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24th February 2014

Singapore Economy 

Praise from businesses but strugglers worried

Measures seem aimed at stronger enterprises in productivity drive

Source: Business Times / Top Stories

[SINGAPORE] Budget 2014's sharply targeted measures to boost productivity won praise, but amid business groups' relief at the absence of across-the-board manpower curbs are worries that struggling businesses may be left behind.

"The new measures are going to strengthen the hands of those that are stronger. It seems that the government is in a haste to drive upgrades and not lose momentum in the productivity upgrading," said Association of Small and Medium Enterprises (ASME) president Kurt Wee.

There is reason to hurry, if the 2-3 per cent productivity growth a year target is to be met by 2020. Singapore's productivity has grown 11 per cent over the past four years, but this was entirely due to the strong cyclical recovery in 2010 with little improvement since.

"However, the fear is that you might choke off a segment of the industry - the weaker ones that have not fully got onto the productivity bandwagon," Mr Wee said.

Measures unveiled by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam last Friday included a much sought after $3.6 billion, three-year extension of the Productivity and Innovation Credit (PIC) scheme and a PIC+ enhancement that raises SMEs' eligible expenditure for tax deduction by 50 per cent.

Other goodies included $500 million worth of incentives to encourage adoption of infocomm technologies, $150 million for co-investments in equity and mezzanine funding, higher risk-sharing on micro-loans and better internationalisation incentives.

These went down well in the eyes of economists such as Citi's Kit Wei Zheng and Brian Tan. "Besides bolstering cash flow, this multi-dimensional approach promotes both product and process innovation in laggard sectors," they said.

DBS economist Irvin Seah, too, said: "Appropriate and targeted assistance to companies will yield much better outcomes in the longer term than broad-based tightening in labour policies that undermines Singapore's competitiveness."

The only manpower-related blow this year was dealt to the construction sector - the sole sector to face a foreign worker levy hike in 2016. Keeping to the "multi-dimensional" approach, the government paired this levy hike with changes to allow skilled workers in the construction, marine and process sectors to work here for a longer maximum of 22 years, up from 18. Also, rules will be tightened to encourage developers to use manpower-saving designs, and give contractors reasons to upgrade their workers' skills.

For all other sectors, the last of levy and quota changes unveiled last year will be fully rolled out by July 2015. But fresh measures have not been ruled out.

"We will continue to closely monitor the growth of foreign manpower in other sectors, to ascertain whether further tightening measures, including levy increases, are needed for 2016 and beyond," Mr Tharman said on Friday.

This should sound a warning bell for less productive clusters. The construction sector has been the exception to the general slowdown in foreign workforce growth over the past two years, Mr Tharman pointed out.

Construction was also found to be one of the lowest contributors to productivity growth in the past five years, in a study published in the Ministry of Trade and Industry's Annual Economic Survey of Singapore last week.

Its productivity level was below average, but it hired a rising proportion of Singapore's total workforce over the past five years partly due to stepped-up building and infrastructure projects, shaving about 0.3 percentage point off productivity growth each year in the past five years.

Another sector with a similar profile was the accommodation and food services sector. "Stronger economy-wide productivity gains hinge on cutting employment share of laggard sectors, which is not assured," the Citi economists said.

Another thought that could give bosses pause is the government may still introduce off-Budget policies relating to foreign manpower. Last year, changes to the minimum qualifying salary for the bottom tier of employment passes, as well as the fair consideration framework that will mandate that firms attempt to hire Singaporean PMETs (professionals, managers, executives and technicians) before seeking foreigners, were announced after Budget season was long over.

But business observers think this is unlikely. Singapore Business Federation chief operating officer Victor Tay said: "What has been set in motion is a schedule-based reduction. I doubt they will roll out measures in the interim, as it may disrupt business operations and project costings."

Measures taken to tighten the inflow of foreign PMETs "are already quite comprehensive and align with the American and European standards" and he doubts the government will go further.

However, Mr Tay said that while this year's Budget has been more targeted - addressing growth-oriented companies and the financing issues of tech start-ups - it does not address the needs of those struggling because of restructuring.

"These are companies which have eroded margins or at survival brink are still finding it harder to obtain financing," he said.

According to the Singapore Business Federation's survey, a smaller proportion of SMEs benefit from government incentives compared with larger ones. They also tend to hire more mature workers, which means their wage bills may be disproportionately hit by the coming rise in CPF contribution rates.

"But that may be part of the philosophy behind the policy: not to put money into companies that are more likely to fail," said Mr Tay. After all, Mr Tharman himself said on Friday: "We are not recycling monies indiscriminately, or seeking to benefit all firms equally. Our schemes will still favour the more dynamic and efficient players."

ASME's Mr Wee added: "There is some risk. There is some signal that the government appears to be pushing for some level of consolidation in the economic scene at large."

-By Teh Shi Ning

Singapore Real Estate

Govt may extend buyback scheme to bigger flats

Ministry had received feedback to expand scheme despite low take-up rate

Source: Today Online / Singapore

SINGAPORE — Despite the low take-up rate so far, the Government is considering expanding a scheme that allows the elderly to sell part of their flat’s lease back to the Housing and Development Board (HDB).

National Development Minister Khaw Boon Wan said yesterday his ministry is looking to extend the Lease Buyback Scheme to those living in four-room and five-room HDB flats.

Speaking to reporters on the sidelines of a dialogue session with grassroots leaders on the Budget, Mr Khaw was responding to questions on what to expect at his ministry’s upcoming Committee of Supply (COS) debate next month.

