If Singapore’s economy recovers as the pundits are forecasting, like Morgan Stanley which has raised its GDP growth to 5% y-o-y for 2010 and 2011, up from 4% and 4.5% respectively, then the best proxies to this recovery are the banks. In a report dated Jan 4, Thilan Wickramasinghe says banks will benefit from continued net interest margin growth and upside to fee income as macro-economic conditions improve. “The latest loan growth figures also point to positive momentum and this will strengthen as mortgage and SME credit demand flows through,” he adds.

Along with a stock market hitting new highs, demand for property should remain resilient. November loans expanded 2% y-o-y after a 0.2% contraction last October. “The key here were mortgages, which saw a 15.2% y-o-y increase; the highest pace of growth since March 2008,” notes Wickramasinghe. New property units sold rose 241% y-o-y in FY09 which translates to a rise of 127% in value terms. And as new developments are completed, he expects mortgage demand to continue to strengthen.
Separately, corporate credit saw a turnaround expanding 1% month-on-month after nearly a year of contraction. “With a 8.9% y-o-y GDP growth forecasted in FY10, we expect this momentum to strengthen as corporates and SMEs gear up for rising end-demand,” says CLSA. In past cycles, corporate credit has expanded on average by about 15% annually during periods of strong economic growth. This could translate into an 8% rise in loans according to Wickramasinghe. “Hence, our 7% y-o-y loan growth target is unchallenging,” he says.

A rising stock market could also be the driver for a steeper yield curve and hence gapping opportunities for banks as net interest margins are a function of gapping. “We forecast a 6 bps yoy increase here,” Wickramasinghe says. Clearly, loan- and trade-related fees will be key beneficiaries from rising loan growth and higher trade financing demand, especially from SMEs. Furthermore, as the market rises, there could be a revival in wealth management and fund management income.

In terms of capital, local banks are at a clear advantage. The Bank of International Settlements in Basle, which sets the standard for capital ratios, has put forward proposals to formalise global liquidity and gearing standards. As analysts see it, the banks here have the strongest ratios in Asia, with the highest loss absorption ratios in the region.

“With the sector already ahead vis-a-vis regional and global peers, we believe risks of incremental capital raisings will be minimal,” Wickramasinghe writes in his report.

Over at Nomura Research, Anand Pathmakanthan, Asean banks head, says Singapore banks are well positioned to meet the increased global regulatory standards. He says local banks are unlikely to need to raise additional capital and expects strong earnings growth from them this year.

United Overseas Bank (UOB), which has a total CAR (Capital Adequacy Ratio) of 18.5%, will see its core tier-one capital gain 40 bps from the sale of wholly-owned UOB Life Assurance to Prudential for $428 million, says CFO Lee Wai Fai. According to UOB, the unaudited net tangible asset value of UOB Life as at Sept 30, 2009 was $244 million and the book value of UOB’s investment was $343 million.

However, increased capital requirements for the trading positions of banks may see DBS Group Holdings having to set aside more capital, says Pathmakanthan.

Nomura has a “neutral” rating for DBS and “buy” recommendations for Oversea-Chinese Banking Corporation (OCBC) and UOB. CLSA’s top pick is DBS followed by UOB but has an “underperform” rating for OCBC.

Chart Watch
The STI broke out of the several-times tested 2,800 on Dec 22 (coincidentally on the winter solstice). It has been creeping up ever since, gaining 0.4% to 2,930.49 at the close today with stocks trading at 15.9 times estimated earnings, compared with about 10 times at the start of 2009, according to Bloomberg data.

Technically, the rising 50-day and 100-day moving averages are drawing apart after drawing together in December. This is a positive signal and suggests that the STI has further upside.

Analysts and strategists are forecasting levels of 3,200, which looks possible. Trader and chartist Daryl Guppy says that beyond 3,000, the next resistance area is 3,330 to 3,350, established by a trading band projection target.

Immediate support is at the breakout level of 2,800 and the best support line is the 50-day moving average, currently at 2,770.

