Straits Times: US to bail out mortgage giants

Plans to place Fannie and Freddie under US govt control may be announced today

Washington – US Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control, seeking to halt the crisis of confidence in the troubled companies that make up almost half of the US mortgage market.

The news, first reported on The Wall Street Journal’s website late on Friday, came after stock markets closed.

Officials say the announcement could be made as early as today, before Asian markets reopen tomorrow.

A bailout of the two mortgage giants may calm some Asian markets, where central banks and other financial institutions have been among the largest investors in Fannie Mae and Freddie Mac and, therefore, one of the largest sources of mortgage finance in the US.

The two government-sponsored enterprises own or guarantee almost half of the United States’ US$12 trillion (S$17 trillion) in outstanding home mortgage debt.

It is impossible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.

Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies’ losses warrant, sources said late on Friday. This would be an attempt to minimise the initial cost of the rescue.

The drastic effort follows the bailout this year of investment bank Bear Stearns as government officials continue to grapple with how to stem the credit and housing crises that have hobbled the economy.

For months, a fierce behind- the-scenes debate among policymakers has been waged over whether to seize the companies or let them work out their problems.

On Friday, senior Bush administration and Federal Reserve officials called in top executives of Fannie and Freddie and told them that the government was preparing to place the two companies under a conservatorship, a legal status giving the government the option and time to restructure and revive the companies.

Placing the companies in conservatorship, rather than receivership, could signal that the government does not intend to nationalise or liquidate Fannie and Freddie.

Instead, under the terms of a federal law passed this summer, conservatorship is designed to allow the government to restructure the companies and return them to private control.

The executives of Fannie Mae and Freddie Mac were also told that, under the plan, they and their boards would be replaced.

Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be footed by taxpayers.

Shareholders have already lost billions of dollars as the stocks have plunged more than 80 per cent this year.

After stock markets closed on Friday, the shares of Fannie stood at US$5.50, down from US$70 a year ago. Freddie was trading at about US$4, down from about US$65.

If the government plan succeeds, uncertainty in the markets around Fannie and Freddie could subside, making it easier for the companies to get access to funding at cheaper rates.

That, in turn, could have a spillover effect on the overall market for mortgages, lowering interest rates and helping the battered US housing market to recover.

The Wall Street Journal reported on Friday that the rate of US home mortgages overdue or in foreclosure rose again in the second quarter as housing markets weakened and more borrowers defaulted on prime loans.

The foreclosure crisis, generally considered the worst since the Great Depression of the 1930s, began in late 2006 with a surge in defaults on sub-prime loans – loans made to people with weak credit records.

Professor Charles Calomiris, a professor of economics at Columbia University’s School of Business, said delaying a rescue would only increase the risks and costs.

‘The last thing you want to do is give a distressed borrower more time because when people are in distress, they tend to take a lot of risks,’ he said.

‘You don’t want zombie institutions floating around with time on their hands.’

Source: Straits Times – 07 Sept 2008

Business Times: Maybank launches two home-loan promotions

MAYBANK Singapore has launched two home-loan promotions, including a variable-rate loan that charges just 1.68 per cent interest in the first year. The interest payable on the three-year variable-rate mortgage rises to 2.48 per cent in the second year and 2.88 per cent in the third year, before adjusting to the bank’s full board rate – now 3.75 per cent – for the fourth and subsequent years.

The rates for the first three years are based on the current level of the board rate less a discount, and would vary if the board rate were to change. Maybank introduced a single board rate for all its home loans in Singapore in February last year and has not changed it so far.

Maybank is also offering a four-year fixed-rate home-loan package starting at 2.28 per cent for the first year and rising to 2.88 per cent in the second year, 3.38 per cent in the third year and 3.88 per cent in the fourth year, before adjusting to the board rate.

The rates for the first four years are fixed and would not vary even if the bank were to change the board rate.

The promotional rates for both the variable and fixed-rate packages are available for a ‘limited period’, Maybank said. They apply to HDB and private property loans and are available to new home buyers or those who want to refinance their existing home loans.

