January 13, 2009
Construction costs poised on a downtrend
Tender price index may have fallen 6-8% in Q4, says consultancy RLB
By ARTHUR SIM

(SINGAPORE) Construction costs may have shrunk in Q4 2008 and are
likely to be still on the way down, says a top consultancy firm.

Rider Levett Bucknall (RLB) says preliminary figures show its tender
price index (TPI) may have fallen 6 to 8 per cent quarter on quarter
in Q4.

The drop is significant because in the first nine months of 2008, the
TPI - which reflects tender price movements in specific sub-sectors
of the construction industry - rose 18 per cent year on year.

RLB said there has been a significant drop in tendering activity and
recent tenders appear to reflect an easing of prices - 'largely due
to the fall in construction demand as well as declines in material
costs, contractors' preliminaries and tendering margins'.

The firm said that in Q3 2008, the TPI showed little movement
and 'appeared to have peaked'.

In Q4, construction demand is expected to have been $4 billion - way
down from an estimated $7.5 billion in Q3.

At end-November 2008, steel reinforcement cost US$740 a tonne, or 40
per cent less than the July 2008 figure of US$1,251.

Copper prices fell even more. At end-November 2008, copper cost
US$3,716 a tonne, or 57 per cent down from $8,683 a tonne in April
2008.

But not all costs have eased.

RLB said prices of mechanical and electrical services have not
moderated. And wages for construction workers are anticipated to
remain stable in the short term. Some costs have continued to rise.
For instance, granite aggregate and ordinary Portland cement have
gone up 14.9 and 4.2 per cent respectively since April 2008.

At end-Q3 2008, construction costs in Singapore on a per square metre
of gross floor area (GFA) basis were still relatively high.

RLB said the cost of constructing a 55-storey (or more) office
building was $5,200-$5,950 per sq m of GFA, up from $4,960-$5,660 per
sq m in Q1 2008.

A luxury condominium cost $4,500-$6,200 per sq m of GFA in Q3,
compared with $4,000-$5,500 per sq m of GFA in Q1.

But RLB said: 'The current downward trend in building tender prices
is anticipated to be more fully felt in the market by the second
quarter of 2009.'

Barclays Capital regional economist Leong Wai Ho reckons the fall in
costs will help the construction industry 'extract more profits and
value added from each dollar of contracts awarded'.

But he added: 'The industry faces a no less challenging environment,
given that credit is incrementally more scarce and interest expenses
are rising.'

He also said that as most raw materials are imported, construction
companies' cost structures are extremely sensitive to the changes in
the value of the Singapore dollar.

Citing a survey by DP Information Group, Citigroup said an analysis
of the financial results of more than 2,000 construction firms showed
27 per cent of them have short-term debt that exceeds their cash.

Citigroup said there is a significant risk of even healthy companies
defaulting on loans if refinancing difficulties persist.

Citigroup economist Kit Wei Zheng added: 'The drop in construction
costs should provide welcome relief for construction companies'
margins. But the flip side is that it also reflects softening demand
conditions in the recession.

'One can reasonably expect private sector construction demand to
soften as the recession unfolds, and public sector demand may have to
pick up the slack.'

David Liew, managing director of United Engineers Developments, said
falling construction costs are 'good news' but the cost savings are
limited because construction costs account for only about 20 per cent
of total development costs.

Still, he said: 'Falling construction costs may bring more smiles to
the faces of contractors, especially those who committed to projects
based on fixed-price contracts during the boom, as they will enjoy
improved margins having previously factored in relatively higher
material prices.'

Jan 11, 2009
property
Raking in rent - minus the rant
It's a tenants' market but all is not lost for landlords. Here's what
they can do
By Joyce Teo, Property Correspondent

The private homes leasing market is softening as the financial
turmoil continues to wreak havoc.

Residential rents are falling and there has been a noticeable rise in
the number of tenants cutting short their leases and leaving behind
debts.

And with new developments still being completed, tenants now have
more choice than ever before.

Indeed, it is now a tenants' market, so landlords need to have
realistic rent expectations, be more flexible and do more in order to
secure a good tenant, those in the property business say.

