Thursday, December 30, 2010

Riding on western China's growth

CHINA'S property market is a hotly debated aspect of the economy. In one camp, you have renowned shorts like hedge fund manager Jim Chanos calling the Chinese property market 'Dubai times a thousand'. He cites valid concerns about the gravity-defying price increases, especially in the top-tier cities and the widening income/affordabili- ty ratio. On the other side, perennial China bull and legendary hedge fund manager Jim Rogers argues that the property market is supported by a low level of leverage, unprecedented urbanisation, and strong economic and income growth.

As with all things, only time will tell as to which side is correct. But with property being a sizeable portion of GDP growth, the Chinese government is taking no chances, and has clamped down on the market to cool it. It is no surprise then that China property-related stocks listed on Asian bourses from Shanghai to Singapore have taken a tumble from their former highs.

An interesting point to note is that talk of a bubble has always centred on the residential market, with little said about commercial space. Yet when the market takes a potshot at property-related counters, both residential and commercial developer stocks take a hit. With the current negative sentiment surrounding Chinese developers, could there be a bargain to be unearthed in the form of a relatively unknown S-chip listed on the Singapore Exchange (SGX)?

Based in Chongqing and dealing primarily in prime central business district (CBD) commercial space, Ying Li International Real Estate is a mid-cap stock that enjoyed a market capitalisation of $1.8 billion at the peak of its share price, only to see its valuation halved in a matter of months. It has remained a laggard ever since, despite the resurgence of the stock market. All this while, Ying Li has been enlarging its hold over various parts of Chongqing's CBD, winning the recent 697 million yuan (S$136 million) Wu Yi land tender and quietly securing its funding needs.

A specialist in urban renewal with 17 years' experience, Ying Li is now the largest office space developer in the Chongqing prime CBD area with the ability to build landmark projects such as the forthcoming 287-metre- high International Financial Centre (IFC), one of the tallest buildings in western China when it is completed in 2011.

Furthermore, with the media spotlight on the property action taking place along China's eastern seaboard, investors may be forgiven for overlooking the potential of western China. Some little-known facts about Chongqing are:

It is China's third largest centre of motor vehicle production and the largest for motorcycles. It is also one of the top three aluminium producers and among the top 10 steel production centres.
With a population of 32 million residents, it is the most populous city not only in China but in the entire world too. And yet, the urbanisation rate is just 50 per cent, far from the 70 per cent target set by the government.
GDP growth year-on-year (y-o-y) was a sizzling 17.1 per cent for the first three quarters of 2010, according to the Chongqing Statistics Bureau - some 6.5 per cent higher than the national average and the third highest nation- wide. The consumer goods market had sales of US$23.9 billion from January to July, an increase of 18.5 per cent y-o-y, while total investment in fixed assets attracted US$45.8 billion, a y-o-y increase of 31.1 per cent.
Furthermore, the local municipal government has earmarked 600 million yuan over the next few years to develop Chongqing's city centre in order to achieve its aim of becoming the financial centre of western China.

Chongqing: becoming a key financial centre

On June 9, the Shenzhen government announced that the minimum monthly wage will go up 10 per cent to 1,100 yuan from July. The move follows a similar change in Beijing, which has raised the minimum wage 20 per cent to 960 yuan. The rising wage demands could tempt factories, especially those catering to domestic demand, to move further inland, potentially transforming China's manufacturing landscape. In fact, with improvements to infrastructure (notably the high-speed railway network), it would make economic sense even for export-oriented businesses to move to western China, mimicking the mid-western states of the United States during the post-World War II industrial boom.

The wage increases along China's eastern coastal manufacturing cities and the much-publicised labour discontent should jolt investors into looking more closely at the western regions of China, where just about everything (especially wages and land) is much cheaper. With the central government's aim of lifting GDP in the poorer regions, promoting domestic consumption and improving infrastructure, it is just a matter of time before the inland regions become the site of the next gold rush.

One of the biggest beneficiaries of this could be the municipality of Chongqing. As one of the four directly administered municipalities (the others being Beijing, Shanghai Pudong and Tianjin) and the only such municipality in western China, Chongqing is now better known as the 'gateway of western China'. In 2010, Chongqing was selected as one of the five key 'central cities' alongside Beijing, Shanghai, Tianjin and Guangzhou. These central cities are to be nurtured as powerhouses on the economic, political, social and cultural front so as to compete on an international footing. Thus, it is easy to see the strategic and economic importance the government has placed on the growth of Chongqing.

Following in the footsteps of Shanghai's Pudong and Tianjin's Binhai, Chongqing was designated the third New Development Zone. Formally announced on June 18, the Liang Jiang New Zone will have a planned area of 1,200 square kilometres and is estimated to reach a GDP of over 600 billion yuan by 2020, accounting for over 25 per cent of Chongqing's GDP. Plans to develop the city as a logistical and distribution hub were given a boost in 2008 when the State Council approved the setting up of a tax-free bonded port, making it the first tax-free zone in China's hinterland.

With such favourable conditions and government policies, Chongqing became one of China's fastest-growing cities in 2009 with GDP growth of 14.9 per cent, far exceeding the national average of 8.7 per cent. Foreign investments topped US$4 billion. This ranked Chongqing first among western China's cities. The financial sector's contribution to Chongqing's GDP also crossed 5 per cent for the first time, making it a 'pillar' industry for the first time and moving Chongqing closer to achieving its goal of becoming a key financial centre.

Chongqing's municipal government is actively promoting the support of economic policies to encourage Fortune 500 and multinational companies such as Foxconn, Ford and Neptune Orient Lines to set up regional headquarters in Chongqing. It is also aiming to create a 400 billion yuan high-tech electronics and information technology manufacturing hub. In April, the municipal government announced a one-trillion yuan investment plan focusing on infrastructure projects to further boost Chongqing's competitiveness.

If these plans are successful, it will create a huge demand for Chongqing's commercial property market especially for Grade A office space, of which there is currently a shortage. According to a DTZ report, the Grade A office space availability ratio in Chongqing dropped to a new low of 11.58 per cent in Q3 2010. Total Grade A space in Chongqing stands at 323,280 square metres, of which 60 per cent is in the CBD district of Yuzhong.

Another stated goal of the government is to raise the urbanisation rate, currently at 50 per cent, to 70 per cent by 2020. Giving momentum to this goal, the Chongqing government announced a policy change in July that would turn some 10 million rural residents into urban city dwellers over the next 10 years. With a population of over 30 million, Chongqing's retail, residential and commercial real estate prices are on the cusp of a sustainable uptrend, according to Ying Li's chairman and CEO, Fang Ming.

