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Global Economy: False dawn?

05 Feb 2018

The global economy is primed for stronger growth, with analysts expecting growth in 2018 to pick up at a faster pace. The outlook for Singapore’s economy is equally positive, with business expectations remaining positive for H1 2018. Notwithstanding, sentiments have dipped, especially within the manufacturing sector. The sector performed well in 2017, but there were doubts over whether it can be sustained. Only a net weighted balance of 1 per cent of firms expect an improved business situation for Jan to June 2018. 

Despite the positive sentiments, there was still much uncertainty in the market. For instance, the Dow Jones industrial Average plunged by 665 points on 2 Feb 2017. The last time the Dow fell by 500 or more points was after Britain voted to leave the European Union. The largest drop in points in a single day was on Sept 29 2008, during the financial crisis. While some analysts viewed the drop as a correction after the growth in January, investors may be wary of the rising interest rates.

Although the increase in interest rate may be long overdue, there are concerns that the asset markets may not be ready if there are too many hikes. There were also concerns that the increase in interest rates will affect home buyers, leading to a correction in the real estate market. In Singapore’s case, the impact of the rising interest rates on home buyers will likely be cushioned, as most buyers use their CPF contribution to finance their home purchases. Additionally, with the Total Debt Servicing Ratio in place, it is unlikely that we see a property-led financial crisis like the subprime crisis in US in 2008.

The higher interest rate, however, may contribute to a perfect storm down the road. When the rates increase, corporate debts become more expensive and personal consumption is curbed. In a subdued housing market, the impact of the interest rate hikes will be more severe, as it amplifies the impact of other economic shocks, market mismatches, and government policies to cool the market. Nevertheless, in a housing market that is on track to recovery, the impact of an increase in interest rate is offset by an appreciation in housing prices and a stronger construction sector, which has one of the largest multipliers on the economy.

Land Sales market: What can we read from the bids

Three public tenders closed on 31 Jan, and they attracted much interest. First, the results of the tender will indicate how the market has reacted after the Government repeated cautions that there is sufficient supply in the market, and that demand might not be able to absorb the supply because the population is not increasing at the same pace. The latter hypothesis is interesting, but not proven.

Second, the batched tender exercise by URA is viewed by some as the state’s way to tame the land bids. By closing multiple tenders on the same day, developers are unlikely to place too high a bid to avoid financially over stretching themselves. This is the case if the implicit assumptions of a perfect market are held. First, the market must be relatively efficient where most stakeholders have the same information set and similar outlook of the market. Second, the land parcels are similar. The provisional tender results at least suggest that closing multiple tenders on same day have little effect.

Separately, I think it is interesting to study whether the land rates would be higher if the tender closing were spaced apart. Offhand, the outcome may be difficult to anticipate, which are dependent on assumptions again. The strategies of the developers will be very different, as they must plan the outcomes based on a multiple sequential-stage game. Second, the bids in a sequential tender process may be higher because it reflects a price-discovery process, with the bids of the earlier sites forming the benchmark for the subsequent bids.

Notwithstanding, the three land parcels of the recent tender suggests that the outlook of housing remain promising, and there is some nascent evidence that subsequent sale prices can be supported when the projects are launched. The Handy Road site is an extremely attractive land parcel. Besides the location, it gives an opportunity for the developer to create a product to showcase their quality and innovation. The West Coast Vale Site offers an ideal business opportunity to the successful bidder as there is little competition when the project launches, and announcements on the Jurong Lake District are expected to be made at the same time.


The stronger Singapore dollar was one of the contributory factors for the lower net property income for REITs that have overseas properties in their portfolio.


Gross Revenue

(y-o-y change)
Net Property Income (y-o-y change) Available Distribution Per Unit (y-o-y change) Comments
Starhill Global REIT FY Q2 2018





1.17 cents


The lower revenue was due to weaker contributions from offices and disruption of income from works at Plaza Arcade in Perth. The lower DPU was due to the straight-line rental adjustments and higher withholding taxes for Malaysia and Australia.
OUE Hospitality Trust Q4 FY 17





1.27 cents


Net property income was lower due to higher property expenses from land rent and higher property taxes

Ascendas Hospitality Trust Q3 FY 18





1.41 cents


Net property income was lower due to weaker performance in their Australia portfolio and translation losses. DPU was also lower due to higher trust expenses, absence of one-off gain and higher amount of income retained.

Collective Sales: What’s launched and sold?


Existing Development Tenure Location Maximum Gross Floor Area (sq ft) Asking Price ($m) Estimated DC Payable ($m)

Land Rate

(Including DC, excluding Balcony Bonus)

($ per sq ft per plot ratio

Chinatown Plaza

Freehold Keong Saik 135,744 270 No $1,989
Katong Park Towers 99 year leasehold 114A Arthur Road


(24 storeys height constraint)
288 $5.6m for balcony bonus, $51m for DC $1,165

Source: Business Times, Straits Times

For Sale

Development Tenure Location Type Asking Land Rate Other specs
Odd number Geylang lots 1 through 21 Freehold Geylang




($984 per sq ft ppr for commercial; $704 per sq ft ppr for institution) Estimated DC of $12.5m is payable to redevelop the site for commercial use


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