthly income – $300 which she earns as a part-time cleaner and $400 from renting out a room.

Said Madam Lee, who is single: ‘I used my CPF to pay for it, so it is not a problem. I have lived here for 20 years, and I have not made any major renovations.’

Ms Fu said residents not only enjoyed subsidies under HIP, but also the convenience of having all the improvements done at one go.

As an indication that the changes were well-received, she noted that 99 per cent of residents surveyed gave the thumbs-up to their upgraded Block 228.

The high proportion of residents who voted for the upgrading last year – 92 per cent on average – was another indicator.

The minimum requirement for such work to be carried out is 75 per cent.

The convenience of these improvements was also not lost on permanent residents who own HDB flats but who do not enjoy HIP subsidies, as these are meant only for Singapore citizens.

Even though they knew they had to pay the full amount, Ms Fu noted that households decided to join in – and even went for the optional improvements.

Ramping up the upgrading plans also applies to the Neighbourhood Renewal Programme. This provides facilities such as letterboxes and covered linkways based on residents’ feedback.

This year, 13 precincts – each of which typically has eight to 10 blocks – will be picked under the programme.

Source: Straits Times, 14 July 2009

Potong Pasir, Hougang to get lift upgrading

RESIDENTS living in Housing Board flats in the two opposition wards can expect to benefit from lift landings on every floor under the Lift Upgrading Programme (LUP) earlier than expected.

Ms Grace Fu, Senior Minister of State for National Development, said yesterday that precincts in Hougang and Potong Pasir will be among 65 selected for the LUP in the current financial year, which started in April.

This marks a shift from the Government’s stand after the 2006 general election, when it said the two wards would be placed ‘at the end of the queue’ for the LUP.

The number of precincts for this year is higher than the 50 in each of the past few years.

Speaking to reporters at an HDB event, Ms Fu said town councils and grassroots advisers in the two opposition wards, along with those in other constituencies, have made their nominations for the LUP. The selected precincts will be announced in ‘a few months’ time’.

Falling construction costs and available capacity in the industry were the reasons for the ramping up, she said.

‘The Government is committed to rejuvenating the HDB estates, in good and bad times. Given that this is the right time of the cycle – costs are coming down, there is available capacity in the construction industry – it is a good time for us to step up our efforts,’ said Ms Fu.

Ms Fu also said the inclusion of the opposition wards did not signal an imminent general election.
Started in 2001, the LUP is popular with HDB residents, especially those living in older blocks with lift landings on fewer floors.

During the 2006 election, a number of candidates promised to get residents onto the coveted project.

The Government foots between 75per cent and 90per cent of the upgrading bill, depending on the resident’s room type. The remaining 10per cent to 25per cent is shared between the town council and the resident, with the resident’s share again depending on his room type.

Permanent residents pay the full cost.

Potong Pasir MP Chiam See Tong, secretary-general of the Singapore People’s Party (SPP) and chairman of the town council, could not be reached for comment yesterday as he was on a flight to London.

Mr Desmond Lim, the SPP’s assistant secretary-general and consultant to the town council, said the move could win further support for the SPP.

‘It shows that the selection of precincts is done according to the criteria set out by the HDB, like the age of the blocks, and not due to political reasons,’ he said.

He added: ‘This is what we’ve been fighting for. During the last general election, we made a promise to have lift landings on every floor. Now it’s happening.’

Hougang MP Low Thia Khiang could not be reached for comment yesterday.

Potong Pasir resident Benedict Chen, 26, said the LUP was long overdue in his estate but wondered whether it was a sign of an imminent general election.

Said the bank analyst, who has lived in Potong Pasir all his life: ‘If you’ve lived here long enough, you are used to seeing these things as ‘pre-election candies’.’

Over in Hougang, logistics official Doreen Tan, 33, said: ‘The lift upgrading is good to have because there are a lot of elderly residents in these estates.’

Married with one child and another on the way, however, she worried about the dust that the construction will cause.

She was also concerned that retirees and elderly residents in the estate might not be able to pay their share of the lift upgrading cost.

‘I am not sure how much we have to pay…If the price is okay then it should be all right,’ she said.
She added: ‘Perhaps the Government can do something more for us other than lift upgrading. For example, they can build covered linkways – they are simple, just from one block to another.’

As for the politics of the project, she said she had no comment, ‘so long as there is an upgrade’.
Another Hougang resident, student Ho Chi Sam, 25, said lift upgrading would benefit elderly residents most and could increase house values in the area.

He added: ‘It’s about time that the Government put public funds to good use and helped the people without discriminating against specific constituencies.’

Source: Straits Times, 14 July 2009