Carving a competitive niche

As any property investor knows, a key tenet of success is location. Ying Li, with its presence in the CBD areas of Jiefangbei and Guanyinqiao, is positioning itself to ride on the extraordinary growth of Chongqing. (These two districts can be likened to Raffles Place and Orchard Road respectively.) About 90 per cent of the financial services sector is located within Jiefangbei while the streets of Guanyinqiao are ranked among the top 10 pedestrian streets of China.

Having grown up in Jiefangbei, Mr Fang started Ying Li in 1993. With little capital in the beginning, Ying Li had to build and sell projects rather than retain them for rental. Through the years, as the economy grew, the company saw how its previous projects appreciated by leaps and bounds, enabling the clients who bought them to reap returns over and above what Ying Li had achieved.

While Chongqing property, like elsewhere in China, has boomed in all areas, Ying Li continues to focus on developing commercial property, specifically urban renewal within the CBD - which is what Mr Fang believes plays to the competitive strength of the company.

Asked why Ying Li did not hitch a ride on the residential bandwagon, a spokesman stated frankly that residential projects attracted the big boys with deeper pockets able to outbid it. Moreover, if Ying Li were to play the same game, it could end up overstretching its balance sheet.

As to why urban renewal did not attract the same level of interest from other property developers, the spokesman pointed to the tedious task of coordinating and obtaining the prerequisite permits from the various departments such as traffic control, noise and pollution, not to mention awaiting the resettlement of existing tenants. Resettlement can be a thorny issue due to religious sites or the presence of sensitive installations of the police or military.

Ying Li's resettlement efforts for the IFC, which were completed within a year as per schedule, were uneventful despite the site belonging to the police department, the People's Liberation Army (PLA), two state-owned enterprises and a 300-year-old temple. The awarding of such sites by the local government thus demonstrates a certain degree of confidence in the developer.

Furthermore, development in the CBD requires close working ties and coordination with numerous government agencies and compliance with regulations. So it is not surprising that Ying Li counts itself as a developer specialising in urban renewal while others have left the scene for easier pickings in the residential sector.

Another reason for reduced competition in the urban renewal segment stems from the fact that most residential properties are sold off the plan, enabling a faster asset turnaround for developers. Ying Li, in contrast, has continued to focus on this niche in order to survive and prosper among the big boys.

To date, the company has completed seven projects with a total gross floor area (GFA) of close to 500,000 sq m, and its landmark building - the upcoming IFC - is set to obtain its temporary occupation permit (TOP) in early 2011. With a long-term view of rising rentals and capital values, as western China's economy grows, Ying Li has adopted the strategy of being a landlord of key sites within the core CBD and other fast-growing districts.

Rather than recycling capital by building and selling, the company beefed up its balance sheet with a series of share placements, bank loans and a convertible bond issue. Armed with the proceeds and together with its planned sales of San Ya Wan Phase 2, the residential component of Da Ping and several floors of the upcoming IFC, Ying Li is confident that it will be able to self-finance its pipeline of projects.

Opportunity and dangers ahead

The key attractions of Ying Li can be summed up as an undervalued office-cum-retail-property play with a prime land bank in one of the fastest-growing cities. Just imagine if one had the foresight to buy up prime land in the heart of Orchard Road or Raffles Place. This same scenario could well be playing out in Chongqing. Eagle-eyed investors may have noticed that Ying Li's net asset value (NAV) consists mainly of development properties. As these parcels are developed and revalued, the company's NAV will naturally rise - as will be seen soon in IFC's revaluation, which could add close to two billion yuan to Ying Li's NAV.

With an average land cost of 2,673 yuan per sq m, Yi Ling has five ongoing projects with a projected GFA of 985,802 sq m. Out of the total GFA, over two-thirds will consist of commercial space while the rest will be residential units (from the Da Ping project). At present, its completed investment properties total 145,000 sq m, of which 6,700 sq m consists of office space. Annual rental income stands at just over 40 million yuan. Typical of brand-new properties, rental income should rise after the first round of lease renewals as the property manager fine-tunes the tenant portfolio. Average occupancy stands at 84 per cent.

According to a recent CB Richard Ellis report, average prime office rentals in Chongqing are around 60 yuan per sq m per month with prime office space such as The Metropolitan commanding 80-120 yuan psm. According to the latest DTZ reports, average transacted prices for office space are around 13,000 yuan, while the top-tier Grade A space sells for 18,000-20,000 yuan.

Ying Li could sell half of its developmental property portfolio, possibly reaping upwards of over three billion yuan, while keeping the remainder - mostly super-prime CBD office space and most of its retail space - for recurring income. Conservatively assuming that Chongqing property rentals and prices flatten out, the investment properties (once completed and tenanted with an 80 per cent occupancy rate) should be able to command gross annual rentals of over 200 million yuan. If favourable winds blow through the capital markets at that time, Ying Li could well end up bundling its properties into a real estate investment trust (Reit), helping to unlock capital value for its shareholders and providing it with a vehicle to recycle much-needed cash for future projects. In fact, Ying Li could be likened to a Chongqing version of CapitaMalls Asia as it intends to retain all its retail space, mostly located in very prime areas along the main pedestrian streets, riding on the growth of consumer spending power as urbanisation continues to plough ahead.

Bright future

While the future does look bright for Ying Li, there are several things investors should watch out for. In the near term, it is essential for the company to achieve its target sales and prices for the IFC project, due to be launched by end-2010. While Ying Li may have all of its funding in place for the IFC project, the company could ideally sell several floors of the building to lessen the strain on its balance sheet. At the moment, meeting its ideal sales targets does not seem to be an issue, judging from the recent sales of a neighbouring project which was able to hit 19,000 yuan per sq m and the fact that the city is in short supply of any new commercial projects. In addition, up to 190,000 sq m of residential and office units from its integrated project at Da Ping are targeted to be sold from H2 2011 onwards in order to fund the capital needs of its other projects.

If this or the IFC project fails to hit the targets, the company's expansion plans could be impeded in the absence of fresh bank loans. And with the central government keeping a close watch on the property market, bank lending restrictions, if imposed, could throw the company's funding plans into disarray. On a brighter note, investors should be well assured by the recent US$200 million bank loan extended in August to Ying Li by Standard Chartered Bank, a top-tier international bank by any standard. Furthermore, Ying Li's pipeline of projects has so far been very well received by the banking establishment, which tends to view owners of prime CBD space more favourably as compared to non-prime and less established developers.