Helen Neo, head of consumer banking at Maybank Singapore, said the promotional offers are to mark the 48th anniversary of the bank’s presence in Singapore, its largest overseas market. It has 22 branches island-wide. ‘We are proud to have made Singapore our home for 48 years now,’ she said. Two weeks ago, Standard Chartered Bank launched a home loan package priced at 0.8 percentage points above the three-month Singapore interbank offered rate (Sibor) on the first business day of the month at the start of the loan, for the first three years.

The package also allows customers to link their other accounts with the bank and use the interest earned on their deposits to offset the interest payable on their home loan. The three-month Sibor on Sept 1 was 1.25 per cent. In July, HSBC introduced a home-loan package also pegged to the three-month Sibor but with an interest rate spread that falls after the first year.

The spread is 0.75 percentage points above the Sibor in the first year, 0.65 points in the second year and 0.55 points subsequently.

Source: Business Times (By Conrad Tan) – 06 Sept 2008

Straits Times: Loan defaults: The worst is yet to be

NEWS ANALYSIS
Loan defaults: The worst is yet to be

NEW YORK: The weak go first, and people take comfort from the very weakness of the fallen. The fact that it is only the weak who are suffering is taken as proof that there is no general problem.

That is how it is with the mortgage mess, still called the sub-prime crisis though it has long since spread. There are more prime mortgages going into foreclosure than there are sub-prime ones.

Now the world of corporate loans looks like mortgages, circa 2007.

Defaults are on the rise, but they are concentrated among small companies in industries with big problems.

Standard & Poor’s (S&P) reported this week that the default rate – the percentage of leveraged loans in default – rose to a five-year high of 3.3 per cent last month. At the end of last year, the rate was a tiny 0.24 per cent, or about one in 400 loans.

‘There have been no high-profile, high-impact defaults,’ S&P reported. It pointed out that while 3.3 per cent of loans are in default, those loans amount to just 2 per cent of the money lent. Few big loans have gone bad.

The loans that have gone bad have been concentrated in two industries – real estate and car parts. S&P calculates that they have accounted for almost half of this year’s defaults. Gambling has also had problems, as it turns out that there are too many casinos in some places.

It has been easy to write off as unimportant most of the recent defaults. WCI Communities? What did you expect from a home builder with major operations in Florida? Intermec? It is a car parts supplier overburdened by debt when it came out of its previous bankruptcy in 2005.

But the trends that felled those companies are present for many others, and just as good times can reinforce themselves, so can bad times.

Linens ‘N Things is a retailer that went private in a 2006 leveraged buyout and went bankrupt earlier this year. It has a reorganisation plan that wipes out some creditors and gives others stock in the company. It is closing a lot of stores, and has negotiated lower rents on others. That won’t help the landlords, or those who lent to them. To make things worse, the banks that were lending with abandon little more than a year ago are now erring on the side of caution.

‘The tightening already appears to be more widespread than it was during the early 1990s, and portends more difficulty in financing business fixed-investment and commercial real estate projects in the second half of this year,’ said president Eric Rosengren of the Federal Reserve Bank of Boston this week.

The leveraged loan market in 2006 and the first half of last year featured banks competing with one another to make foolish loans. There was a flood of ‘covenant-lite’ and ‘toggle-PIK’ loans. The first stopped the bank from stepping in until the borrower missed a payment. The second made it almost impossible for a borrower to miss a payment. If it did not have the cash to pay interest, it could ‘pay in kind’ by taking out more loans.

That has meant that as some leveraged buyout loans have grown dicier this year, the banks have been able to do little except watch nervously. If, or when, those companies do go broke, the losses will be larger than they would have been if defaults could have been declared earlier.

Those who dismiss talk of a credit crunch point out that banks appear to be lending more than ever.

But Mr Rosengren argued that it is one reason the problem is getting worse.

‘Much of this growth likely reflects involuntary lending,’ he said. ‘Swelling bank assets places pressure on capital-constrained banks to pull back in other areas.’ That is Fed-speak for ‘make the banks unwilling to lend, except at high rates to safe borrowers’.

The weak go first. But they will not be alone.

Source: Straits Times – 06 Sept 2008

Straits Times: Lehman may split into good and bad

Ailing bank’s survival plan is to move its troubled real estate assets to new firm

NEW YORK: Lehman Brothers, the ailing Wall Street bank, is working towards a radical solution in its fight for survival: Splitting itself into a ‘good’ bank and a ‘bad’ one.