Condominiums that were recently completed or are being completed may
have a few hundred units for rent, so landlords have to be willing to
lower their asking rents, said Savills associate director Patrick
Lai.

For instance, the 1,111-unit The Sail@Marina Bay still has many units
available for rent and owners there have generally lowered their
expectations.

In a hot market, landlords can easily rent out their properties, even
if they are run-down or have only old appliances. Things have since
changed. Tenants can now take their time to choose, property
specialists said.

'Now you need to invest first in your property if you want to attract
a good tenant,' said Ms Jacqueline Wong, Jones Lang LaSalle's
residential head.

* Spruce up or lose out

Landlords have to make sure their property is in a 'reasonable tenant-
able position', she said.

This is something some landlords do regardless of market cycles, but
it becomes more of a necessity in a down cycle.

'You need to do the basics, such as putting on a fresh coat of paint,
proper lighting and reasonable appliances,' said Ms Wong.

* Be creative

There are different ways of making a property attractive to tenants
as long as landlords are flexible and creative.

One way, said Ms Wong, is to leave the property vacant or partially
furnished and give the tenant a budget to buy whatever he likes, such
as a sofa set.

For a two-year lease, the budget can be anywhere between 1.5months'
and two months' rent.

* Be flexible

A standard lease is for two years, but one-year leases become more
common in bad times when rents are falling.

While it may be better to lock in rents for a longer period,
landlords may have to agree to one-year leases if their tenants
insist on them.

What landlords can do then is to negotiate a slightly higher rent for
a shorter lease, said ERA Asia-Pacific associate director Eugene Lim.

* Go for corporate leases

For personal leases, once a tenant leaves the country, there is
little the landlord can do to get back any rent owing. It would be
too costly to track the tenant down.

The ones who run away are usually low-level executives tied to low-
budget rental deals, property agents say.

If possible, go for corporate leases. With such leases, the company
is the tenant and even if the occupier gets sent home, the company
will still have to pay the rent.

* Get an experienced agent

To mitigate risks such as tenants defaulting, landlords should
appoint an experienced agent who can carry out due diligence for
them.

'We do a lot of tenant profiling, so the likelihood of the tenant
defaulting is low,' said Ms Wong.

A high-risk tenant may be someone who is very young and who is new to
the job and the country.

* Do your own homework

Said Mr Lim: 'Find out more about what your tenant does before
committing to a deal. For example, if he is here to develop a new
business at present, he could prove to be a high-risk tenant.'

* Have a diplomatic clause

Landlords should insist on collecting a two-month deposit for a
standard two-year lease.

Furthermore, they should make sure their tenancy agreements have a
diplomatic clause. This allows tenants to break a lease legally after
a year by giving two months' notice if they lose their job or have to
leave Singapore for good.

It is to protect tenants but in bad times, it may also protect
landlords as the tenant will have to pay for a minimum of 14 months
before breaking the lease, said Mr Lim.

There tend to be more pre-terminations in a downturn.

* Don't forget the minor repair clause

Disputes in tenancy agreements usually centre on general repair works
and replacement.

To avoid disputes over minor items, landlords should put in a minor
repair clause in tenancy agreements.

It means that tenants are responsible for minor repairs. The amount
can range from $150 to $250 for condominiums, said Ms Wong.

The amount for landed properties varies greatly, depending on the
state of the property and the standard of furnishings, she said.

* When major disputes happen...

In cases of disputes over larger repair items, landlords and tenants
can turn to mediation to solve their problems.

Property agents usually become mediators when disputes arise. Some
landlords and tenants also turn to the Small Claims Tribunal, which
extended its jurisdiction in early 2006 to include tenancy disputes
arising from a residential lease of two years or less.

The number of claims filed rose to 1,137 last year, from 665 in 2007
and 401 in 2006, according to data from the Subordinate Courts. Most
of them were filed by tenants.

However, about 90 per cent of the claims were resolved at the
consultation stage without the need to proceed to a hearing, it said.

The maximum one can claim is $10,000, but it will raise that to a
maximum of $20,000 if the parties involved agree.

