Tuesday, April 22, 2008

April 23, 2008, The Straits Times
Deferred payment scheme: Up to 4,200 homes may be dumped No URA figure on units sold but experts say 30% could be offloaded
By Jessica Cheam

THE hugely popular deferred payment scheme (DPS) - scrapped last year - may now be a thing of the past, but what sort of shadow will it cast on the Singapore property market going forward? This has been the question on market watchers' lips since the Urban Redevelopment Authority (URA) revealed last week that as many as 29,250 homes offered under the DPS, including 5,760 unsold units as at the end of last month, will be completed from this year to 2013.

The concern is that speculators who bought homes under the DPS could dump their units at below-market prices, and this could drastically drag down overall sentiment. But just how many units are at risk of being sold, and how big will the impact be?

The URA said while it has the number of units approved under DPS, it does not have data on how many units were actually sold under the scheme. But four property experts The Straits Times spoke to estimated that up to 30 per cent of homes sold under the scheme last year could be held by speculators who may offload homes as the completion date nears. This translates to roughly 4,200 homes, going by a back-of-the-envelope calculation.

That is because out of the 23,490 units approved under the DPS and sold, only about 50 to 60 per cent - or roughly 14,000 - are likely to have been sold under the DPS, say property consultants and agency bosses from Knight Frank, Savills Singapore, HSR Property Group and PropNex. The remaining 40 to 50 per cent were not bought under the DPS. Either developers did not eventually offer it, or buyers chose to pay via progressive payments, because buying a home with DPS usually means a further 2 to 3 per cent added to the price.

Next, property experts estimated that of the 14,000 or so homes sold under the DPS, about 20 to 30 per cent were probably sold to short-term investors or speculators. This means that as a group, speculators could be holding on to as many as 4,200 units.

Why are speculators prone to selling their units as they near completion? The DPS allowed buyers to pay just 10 or 20 per cent of the sale price upon purchase, with the rest due only when the unit received its temporary occupation permit (TOP) on completion.

Speculators would, therefore, typically opt for the DPS and hope to sell their units for a profit before the TOP. Any later and they would have to pay up for their homes by arranging for bank loans or other means of financing.

Industry experts were, however, divided on the impact these 4,200 homes would have on the market. Some maintained that panic selling is not likely, given Singapore's strong economic outlook, which is backed by upcoming mega projects such as the integrated resorts and the 2010 Youth Olympics.

Mr Eric Cheng, HSR's executive director, noted that homes set to be completed this year and next are less likely to be sold indiscriminately, since their owners are probably sitting on healthy gains. But those who bought at the peak of last year's buying frenzy, from April till October, are most likely to be at risk. These homes are likely to be completed after 2010.

Mr Ku Swee Yong, Savills' director of business development and marketing, said the sell-off will likely be staggered, because investors have different levels of holding power. Also, investors have bigger coffers compared to the last property peak in 1996, he added.

But he warned that if too many units in a single large project get dumped at below-market prices, overall market sentiment may be hit. Mr Colin Tan, Chesterton International's head (research and consultancy), thinks that the potential risk created by the DPS is relatively high.

He added that data on homes sold under the DPS should be collected and made public, so investors know 'what they're getting themselves into'. Yhe DPS was scrapped abruptly last October after a decade-long run to remove excessive speculation and ensure financial prudence in the property market.

Monday, April 21, 2008

'Don't indiscriminately buy S'pore property stocks' - Insider Apri08

Our article highlighting the BCA Research report has drawn a counter-view from a reader, who is a property industry insider. Interestingly, it is his personal take and it differs from his company's.

1. Even at current low interest rates, property buyers are not tripping over themselvesto buy physical properties in Singapore - look at the low, low URA transaction volumes.

2. Physical property prices on average have gone up 100% (e.g. East Coast - Fort Road 99-year leasehold condo price has shot up from $850 psf in 2005 to $1,600 psf in 2007) but our salaries have not doubled. So BCA's chart 3 (see below) on affordability index is very questionable.

3. The 100% surge in property prices is a result of high rental rates that force expats to BUY rather than to RENT. Genuine buyers are being forced to buy homes at 2x the price because there have been speculation, en-bloc sales and the presence of private equity funds with the financial muscle to hold on to assets for the long-term.

4. Higher-end property assets have seen prices fall but mass market is up in simple terms, as follows:
a. High-end $5,000 psf in mid-2007 to $3,000 psf in mid-2008.
b. Mid-end $2,500 psf in mid-2007 to $1,600 psf in mid-2008
.c. Mass market $800 psf in mid-2007 to $850 psf in mid-2008.