Lehman, which has been searching for a financial lifeline from outside investors, is contemplating placing about US$30 billion (S$43 billion) of troublesome commercial mortgages and real estate that it owns into a new publicly traded company – the ‘bad’ bank.

The rest – the ‘good’ one – would then be able to carry on with the help of a cash infusion from one or more investors.

The fate of Lehman is one of the biggest questions hanging over Wall Street, where concern about the health of the financial industry and the broader economy sent the Dow Jones Industrial Average into a 345-point tailspin on Thursday.

Lehman, among the largest underwriters of mortgage-backed securities, has been brought to its knees by the running credit crisis.

Analysts expect the firm to write down as much as US$5 billion of commercial real estate holdings and to post a loss of US$2.49 a share at its third-quarter results briefing next week.

The firm’s hard-charging leader, Mr Richard S. Fuld Jr, has been trying to sell some of the bank’s troubled commercial mortgage holdings, but has failed to find enough buyers.

The bank has also been negotiating to sell part of itself to the government- owned Korea Development Bank or other investors in Asia. While no deal has been reached, many analysts think one will materialise soon.

The good bank/bad bank idea is hardly new. Several troubled financial institutions took similar steps in the late 1980s and early 1990s.

If Lehman goes through with the plan, the firm itself would probably inject US$6 billion to US$8 billion in equity into the new company, people briefed on the matter said on Thursday. It would also provide debt financing for the firm and could raise additional money from outside investors, who would benefit from any recovery in the market for commercial and residential real estate assets.

Splitting off troubled assets would help Lehman attract new investors, many of whom have been reluctant to put money into the troubled financial industry.

Creating the separate company, the thinking goes, would also strengthen the confidence of people who do business with Lehman every day – other banks, hedge funds and institutions like pension funds – thereby encouraging them to continue doing business with the firm.

Shareholders, who would own shares of both the real estate portfolio and the new unencumbered Lehman, could bet on whether the commercial real estate market recovers or gets worse and sell their ‘bad bank’ shares.

Source: Straits Times – 06 Sept 2008

Straits Times: Mortgage rates still at rock bottom

HOMEBUYERS and sellers, hit by the recent market malaise, have at least one comforting constant in a market plagued by uncertainty – low interest rates.

Despite various economic woes – inflation, volatile oil prices, slowing economic growth – Singapore’s banks are continuing to offer rock-bottom mortgages.

The latest to reaffirm Singapore’s low interest rate home loans environment was Malayan Banking (Maybank), which yesterday launched a new three-year variable home loan that offers a low interest rate of 1.68 per cent a year for the first year.

Still, after that, the rates increase to 2.48 per cent for the second year and 2.88 per cent in the third.

Maybank’s new package followed two other home loan launches by Standard Chartered Bank (Stanchart) and HSBC.

Both offer competitive interest rates, albeit through slightly more creative housing loans that are pegged to the Singapore Interbank Offered Rate (Sibor).

Stanchart’s MortgageOne Sibor is priced at 0.9 per cent a year above the three-month Sibor for the first three years.

It comes with a unique offset feature that allows customers to use the interest earned on their deposits to reduce the interest payable on their home loans.

HSBC’s latest Sibor-pegged home loan comes with a progressive interest rate reduction feature – the first of its kind here.

On top of the prevailing three-month Sibor rate, customers pay an additional interest of 0.75 per cent in the first year. The rates fall to Sibor plus 0.65 per cent in the second and, from the third year onwards, Sibor plus 0.55 per cent.

With interest rates so low, many home owners naturally consider refinancing their home loans with packages that are pegged to a faltering Sibor.

DBS Bank head of deposits and secured lending Koh Kar Siong said Sibor-pegged loans offer customers more transparency and also allow them to enjoy lower interest rates in the current market environment.

Mr Gregory Chan, OCBC Bank’s head of secured lending, agreed. He said OCBC customers preferred home loans pegged to market rates because these are ‘more transparent and bear greater significance for consumers during uncertain times’.