January 10, 2009
Will developers be the first to blink?
The holding power of the various parties will set the tone for the
market in 2009. By Arthur Sim

THE holding power of both developers and investors will be closely
watched this year as it would have significant bearing on residential
property prices.

While the extent of speculation by investors is not known yet, the
recent uncharacteristic appeal by the Real Estate Developers
Association of Singapore (Redas) president Simon Cheong for
government support of a tripartite plan to deal with the current
credit squeeze, does leave one wondering if holding power could be on
the wane.

In his speech at the 49th Redas Anniversary dinner on Nov 26, Mr
Cheong said that 'a tripartite plan of action is needed between
developers, financiers, and the government through moderating new
supply, shoring demand, and introducing fiscal measures to help ease
funding for the industry'.

Developers' holding power has made upcoming supply a bit of a moving
target. Cushman and Wakefield managing director Donald Han says that
between the third and fourth quarters of 2008, 7,234 residential
units out of a total 66,422 units were deferred and would only be
completed after 2011. 'We expect more deferment of residential
projects in 2009,' he adds.

DTZ Research also believes that supply has been 'overestimated'.

Of the 60,048 units that the Urban Redevelopment Authority (URA)
expects to be completed between 2009-2012, only 24,905 are under
construction currently. 'Actual supply in 2009 and 2010 will more
likely be in the range of 18,000-19,000 units, less than two-thirds
of the 30,296 units projected by the URA,' DTZ adds.

Not surprisingly, 2009 forecasts for residential prices have been
mixed, with one consultancy even saying it was not issuing forecasts
at all.

Consultants do believe high-end property prices are expected to fall
the most - anywhere between 15 and 30 per cent. The mid-tier segment
is forecast to fall between 10 and 20 per cent, while the mass market
is estimated to fall by a more moderate 5-10 per cent.

But if developers do not have holding power, they could be forced to
launch developments at lower prices.

Jones Lang LaSalle head of research (South East Asia & Singapore)
Chua Yang Liang says that developers are unlikely to defer projects
that have been launched.

'So, in those instances, they have to weigh the benefit of potential
large sales volume against the negative publicity and possible issues
associated with price cutting, especially if the difference between
what earlier buyers paid and what new buyers will be paying is
significant.'

According to OCBC Investment Research (OIR), the top nine developers
in Singapore had a total current debt of about $5 billion and non-
current debt of almost $20 billion in the third quarter of last year.
Still, OIR investment analyst Foo Sze Ming notes that the amount of
short-term debt owed is relatively lower now compared to the previous
property downturn in 2001.

Using CapitaLand as an example, OIR noted that it used to owe $4.8
billion of short-term debt and $4 billion of long-term debt with a
net gearing ratio of 0.88 times. 'Now, its financial position is
stronger with short-term debts of $2.2 billion, long-term debt of
$8.2 billion and net gearing ratio of 0.5 times,' Mr Foo says.

But he cautions: 'In light of the tightening credit market, we do see
heightened risk involving short-term debts that require refinancing.
We are more concerned with the debt exposure of smaller and less-
established developers who entered late during the property up-cycle
as they may have over-geared and bought their landbanks at higher
valuations.'

Prices in 2009 could also face downward pressure from defaulting
speculators. OIR believes that default risk will be skewed towards
the Core Central Region (CCR).

It expects that 3,069 and 2,888 units under construction in CCR are
due for completion in 2009 and 2010, respectively. For illustration,
it assumes that 50 per cent of the units were bought under the
deferred payment scheme (DPS) and 40 per cent of the buyers (from
speculators, foreign buyers and funds) are likely to default on their
purchases.

'Based on this, we estimate that 614 and 578 CCR property units could
be returned in 2009 and 2010, respectively, and these will directly
flow back into the market and push up the unsold supply,' it says.

The impact of DPS will likely start to play out in 2009. But DTZ
research senior director Chua Chor Hoon says that buyers 'cannot
simply walk away from their purchases as developers can sue them for
specific performance over the sale and purchase agreement'.

'In the past, developers have been known to work out some scheme to
allow more time to make the final payment if a buyer has difficulty
paying up upon TOP.'