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“China needs the world and the world needs China,” Chinese Premier Wen Jiabao announced on the eve of the celebration the 60th anniversary of the founding of the People’s Republic of China on Sept 30 this year. From the guessing game on the revaluation of the Yuan to the “carry trade” antics of the US Dollar, the timely or late unrolling of fiscal stimulus worldwide, climate change policies, to whether jobs and loan growth will return strongly, about the only certainty next year is that China will overtake Japan as the second economic power.

The first decade is already a lost decade for developed equity markets. As the comparative chart by Bloomberg on asset class performances from 1999 to 2009 shows, it was a golden decade for, what else, but gold. From record lows of US$252 ($355) per ounce in 1999, it is now being pushed to US$1,500 for next year, if you follow the gold pundits. As someone said, “it is fear of inflation, and not inflation” that is giving it a safe haven credential beyond its demand.



Next came commodities that despite the 80% retreat from its high are still the second best performing asset class from 10 years ago. Worst off is the investor who puts a dollar in the S&P 10 years ago. He would get back about 78 cents.

The STI has fared better, but not as hot as BRIC (Brazil, Russia, India, China) markets because the world recession hit western export-oriented economies like Singapore, Korea, Taiwan and Japan hard as well.
The STI closed at 2,841.56 today, recovering a sizzling 61% for the
year. But the record is mediocre over 10 years, up only 12.7% from
its Dec 30, 1999 high of 2,479.58. It barely beat the decade’s
inflation rate. By comparison, investors who bought Singapore property
fared much better. Over the decade, the URA residential property index
adjusted for inflation is still up more than 50% as of Oct 2009,
even after correcting from its 80% high set in 2007 before the market
fell.

So where do you put your money next year? Which sectors will take off? What will be the impact of the opening of the Integrated Resorts? Which Singapore companies should you watch out for next year?

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The Housing Development Board (HDB) on Tuesday launched four Build-to-Order projects with 2,670 new flats, bringing a total flat supply of 13,500 units for this year.

HDB said two BTO projects, the SkyTerrace @ Dawson and SkyVille @ Dawson, provide new flats for homebuyers who are prepared to pay for a prime location with better finishes.

HDB expects a good response to these projects. Prices start from $532,000 for five-room units, $373,000 for four-room units, $280,000 for three-room units and $112,000 for studio type units.

The 40-storey Dawson projects will offer new features such as the ‘paired flats’ – for those who want to live close to their parents – which is under the Multi-Generation Living Scheme.

HDB’s deputy CEO for Estates and Corporate, Yap Chin Beng, said "Altogether, we have 65 paired studio apartment with four-room flats, or studio apartment with five-room flats so that the married children and parents can apply under a single application.”

"The flats are connected through connecting doors, but each unit have their own main entrances."

Buyers of SkyVille can choose the layout of their flat under the Flexi-Layout Scheme. For instance, buyers can opt for a bigger living room area but with fewer bedrooms.

The other two BTO projects are Segar Grove in Bukit Panjang and Montreal Dale in Sembawang. The price for a four-room flat starts at $210,000; $125,000 for a three-room flat; and $72,000 for a two-room flat.

About 95 percent of the two- to five-room units offered under the BTO scheme are reserved for first-time homebuyers.

Market watchers noted that the latest BTO projects will give homebuyers a wider range of options to suit their preferences and budgets.

"Some of the new flat buyers have expressed that there is not many locations to choose from. But actually now, it is pretty much spread out. You have your central location and also what you call the suburban locations. So it sort of caters to the needs of flat buyers,” said Eugene Lim, associate director of ERA Real Estate.

HDB said homebuyers can expect more BTO projects next year. It is prepared to launch one BTO project a month if demand for new flats remains high.
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Singapore’s sales of uncompleted private homes in November dropped 26 percent, making it the 4th successive month of decline.

About 600 units were sold in November, the second lowest level since January 2009 when private home sales dropped below 1,000 units.