Investors should also note that Ying Li issued a $200 million, five-year convertible bond (CB) with the conversion price set at $0.8029 with a coupon rate of 4 per cent. While the CB issue is set to mature in March 2015, bondholders have a put option whereby they can choose to redeem part or all of the CB in March 2013 at about 108 per cent of the principal amount. It was this very clause that caused many S-chips grief during the recent financial crisis.

Lastly, if there is a massive correction in Chinese property prices, it is almost certain that Ying Li would be a casualty. Though one can argue that it is the coastal regions which suffer from severe asset price inflation, any property crash and the ensuing rush for the exit would almost certainly affect the entire China property market - be it office or residential, coastal or inland. In fact, a severe crash could spark off a domino effect around Asia, where property prices have benefited from strong capital inflows.

So in a nutshell, while Ying Li's future looks promising and could bring fortune to its shareholders, investors would have to be vigilant about the multitude of external factors that could derail its ambitious plans. But if the doomsayers' prophecies about a China property crash do not come about, shareholders of this mid-sized Chongqing developer could very well have boarded a soon-departing train to boom town!

27,800 property agents make the cut with watchdog

ONE applicant was once jailed for seven years for having sex with a child. Others had histories of drug trafficking, illegal money-lending, stealing and fraud-related offences.

Of the estimated 32,800 existing property agents who applied for registration with the Council for Estate Agencies (CEA) earlier this year, about 27,800 passed muster.

So far, CEA said it has rejected 210 applicants based on their past convictions or involvement in court cases, while others might have dropped out because of tightening regulations.

From Saturday, all new and existing agents have to be registered. It is part of the Government's first foray into regulating and disciplining agents in the real estate industry - the sixth most-complained-about sector last year.

Those who made the cut will have their details displayed for the public on CEA's website. Only these agents are allowed to work. The council has the authority to fine, suspend or revoke the licences of those who break the rules.

The public register will display the agent's name, licence number and a recent photo. It will also show information on the 1,190 estate agency businesses.

Agents who have passed a recognised industry exam, such as the Common Examination for House Agents, have had their registrations approved.

CEA will also register those who have done at least three property deals over the last two years. But these agents will be granted only a one-year provisional licence and need to pass the Real Estate Salesperson (RES) exam by Dec 31 next year if they want to continue practising.

CEA is also launching a dispute resolution scheme next month.

This process aims to provide a means of resolving issues such as contractual disputes between consumers and agents. The agent involved will be compelled to participate in it.

Barely two months after it started operating, CEA has already received 228 complaints - about 114 a month.

Real estate agents and home buyers interviewed by The Straits Times welcomed the tightening of regulations.

Prospective home buyer Vanessa Chew, 26, said: 'Many of us, either rightly or wrongly, look to real estate agents for guidance and information. The new regulations will hopefully ensure that real estate agents are in a better position to assist us and minimise any potential conflicts of interests.'

Dennis Wee Group (DWG) director Chris Koh said a 'substantial' number of agents still made the cut. He said measures like the standardisation of buyer and seller agreements will help improve the industry. Almost all the 2,400 agents DWG submitted to CEA qualified.

Mr Koh added: 'The public registry will boost consumer confidence... buyers will know they are working with bona fide personnel.'

PropNex also had most of its 4,000 agents qualify. But spokesman Adam Tan said Singapore's total number of CEA-registered agents is likely to drop, in part because of the difficulty agents possessing provisional licences might have with passing the required exams.

About 6,000 property agents have a one-year provisional licence.

Mr Tan added: 'People who want to join the real estate industry now will have to be serious about it as a career.'

CEA said property developers and estate agents marketing land banking products are not affected by the new rules.

CEA starts licensing firms, agents

THE newly set up Council for Estate Agencies (CEA) has approved 1,190 licence applications from real estate firms as well as 27,754 registration applications for property agents, it said yesterday.

Previous estimates from the government - provided before CEA was set up - put the number of property firms and agents at 1,700 and 30,000 respectively. But industry players were expecting the number of firms and agents to fall with the establishment of the industry watchdog and stricter rules.

CEA also said that it turned down 210 applicants who do not meet the required criteria to be agents. The denied would- be agents were mainly found to have criminal records or records of offences involving fraud or dishonesty.

A public register of licensed firms and registered agents will be available on CEA's website from Jan 1. The register will display the name, licence or registration number, the firm the agent is working for, validity period, and records of offences committed or disciplinary actions taken, if any. Recent photographs of agents will also be available for easy identification from March 1.

CEA has been receiving licensing applications from both new and existing real estate firms since Nov 1. Property firms were also required to register salespersons who meet all of CEA's criteria by Nov 30.

Going forward, CEA will also implement a prescribed dispute resolution scheme - involving mediation and arbitration - in January. Firms are required to participate in the scheme once the consumer has elected to proceed.

The agency also clarified yesterday that estate agency work concerning land banking products will not be regulated under the Estate Agents Act 2010.

Said CEA: 'This is because estate agents marketing land banking products are more likely to provide financial investment advice than to make representations on a property. Consumers should practice caution and exercise due diligence when investing in land banking products.'

Business loans surge in sign of upswing

IN A fresh sign that the Singapore economy is going from strength to strength, the amount of bank lending to corporations has exceeded the record levels set in 2008.

According to the latest figures from the Monetary Authority of Singapore, Singapore-dollar business loans topped an estimated $166 billion in October, up from September's $164.7 billion.

These numbers surpass the all-time high of $163.2 billion reached in October 2008, before the economic slump took its toll on lending activity.

Business loans stood at about $154 billion at the start of the year and grew steadily for the first half of the year. But there has been a recent surge.

September saw the fastest month-on-month loan growth in two years. Borrowings grew by 2.5 per cent from August, the highest since September 2008's 2.9 per cent growth from the month before.

As a result, many corporate bankers are reporting a bumper year for the loans business, with some saying they have also touched new record highs.

They point out that with interest rates at historic lows and the economy roaring ahead, companies are now reported to be looking for more space to house their personnel and products.

'As confidence in the economy strengthens, more doors of opportunities for growth have opened up and we are seeing more businesses seeking funding to expand their operations, or to reinstate capital expenditure which was largely held back during the crisis,' said Ms Tan Siew Meng, HSBC Singapore's head of commercial banking.

This story is mirrored elsewhere in Asia. Statistics from the Hong Kong Monetary Authority show that loans grew 6.3 per cent in September to hit HK$2.86 trillion (S$476.4 billion).