Source: Straits Times  (By Francis Chan) – 06 Sept 2008

Straits Times: Sentosa to review transport links in time for IR

New chief also plans to create fresh masterplan and ensure smooth opening for attractions
By Lim Wei Chean

THE new chief of Sentosa said the resort island is evaluating its transport network to make sure it can handle the hordes of visitors expected to accompany the opening of its integrated resort (IR) in 2010.

Mr Mike Barclay said the island’s cable cars, buses, skytrains and roads would be examined to ensure they can accommodate up to 15 million people a year.

He said: ‘The opening of the IR will bring many challenges for areas like infrastructure. We must make sure we can handle the capacity.’

Mr Barclay, who became Sentosa’s chief last month, was speaking for the first time about his outlook for the island. Along with re-evaluating the transport grid, Mr Barclay hopes to create a new 10-year masterplan and see several new beach attractions open next year.

When it opens in the first quarter of 2010, Resorts World at Sentosa is expected to more than double the six million people who visit the area annually. It will include attractions such as Asia’s first Universal Studio and a Marine Life Park with whale sharks.

Two weeks into the job, the 41-year-old said he is unable to give more concrete plans on what he intends to do. He took over from Mr Darrell Metzger, who quit last April.

However, Mr Barclay said he wants to ‘enrich a very good model that we have here’.

His short-term goal is to make sure four new attractions slated to open on Siloso Beach by next year do so smoothly.

The beach will have a new zipline, a sky diving simulator and a machine that creates waves up to 3m high for surfers. It is also expected to feature a watersports centre that will have food and beverage outlets as well as various sea sports.

Mr Barclay is also working on a new 10-year masterplan for the development of the island after the last masterplan spearheaded by his predecessor was completed earlier this year. Mr Metzger was credited with turning around the island’s fortunes, reviving lagging visitor numbers and lacklustre attractions.

The new masterplan is expected to be up by the end of the year. Mr Barclay said: ‘It is an exciting time ahead for us.’

However, one hotel project that was supposed to have opened on the island this year has stalled. The S$45 million Palawan Beach Resort by NTUC Club is back on the drawing board amid rocketing land construction costs.

The 200-room resort was announced three years ago as a high-end hotel for the working class.

A NTUC Club spokesman said it is ‘reviewing the concept and plans of the resort’ to ensure that it will ’serve our social mission to provide an affordable social and recreational facility for our members and the masses’.

Source: Straits Times – 06 Sept 2008

Business Times: Top-tier London homes still hot; wider market cools

LONDON’S housing market may be cooling, but not when it comes to 10-bedroom mansions with designer interiors, indoor swimming pools and private gardens in the capital’s most sought-after neighbourhoods.

Demand for these homes – known as the ’super-prime’ or even ‘uber-prime’ slice of the market and typically priced upwards of £20 million (S$50.7 million) – is still far ahead of supply. And, fuelled by oil and commodity prices, which are adding to the wealth of emerging market millionaires, the appetite is showing no sign of slowing under the weight of the credit crunch that is crippling average homeowners, lenders and businesses.

Eliza Leigh, a partner at estate agent Knight Frank, said that the company in early July launched a flat for Grosvenor, the firm which manages the Duke of Westminster’s property estate.

‘In the first 48 hours, we generated 18 viewings for a property with a £25 million guide price,’ she said. ‘We achieved that by close of business on Tuesday, having launched at 9am on Monday, and that purchaser exchanged contracts by Friday.’

Analysts expect UK house prices to tumble at least 20 per cent from their peak as a decade-long boom turns to bust. The majority of agents say that business has ground to a halt and even the so-called ‘prime’ market – roughly, homes between around‚ £pounds; 1 million and ‚ £pounds; 10 million – has slowed as once spendthrift bankers and executives draw back.

But ’super-prime’ is blossoming, helped by London’s enduring popularity and – critically – by a lack of properties at the very top end. There are few coveted addresses and even fewer families moving out.

Source: Business Times – 06 Sept 2008

Business Times: Private banks want slice of NRI action

Non-resident Indians with cash to invest now being wooed out of Singapore
By LYNETTE KHOO

(SINGAPORE) Private bankers have set their eyes on the rising wealth of non-resident Indians (NRIs) whose businesses are usually closely tied to the booming Indian economy.