But several experts said that 600 home transactions in November was not a bad figure.

The director and head of research services (Asia-Pacific) of Cushman & Wakefield, Ang Choon Beng, said "600 is still higher than the sales in November 2007, and is about three times higher than the sales in November 2008. So all in all, I don't think the number is bad, or anything to be alarmed about."

Real estate lecturer at Ngee Ann Polytechnic, Nicholas Mak, also said "This (November) is towards the end of the year, and coupled with the government's measures, we do expect some slowdown in the home sales."

The year-end result is traditionally slow for the real estate market. In September, the government implemented anti-speculative measures to cool off the market, and announced it would release more land for homes by the second half of next year.

"This situation (cooling of property sales) is likely to persist for the next few months. The sale volume is likely to remain less than 1,000 units per month,” said Mr. Mak.

"But what is interesting in the November figures is that there is a slight increase in the number of units launched and sold in the prime districts. We suggest that developers are trying to start up the sale momentum, the sale interest, in this area," he added.

More than half of the home transactions in November had median prices beyond S$1,500 per square foot (psf).

The top seller in November was the Parvis at Holland Hill, with 103 units sold for about S$1,507 psf. The Boulevard Vue at Cuscaden Walk had the most expensive price tag last month, with three units sold at a median price of $2,850 psf.

Market watchers said they expect mass-market property prices to remain steady for the next few months, but high-end properties may increase, especially with additional attractions such as the upcoming integrated resorts.

Looking forward, experts said the prices and units sold in March to April next year will give good indication of the real estate market boom
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Investors who have been smiling at CapitaMalls Asia’s sparkling debut (up 8.5% first day) and continued rise of more than 25% since its Nov 25 listing, now see another possibility with the reportedly soon-to-be-lodged IPO of budget carrier Tiger Airways.

Full-service airlines remain mired in losses and are flying below average premium passenger loads but budget carriers in Asia have fared better, with their low-cost operating structure and ability to pass on fuel and other service surcharges to passengers.

Tiger Airways Holdings, 49% owned by Singapore Airlines, is said to be aiming to raise $200 million. Bloomberg newswire says Tiger may lodge the offer as early as Dec 21 next week. Citigroup Inc., Morgan Stanley and DBS Group Holdings are mandated to manage the sale.

The carrier aims to price the shares in mid-January and plans for a listing in February, the news agency quoted a source. The initial share sale will value Tiger, which began flying in September 2004, at between $725 million and $910 million, according to the document.

By comparison, Air Asia Bhd, the only discount carrier in Southeast Asia that is listed (and which is also said to be considering listing its separate JV air carrier subsidiaries in Thailand and Indonesia) is valued at RM3.64 billion ($1.5 billion).

The market this week has been listless, awaiting signals from the US Federal Reserve Open Market Committee’s two-day meeting that starts today, while digesting uncertain news from Dubai, continued sovereign debt downgrades (Mexico was the latest) and China’s curbs on its property boom.

Meanwhile, news that The Abu Dhabi Investment Authority (ADIA) is trying to abort an agreement to buy US$7.5 billion ($10.5 billion) of Citigroup Inc. stock at eight times today’s price, saying the bank misled it about the investment, shows the tussle between shareholders and the management of bailed-out banks who are diluting the company’s worth as they issue shares to get out of state control (and better control their compensation packages, critics say) earlier.

Sovereign Wealth Funds like Singapore’s GIC and ADIA had helped saved Citigroup earlier when they needed funds during the credit crunch. They will now suffer dilution in their investments unless they top up since Citigroup announced on Dec 14 it would sell stock to repay US$20 billion in bailout funds to the US government. Abu Dhabi is also said to be trying to avoid further investment losses after this week agreeing to provide US$10 billion to help Dubai World avoid a bond default.

The news that Singapore’s jobless rate continued to slow confirmed recovery expectations but did not have much impact compared to regional concerns. What is interesting to note is that Singapore’s manufacturing continued to shrink, losing 6,400 jobs in the three months ended September, the fourth straight quarter of decline. It was offset by 12,700 new jobs in the services sector where the hospitality and Integrated Resorts are adding on more people.