While he said there would be no major changes in housing policy — given the “big moves” already made over the last two years — his ministry is looking at helping the elderly monetise their homes. It is also looking at doing more for second-time home buyers, such as divorcees with children and single parents.

The Lease Buyback Scheme, introduced in 2009 and enhanced last year, is currently applicable only for three-room and smaller flats, and has seen a low take-up rate. Last year, about 240 owners made use of the scheme.

Asked about the poor take-up of the scheme, Mr Khaw said it simply meant “people are not financially desperate to need to take advantage of those options”.

Mr Khaw also said while downsizing had practical benefits, residents do not want to move from their current neighbourhoods due to their emotional attachment.

Mr Khaw noted, however, that he had received feedback from four- and five-room flat residents requesting to get on the lease buyback scheme.

Head of Consultancy and Research at SLP International Property Consultants Nicholas Mak said with the lease buyback value for bigger flats worth more than that for smaller flats, the scheme could interest some owners, in particular, those who are asset rich but cash poor.

“So maybe they bought a bigger flat, they put in a lot of their life savings into that bigger flat … but they need the money because lifespan is longer and their CPF may not be enough to meet their retirement needs, so I guess this (scheme) is helpful as a way for the Government to help people in these circumstances,” said Mr Mak.

Managing Director of Chesterton Singapore Donald Han said extending the scheme to bigger flats would see a higher take-up rate.

“If you cast the net a bit wider to capture the four- and five-room flats, I think that would probably see a greater participation amongst those who are in need for cash,” he said.

Noting that the take-up rate for Build-To-Order flats have started to stabilise, Mr Han also felt that it is an “opportune” time for the HDB to tackle housing hardships felt by minority groups such as divorcees and single parents.

-By Amir Hussain

More housing aid proposed for elderly

Source: Business Times / Top Stories

[SINGAPORE] More help could be on the way with housing for the elderly, according to National Development Minister Khaw Boon Wan.

Yesterday, Mr Khaw told Channel NewsAsia (CNA) his ministry will look at expanding the Lease Buyback Scheme, an initiative that helps the elderly monetise their housing assets.

He said this on the sidelines of a post-Budget dialogue with grassroots leaders yesterday.

Mr Khaw added that his ministry is studying suggestions to expand the scheme to include four and five-room flats. Now, only seniors who own three-room and smaller flats are eligible.

-By Joyce Hooi

Hub at Serangoon Gardens may get new lease of life

Source: Straits Times 

The Lifestyle Hub @ Burghley did not look like it was going to have much of a life last September. The Serangoon Gardens project was barely two years old and had already been through power cuts, sewerage problems, a leaky roof and even termite infestations.

Real Estate Companies' Brief

Rowsley's loss deepens after write-down for RSP purchase

Source: Straits Times

Mainboard-Listed Rowsley has sunk further into the red after buying an architecture firm in a bid to transform itself from an investment holding company into a real estate firm. Rowsley posted a net loss of $226.3 million for the nine months to Dec 31, mainly due to a write-down from its purchase of RSP Architects Planners and Engineers.

Understanding Reit structures

Real estate investment trusts are a way for investors to buy slices of large property portfolios, says CAI HAOXIANG

Source: Business Times / Young Investor

LAST week, we covered the basics of why investors buy property. To sum up, property investments offer capital appreciation, rental income streams and diversification. Investors also derive pleasure from owning a piece of space.

Buying residential property in Singapore for investment purposes requires a large sum of capital. Properties are generally illiquid and difficult to sell quickly. The multiple measures put in place by the government to cool the market in the last few years also impose costs and limitations on investors. Rental yields, after deducting costs of debt and maintenance, might just amount to a few percentage points a year.

Real estate investment trusts (Reits), on the other hand, offer investors a yield of 5-8 per cent currently. They are easily traded on the stock market. Investors just starting out might find Reits a more attractive proposition than buying their own physical property to rent out.

Before jumping in, investors have to understand the nature of Reit company structures and how they differ from other commonly traded structures such as bonds and stocks.

-By Cai HaoXiang

Tips on evaluating a Reit

Taking a simplistic approach to yields and NAVs can lead to wrong conclusions

Source: Business Times / Young Investor

JUST as people are judged by what they wear and how they look, real estate investment trusts (Reits) are usually judged by their yields and net asset values (NAVs). This is an overly simplistic approach that can catch investors off-guard when a Reit turns out to be riskier than they thought, or when professional valuations of properties implied by the NAV change drastically when economic conditions and market sentiments turn.

Yield, or more precisely historical yields here, refer to the distributions per unit a Reit paid investors in the past year divided by its current share price. NAV refers to the most recent valuations of the Reit's assets minus its liabilities like debt. Investors tend to look at whether a Reit's share price is trading at a premium or discount to its NAV per unit to see if there is scope for price appreciation.

High yields do not mean a Reit is an attractive buy, however. Yields are related to risk and growth potential, as investor Bobby Jayaraman pointed out in his 2012 book on Reit investing, Building Wealth Through Reits. The safer the Reit and the higher its growth potential, the lower its yields will be. This is because high demand from investors for these assets pushes up their price, thus lowering yields.

At a price of around $1.90 per unit and 10.27 cents per unit paid out in 2013, CapitaMall Trust (CMT) is trading at a yield of just 5.4 per cent, meaning investors get paid $5.40 out of every $100 invested every year, assuming distributions stay constant.

-By Cai HaoXiang