Here, building and construction has emerged as one outstanding sector for buoyant loan growth.

Bankers say that construction-related loans are riding high on the back of major civil and infrastructure projects rolled out by the Government, such as the Marina Coastal Expressway.

Loan growth has also been strong among companies in oil and gas due to the pickup in business activity and the overall improvement in sentiment, said Mr Eugene Tan, head of Asean at Citi Commercial Bank.

And OCBC head of enterprise banking and financial institutions Linus Goh reports that loan growth has also been seen among trading companies in the import and export business, and among commodity players who are also taking out more loans as trade volumes improve.

Some of the money is going into property. United Overseas Bank says that its business clients, both big and small, are taking property loans to buy residential, commercial and industrial properties.

In particular, property mortgages taken on by small and medium-sized enterprises (SMEs) are accelerating.

'They include SMEs in the light manufacturing, trading and precision engineering sectors,' noted Mr Ian Teo, head of the business support unit for DBS Enterprise Banking.

'The demand is driven by business growth, capacity expansion, and clients who have opted to switch from renting to owning their business premises.'

Mr Teo said that 'several industrial property developments are fairly popular with the SMEs, including Midview City at Sin Ming Road and Tradehub at Boon Lay Way'.

SMEs are so bullish that some are even borrowing to invest in offices, shophouses and industrial units so as to garner rental income, given the often attractive yield of non-residential properties.

'Residential properties typically have yields of about 3 per cent, whereas industrial properties can have yields in the region of 6 per cent. Shops can potentially have about 5 per cent yields, whereas office units about 4 per cent, or slightly lower,' said Mr Ong Kah Seng, senior manager for Asia-Pacific research at Cushman & Wakefield.

The situation is a complete reversal from a year ago, when the global economic slowdown caused banks to crimp lending and saw many firms, big and small, playing it safe with their expansion plans.

To get credit flowing, the Government had to launch a range of risk-sharing initiatives, which saw it bearing some of the risk of default on business loans.

'Today, businesses are more prepared to invest and banks are more willing to lend,' said Maybank Singapore's head of business banking, Mr Lee Hong Khim.

Although the so-called Special Risk Sharing Initiative will be discontinued at the end of next month, bankers say that the humming economy means that they do not need such facilities.

Tyre maker Omni-United is one firm that has taken out more loans over the past one year. Its founder and chief executive G.S. Sareen said that as demand has grown strongly for the firm's tyres, it has borrowed money to develop more products and expand its range.

Integrated logistics firm Addicon Logistics Management has not taken out any loans, but expects to borrow cash soon to finance the construction of a fashion logistics hub here, said its managing director Benjamin Koh.

'The bankers are willing to give out more loans now than during the crisis,' said Mr Koh.

'From what I heard, during the crisis they were willing to finance 65 per cent to 70 per cent of your project, but now they are willing to go up to at least 80 per cent of the total cost.'

Honey, I shrunk the flat, but it's just us now

(SINGAPORE) HDB flats have gotten smaller over the years, but most occupants today should actually have more space to themselves as the size of families has also shrunk.

Data that BT obtained from HDB reflects this trend. From the 1980s to 2000s, all types of flats have been scaled down. The changes appear most noticeable between the 1990s and the 2000s.

For instance, a five-room flat built in the last 10 years would measure around 110 square metres, but an older one from the 1990s would be 110-135 sq m, while another hailing from the 1980s would measure some 123-135 sq m.

HDB explained that it 'reviews flat sizes regularly, taking into consideration changes in demographic trends and lifestyle habits, as well as the need to optimise limited land available for housing'.

Home hunters have noticed the change in flat sizes. The difference stands out particularly to those who have been shopping for resale flats across estates, said Dennis Wee Group director Chris Koh.

PropNex chief executive Mohamed Ismail agreed that flats have become smaller in the last 20 to 30 years, but pointed out that there has also been a more 'efficient use of space'.

For instance, most new flats no longer come with large balconies and long corridors. In addition, glass panels have become an increasingly common feature because they create a sense of spaciousness, he said.

While HDB's data confirms that flats have become more compact, it also highlights something less obvious to the casual observer - many residents today should have more living space because their families are smaller.

According to official surveys, the average household size was 3.4 in the 2000s and 4.6 in the 1980s. This means that an occupant in a relatively new 110 sq m five-room flat is likely to have 32 sq m of space to himself, while someone living in a 123 sq m five-roomer in the 1980s probably had just 27 sq m of space.

'Over the years, while flat sizes have been adjusted, living space per person has improved for HDB residents as household size has decreased . . . due to the nuclearisation of families and formation of smaller families,' HDB said.

HDB 'will continue to provide a wide variety of flats and ensure that flat sizes are reviewed regularly to cater to prevailing and future needs'.

Property agents note that flat sizes alone do not influence homebuyers' decisions - other factors such as location and amenities come into play.

As Mr Ismail shared, many people are looking forward to waterfront living in Punggol, even though flats in the area are likely to be smaller than those in older estates such as Yishun. 'The environments cater to different needs. There are pros and cons,' he said.

Still, industry watchers are not keen - and do not expect - to see flats getting smaller as they have to accommodate families.

'There's very little that you can cut back on, unless you want to cut back on the yard area . . . As it is, the room sizes are just nice,' Mr Koh said.

In the private housing sector, condominium units have also shrunk in size. The trend picked up pace from early 2009 when projects with a large proportion of shoebox units measuring less than 500 sq ft started to emerge. Developers have an incentive to keep units small so that they remain affordable even if prices in per square foot terms are high.

BT reported recently that the authorities have been projecting housing supply in the Government Land Sales programme by using smaller estimates for the average size of non-landed homes.

Market watchers do not believe that HDB flats will go the way of shoebox apartments. These private projects 'cater to investors who want to own a second property or to a single who wants to buy . . . but public housing is for a family nucleus', Mr Ismail said.

Index shows private resale home prices sliding

HOME buyers looking at the resale market rather than at the buoyant new launch segment could benefit from a break in rising prices, according to new data released yesterday.

For the second consecutive month, the National University of Singapore's Singapore Residential Price Index, which tracks only the prices of completed projects, fell.

Flash estimates suggest it was 0.2 per cent lower last month than in October. And revised estimates indicate that prices in October were 0.6 per cent down on the previous month's, after having climbed 1.1 per cent per month in both August and September.

Prior to October, the last time the overall index fell was in July when it dipped 0.1 per cent.

Comparing central and non-central areas, home prices in central locations remained flat last month after falling 1.3 per cent in October. In non-central areas, home prices slid 0.3 per cent following their staying flat the previous month.