Chartwatch: High-end developers still on a roll
The Straits Times Index closed up 0.5% to 2,813.93, led by Singapore Airlines, which said it would suspend some destinations but added more flights on others as it adjusted its services to suit different growing markets, and Singapore Telecommunications.

Singapore property developers sold 600 units in November, down 26% from 811 units in October. “While the mass market suffered from a lack of new launches, the upper-mid and high end volume started to pick up with Ho Bee Group’s Parvis being the top-selling project. Our property analyst expects 8,000–10,000 units sales next year (compared to 14,400 YTD) with the high-end enjoying a percentage improvement,” notes DBS Vickers. Their top buys areSC Global Developments (Buy, TP: $1.92), Ho Bee (Buy, TP: $1.99) and Wing Tai Holdings (Buy, $2.05 maintained). UOB KayHian also says similar, that the “high-end segment maintains strong sales momentum despite overall slowdown.” They have buys on Ho Bee, Wheelock Properties and Wing Tai.

For the rest of the week, the outcome of the US Fed’s FOMC (Federal Open Market Committee) meeting will be the decider. Most economists expect the Fed will leave rates unchanged as job and credit growth remains weak. “The FED is expected to raise rates only in 2H10. The USD strengthened with the USD Index up 0.78% to 76.96,” says DBS Vickers. “Oil price should trade from USD70–90pbl, averaging at USD80pbl in 2010.”
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Santa Claus’ sleigh may have started its rounds in the North Pole but markets are watching out for other red signs as short-term uncertainties spur more profit taking and a rush to safe havens as the year winds down to an end. Strong economic headwinds (US Fed Chairman Ben Bernanke’s caution on Tuesday that “We still have some way to go before we can be assured that the recovery will be self-sustaining” set the Dow back a 100 points), continued sovereign debt downgrades and worries about Dubai’s problems spreading dominated Wednesday.

Dubai World’s property unit Nakheel PJSC’s US$3.52 billion ($4.9 billion) of Islamic bonds due Dec 14 dropped more than 10% yesterday to 46.5 cents on the dollar, according to Citigroup Inc., reported Bloomberg, and bonds sold by DIFC Investments and Dubai Holdings Commercial sank as low as 44.5 cents on the dollar after Moody’s Investors Service cut the credit ratings of six state-run companies.

Then Greece’s Finance Minister George Papaconstantinou came out to say there’s “absolutely” no risk that the country will default on its debt. “We’re moving swiftly to reassure citizens and markets that we’re moving in the right direction.” The minister also said that Greece would not seek a European Union aid package. Standard & Poor’s had placed the nation’s debt on watch for a downgrade two days ago, and Fitch Ratings followed yesterday by cutting Greece’s credit rating one level to BBB+ from A–.

Asian markets across the board followed the Dow down today, although it was more muted.

Locally, the FTSTI lost 0.3% to 2,797.21 at the close. The oil and gas sector dominated attention, with services provider KS Energy’s announcement that it is consolidating its distribution businesses into one new $320-million entity called KS Distribution, by taking private its subsidiary, Aqua-Terra Supply (ATS), and its associated company, SSH Corporation. For every ATS share, an ATS shareholder will stand to receive a combination of $0.23 in cash and 0.125 KS Energy shares, a 28.9% premium over last traded price. SSH shareholders will stand to receive $0.16 in cash and 0.1 KS

Energy shares. This represents a 14.6% premium over last traded price.

The developments are in line with DBS Vickers’ 2010 strategy theme released yesterday that said “our key investment thesis is for builders to outperform asset owners/operators, due to the resurgence in orders”.
“The key difference from the bull market in 2004 is that this order flow resurgence will be led by production-related contracts in 1H 2010, which are the bottlenecks for oil companies’ cash flows after a pause in capex in 2009.”
The broker picked Sembcorp Marine (+20% to Target Price: $4.26), PEC (+26% to TP: $0.88) and Swiber Holdings (+40% to TP: $1.24).