Despite difficult market conditions, some banks are looking to expand their team of relationship managers working on this segment as they expect the NRI slice of their private banking pie to grow quickly.

‘We have close to 80 people now, but I won’t be surprised if we double our staff count over the next two years,’ said Balakrishnan Kunnambath, SG Private Banking managing director and global head of Indian subcontinent.

Sandeep Sharma, head of Barclays Wealth South Asia, told BT that he is now looking to more than double his team of 15 private bankers who handle the NRI segment over the next six months.

This mirrors the growth expected from the NRI segment. Private banks typically do not provide breakdowns on assets under management (AUM) in each segment, but they note that the growth in their NRI segment has been rapid.

This trend is unlikely to reverse despite the market turmoil globally, according to the private banks.

‘India has seen a lot of slowdown in the last five to six months but we are of the opinion that the structural story remains very robust,’ said Mr Kunnambath.

SG Private Banking is projecting a steady growth of 35 per cent to 40 per cent in Asia. Its AUM in the Asia Pacific region now stands at US$20 billion, having grown by above 30 per cent each year.

Clients need to have a minimum of US$1 million to open an account with Barclays Wealth or SG Private Banking.

Barclays Wealth – which started reaching out to this NRI segment with investible funds of at least US$5 million only last November – expects the segment to make up 30 per cent of the AUM and revenues in Barclays Wealth Asia Pacific business by mid-2010.

‘A lot of bankers, researchers and clients have no idea how far this market correction is going to go,’ Mr Sharma said. ‘We took an approach after January-February to be very conservative and offer more products that protect capital rather than chase returns.’

Such products are diversified across various asset classes and are a good substitute for cash as they still allow clients to participate in any potential upside, he added.

Barclays Wealth is now making sure that its team consists of bankers who are familiar with specific geographies and languages to better tap the different markets. It is also capitalising on its links with the investment banking arm to offer families of those businesses with private banking services.

Both SG Private Banking and Barclays Wealth have designated Singapore as a hub for their NRI business. The pool of NRIs here is not necessarily the largest in the region but these banks said they have been attracted to the country’s supportive banking jurisdiction.

SG Private Banking is also expanding its onshore private banking that targets those with investible funds of above US$600,000. It hopes to expand its presence beyond Mumbai, Delhi, Bangalore and introduce more structured products to onshore clients.

To that end, SG Private Banking has applied for the non-banking financial companies licence in India to broaden its reach there and broaden the range of structured products that it can offer to onshore clients.

Mr Kunnambath said he hopes to receive the licence towards first-quarter next year.

SG Private Banking is also one of the silver sponsors for the conference for NRIs here on Oct 9 to 11 – the first time this conference is being held outside of India.

Speakers at the conference include Singapore’s Minister Mentor Lee Kuan Yew, Senior Minister Goh Chok Tong and Prime Minister Lee Hsien Loong, as well as ministers from India. This reflects the level of importance ascribed by both countries on the NRI market.

The business-focused conference in Singapore, targets the Indian Diaspora within the Asia-Pacific and beyond.

Source: Business Times – 05 Sept 008

Business Times: CCT signs up leases for 77,900 sq ft in 2 office towers

CAPITACOMMERCIAL Trust (CCT) says 77,900 sq ft of office space at Capital Tower and One George Street has been renewed or newly committed for between two and three years.

Three companies account for the leases – JPMorgan Chase & Co, BHP Billiton and Shinhan Bank.

CCT did not reveal the rents.

But a spokesman said: ‘Given the Grade A quality of Capital Tower and One George Street, they are in line with rates achieved at comparable Grade A office buildings – between S$16 to S$20 per sq ft per month (psf pm) – in the respective micro-markets.’

In July, CCT said it expected 4 per cent of leases at Capital Tower to expire in 2008.

Separately, CCT said yesterday that CapitaLand, which has a 30.92 per cent stake in the Reit, will lease 1,313.2 sq ft of office space at Capital Tower for three years for a total sum of S$449,125.92.

CCT described the space as an ‘unconventional office unit located on the ninth storey’.

It said the terms of the lease were reviewed by CB Richard Ellis, which confirmed the rent is at market level.

Based on the total rent, the monthly rent works out to about S$9.50 psf pm.