With Budget 2009 in January expected to be pro-business, Colliers
International director for research and advisory Tay Huey Ying
reckons that to contain development costs, the government could look
at reducing property tax and development charge payable by reverting
back to the earlier formula of creaming off only 50 per cent of land
enhancement value instead of the revised 70 per cent.

But Ms Tay notes that the main reason for the sluggish property
market is the financial crisis. Coupled with 'astronomical' prices in
the high-end and luxury segments, she says, 'a correction such as the
one we are witnessing now cannot be avoided'.

January 9, 2009
Bargain hunting starts in tepid property market
Four recent sub-sales have been transacted at 20% below launch prices
By ARTHUR SIM

THE hunting season seems have begun in the property market, with at
least four buyers making a killing.

A UBS report says that according to URA data, four recent sub-sales
have been transacted at 20 per cent below launch prices.

Two units at Ardmore II were sub-sold for $2,000 per sq ft, compared
with the last-transacted price of $2,400 psf. One unit at Scotts
Square was sold at $3,050 psf, compared with the last-transacted
price of $3,850 psf in the second quarter of last year.

And one unit at Sky @ Eleven was sold at $880 psf, compared with the
last transacted price of $1,270 psf in Q2 2007.

'Prior to this, we believe there has not been a single sub-sale
transaction more than 11 per cent below the new sale price for the
same unit,' said UBS analyst Regina Lim.

UBS believes that the sharply lower sub-sale prices signal a major
change in buyers' risk appetite and the outlook for Singapore
residential property.

It noted that some projects sold in 2006 and expected to be completed
by Q4 this year could be the subject of defaults by buyers if sub-
sale prices fall 30 per cent below launch prices.

'This is especially as 40 per cent of buyers of new apartments above
$1.5 million were foreigners or companies in 2006 and 2007, and it
may be difficult not to repudiate the sale-and-purchase agreements
for these buyers if they default,' UBS said.

Cushman and Wakefield managing director Donald Han said that he does
not expect many sub-sales to be transacted at big losses because
developments that will receive their temporary occupation permit
(TOP) this year - and hence, requiring loan draw-downs - are likely
to have been launched in 2006 before prices peaked.

But he added: 'People that bought in 2007 and 2008 will want to get
out of the market.'

Knight Frank director (research and consultancy) Nicholas Mak said
that 'not all sub-sales lose money'. Some recent sub-sales showed
price increases, he noted.

Still, prime properties are likely see the biggest drop in prices, as
these rose the most in the past few years, he said.

In its report, UBS says that prices in the primary market have also
been cut.

Among new launches, the 104-unit Newton Edge, priced at $1,201 psf,
is some 23 per cent cheaper than Viva, where 15 units were sold in Q3
last year for around $1,550 psf. And at RV Suites in River Valley
Road, 19 units have been sold at $1,350 psf, which is 15 per cent
below Wharf Residences at $1,600 psf and 38 per cent below Martin 38.

January 9, 2009
Sands puts eggs in S'pore basket, will open on time
LVS says it has sufficient cash and will scrimp and save on costs
elsewhere
By ARTHUR SIM

(SINGAPORE) Las Vegas Sands (LVS) needs US$4 billion to complete the
Marina Bay Sands (MBS) and says reassuringly that it currently has
US$6.2 billion in borrowings and liquidity.

Speaking at an investor conference in the US, LVS president and COO
William Weidner said that its 'revised business plan', which includes
the monetisation of non-core assets, has put the company in a cash
position (borrowings and liquidity) of US$6.2 billion.

'The total need that we have is about US$4 billion to get us to the
opening of Singapore (Marina Bay Sands). So there is cash available
to open Singapore (Marina Bay Sands) in the first quarter of 2010,'
Mr Weidner said.

While LVS has 'moth-balled' development of sites five and six at the
Cotai Strip in Macau, it is also developing other projects
concurrently in the US, notably the Sands Bethlehem.

However, part of LVS' revised business plan includes massive cost
cutting at its Las Vegas operations. 'If we take a look at our plan
and the risk to that plan, the risk is the underperformance in Las
Vegas. We are mitigating that by a tremendous amount of cost
cutting,' Mr Weidner said.

