Singapore Property

Singapore''s private-residential property prices fell 14.1% in the first quarter, the steepest drop since such data were first compiled in 1975, the government said Friday.

This was the third consecutive quarter that prices have fallen. In the fourth quarter of last year, prices dropped 6.1%.

Earlier this month, the government said preliminary figures based on the first 10 weeks of the quarter showed prices had fallen 13.8%.

Prices of office properties fell 12%, shop properties 4.2% and industrial properties 10.1% in the first quarter, the Urban Redevelopment Authority said in a statement.

Rentals of private residential properties dropped 8.5%, office properties 10.7% and industrial properties 5.6%.

Export-dependent Singapore has been facing its worst recession on record, and gross domestic product is expected to contract by as much as 9% this year, according to a government forecast.

Analysts say property prices will continue to fall, possibly hitting a bottom at the end of the year.

The data, however, showed some positive signs for the market, including an increase in the number of units sold by developers.

According to the government, 2,552 uncompleted private-residential units were sold by developers during the period, up from 407 units in the previous quarter.

While developers have been mostly holding off sales of high-end properties in the core central region, some have been bringing forward new launches and relaunched projects in the mass market segment at lower prices.

Meanwhile, the number of sub-sales rose to 356 in the quarter, compared with 265 of such sales in the previous three months. A sub-sale is the rapid resale of a unit before a title of certificate can be issued.

"A few months ago, nobody wanted to touch properties, but over the last two months, the sentiment got a bit better, as sellers started lowering prices," said CIMB analyst Donald Chua. "Buyers, however, continue to watch what they buy."

According to Chua, prices are expected to fall between 25% and 30% for the whole year.

About 85% of Singaporeans live in public housing apartments built by the government''s Housing and Development Board. Private developers compete to provide housing for the remaining 15%, as well as for the sizable foreign population.

Housing Recovery expected only after mid-2010: Experts say housing market will rebound after stock market does

By Joyce Teo
Published: April 23 2009,
The Straits Times

BUYERS snapping up homes in recent weeks may be jumping into the market way before it has reached the bottom, according to new research.

Real estate consultancy DTZ is tipping a gradual property market recovery only from the middle of next year. The firm bases its view on a new report from its Asia forecasting unit.

This shows how a slump, or recovery, in the stock market is always mirrored in the property market, but only after one or more quarters.

Or to put it more bluntly: The housing market will not recover until at least one quarter, or even a year, after the stock market recovers.

And as any stock market investor knows, the Straits Times Index (STI) is well down from its 2007 peak, even though it has risen slightly recently.

'The STI reflects people's view of the economy so its recovery will really depend on clear signs of an economic recovery,' said DTZ's senior director of consulting and research Chua Chor Hoon.

Experts have long noted that a recovery in the stock market typically precedes an economic recovery, with a recovery in the property market after that.
'It's all co-related in one way or another. The stock market is usually the earliest indicator but it's not hard and fast... its timing might be off,' said Daiwa Institute of Research analyst David Lum.

Last week, the Government said it expects gross domestic product to contract by 6 per cent to 9 per cent this year, well up on an earlier forecast of a 2 per cent to 5 per cent contraction. DTZ's study also underlined the high levels of unsold stock held by developers - another drag on prices and an eventual recovery.

The report indicated that the residential market thus has a higher chance of bottoming out only by mid-2010 and then staging a gradual recovery. Mr Lum said the property market has already started to correct so anyone who bought recently would not have purchased at the peak.

If prices fall further, these people will not be happy, but they would have been comfortable with the price levels they bought into and will not be overstretched as they would have thought about their purchase, he added.

DMG & Partners Securities investment analyst Brandon Lee believes the mass market segment would have bottomed out at around $550 psf to $600 psf so recent buyers may not have much to worry.

Those who bought prime homes, however, may have gone in too early. Mr Lee sees the property market bottoming out only in the first half of next year.

'Crises in the past have lasted for six to eight consecutive quarters and we are only half way through,' he said. 'Further, equity markets are still volatile and prices have not reached the bottom for prime properties. Interest in prime property remains very subdued.'