JPMorgan Chase & Co is one of CCT’s top-10 blue chip tenants, contributing about 3.3 per cent of the trust’s gross rental income. It will now occupy an extra one-and-a-half floors at Capital Tower.

BHP Billiton, which has several offices in the CBD, will renew its lease at Capital Tower.

This follows a recent report last month that said BHP Billiton is leasing about 150,000 sq ft at Tower 2 of the upcoming Marina Bay Financial Centre, slated for completion in the second quarter of 2010.

At One George Street, new tenant Shinhan Bank has taken space to grow its business footprint in Singapore.

Lynette Leong, CEO of CCT’s manager said: ‘The lease commitments are definitely encouraging news.’

She said she is confident the trust will delivering its forecast distribution per unit of 10.61 cents and 12.34 cents for the financial years ending 2008 and 2009 respectively.

Following the completion of the acquisition of One George Street on July 11, CCT’s asset size is close to S$7 billion, which is ahead of the $6 billion target it set itself by 2009.

Source: Business Times (By Arthur Sim) – 05 Sept 2008

Straits Times: CapitaLand sells Beijing office property for S$498m

CAPITALAND has sold Capital Tower Beijing in China for US$352 million (S$497.6 million) and expects to recognise a gain of $163 million from the deal.

The group said in a statement yesterday that it sold its indirect wholly owned subsidiary Hua Lei Holdings, which indirectly owns all of the office building.

The price comprises the consolidated net asset value of the group’s indirect wholly owned subsidiaries which own the property. It took into account the assignment of shareholders’ loan of about US$166 million, valuing Capital Tower Beijing at US$488 million.

CapitaLand bought the development of two 35-storey towers while it was still under construction in 2005. It turned the project into an international Grade A office development and sited its own Beijing office on the 33rd floor.

CapitaLand president and chief executive Liew Mun Leong said in a statement yesterday: ‘Since its completion in 2006, Capital Tower Beijing has become a well- known landmark…Because of this success, we have received unsolicited offers for the building from several prospective investors.’

Although the firm had wanted the building as one of its core long- term holdings, ‘the unsolicited offer…will allow us to redeploy capital to undertake more quality developments in China’, said Mr Lim Ming Yan, chief executive of CapitaLand China Holdings Group.

The buyer is a Fortune 500 company that aims to set up its corporate headquarters at the development, which has a gross floor area of 107,627 sq m. It is 83 per cent occupied.

Source: Straits Times – 04 Sept 2008

Business Times: UK mortgage approvals fall to lowest since 1999

(LONDON) UK mortgage approvals fell for a 12th month to the lowest since at least 1999 in July as financial institutions curbed lending and the property slump deepened.

Banks granted 33,000 loans for house purchase, compared with 35,000 in June and the fewest since comparable data began nine years ago, the Bank of England (BOE) said in London yesterday. Economists predicted 35,000, according to the median of 27 estimates in a Bloomberg News survey.

Home-loan approvals are at less than a third of the level a year ago as Britain teeters on the brink of a recession. BOE policy makers will probably keep the key interest rate at 5 per cent this week as they battle the fastest inflation in more than a decade while Prime Minister Gordon Brown announces a package of measures to shore up the economy.

‘The data are still showing a very gloomy picture,’ said Matthew Sharratt, an economist at Bank of America Corp in London. ‘There’s no signs of a bottoming out in the housing market.’

The value of home loans rose to £3.23 billion (S$8.3 billion) in July from £3.14 billion in June. The figure is down from £9.35 billion in July 2007.

Hometrack Ltd said yesterday the average cost of a residential property in England and Wales slipped 5.3 per cent from a year earlier in August. A recovery in prices is ’still some way off’, said Richard Donnell, director of research.

The slump has led to a collapse in support for Mr Brown since he took over from Tony Blair 15 months ago and reduced the popularity of the ruling Labour Party to the lowest since it took office. Labour trailed behind the opposition Conservative Party, led by David Cameron, by 20 percentage points in recent opinion polls.

Mr Brown will hand UK local government authorities money to buy homes, a person familiar with the plan said last week, as part of a package to prevent the economy entering its first recession since 1991. Chancellor of the Exchequer Alistair Darling said in a Guardian newspaper interview on Aug 30 that the UK is facing ‘arguably the worst’ economic crisis for the last 60 years.