Experts said the index shows that prices are stabilising - particularly in non-prime areas where buyers are more resistant to higher prices and likely to be affected by the Government's August cooling measures to a greater extent.

Some believe the index has highlighted the emergence of a two-tier market, with newer condominiums continuing to fetch benchmark prices while older completed projects stabilise or even decrease marginally in price.

Ms Tay Huey Ying, director of research and consultancy at Colliers International, said the second consecutive month-on-month slide was an indication of softening interest for older properties as buyers with a preference for everything new flock to new completions and launches. This is especially so since developers stepped up their launch activity last month, when their combined launch volume reached a 16-month high of 2,329 units, she added.

Mr Ong Kah Seng, senior manager of Asia-Pacific research at Cushman & Wakefield, said that the two-tier pricing market is likely to persist with buyers continuing to be enticed by new properties' more exciting offerings.

Still, he expects an increasing number of home buyers to purchase resale properties, given that they represent 'a cheaper alternative to suburban condominiums, offer almost immediate occupation and allow the direct benefit of owning a private property'.

Mr Ong added that although the cooling measures had done little to reduce home buying interest, they had served to minimise price increases, particularly for suburban condominiums.

DTZ's head of South-east Asia research Chua Chor Hoon said that the measures, which have hit the Housing Board market harder than other segments, appear to have filtered down to the private sector.

The price index, which tracks the price movement of non-landed homes completed between October 1998 and September last year, does not capture the price movement of newly completed or soon-to-be- completed projects. The index also does not track the transacted prices of homes sold in the primary market.

GuocoLand eyes its Reits of passage

(SINGAPORE) Malaysian tycoon Quek Leng Chan's Singapore-listed unit GuocoLand may look at floating two real estate investment trusts (Reits) - one office and the other retail - holding assets in Singapore, China, Malaysia and possibly Vietnam, BT understands. The assets could be worth about $6 billion to $8 billion in total and the Reits, now under study, may be floated over the medium term.

A study of the group's portfolio shows it has a pipeline supply of investment properties - at various stages of development - totalling about four million square feet gross floor area (GFA) for offices (more than the office space at Marina Bay Financial Centre) and about 4.6 million sq ft retail space (about 31/2 times the shop space at Ngee Ann City) as well as some 5,000 car-park lots.

Most of this portfolio is not completed. Even after the properties are ready, it will take some time for yields to stabilise so that the assets are suitable for injection into Reits.

This portfolio of potentially Reit-able assets stems from GuocoLand's strategy of embarking on integrated developments with retail, office and sometimes even hotel components in addition to residential properties. In the past, the group would develop only residential projects for sale, but this changed a few years ago.

For integrated projects such as Guoson Centre Dongzhimen in Beijing, Guoson Centre Changfeng in Shanghai and a big project to be developed on a site next to Tanjong Pagar MRT Station in Singapore, the hotel components are likely to be sold off along with the residential units.

On the other hand, the retail and office space in these projects will be held as investment property for recurring rental income until their yields have stabilised and these assets are ripe for injection into the two proposed Reits.

Market watchers say the considerable stock of car parks in these assets could also be potentially divested or spun off as a Reit.

GuocoLand recently hired Leslie Yee, formerly head of research and funds management of The Link Management Limited, the manager of The Link Reit in Hong Kong. Mr Yee's appointment at GuocoLand - as general manager of special projects - has sparked speculation in the industry that the group is laying the groundwork for potential Reit flotations holding its regional office and retail portfolios respectively.

However, such flotations would be about three to five years away, judging by the completion timelines of the projects, say analysts.

In Singapore, the group owns about 57 per cent of the strata area in Tung Centre at Collyer Quay. Its mega development in Tanjong Pagar - including about one million sq ft GFA of offices and 75,000 sq ft of retail space - could be completed around 2015.

For the project in Changfeng, Shanghai, the group has sold one office tower, leaving it with two more towers with nearly 600,000 sq ft GFA of offices, as well as about 1.5 million sq ft of shop space in the project slated for completion by end-2012 that could be potential Reit material.

The Dongzhimen project in Beijing also includes about 1.5 million sq ft of offices and 1.7 million sq ft of retail space - all expected to be completed by mid-2011.

In Vietnam, GuocoLand is developing The Canary in Binh Duong province in Ho Chi Minh City. This will include over 880,000 sq ft of retail space, and is planned for completion around 2012-2015.

In Kuala Lumpur, GuocoLand is planning the Damansara City project, which will include about 900,000 sq ft GFA of offices and about 400,000 sq ft of shop space. It could take about three to five years to complete this project.

GuocoLand's 65 per cent owned Malaysian unit, GuocoLand (Malaysia) Berhad, has a 21.7 per cent stake in Bursa-listed Tower Reit, which holds three office buildings in Kuala Lumpur. Analysts suggest that if GuocoLand gets round to floating a regional office Reit, Tower Reit's assets could be merged with the new entity to make for a more interesting investment proposition.

On the stock market, GuocoLand's share price has appreciated about 42.7 cents or 20.1 per cent since end-2009. It ended at $2.55 yesterday, or one cent higher than the previous close.

181 Soho units at The Tennery sold

FAR East Organization has sold 181 Soho-style (small office, home office) apartments in its 338-unit The Tennery.

The developer said yesterday that it released 217 units of its newest residential project, at Bukit Panjang, in a preview. A total of 181 units were sold at prices ranging from $950 per sq ft (psf) to $1,300 psf.

The 99-year leasehold The Tennery is part of an integrated residential and retail development Far East is building on the Ten Mile Junction site it won in a government tender in February.

Far East paid $164 million or $437 psf per plot ratio for the site at the junction of Choa Chu Kang and Woodlands roads.

In addition to The Tennery, the site will also house a 121,000 sq ft retail development called Junction 10.

Some 80 per cent of The Tennery's buyers are Singaporeans and permanent residents, Far East said. It added that most of the buyers are professionals living in the Bukit Panjang, Choa Chu Kang, Bukit Batok and Hillview areas, who are familiar with the neighbourhood.

Far East Organization's executive director and chief operating officer Chia Boon Kuah said that an increasing number of people are looking for versatile living spaces that allow them to work from home.

This development, he said, is flexible, expandable and designed for maximum functionality.

The Tennery's one-bedroom apartments range from 619 sq ft to 640 sq ft in size, while two-bedders range from 860 sq ft to 950 sq ft in size. Far East will release more units during the project's official launch on Jan 1, 2011.