The property market remains largely weak, even though recent sales of new private homes brought a glimmer of hope to the market. First-quarter new private home sales hit 2,660 units, representing 62 per cent of all new private homes sold during the whole of last year.

Whether it was pent-up demand, discounted levels or other factors, sales did reach very high levels given the recession. But most sales were in the mass market segment, which consultants tip to be the best-performing sector this year.
Demand for prime and high-end homes remains sluggish.

'Since when does a 'rebound' in one segment signal a recovery for the entire market?' asked Chesterton Suntec International head of research and consultancy Colin Tan. 'The greatest danger we face now is complacency...If it were an ordinary recession, I can understand why we are starting to call this period of optimism the first signs of a recovery, but it is not,' said Mr Tan. 'The recovery cycle will be like no other. There will be further twists and turns.'

DJIA

The DJIA broke below its wedge formation early this week, confirming the end of the uptrend that started in early Mar. At the very least, it should retreat to 7,400, the start of the wedge formation. Asia's equity markets also look vulnerable in the near term with the likely end of both the stockmarket rally in China and crude oil's rebound. A critical support for the Shanghai Composite Index gave way this week, a likely sign that the bull run has ended. Crude oil price recently broke down from its triangle consolidation. The major daily MACD support trend line since Dec 08 caved in a fortnight ago, which could indicate the end of crude oil's rebound since Oct 08. The wave 5 down leg could be taking place, taking crude oil back to the US$30/barrel level in the next few months.

China Sky

China Sky (Fully Valued S$0.165; Bloomberg: CSCF SP)
Profit warning
Price Target : 12-Month S$ 0.14 (Prev S$ 0.15)

China Sky cautions investors that the Group has swung into losses in 1Q09,
as operating environment deteriorated. The demand from customers has
weakened further as end consumption for textile products from both domestic
and export markets shrank. This has led to softening prices despite firm
raw material cost. We have slashed our earnings forecasts for FY09 and FY10
by 69% and 55% respectively on lower sales volumes, ASPs and margins.
Maintain FULLY VALUED with a reduced TP of S$0.14.

Worse than expected. The utilisation for China Sky has drifted below 50%
level in 1Q09. We believe the ASP has plunged by 20%-30% qoq as demand for
nylon yarn continued to slacken. We now expect volume to remain sluggish in
2Q and gradually improve towards the end of 3Q. Overall gross margins in
2009-2010 are expected to normalize to around 15% level vs 20% previously.
Based on the lower volume and margin assumptions, our FY09 and FY10
earnings are slashed by 69% and 55% to RMB67m and RMB141m respectively.

Jittery over CEO’s pledging of shares. China Sky has recently announced
the pledging of the CEO, Mr Huang Zhong Xuan’s 19% stake in the group for
personal loan and his failing to pay instalments. This has brought about an
overhang of China Sky’s shares. In addition, business continuity of China
Sky could be at stake in the event that Mr Huang, the founder of the group,
steps down as the CEO. This is expected to suppress the share price
performance in the near term despite any market re-rating.

Maintain FULLY VALUED; TP reduced to S$0.14. Hence, we retain FULLY VALUED
on China Sky. Our TP has been revised down to S$0.14, following the
earnings revision, still pegged to 0.2x FY09 P/NTA.

Banks Need $875 Billion In Equity, IMF Says

WASHINGTON -- U.S. and European banks need to raise $875 billion in equity by next year to recapitalize banks to a level similar to the pre-crisis years -- and twice that amount to match the level of the mid-1990s, the International Monetary Fund estimated.

The steep funding requirements reflect a financial crisis that the IMF said continues to deepen along with the global recession. The banking sector's woes have spread from the housing sector to commercial real estate loans and emerging-market debt. Overall, the IMF estimates that the U.S., European and Japanese financial sectors face losses of about $4.1 trillion between 2007 and 2010. Of that amount, banks are confronting $2.5 trillion in losses, insurers $300 billion and other financial institutions $1.3 trillion.