Financial institutions are still reluctant to lend to one another almost a year after housing market turmoil in the US led to a freeze in interbank lending. Bank losses from the collapse of the US sub-prime mortgage market now exceed US$500 billion.

UK gross domestic product stagnated in the second quarter, ending the nation’s longest stretch of economic expansion in more than a century.

Risks of a deeper slump in growth and in house prices prompted policy maker David Blanchflower to call for a lower in benchmark borrowing costs.

He said on Aug 28 that his prediction of a 30 per cent drop in house prices may now be ‘a fairly optimistic number’, and that ‘we need to see a substantial fall and probably quite quickly’, in rates.

A majority of the nine-member rate-setting panel probably won’t heed his call at their Sept 5 decision as inflation accelerates. Record commodity prices helped push the consumer price index to 4.4 per cent in July, more than double the 2 per cent target.

UK inflation expectations for the year ahead are also feeding risks of further price gains. Consumers’ forecasts rose to 4.4 per cent in August, Citigroup Inc said on Aug 29, citing a poll by YouGov plc.

All 61 economists in a Bloomberg News survey expect the bank to leave the key rate at 5 per cent for a fifth month.

Business Times: ING Real Estate has new chief of global investment

(LONDON) ING Real Estate, one of the world’s biggest property investors, said yesterday that it has appointed Robert Houston as chairman and chief executive of its global investment management business.

Mr Houston – the head of ING Real Estate’s UK operations – replaces David Blight, who resigned earlier this year to return to Australia for family reasons.

‘This is a great opportunity – having had the privilege of managing and growing the UK business over the past 28 years – I now have the chance to build ING Real Estate’s global investment management platform at a time when investors are increasingly seeking global opportunities,’ Mr Houston said.

Stephen Pyne, currently the UK’s chief investment officer, will assume a new role alongside Mr Houston as global portfolio manager responsible for global cross-border investment in the group. Meanwhile, Kevin Aitchison, currently head of the UK’s segregated account and joint venture business, will succeed Mr Houston as CEO in the UK.

Source: Business Times – 02 Sept 2008

Straits Times Forum: Self-regulation in estate agency industry

I REFER to the letters (Aug 22), ‘Test ensures housing agents are more qualified’ by Mr David Ong and ‘Two-tier test system raises standards of estate agency industry’ by the Singapore Association of Estate Agents (SAEA).

The Common Examination for House Agents (CEHA) was introduced in 1996 to raise professional standards. In 2005, an accreditation scheme was launched by the Singapore Institute of Surveyors and Valuers and the Institute of Estate Agents (IEA), with support from the Ministry of Finance and Inland Revenue Authority of Singapore, with HDB providing the HDB Resalenet for accredited agents and agencies.

Under the scheme, a target was set for Jan 1 next year, for all estate agencies in the scheme to achieve full accreditation for all their members. However, before the realisation of this target, SAEA short-cut the process by introducing a scaled-down Common Examination for Salespersons (CES). Such an exam, dubbed ‘tikam-tikam’ by the person who introduced it, comprises 100 multiple-choice questions and requires 50 per cent to pass. It is a watered-down standard for estate agents to be accredited.

IEA has made representations to HDB, seeking clarification. While we await HDB’s response, many agents have been misled into believing CES is recognised by the Government and passing it will give agents the same standing as those who have passed CEHA – that is, be accredited to use the HDB Resalenet.

Can the professional standard of estate agents be raised when those entrusted with the duty compromise their own standards by taking short-cuts? Can those who take a ‘tikam-tikam’ course be on the same level as those who pass CEHA to get accredited?

To raise standards, we need to coordinate and synergise the efforts put in by experts in the relevant fields, including real estate sales, agency owners and managers, professional real estate trainers and various government departments.

It is an opportune time for the authorities to mandate a body to oversee a self-regulating process. The Central Registration Scheme introduced in 2006 has the support of more than 360 licensed agencies with the names of over 22,000 estate agents in the register. IEA has in place industry entrance criteria, comprehensive training, development courses and continuous assessment procedures to ensure all agents remain competent amid rapid societal changes and market dynamism.