In 2010, including The Tennery, Far East has launched nine residential projects in Singapore. Other launches included Altez in the Tanjong Pagar area, The Greenwich at Seletar Hills and Skyline@Orchard Boulevard.

High-end condos can't keep pace with mass-market hikes

(SINGAPORE) The latest flash estimates for November from the National University of Singapore (NUS) show that prices of non-landed private homes in Singapore's Central region (districts 1-4 and 9-11) have appreciated 7.9 per cent in the first 11 months of this year from end-2009.

Over the same period, the Singapore Residential Price Index (SRPI) sub-index for the Non-Central region rose at a faster clip of 12.9 per cent. As a result, the overall SRPI increased 10.7 per cent year to date.

SRPI, compiled by the NUS Institute of Real Estate Studies, covers only completed properties.

The Central region sub-index for November is still 3.7 per cent shy of its pre-Global Financial Crisis peak in November 2007. On the other hand, the sub-index for the Non-Central region in November has already surpassed its January 2008 pre-crisis peak by 15 per cent. As a result, the overall November 2010 index is about 7.6 per cent above its November 2007 pre-crisis high.

The latest indices from NUS tally with what property agents have been reporting from the ground - that mass-market condo prices have scaled fresh records this year while prices of prime and luxury condos have yet to touch their 2007 records.

DTZ executive director (consulting) Ong Choon Fah said that entry-level suburban condos have enjoyed strong demand this year, riding on upgrader demand amid a buoyant HDB resale market.

'In addition, the trend of developing a higher proportion of smaller units in private residential projects has spread from the prime districts (where rental demand is stronger) to the suburbs - and this has also helped to boost sales of mass-market projects by making the lump sum investment more palatable to buyers.'

Mrs Ong also pointed out that these days, developers of suburban projects are offering some of the innovative features which in the past were available only in prime district projects - such as sky gardens.

Knight Frank chairman Tan Tiong Cheng said that the increase in high-end condo prices had not been so sparkling this year due to more subdued foreign buying compared with the previous bull run in 2007.

'The foreign buying back then was from a wider spectrum. These days, buyers from the West, Middle East and Russia seem to be out of the equation. Also Western bankers were a significant buying contingent in 2007 but post-crisis, banks are less generous with remuneration.'

Month on month, the overall SRPI dipped 0.2 per cent in November. The sub-index for the Non-Central region too eased 0.3 per cent but the Central region sub-index was flat.

Since the last round of property cooling measures on Aug 30, the Central region sub-index has eased 0.4 per cent while the non-Central index has strengthened 0.9 per cent. As a result, the overall index in November was 0.4 per cent ahead of the August level.

Despite being proven wrong with their earlier forecast of stronger price appreciation for high-end condos compared to mass-market ones for 2010, analysts continue to predict the same trend in 2011, pointing to the already substantial price hikes posted in the mass-market segment. And if the government succeeds in taming HDB resale prices, that will also have an impact on upgrader demand for entry-level condos. Also, any interest rate hike, as well as further property cooling measures, is likely to make a bigger dent on demand in the mass-market segment than on upmarket condos.

Sales at launches buck 'slow December' trend

THE Christmas buying spree has rubbed off on home hunters who have been snapping up units at Singapore's latest property launch.

Some 181 of the 217 units put up for sale at The Tennery since Monday last week have already been snapped up - and this in the usually slow month of December.

Coupled with other strong launches, an estimated 600 new private homes have been bought so far this month. This means that the total number of homes sold for the year is well on track to reach the 16,000 predicted by real estate firm CB Richard Ellis.

At The Tennery, prices for the one- and two-bedroom units start at $720,000 and range from $950 to $1,300 per sq ft, according to developer Far East Organization.

It said Singaporeans and permanent residents made up 80 per cent of the buyers at the 99-year leasehold site at the junction of Choa Chu Kang Road and Woodlands Road.

PropNex chief executive Mohamed Ismail said the affordability of the small units - as well as the accessibility of the site - made the 16-storey residential development an attractive proposition for buyers.

'Most of the buyers are probably medium-term investors who have a view to renting them out,' he added.

He noted that the site, which will eventually boast 338 units, is near the Ten Mile Junction LRT and the soon-to-be completed Bukit Panjang MRT.

The successful Tennery launch coincides with solid performances at other new launches this month.

Some 232 units of the 250 units offered for sale by CapitaLand at its D'Leedon project on Farrer Road have been bought.

And buyers have purchased almost all of the 167 units at Robinson Suites, which are priced from $2,300 to $3,300 psf.

According to data released by the Government, some 15,025 new private homes were sold during the first 11 months of the year, already an all-time record.

With analysts predicting that full-year sales could hit 16,000 units, this would exceed the 2007 record of 14,811 units by some 8 per cent.

Orange Tee head of research and consultancy Tan Kok Keong predicts that the momentum of sales from November, when 1,909 homes were sold, is likely to continue into the new year.

'The feel-good factor is back, with a more positive economic outlook and the Government reporting good job growth,' he said.

Tuesday, December 28, 2010

Collective sale market likely to remain active

COLLECTIVE sales have rebounded this year and should maintain their momentum next year, but are still unlikely to hit the heights seen in 2007.

Stricter rules, seller fatigue and the bumper supply of state land will combine to restrict the rate of en bloc deals, according to DTZ Research yesterday.

The sector has certainly revived this year, with 34 residential deals totalling $1.47 billion - a stark contrast to last year when the $100.8 million sale of Dragon Mansion was the only transaction.

But it is unlikely that the conditions that produced the watershed year of 2007 - when 136 deals totalling $12.4 billion were sealed - will be repeated, DTZ said.

Compared with 2007, this year's sales were a lot smaller in size as well.

Only one - Meng Garden at $137 million - went for over $100 million while 26 of the 34 deals were done at under $50 million each. These made up almost half of the total value of en bloc sales.

In 2007, 22 properties were sold for between $100 million and $500 million each and four were sold for between $500 million and $1 billion each.

'There was a lot more optimism in 2007 - major global economies and property markets were on a roll and there were fewer Government land sale sites available then,' DTZ said.

As the Government tries to cool the property market, the large supply of land it is offering next year could distract developers from collective sale sites. Many of the Government plots are near MRT stations and in Housing Board estates with a ready pool of demand from potential upgraders.

DTZ said the process of buying a Government site is more straightforward as a project can be launched for sale within six to seven months of a successful tender - a further incentive for developers.

There are also signs that potential sellers are holding back collective sales, particularly in projects that had failed on earlier attempts. Other owners are holding out for higher prices.