The banking sector has already written down $1 trillion of those losses, said the IMF, which didn't estimate how much other financial firms such as insurance companies and hedge funds, have written down thus far.

"Without a thorough cleansing of banks" balance sheets of impaired assets, accompanies by restructuring and, where needed, recapitalization, risks remain that banks' problems will continue to exert downward pressure on economic activity," said the IMF's Global Financial Stability Report, its twice-yearly review of the world's financial sector. While problems in the U.S. mortgage sector are generally blamed for the global financial crisis, the IMF report, showed there other regions played a big role too. About $2.7 trillion of the losses from 2007 to 2010 were attributable to the U.S. market, the IMF reported, while about $1.2 trillion came from bad loans and security losses in Europe.

U.S. banks have written down roughly half their anticipated $1.06 trillion in estimated losses from 2007 to 2010, the IMF said, while euro-zone area banks have written down just 17% of their $900 billion in losses. British banks have written down about one-third of their $310 billion in anticipated losses. "The Europeans haven't appreciated just how bad their situation is," said Adam Posen, deputy director of the Peterson Institute for International Economics, a Washington D.C, think tank.

In certain areas, the IMF has a bleaker outlook than some prominent Wall Street bears.

For example, the fund is projecting that 7.9% of U.S. loans will have gone bad by next year. In a recent research report, Calyon Securities analyst Mike Mayo predicted that losses will crest to 3.5%, a level that he said would slightly eclipse the peak rate during the Great Depression. Mr. Mayo estimated that U.S. banks are only about one-third of the way through losses on credit cards and other non-mortgage consumer loans, while losses on business loans "seem in the early stages."

The IMF's conclusion that the banking industry's misery is far from over is likely to cast a further cloud over the industry, even as several big banks recently have reported quarterly profits. (The latest came Monday, with Bank of America Corp. announcing that it earned $4.2 billion in the first quarter.) Many banks' profits, however, have stemmed from a combination of unsustainably high trading revenue and a variety of one-time gains. Bank executives, investors and analysts are bracing for losses to continue accelerating as economies around the world remain mired in recession, leading more individuals and businesses to default on their loans.

On Monday, those fears led investors to flee the banking sector. Shares of many top financial institutions, including Bank of America and Citigroup Inc., suffered double-digit losses, and the KBW Bank Stock index tumbled 15%.

The IMF urged governments to "take bolder steps" in injecting capital through common shares "even if it means taking majority, or even complete, complete control of institutions." Government ownership may be necessary, the IMF said, to restructure institutions.

The U.S. government has tried to avoid outright nationalization. But Washington could go a long way to meeting the IMF's estimate of the $275 billion in equity that U.S. banks will need by 2010 by converting into common shares the approximately $200 billion in preferred shares the government owns in more than 500 U.S. financial institutions. Federal banking regulators this month are wrapping up "stress tests" of the nation's 19 largest banks, and industry experts believe the results will uncover capital holes in the balance sheets of at least several big banks. But private investors remain reluctant to pump money into the industry until it's clear that losses have peaked.

---Bob Davis and David Enrich, The Wall Street Journal; bob.davis@wsj.com

Bank Profits Appear Out of Thin Air

By ANDREW ROSS SORKIN

This is starting to feel like amateur hour for aspiring magicians.

Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be — presto! — better- than-expected numbers.

But in each case, investors spotted the attempts at sleight of hand, and didn't buy it for a second.

With Goldman Sachs, the disappearing month of December didn't quite disappear (it changed its reporting calendar, effectively erasing the impact of a $1.5 billion loss that month); JPMorgan Chase reported a dazzling profit partly because the price of its bonds dropped (theoretically, they could retire them and buy them back at a cheaper price; that's sort of like saying you're richer because the value of your home has dropped); Citigroup pulled the same trick.

Bank of America sold its shares in China Construction Bank to book a big one-time profit, but Ken Lewis heralded the results as "a testament to the value and breadth of the franchise."