Another growth area is by acquisition of offshore assets. DBS says, “We believe that companies that raised equity early in 2009 should benefit as the industry recovers. They are well positioned to purchase in 1H 2010: 1) Distressed offshore vessels, and 2) Smaller-sized companies with the required skill sets, but weakened financials.”

It picked Ezra Holdings (+26% to TP: $2.77) and Mermaid Maritime (+40% to TP: $1.11). The report said the key “inflexion points” to watch for in 2010 are a W-shaped economic recession that may push oil back to US$50/bbl, weaker-than-expected margins for new orders due to stiff competition and slower than expected easing of tight credit.

Chartwatch: Sideways STI


Phillip Securities’ technical analyst said a day ago, “The odds in the equity market now are stacked in favour of the bears.”

“Right now, the odds are pointing towards a weaker equity market in the short term. The STI & S&P 500 have both been trading around rather key levels, (2,800 and 1,100 to 1,110 respective) and formed momentum divergences off those key levels. In addition, we have the Dollar appreciating very sharply from tagging strong support in the 74.50 to 74.00 region. We might see a continuation of Dollar strength, with the possibility of a push past 76.00 within the next week,” the analyst noted.

“At this point in time, we see a lot more down side risk present than upside potential and advise investors to stay out of longs for the time being.”

DBS Vickers says, technically, the Dow has been resisted at the 10,500 level in the short-term. A pullback to 10,000 is seen over the next 1–2 weeks. The 10,350 level however caps immediate bounces.

The focus is on this coming Friday’s data on November US retail sales and a deluge of Chinese economic data that will indicate how consistent and strong the global recovery really is.

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Chappelis Pte Ltd submitted a top bid of $38.5 million for the Westwood Avenue residential site.

HDB said it received 32 bids, with the lowest one from Boon Keng Development, worth $16.8 million.

The second highest bid was $38 million, which came from a joint venture between Sunway Developments and Hoi Hup Realty.

Act-Nobel Homes completed the top three bids with its $35.1 million offer. Other bidders include Sim Lian Land, Sing Holdings, Soilbuild Group and Frasers Centrepoint.

The land parcel, which is located in Jurong West, has a total area of 14,098.9 sqm and is proposed to have a 99-year lease of landed housing development.

With its $38.5 million top bid, the selling price works out to around $254 psf. CB Richard Ellis (CBRE) said terrace houses built on the site are expected to have a selling price at around $1.25–S$1.30 million each.

"The alternative is cluster housing that can appeal to home buyers who are attracted by the facilities offered," said CBRE Research executive director, Li Hiaw Ho.

"Currently, houses in Westville and Westwood landed estates are sold in the resale market at $850,000 to $1.1 million each. Potential buyers could comprise locals working in the manufacturing firms in Jurong and Tuas, as well as academics at the nearby Nanyang Technological University," he added.

HDB will award the site after two weeks, when all the bids have been evaluated.
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Singapore's private residential market experienced a strong surge in the third quarter, as the volume of transactions increased 20 percent over the second quarter.

According to property consultancy firm Savills, around 11,000 units were sold between July and September, mostly in the mid-tier and mass market sectors.

Projects like the Optima at Tanah Merah, Hundred Trees at West Coast, and The Gale at Flora Road benefited from this buying interest.

However, the high-end sector observed that the government’s implementation of the cooling-off measures and the limited number of launches eased off transaction volumes in the third quarter.

Behind the buoyant sales, prices of private properties increased 15.8 percent in Q3 - the sharpest quarterly rise in 28 years.

Even in the high-end sector, prices recorded two consecutive increases, despite being around 22 percent under the previous peak in the last quarter of 2007.

Savills said that it expects to have slow transaction volumes in the private residential sales market in the next few months, as purchasing activity tends to ease during the year-end holiday season and there will be fewer major launches.