He revealed that LVS expects to cut US$100 million in cost in 2009 by
cutting expenses, labour, head count and benefits. 'Everywhere that
doesn't effect the customer experience, we are cutting, cutting,
cutting,' he said.

Indeed, LVS will be focusing on opening MBS on time. 'Our focus is on
the current operating environment and stickhandling through 2009 to
the opening of Singapore (MBS),' he said.

And for good reason too.

By cornering a good chunk of the 4- and 5-star hotel market around
Marina Bay, Mr Weidner projected that with its 2,600 rooms, and an
average daily rate of US$269 per room by 2011, LVS hopes to rake in
an ebitda (earnings before interest, taxes, depreciation and
amortisation) of US$161 million. He also forecasted a rental revenue
from its retail component at US$179 million.

More important is that assuming a gross revenue of US$2 billion for
MBS, which is about the same as its Macau operations currently, Mr
Weidner said that earnings generated from the US$2 billion revenue in
Singapore would amount to US$940 million because of the favourable
tax regime compared to only US$504 million in Macau.

Mr Weidner's bullish comments come after a particularly tough quarter
fraught with speculation that LVS could file for bankruptcy. In
November, it had made a regulatory filing that said it was unlikely
to meet the maximum leverage ratio covenant, triggering defaults on
loans needed to complete projects.

Since then, LVS has announced that it has raised US$2.1 billion of
capital.

Addressing the issue of debt, Mr Weidner said: 'The debt that we have
is extraordinarily valuable. No one can generate about US$9.8 billion
of debt at a blended rate of about 5 per cent in this environment.'

He said that the first maturity of this debt is in May 2011 of about
US$800 million followed by May 2012 of about US$776 million.

Confirming the opening of Marina Bay Sands, a spokesman for MBS said
it is still targeted to open by the end of 2009.

8 Jan, 2009
Prime office rents could plunge by up to 40%: Report

OFFICE rents in prime districts could dive as much as 40 per cent by
next year, says consultancy Cushman and Wakefield in a new report.

The industry has been expecting falls, but the magnitude of the
projected slump is surprising. The consultancy blames a huge stock of
office space that is rising amid tough times and rising job losses.

'The fact that Singapore is an international financial centre also
means it will be badly hit during the downturn as a lot of investment
activities are dependent on foreign participation,' it said.

Prime office rents, it said, will fall from a high of $14.20 per sq
ft a month last year to $12 psf a month this year. It expects this to
drop to about $8 psf next year, and to about $7.50 psf by 2011, when
prime office vacancy rates are set to rise to 11 to 15 per cent.

But rents remain above the $7 psf witnessed in previous peaks of 1995
to 1997 and 2005 to 2006.

Three factors, said Cushman, are contributing to the fall in rents.
First, office stock is rising at a time when economic growth is
stagnating or falling.

Second, a huge pipeline of office inventory is building up because of
the overwhelming optimism shown by developers during the boom years
of 2006 and 2007.

And third, employment is likely to flatline or even shrink by 1 per
cent, as seen in downturns in 1998 and 2001-2002.

'The rate at which new supply is added to existing stock in 2009 and
2010 will be one of the highest since 1992,' said the report.

Pre-commitments by tenants for office buildings due for completion
this year and next are estimated to be only 30 per cent so far. The
rate is not expected to improve in the near term, said Cushman.

A total of 10.7 million sq ft of office space will be available by
2013 - of which 2.7 million sq ft will be ready by 2010 -
representing about 15 per cent of total stock, it said.

Office stock in the Central Business District will rise by up to 7
per cent by 2010 to 2011 - the second highest rate after 8.7 per cent
in 1995 when economic growth was higher.

But demand, which averaged about 2 million sq ft a year in the past
two years, is expected to fall by more than half, and possibly to
just 500,000 sq ft a year.

8 Jan, 2009
1,200 luxury homes yet to find takers
CBRE says growing supply overhang may see prices drop by up to 15%
By Joyce Teo, Property Correspondent

A STOCKPILE of up to 1,200 luxury homes in prime districts remains
unsold, adding to a growing supply overhang that is likely to drag
prices lower this year.