Sydney Finkelstein, the Steven Roth professor of management at the Tuck School of Business at Dartmouth College, also pointed out that Bank of America booked a $2.2 billion gain by increasing the value of Merrill Lynch's assets it acquired last quarter to prices that were higher than Merrill kept them.

"Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won't be pretty," he said.

Investors reacted by throwing tomatoes. Bank of America's stock plunged 24 percent, as did other bank stocks. They've had enough.

Why can't anybody read the room here? After all the financial wizardry that got the country — actually, the world — into trouble, why don't these bankers give their audience what it seems to crave? Perhaps a bit of simple math that could fit on the back of an envelope, with no asterisks and no fine print, might win cheers instead of jeers from the market.

What's particularly puzzling is why the banks don't just try to make some money the old-fashioned way. After all, earning it, if you could call it that, has never been easier with a business model sponsored by the federal government. That's the one in which Uncle Sam and we taxpayers are offering the banks dirt-cheap money, which they can turn around and lend at much higher rates.

"If the federal government let me borrow money at zero percent interest, and then lend it out at 4 to 12 percent interest, even I could make a profit," said Professor Finkelstein of the Tuck School.

"And if a college professor can make money in banking in 2009, what should we expect from the highly paid C.E.O.'s that populate corner offices?"

But maybe now the banks are simply following the lead of Washington, which keeps trotting out the latest idea for shoring up the financial system.

The latest big idea is the so-called stress test that is being applied to the banks, with results expected at the end of this month. This is playing to a tough crowd that long ago decided to stop suspending disbelief. If the stress test is done honestly, it is impossible to believe that some banks won't fail. If no bank fails, then what's the value of the stress test? To tell us everything is fine, when people know it's not?

"I can't think of a single, positive thing to say about the stress test concept — the process by which it will be carried out, or outcome it will produce, no matter what the outcome is," Thomas K. Brown, an analyst at Bankstocks.com, wrote. "Nothing good can come of this and, under certain, non-far-fetched scenarios, it might end up making the banking system's problems worse."

The results of the stress test could lead to calls for capital for some of the banks. Citi is mentioned most often as a candidate for more help, but there could be others.

The expectation, before Monday at least, was that the government would pump new money into the banks that needed it most. But that was before the government reached into its bag of tricks again. Now Treasury, instead of putting up new money, is considering swapping its preferred shares in these banks for common shares.

The benefit to the bank is that it will have more capital to meet its ratio requirements, and therefore won't have to pay a 5 percent dividend to the government. In the case of Citi, that would save the bank hundreds of millions of dollars a year.

And — ta da! — it will miraculously stretch taxpayer dollars without spending a penny more.

Singapore Petroleum Co

Singapore Petroleum Co: S$3.46 NEUTRAL (TP: S$2.95)

Fuel's off at Jeruk

1Q09 results exceeded both ours and consensus' expectations. Singapore Petroleum Company (SPC) reported 1Q09 PATMI of S$55.5m (-43.7% YoY), exceeding our estimates and the Street's of S$33.6m. SPC's better-than-expected refining margins of US$4.50/bbl (vs. our forecast of US$3.10/bbl) was the quarter's main positive highlight, which led to a turnaround in operating profit of S$118.6m after two quarters of consecutive losses for its downstream activities. The negative drag – though not unexpected - was the decline in average realisation achieved by SPC as a result of the steep drop in oil prices. This was, however, partially offset by a stronger US$. As such, E&P recorded an operating loss of S$18.2m for the quarter.

All bets off for Jeruk. SPC made a non-cash impairment provision that amounted to S$43.3m for drilling costs incurred from 2003 to 2006 at the Jeruk field. This suggests that the Jeruk discovery, once believed to contain over 170 million barrels of oil resources, would not proceed into oil production.

SPC's current share price implies overly-optimistic refining margin assumptionsof US$4.50/bbl and US$4.60/bbl for FY09 and FY10 respectively, which we opine would be difficult to achieve given the challenging outlook. Due to the lack of catalysts and no improvements in the leading indicators, we keep our forecasts and price target unchanged. As share price has surged 44% since our initiation, we downgrade SPC to NEUTRAL.