However, island-wide prices of homes are expected to stay firm, with a modest increase from Q3 to Q4.

Meanwhile, office vacancy rates surged 12.5 percent in Q3. The figure was up by 2.5 percentage points from Q2, as 1.25 million sqft of new office space was completed.

According to Savills, net supply now exceeds net demand by around 1.2 million sqft. Companies stayed cost conscious in Q3 despite a more positive outlook for the economy.

Consequently, tenants relocating to seize the chance of transferring to new office buildings that give them a more competitive rental package largely led the leasing activity.

Looking forward, Savills said that the slow pick up of business confidence will prompt more companies to revisit or to expand their space planning needs that will result in an increase in the demand for leasing.
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Investment sales of Singapore property recovered with a $9.4 billion year-to-date tally, after a slow start in the first quarter. CB Richard Ellis (CBRE) projects that the full-year figure will reach more than $10 billion after all transacted caveats in November and December have been lodged. However, the figure would only be around half of $17.9 billion in 2008.

Hitting investment sales deals of about $15 to $20 billion, property consultants anticipate 2010 to be a better year. Such transactions are the basis for the medium to long-term view of developers and investors to the property market.

Investment sales are defined by CBRE as transactions with a value of no less than $5 million, including landed residential property and apartments, private and government sales of buildings and land, both en bloc and strata. It likewise includes change of ownership of property through share sales.

“With 2010 expected to be a recovery year for the Singapore economy, investment sales could be in the region of $15 billion, similar to that of 2005. Economic fundamentals should start to catch up with the positive sentiments in the stock market and the residential market, with more stability in the financial and business sectors,” said Jeremy Lake, executive director for investment properties at CB Richard Ellis.

Chris Fossick, managing director of Jones Lang LaSalle (South East Asia and Singapore) said, “Investors are starting to focus on the recovery, and whilst still cautious about the short term, they are optimistic about the mid and long-term outlook of the Singapore real estate market.”

Most market watchers are expecting that the residential segment will lead the way for next year’s investment sales deals, with the Government scheduled to resume the sale of residential sites through its confirmed list from January. The collective sales market is also expected to be more active next year, after just one major deal this year (the $100.8m sale of Dragon Mansion).

According to Mr. Lake, investors' interest for retail malls in suburban areas continues to be strong.

“So the appetite for office space, which has been somewhat weak in the past 12 months or so, will pick up again. However, deal flow may be limited as many of the sellers who were keener to sell have probably already sold,” he said.

Shaun Poh, senior director for investment advisory services at DTZ, says there are reserved funds for office properties in 2010 but deal sizes will be limited to $200 to $300 million for each building. “Office investors are also more stringent, demanding initial property yields of at least 4-5 per cent, compared with 2-3 per cent during the 2007 boom. And they'll only look at buildings that are substantially leased, given supply overhang issues,” he added.

“The office market would likely see more investment activity next year as the rental slide eases or rents even begin to recover. And with credit loosening further, major institutions like real estate investment trusts could be priming themselves for further acquisitions, having addressed refinancing concerns,” said Karamjit Singh, Credo Real Estate managing director.
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Las Vegas Sands Corporation is expecting to launch its $5.5 billon casino resort with 2,700 rooms in phases starting in Q1 2010, a company spokesman said.

He refused to provide the exact schedule for the opening, which will include 800 to 1000 hotel rooms. However, one source said it would probably be “towards the end of March."

According to spokesman Ron Reese, the project’s first phase will include some of the convention and meeting spaces, retail operations and the casino.

In July, Sands said it was making every effort to launch the triple-tower Marina Bay Sands on the 15th of February next year.

The company is now in the process of constructing parts of the resort’s "sky park", the 1,200-foot-long span running across the top of the three hotel towers. About half of the 14 total segments have been completed.

According to Reese, Sands aims to launch the remaining hotel rooms, the sky park and several other retail spaces about 60 days after the first phase of opening.

The company expects to open the remaining attractions, including museums and theatres by the end of 2010.
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