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Thread: The bigger you are, the better you weather the storm

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    Default The bigger you are, the better you weather the storm,00.html?

    Hock Lock Siew

    Published June 24, 2008

    The bigger you are, the better you weather the storm


    WHAT a difference a year makes.

    Last year, euphoria ruled asset markets. After a moribund three years which saw Singapore property values dive by some 45 per cent, the market sprang to life in 2007, fuelled by the robust stock market and supported by a slew of new infrastructure initiatives - most notably the integrated resort (IR) development plans. Property prices surged some 28 per cent last year.

    But all that is history now.

    Latest data shows that prices for some property transactions in the sub-sale market have declined almost 40 per cent from last September's levels. And although new home prices are still holding up amid only 2,100 new units launched to date, a potential glut of new supply next year could put pressure on new home prices.

    Not surprisingly, property stocks have been hit.

    And the turbulence facing the industry has sparked the inevitable rumours about who might be impacted most.

    One company which is being closely watched is high-end property developer SC Global Developments.

    With its properties priced at $4,000 per square foot per plot ratio (psf ppr) and above, speculation is rife that the company is caught between a rock and a hard place. Not surprisingly, SC Global's stock price has dived into a seemingly inexorable decline, losing some two-thirds of its value since last October to close at $1.26 yesterday.

    Weighing down sentiment on the stock is market talk that the company is struggling under a huge overhang of unsold apartment units and grappling with a huge debt burden.

    Indeed, SC Global started the year with almost 1.1 million sq ft of unsold property - primarily at The Marq on Paterson, Hilltops, The Ardmore and The Beachfront Collection @ Sentosa. More critically, the company had debts of some $1.2 billion, almost double the $700 million it had a year earlier.

    And its debt/equity ratio was almost three times.

    Not exactly comforting numbers.

    But looks can be deceiving. And SC Global is not just any developer.

    The company, which has over $60 million in cash in its coffers, is a niche player catering to a high-end, globally mobile, jet-setting class which is relatively price-insensitive and discriminating.

    Over the past half-year, the company has managed to sell some 200,000 sq ft of its land bank - mainly at The Marq @ Paterson and Hilltops - for over $700 million.

    If SC Global exercises its option to prepay its debts from sale proceeds, the company would be left with a net debt of some $500 million against a remaining land bank of 900,000 sq ft. The resulting debt-land bank ratio of some $555 psf ppr is not exactly an insurmountable problem for a company like SC Global.

    Seen from another angle, this could be a breakeven price of sorts for the company should it want to be completely debt-free (not that SC Global will ever sell any of its luxury units at such bargain basement prices, though).

    In fact, the company has completely recouped its costs at The Marq with the sale of 40 per cent of the units there. So proceeds from every additional unit sold in the future will go straight to its bottom line.

    But all this does not change the depressing macro picture for the property sector here, where there is still significant downside risk to valuations.

    Still, as Merrill Lynch noted recently, SC Global has only two property assets that are at risk of impairment in the current downcycle: the Sentosa Beachfront Collection and The Ardmore. But the investment house noted that the average book value of these assets would have to dive by two-thirds, from $2,141 psf ppr to $824 psf ppr, 'to be of any real threat to SC Global's survival' - an outcome which is highly unlikely.

    Recent evidence suggests that despite the current slowdown, the luxury segment seems to have held up pretty well, with some 50 new apartments in the over $10 million price range being snapped up this year. This number could double by year-end.

    Meanwhile, Fitch Ratings believes that residential receivable transactions have not been impacted by the softening of the local residential market. Fitch - which applies market value decline (MVD) assumptions of between 48 per cent and 58 per cent to the transactions depending on the property location - dismisses the possibility that the current stress scenario will develop into anything similar to that which existed during the Asian financial crisis.

    The bottom line? Not all property players are equal. Some, like SC Global, have a premium land bank, cater to a niche market, and have the ability to sit on their land bank for a while. These players will ride out the current turbulence better than others.

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    Default Singapore Now Has 77,000 Millionaires

    Singapore now has 77,000 millionaires
    Thursday, 26 June 2008

    Singapore has climbed the ranks of the millionaire club: It is now No. 7 in the world's top 10 list of fastest-growing populations of high rollers.

    The country saw a 15.3% rise - or an addition of 10,000 people - to 77,000 millionaires, according to the 12th annual World Wealth Report, prepared by United States investment bank Merrill Lynch and information technology group Capgemini.

    The report defines a millionaire as a person possessing more than US$1 million (S$1.37 million) in net assets, excluding his main residence and other consumables.

    Asia was home to some of the world's fastest-growing populations of millionaires, according to the report.

    Topping the top-10 list was India, followed by China. For India, the number of its millionaires jumped 22.7% last year to 123,000, while the number of high rollers in China rose 20.3% to 415,000.

    Other countries in the top 10 list are Brazil, which took the third spot, followed by South Korea, Indonesia, Slovakia, Singapore, the United Arab Emirates, Czech Republic and Russia.

    Despite financial turmoil and significant increases in the price of luxury goods, the report said the world's millionaires have an 'unquenchable appetite' for luxury items.

    Jewellery, gems and watches attracted the largest share of these 'passion investment allocations' in Asia and the Middle East, the report said.

    Globally, these high-priced toys tend to be art collections, yachts, personal jets and similar items, said Merrill Lynch and Capgemini.

    But there are regional differences, with Asia's millionaires allocating the most to items like luxury and 'experiential' travel, visits to high-end spas and designer clothes, they said.

    Asian millionaires' wealth would grow annually by 7.9% to US$13.9 trillion in 2012, against US$13.5 trillion among Europe's wealthiest, or 4.9% annual growth, the report said.

    The number of millionaires in the Asia-Pacific grew 8.7% from a year ago to 2.8million people and their combined wealth soared 12.5% to US$9.5 trillion, excluding the value of their homes and consumables.

    'In the Asia-Pacific region, wealth is being created at an unprecedented rate,' said Mr Kong Eng Huat, managing director (South Asia Market) at Merrill Lynch Global Wealth Management.

    'Notwithstanding the recent dislocation in global markets, the robust economies in Asia are increasingly being driven by the domestic consumption story and continue to spur wealth creation in the region.'

    Mr Kong added that, in five years' time, millionaires in Asia would have more combined wealth than those in Europe.

    But the rich are also facing the challenges of slower growth in developed markets hit by the credit crisis as well as the risk of high inflation in emerging markets, the report said.

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