But the collective sale market offers a wider variety of smaller and freehold sites that are more digestible for newer or boutique players. Government lots are on 99-year leases and tend to be large.

It helps that the property market is generally optimistic in the light of continued economic growth, said Mr Shaun Poh, DTZ's senior director of investment advisory services and auctions.

'Buyer response to new launches is still positive while developers are still low on land banks and continuing to buy sites. The market has also expanded with newer players joining in,' he added.

The improving appetite for risk has allowed the collective sale market to enter a new phase with potentially larger deals.

A few estates with reserve prices above $500 million, such as Hawaii Tower in Meyer Road, have been launched for sale or are in the process of doing so.

A number of major condominium sites such as Pandan Valley and Kensington Park are now seeking the backing of owners and could be put up for sale next year, DTZ said.

Senja residents upset by MRT work noise

SENJA resident Anna Teo, 28, and her family of five have not had a good night's sleep since September.

That was when construction of the Downtown MRT Line started, just 200m away from her HDB block.

The housewife had bought the four-room unit on the 26th floor about seven years ago because of the view of Woodlands Road it offered.

But now, she has to keep her windows shut all the time and leave the air-conditioning on all night because construction work at the site next to Senja Road in Bukit Panjang sometimes continues late into the night.

Further pumping up the decibel level is another construction site - for the upcoming Senja Green flats. It is in the same area and goes on in the day.

'We've made six complaints to the police this month alone. We tried earplugs but the noise was just too loud and continuous,' she said. 'It's really traumatic for my family.'

Since September, 36 Senja residents have lodged complaints over the noise with the National Environment Agency (NEA). Most of the complaints focused on the MRT site because piling sometimes continues well past midnight.

Sales executive Fann Yong, 30, said: 'It's terrible at night, because you expect them to keep the noise down but it actually seems to get louder.

'We would complain to the NEA, and the noise would taper off for an hour or so... then start back up again.'

According to the authorities, the contractor in charge of works at the MRT site, Lum Chang Building Contractors, has had to carry out loud piling works past midnight because they encountered hard rock in the ground.

Said an NEA spokesman: 'As the operation needs to be completed in a single attempt for safety reasons, it had to continue till late at night.'

According to the NEA, Lum Chang was slapped with a fine for exceeding the noise limit on Dec 4.

NEA guidelines stipulate that residential buildings located more than 150m away from construction sites cannot be subjected to more than 90 decibels of noise from 7am to 7pm, and 65 decibels any time after that. Ambient or background noise in Singapore measured at night is at least 55 decibels.

Holland-Bukit Timah GRC MP Liang Eng Hwa, who has had one or two residents each week complaining about the problem, said he is working with the Land Transport Authority and the contractor to get them to keep the noise down. 'I understand how unhappy my residents are,' he said. 'But this is a national project and the MRT will benefit them when it's built.'

The Downtown Line construction is slated to conclude in 2015, and the piling works by the end of next year.

EAS eyes Vietnam for its next foreign foray

HAVING penetrated Malaysia and Brunei, homegrown Electro-Acoustics Systems (EAS) is looking towards Vietnam for its next foreign foray.

'We are planning, next year, we may set up an office in Vietnam,' managing director Lam Tong Loy told BT. 'They are also building theme parks and speeding up their infrastructure work. Our work is somehow related to infrastructure work.'

Founded in 1982, EAS is an integrator of audio-visual, lighting and communication systems. It specialises in large-scale projects and is particularly known as a total solutions provider in the industry, with expertise in designing, combining multiple systems together and installations.

It counts performance arts centres, hotels, financial institutions, convention centres, broadcasting stations, judicial courtrooms, schools and office boardrooms among its list of clientele. Some recently completed projects include systems done for Resort World Sentosa, the School of The Arts and Brunei's The Empire Hotel & Country Club.

And with real estate being one of the top sectors for foreign direct investments in Vietnam, it is hoping to get a slice of the action there.

'As they (Vietnam) develop industrial parks, banking systems, logistics areas, our systems will be required for their operations,' said Mr Lam. 'Just like convention centres, which we are always involved in. Or it could be hotels, even the hospitality side, entertainment - because now they are talking about building a big theme park in Vietnam.'

Each time a major commercial infrastructure is built, there will be an opportunity for EAS to offer its solutions. Mr Lam added that the market for large-scale professional audio-visual, multimedia and lighting systems in Vietnam is estimated to be worth more than $30 million over the next five years. However, before EAS gets its foothold in there, it first needs to build a team.

'We are now looking for staff and office,' said Mr Lam. 'Because in Vietnam, language is a problem. We are trying to get someone who can speak English.'

He is hopeful that the branch office, to be located in Hanoi, should be up by the second half of 2011. However, he does not expect the operation to be immediately profitable as it would take time to train the locals in the technical aspect of the business.

That's quite unlike EAS's experience in Brunei, which was profitable right from the start. Thanks to the wide network of contacts developed during Mr Lam's days as a division manager in Philips Singapore, EAS now has an 80 per cent market share in the broadcast segment in Brunei and 70 per cent share of the communications and multimedia requirements within the government sector there.

Mr Lam recounted in jest that when he was at Philips and his managing director asked who would like to go to Brunei, 'I was the only idiot who raised my hand'. It was considered hardship assignment in those days, but to Mr Lam, the fact that nobody was interested spelt opportunity since he would be the first one there.

And so, it was the same entrepreneurial spirit that prompted him to start EAS in the early 1980s, right before the recession of the mid-1980s hit.

'I could see that the recession was on the way,' Mr Lam. 'If we start at that time, costs would be low. Employing people would be easier. Rental costs would also be low.'

With an initial capital of $80,000 and the support of banks that had been serving other businesses run by the rest of his extended family, he started providing sound systems, with a focus on Singapore and Brunei. Gradually, the portfolio offerings expanded to include visual and multimedia installations, then broadcast systems and lighting solutions.

A few years later, EAS broke into the Malaysian market, as a result of a job done for the Monetary Authority of Singapore. A backscreen projection with centralised remote control had impressed visiting officials so much that they had asked EAS to design the multimedia systems for their offices in Kuala Lumpur.

Other jobs in Indonesia, Myanmar and Thailand followed. As for China, EAS did one project for Tianjin Sheraton Hotel in 1985. But it did not continue to pursue the market as the flow of work from South-east Asia had kept the company sufficiently busy.