5. The reality is:
a. Property prices have surged in a short span of 2 years (2005 to 2007) because of liquidity & not affordability.
b. We are seeing prices correcting to a decent level (But what's decent, we don't know)
c. The sub-prime woes in the US are a mirror reflection of Singapore property in allowing free liquidity to result in price upside, so please be circumspect.

6. Let' not get smitten by the monthly change in property data. We have to be realists in this market:
a. Interest rates are likely to go up, not down, to combat inflation.
b. Singapore is globally exposed; any stumble in the US economy, we’ll feel the heat.
c. What we don't know: Buyers who bought property at, say, $1,600 psf could be trying to sell at $1,300 psf but there are no takers.
d. Supply, supply, supply in 2009: We expect rents to come down and property prices to weaken (by how much, we don't know)
e. Property stocks are not exactly cheap compared to Apr 06 levels. We think the high Apr 07 prices are anomalies and the result of greed. Apr 08 prices are fair.

8. We are not bears, just being realistic. We do like property stocks with regional exposure (Capitaland, KepLand) and mass-market exposure (Allgreen). So be very selective and avoid the high-end property stocks because there will be more bad news than good coming out from the US sub-prime saga.

Wednesday, April 2, 2008

Milk Nurtures Success

Hot Growth in Asia November 20, 2007, 7:59AM

Milk Nurtures Success

Capitalizing on China's growing taste for milk, the dairy company bought 970 head of cattle—before the ban on imports of U.S. and Canadian beefby Chi-Chu Tschang The outbreak of mad cow disease in Canada and the U.S. in 2003 knocked the North American cattle industry on its back. The largest importers of U.S. and Canadian beef, including Japan, South Korea, and China, banned the import of beef from North America. But for China Milk Products, the restrictions proved to be a blessing in disguise. The privately owned raw milk company had already purchased 970 Canadian Holstein cattle. Its state-owned rivals failed to import as many cattle because they had to navigate government bureaucracy to get bank loans.

Today, China Milk owns the largest herd of Holstein cattle in China and ranks 50th in BusinessWeek's annual Hot Growth rankings of Asia companies. Liu Shuqing and five partners started China Milk in the summer of 2001 to produce raw milk, after recognizing China's demand for milk was outstripping supply. As Chinese families become wealthier from the booming economy, more parents are buying milk for their children. China traditionally has not been a milk-consuming country, so local cows were not bred to maximize their milk production until very recently. Chinese dairy cows produce roughly four metric tons of milk per year, about half the yield from U.S. and Canadian Holstein cows. Monopoly on Bulls.

To narrow the gap in production, China Milk began importing Holstein bulls and cows, first from Canada and then, after the import ban, from Australia to breed with Chinese cows. At the same time, the Heilongjiang Province-based company also set up embryo-transfer and semen-extraction facilities to breed cows producing greater yields of milk. Once China banned North American cattle, China Milk cornered the market on bull semen and cow embryos from Canadian Holstein cows in China. "We used to love the import ban because no one [could] compete with us when we started in the industry," says Martin Choi, chief financial officer for China Milk. "But right now, we really want the import ban to go because it's stopping us [from importing] the cows." Any rancher wanting to breed his cows with a Canadian Holstein has to go to China Milk. The company charges its customers $9.50 per sample of bull semen from a Canadian Holstein, compared with $6.75 from Australian Holsteins and $2.70 from Chinese Holsteins. However, Chinese ranchers are still willing to pay a premium for Canadian Holsteins, especially after receiving a little help from the government. Starting this year, the Chinese government is giving Chinese ranchers a subsidy of $2 toward each sample of bull semen. The sale of bull semen accounted for more than three-quarters of China Milk's sales this year. The company's revenues have gone up more than fourteenfold, to $57 million, while profits have risen more than elevenfold, to $51 million this year, since 2003.

Persuading China to Lift the BanChina Milk's virtual monopoly on North American Holsteins won't last forever. American and Canadian trade negotiators have been trying to persuade their Chinese counterparts for years to lift the import ban. The restrictions were originally supposed to be lifted in 2007, but several more cases of mad cow disease were found in Canada and the U.S. this spring. China Milk Chief Executive—and son of the company founder and executive chairman—Liu Hailong now expects the ban to be lifted in late 2008 or early 2009 at the earliest. "Once they lift the ban, we will probably import the first batch of the best bulls and cows from the U.S. and Canada to China. Our other competitors will still be far behind us and won't pose a threat," he says

.....it has the biggest Canadian Holsteins in China... almost monopolistic nature
....another strength is in terms of financial strength which will pull it ahead of other competitors even when the ban is lifted
........ as of March 2008 there is still mad cow disease uncovered in Canada...http://www.medicalnewstoday.co.../50402.php
....with quaratine of a few months....this makes the advantage even more pronounce