That grim assessment of the very top end of Singapore's property
market has been made by leading property consultancy CB Richard Ellis
(CBRE).

However, it has also concluded that despite the challenging market
conditions, some developers may be able to hold on to projects until
the market recovers.

'Developers who are laden with unsold units in projects that were
already launched would prefer to focus on clearing them rather than
launch new projects,' it said.

'This would inevitably lead to price cuts,' the consultancy added.

CBRE is projecting a decline this year of about 10per cent in the
prices of good-class bungalows (GCBs) - the most prestigious bungalow
type here - and 10 to 15per cent price falls for luxury apartments.

Last year, 49 GCBs worth about $785million were sold, down from 87
GCBs worth $1.15billion in 2007 and 119 GCBs worth $1.23billion in
2006.

Average prices of GCBs hit $822 per sqft (psf) last year, up from
$681 psf in 2007 and $501 psf in 2006.

The top-priced GCB deal last year was a 52,528 sqft Leedon Park
property sold for $43.2million in May. On a psf basis, the most
expensive deal was at $1,303 psf for a Leedon Road property, also in
May.

CBRE said GCB prices hinge on the location and land characteristics.

Given the current downturn, buyers will be looking to pay competitive
prices for GCBs, but fire sales will be hard to come by as most GCB
owners have the capacity to hold, said director of luxury homes
Douglas Wong.

The luxury apartment market also saw a drastic fall in sales last
year, with just 1,096 caveats lodged. Government data showed this
worked out to just 19per cent and 32per cent of sales in 2007 and
2006 respectively, said CBRE.

Caveats lodged for high-end apartments worth $1million to $3million
stood at 777, which is about 22per cent of the 3,566 caveats lodged
in 2007 and 29per cent of caveats lodged in 2006.

But a considerable number of more expensive homes were sold last
year, with 82 caveats lodged for apartments worth $10million and
above, though 63 were units in Nassim Park Residences. This compares
with 143 in 2007, 22 in 2006 and none in 2004-2005.

Price-wise, new luxury projects saw average launch prices drop to
$2,000 psf to $2,600 psf by the end of last year, from $2,000 psf to
$4,000 psf in 2007.

Prices of existing luxury developments, such as Ardmore Park and
Grange Residences, hit $2,000 psf to $2,400 psf, from $2,000 psf to
$3,300 psf in 2007 and $1,600 psf to $2,000 psf in 2006.

Most of the luxury projects launched in early 2007 have been fully
sold. But several projects remain on the market, especially those
launched in the second half of last year when the sub-prime crisis
hit.

As of last November, only 41per cent of units offered at these
launches had been sold.

This year, luxury sales activity is expected to be lukewarm, similar
to the second half of last year, said CBRE.

It also sees prices falling 10-15% from $2,000-$2,400 in Q4 last year

By KALPANA RASHIWALA

(SINGAPORE) Fifty-five per cent of about 2,200 units in luxury projects launched by developers between 2006 and 2008 remained unsold in November 2008, according to CB Richard Ellis (CBRE).