But that's not to say that China has not been on the mind. Mr Lam revealed that he has a personal investment in a Chinese audio-visual equipment maker. And when the time is ripe, EAS may re-enter China through the manufacturer.

'The China market now, honestly, if we have to go back by ourselves, I think it's going to drain a lot of our resources,' explained Mr Lam. 'But if we work with an already established manufacturer, with so many outlets, it may be an easier, wiser way to do it.'

A distributor for about 20 brands - including Renkus-Heinz loudspeakers, ETC lighting systems, Yamaha mixers and processors and Sennheiser wireless communication equipment - EAS recorded a combined revenue of about $60 million for the past three years, with a three-year moving average growth of about 40 per cent. About 12 per cent of its annual takings come from recurring income arising from maintenance fees.

Regardless of the economic situation, Mr Lam is optimistic that the audio-visual and multimedia sectors that his company is in will be able to achieve sustainable growth. With a staff strength of about 58 now, he expects to recruit at least four more people to support the company's expansion plans. Apart from new infrastructure that will drive demand, growth could also come from the replacement and upgrading market.

'If you look at the technologies progressing in this IT (information technology) age, there're always new requirements and therefore opportunities for us to get involved,' he added. 'So we see this can be a sustainable business. And the growth will come with lifestyle changes.

'If you look at the teaching institutions, for instance, the methods and the equipment used are constantly changing. And as you get more sophisticated, you need to bring in the latest technologies, you need to integrate them and somehow make them work with other systems. And this kind of work - it's our speciality.'

Monday, December 27, 2010

S'pore firms unfazed by Vietnam ratings cut

Singapore companies are thriving in Vietnam despite strains in the economy from capital flight, double-digit inflation, a huge trade deficit and a ratings agency downgrade.

In a Dec 15 report, Moody's slashed Vietnamese government bonds from Baa3 to B1, citing the heightened risk of a balance-of-payments crisis. On Dec 23, Standard & Poor's followed suit and also lowered Vietnam's long- term foreign currency sovereign credit rating to 'BB-' from 'BB'.

But listed companies like Keppel Land, CapitaLand, Asia Pacific Breweries and the three local banks seem unperturbed by Moody's alarm bells.

Vietnam's 2010 GDP growth will hit a brisk 6.5 to 7 per cent, and the pressures are showing through. Businessmen say Moody's is not flagging new concerns.

'I don't think Moody's is exaggerating the situation, but it might be late (in highlighting it),' says Wong Yit Fan, who previously headed DBS's Vietnam operations in 2007 and 2008. Now an adviser at real estate investment firm Straits Capital, he adds: 'The trends - capital flight, inflation pressure, problems with the central bank - have been embedded in Vietnam for a long time and haven't changed in a meaningful way.'

Even though sky-high inflation may reduce the purchasing power of the Vietnamese, beer producer Asia Pacific Breweries has reported growing business there. It has managed to wrap up the year with higher profitability from its Indochinese operations.

Notably, APB has installed additional capacity in Vietnam, with a bottling line in Danang having doubled production to 50,000 bottles per hour.

Dr Wong suggests that the rapidly rising income of the Vietnamese has outpaced inflation. 'The way the people have been increasing spending patterns has very strong momentum,' he says. 'My sense is that APB invested at the correct time when the momentum of consumers was moving ahead.'

One group that has done well in Vietnam are property developers, whose fortunes are tied to the peculiarities of Vietnamese investment patterns. In particular, the locals don't usually place deposits with banks. 'The only forms of wealth preservation in Vietnam have been property and gold,' says Dr Wong.

Kim Eng analyst Wilson Liew observes that although the market has been quiet of late, there is still 'strong underlying demand for housing' in Vietnam. 'I think the property developers are still positive on Vietnam for the medium to longer term,' he says. 'Fundamentals such as the growing affluence of the middle class are there. For the past three to four years, the majority of buyers were local Vietnamese, and a portion were from the Viet Kieu (the Vietnamese diaspora).'

CapitaLand's stance on Vietnam - its 'fourth pillar of growth' after China, Singapore and Australia - is unchanged. The group will grow its Vietnamese assets from $400 million currently to $2 billion over the next three to five years. Its wholly owned serviced residences arm, Ascott, also intends to increase its 1,300 apartment units in four Vietnamese cities to 1,800 by 2012.

A CapitaLand spokesperson acknowledged that rising inflation in Vietnam could push business costs higher, but said CapitaLand would manage these 'by locking in construction costs and restructuring contracts to have even more competitive pricing at different work components'.

She added that 'prices for mid-end and upper mid-end homes in Ho Chi Minh City and Hanoi remain firm'.

As recently as October, Keppel Land announced that it will undertake its fourth and fifth villa developments in Ho Chi Minh City with local property developers. It reported that its first project, the 101-unit Vila Riviera, sold out in its first year in 2006, and another, the 96-villa Riviera Cove, has seen 90 per cent of its 88 launched units snapped up.

Mr Liew says: 'Market activity hasn't picked up to that previous level, and prices are off 20 per cent from their peak. But in general, the developers are looking at a pick-up in the next 24 to 36 months.

'The pickup in volume will partly be determined by the rate at which infrastructure can catch up with urbanisation. For example, in Hanoi they intend to build a metro system and that will be positive for property developers there.'

The downgrade by Moody's is not expected to impact the three Singapore banks, which have only stepped up their presence in Vietnam not too long ago.

Each has a full branch in Vietnam but their exposure is relatively small and banks tend to take a long-term view of their investments.

United Overseas Bank pointed out that its Vietnamese operations contribute 'much less than 10 per cent of overall group profit' though it is a consistent fast-growing performer.

OCBC Bank and UOB also have 15 per cent stakes in private local banks VP Bank and Southern Commercial Bank respectively.

Says Leng Seng Choon, an analyst at DMG & Partners: 'The downgrade will have a minimal impact on them because most of their operations are in Malaysia, Singapore and Indonesia. Their investments are meant to ride on the long-term economic growth of Vietnam and I think they will provide that type of growth for the banks.'

The worst-case scenario would be their books being hit by floundering Vietnamese state-owned enterprises (SOEs). One reason for the Moody's downgrade stemmed from reduced confidence in Vietnam after state-owned shipbuilder Vinashin said it could not pay the first instalment of a US$4.4 billion loan.

However, Dr Wong says such non-performing loans should not impact OCBC, UOB or DBS. 'OCBC and UOB will not be affected that much because they do not have much exposure to this type of SOE-lending,' he says. 'We don't have to worry about DBS because they haven't fully started in Vietnam. Sometimes it's good to be late.'