IEA is ready to take the lead if the mandate is given by the authorities to move forward with industry self-regulation.

Jeff Foo
President, IEA, 6th Council

Source: Straits Times – 02 Sept 2008

Business Times: Spain’s Colonial posts H1 loss of 2.38b euros

(MADRID) Spanish property group Colonial, struggling under huge debts, announced losses of 2.38 billion euros (S$4.9 billion) for the first half of 2008 which it blamed on asset depreciation.

Colonial said in an announcement late Sunday that it had reached an agreement in principle to reschedule its debt of nearly nine billion euros this month.

The firm did not say whether the agreement includes the planned sale of its shares in France’s Societe Fonciere Lyonnaise (SFL), estimated to be worth more than four billion euros, or Spanish construction group FCC.

Like other Spanish property firms, Colonial has been hurt by rising interest rates and the global credit crunch. The Spanish market has been one of the worst hit in Europe.

Colonial said it had allotted 2.51 billion euros in the first half to write down its assets and the value of its 15 per cent stake in FCC.

It said it had an operating profit of 129 million euros for the first six months and valued its property portfolio at 10.5 billion euros as of June 30.

Spanish property developer Martinsa-Fadesa filed for bankruptcy in July, the first major victim of Spain’s housing market crisis, prompting warnings that further failures could lie ahead.

Low interest rates that followed Spain’s accession to the eurozone in 1999 fuelled a housing boom as Spaniards took out mortgages to buy homes for the first time or to trade up to a larger house.

The market began to suffer early last year as rising interest rates and the international lending crunch brought the expansion to a halt, making it hard to sell property in a market that many argue is oversupplied.

Source: Business Times – 02 Sept 2008

Business Times: UK house prices see their steepest fall since 2001

End to property slump still some way off: research firm Hometrack

(LONDON) UK house prices fell by the most since at least 2001 in August as economic growth stagnated, and an end to the property slump is ’still some way off’, according to Hometrack Ltd.

The average cost of a residential property in England and Wales slipped 5.3 per cent from a year earlier to £167,000 (S$428,700), the London-based research company said in a statement yesterday. That’s the biggest annual drop since the index started seven years ago.

Prices fell 0.9 per cent from July.

‘A recovery in the housing slump, even back to zero monthly growth, is still some way off,’ said Richard Donnell, director of research at Hometrack.

‘It is confidence over the outlook for job prospects and the wider economy that is fundamental to any sustained turnaround in market conditions.’

Nationwide Building Society and HBOS plc reports show that the UK has entered its steepest property market slump since the early 1990s.

The Bank of England kept the benchmark rate unchanged in August as it weighed the fastest inflation in a decade against the threat of a recession.

The Royal Institution of Chartered Surveyors yesterday called for the government to take measures to revive the market for bonds backed by home loans in order to spur mortgage lending. The government should allow investors to swap the securities for Treasury bills with the Bank of England, RICS said in a statement.

Property values fell in each of the nine regions in Hometrack’s survey. In London, they dropped 1.1 per cent from July. The average time for a home to stay on the market rose to 11.3 weeks from 11 weeks, and the amount of the asking price achieved in sales fell to 90.7 per cent from 90.9 per cent.

‘When the market turns, it can take as long as 24 to 36 months for prices to reach realistic levels,’ Mr Donnell said. ‘We are now well into this process.’

House prices in Britain declined 10.5 per cent from a year earlier last month, the most since 1990, Nationwide said on Aug 20. HBOS said on Aug 7 that prices declined the most since 1983.

The flagging property market adds to signs that the UK may be entering its first economic contraction since 1992 after growth stagnated in the second quarter.

For manufacturers, orders fell to the lowest in three years, and companies expect a further deterioration, a separate report published yesterday by the EEF engineering lobby group showed.

Inflation accelerated to 4.4 per cent in July, more than twice the central bank’s target, making the Bank of England reluctant to cut interest rates to shore up the economy.

Societe General SA and Bank of America Corp predict that the central bank will start lowering interest rates by the end of this year.

The next interest rate decision is on Thursday. All 61 economists in a Bloomberg News survey expect no change this month.

Source: Business Times – 02 Sept 2008