And the property consultancy firm is tipping a 10-15 per cent fall this year in the price of luxury apartments/condos, which slid to about $2,000 to $2,400 psf of strata area in Q4 last year from $2,000-3,300 psf a year earlier.
The figures refer to existing luxury developments such as Ardmore Park, Four Seasons Park and Grange Residences.
As for new luxury condos/apartments, the average launch price fell to $2,000 to $2,600 psf in Q4 2008 from $2,000 to $4,000 psf in Q4 2007, says CBRE.
Caveats for only 1,096 luxury apartments/condos in prime districts 9 and 10 were lodged in 2008 based on filings by Jan 7, 2009 - a mere 19 per cent and 32 per cent of sales in 2007 and 2006 respectively.
The number of apartments sold for more than $10 million dropped to 82 last year from 143 in 2007. Still, the 2008 figure was above the 22 units sold in 2006.
Most luxury projects launched in 2006 and early 2007 are fully sold, such as Ardmore II and Tate Residences.
But several projects, particularly those released during or after second-half 2007, remain on the market. 'By then, news of the sub-prime crisis had caused the market to pull the brakes,' CBRE said.
In the landed housing segment, the firm predicts a drop of about 10 per cent this year in the price of Good Class Bungalows (GCBs).
Last year, the average price of GCBs rose 20.7 per cent to a record $822 per sq ft (psf) of land area.
'GCB prices recorded very strong growth in 2006-7,' said CBRE director (luxury homes) Douglas Wong. 'This upswing in prices spilled over into the first half of last year. Right up to July 2008, average GCB prices continued to raise the benchmark.
'Also, the capacity of owners to hold prices added to the resilience in this segment in the second half of 2008.'
The highest psf price in a GCB transaction last year was $1,303 for a property in Leedon Road with only 21,097 sq ft of land. In absolute price terms, it fetched $27.5 million.
The all-time record price for a GCB in Singapore is $1,899 psf, set in October 2007 when 32H Nassim Road was sold for $25.5 million.
While the average price of GCBs rose last year, the number and value of transactions fell.
Forty-nine GCBs changed hands for a total of $785 million in 2008, down from 87 worth $1.15 billion in 2007 and 119 worth $1.23 billion in 2006.
CBRE said: 'Going forward, we expect the activity in the luxury residential market to be lukewarm, similar to the pace in H2 2008. Hence, the number of GCBs and luxury apartments transacted will be small.'

January 8, 2009
Property investment sales fall in Q4 '08
It is the lowest level in five years, says a DTZ report
By UMA SHANKARI

(SINGAPORE) Property investment sales in the fourth quarter of 2008
fell to the lowest level since Q4 2003, with most players sidelined
as prices weakened and credit tightened, a DTZ report shows.

Total transaction volume was just $352 million - a 74 per cent fall
from Q3 2008. With sales falling rapidly towards the end of the year,
total transaction value in 2008 plunged to $15.8 billion - a mere one-
third of that in 2007 and two-thirds of that in 2006.

The investment market is expected to remain dormant in the first
three to six months of 2009 as investors wait for prices to fall
further and for tight credit conditions to ease, DTZ said.

Transactions will be confined to the private sector as government
land sales through the confirmed list have been suspended and reserve
sites are unlikely to be triggered.

'The second half of 2009 is likely to see more deals as the price gap
between sellers and buyers closes,' said Shaun Poh, DTZ's senior
director of investment advisory services.

'How much the investment market recovers will depend on the depth and
length of the economic and property downturns.'

Although there was no major office deal in the second half of 2008,
the office sector was still the main driver of investment sales
during the year with $5.6 billion or 35 per cent of total sales - an
increase from 24 per cent in 2007. All the major office transactions
were in the first half of 2008. In the second half, all office deals
were below $30 million.

The residential sector slowed tremendously in 2008 as interest in
collective sales abated. Residential transaction value tumbled 82 per
cent year-on-year to only $3.9 billion, accounting for 25 per cent of
total sales, compared with 49 per cent in 2007.

There were only seven residential collective sales in 2008, compared
with 150 in 2007. 'With high construction cost, financing
difficulties and weak market sentiments, developers are shunning
residential collective sales,' DTZ said.

Transactions in the industrial sector, by contrast, increased in 2008
as investors shied away from high office prices. Some $3.4 billion of
industrial property was transacted, or double the amount in 2007.

About half of 2008's deals resulted from the divestment of JTC's
industrial properties in Q2. And despite the restrained mood in Q4,
several notable industrial transactions took place, including the
purchase of Applied Materials Building by German fund manager Union
Investment.

DTZ said that investment by real estate investment trusts (Reits) was
subdued in the second half of 2008, as they shifted attention away
from acquisitions and focused on refinancing and deleveraging.

There were only three purchases by Reits in Q3 2008 and just one in
Q4, compared with 22 purchases in the first half of the year.

January 8, 2009
Developers may want to take that haircut right away
By KALPANA RASHIWALA

PROPERTY consultancy groups have issued reports over the past couple
of weeks reporting declines in Singapore residential property values,
especially for the high-end segment, in 2008 - with pretty grim
prognoses for 2009 too. This will mount pressure on listed property
groups to make provisions for Singapore residential sites.

When listed property groups did not announce such provisions in their
Q3 results last year, the thinking among analysts was that these
companies would take haircuts in their books on their pricier
residential sites only in second-half 2009, or even later.

DTZ recently published a report estimating a 21.6 per cent decline in
average prime non-landed freehold private home prices in 2008 and
predicted a further 15 to 20 per cent drop this year.

CB Richard Ellis last week also said that in 2008, average prices of
new luxury homes under construction had slipped 30-35 per cent in
prime districts 9 and 10 and by 10-13 per cent in Marina Bay and
Sentosa Cove.

Developers could argue that while property consulting groups may talk
about declines in property values, there has been a scarcity of
transactions to confirm the declines.

Nonetheless, for companies that acquired sites at high prices which
are above current values, there's a case for booking the provisions
in Q4 2008 - and moving on.

For one, most developers reported strong earnings in first-half 2008
that can help cushion against provisions on their Singapore
residential landbank - if they choose to book them in their Q4 and
full-year 2008 financial statements.

However, if they postpone the decision till 2009, the haircut could
add further strain to bottomlines going ahead, which are already
expected to weaken on the back of poor home sales, an all-round
weaker economic showing and lower valuations for investment
properties (these refer to assets like office buildings and shopping
centres held for rental income). Right now the mood is so weak, that
if developers were to announce provisions for their Q4 results, it
would not dent sentiment much further. It may be better to flush out
all the bad newsflow now.

Making provisions sooner also clears the decks for developers to
price projects more attractively to tap any windows of opportunity to
launch projects - and begin a new cycle of profit booking. As a big
property group said over seven years ago when announcing massive
residential provisions, the exercise provided it 'pricing flexibility
to generate cashflow'.

Beyond writing down sites to current values, at least one big
developer in the past went a step further and provided more than it
perhaps needed to.

This is what many analysts say CapitaLand did in August 2001, when it
marked down the value of its residential assets, mostly landbank, by
$508 million, in its half-year result statement.

Analysts said the group wrote down the value to below then market
prices. In short, it overprovided. The group's management refuted
this point, but the strategy may be revisited by some property groups
today spring cleaning their books.

Ask most property agents today and they'll tell you potential buyers
are asking at least 20-25 per cent off current property values before
they will make a commitment. This is to cushion against future price
falls. Indeed, expectations are running high among analysts for a
further drop in home prices this year.

Given this scenario, some developers may find it sensible to mark
down values of high-cost residential sites in one fell swoop (not
just to current valuations but also to factor in likely future price
movements), instead of making a series of piecemeal adjustments over
a period of time.

Of course, such a strategy may be frowned upon as an exercise in
earnings management in some quarters.

This time round, CapitaLand may not be the market leader in making
provisions for its residential landbank.

Still, some analysts point out that breakeven costs for two sites it
bought in 2007 - Farrer Court and Char Yong Gardens - are higher than
what new projects on these sites would command today. Other listed
property groups too acquired sites at steep prices during the
property fever.

Examples include two 99-year leasehold condo plots on Sentosa Cove -
the Beachfront Collection site that SC Global bought at $1,800 psf
per plot ratio in 2007, and The Pinnacle Collection plot purchased by
a Ho Bee and IOI Properties joint venture in early-2008 for $1,822
psf ppr.

The latter was the highest price paid for a condo site in the
waterfront housing precinct. Then there was the 99-year leasehold
Grangeford site, bought at $1,810 psf ppr by Overseas Union
Enterprise in 2007.

In fact, a seasoned property agent says that pretty much most sites
bought in 2007 would be below water today. There is indeed impetus
for developers to make provisions.

However, there will be ramifications. Beyond issues of managing
earnings, for some developers, there could be a real limit to how
much they can write down their sites as provisions may trigger
breaches in loan covenants. They may be asked by their banks to top
up more equity.

That would stretch smaller developers, many of whom are already
highly leveraged and cash strapped.