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25th February 2014

Singapore Economy

Low January inflation masks underlying price pressures

Accommodation and private road transport costs skew headline figure

Source: Business Times / Top Stories

[SINGAPORE] Inflation may have dropped to a near four-year low in January - dipping to 1.4 per cent from 1.5 per cent in December - but economists say the benign headline rate masks underlying price pressures.

With core inflation remaining on an upward trend and base effects set to wear off beyond Q1, economists that The Business Times spoke to do not expect the easing of prices to last for long.

The easing in overall inflation was mainly due to a larger decline in private road transport costs, which fell 3.5 per cent in January after a 2.8 per cent decline in December. This was in turn due to lower COE premiums at the end of 2013.

A more moderate increase in accommodation costs, too, helped make overall inflation slightly lower than most were expecting. Accommodation costs rose 2.4 per cent last month from 2.9 per cent the previous month, as imputed rentals on owner-occupied accommodation edged up at a slower pace.

The 15 private sector economists polled by Bloomberg had been expecting a 1.5 per cent increase in the consumer price index (CPI).

ANZ and Mizuho Bank economists pointed out that the decline in private road transport costs shaved half a percentage point off headline inflation in January, skewing the overall number downwards.

Highlighting the base effects at play, Mizuho's Vishnu Varathan said: "At just under $80,000, COE prices this January looked like a walk in the park compared to the $90,000 (seen this time last year). So it gives a very distorted picture . . . Whatever reprieve has come through in January is fleeting. Enjoy the base effects while they last because in any case, it's something artificial."

Indeed, core inflation crept up in January, even as headline inflation subsided. This, according to OCBC economist Selena Ling, "reinforces (the view) that headline inflationary pressures will take a backseat to core inflation".

Core inflation - which strips out the costs of accommodation and private road transport - rose at a faster 2.2 per cent from 2 per cent in December, due to higher contributions from services and food prices.

Services inflation edged up to 2.9 per cent in January from 2.8 per cent in the preceding month, led by a stronger increase in holiday travel cost and pre-school fees.

Food inflation crept up to 3 per cent from 2.7 per cent in December, reflecting the seasonal uptick in food prices during Chinese New Year.

"As Chinese New Year fell in January 2014 but February last year, the seasonal pick-up in food prices in January 2014 was compounded by the low base last year," said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) in a joint statement yesterday.

Said ANZ's Daniel Wilson: "Other components of core inflation remain on an upward trend with education, healthcare, and recreation & others all contributing positively. Looking ahead, the increase in excise duties (25 per cent) to be paid on alcohol is likely to cause a shift higher in core inflation as this is passed on to consumers at restaurants and stores."

UOB economist Alvin Liew added: "We continue to see inflation risks higher in 2014 and they will likely come from segments where the labour input content is relatively higher in production. With the tight labour market, employers have to out-bid each other in order to attract workers, and this will result in wage increases (in addition to the impending rise in employers' CPF contribution) and would likely be passed on to consumer prices."

Both Mr Varathan and Barclays's Leong Wai Ho agree that inflation is likely to tick up past Q1, as base effects wear off.

Noting that they do not expect to see changes to monetary policy in April, Citi economists Kit Wei Zheng and Brian Tan said in a research note: "Should Budget 2014's targeted yet multi-dimensional approach to raising productivity growth succeed, this too could alleviate cost pressures in the longer term."

-By Kelly Tay

COE declines help inflation to near-four-year low of 1.4%

But core inflation rises to 2.2% as a result of increase in service costs and food prices

Source: Today Online / Business

SINGAPORE — A moderation in private road transport costs helped drive headline inflation to its lowest level in nearly four years last month, but the apparently benign data masked an increase in the prices of services and food.

All-items inflation slowed to 1.4 per cent on-year last month — its lowest point since February 2010 — from 1.5 per cent in December, helped by the decline in private road transport costs as Certificate of Entitlement (COE) premiums fell.

Private road transport costs fell by 3.5 per cent last month, following a 2.8 per cent drop in December.

But core inflation, which excludes private road transport and accommodation costs, increased to 2.2 per cent from 2 per cent in December, reported the Monetary Authority of Singapore and the Ministry of Trade and Industry in a statement yesterday.

The statement pointed the finger of blame for the increase in core inflation at the stronger rise in service costs and food prices.

Mr Irvin Seah, an economist at DBS, said the higher food costs probably stemmed from the Chinese New Year holiday and will probably ease from current levels, but service costs were likely to remain high.

“The tightening of the foreign labour policy is creating cost pressures among businesses, who are passing on these costs to the consumer,” he said. “Service industries have had to bear the brunt of these rapidly increasing manpower costs because the sector is relatively more labour intensive.”

Such challenges have been felt in sectors such as healthcare, which saw a 3.9 per cent on-year increase in costs last month.

“There are constraints on manpower — especially foreign labour — and this is putting upward pressure on wages and is one of the key reasons why healthcare costs have gone up,” said Mr Alvin Liew, Senior Economist at UOB.

Mr Seah said challenges such as these are going to keep core inflation at elevated levels for the rest of this year. “Core inflation could rise to 2.5 per cent by the middle of this year or maybe in the third quarter, driven partially by the build-up in labour costs.”

According to the official forecast, core inflation is projected to average 2 to 3 per cent this year.

And headline inflation may also increase as the year progresses as the impact of lower COEs wears off, said Credit Suisse analyst Michael Wan.

“The latest inflation figures indicate the current impact of government measures to curb car loans,” he said.

“But because the fall in transport costs resulting from that announcement mainly came in April last year, we believe headline inflation will be more pronounced in April this year, probably at around 3 per cent.”

All-items inflation is projected by the government to come in at 2 to 3 per cent this year.

Committing to productivity for the long haul

Source: Today Online / Singapore

Budget 2014 could, in time to come, be seen as cementing a trenchant reform for Singapore’s economic policy that places productivity ahead of growth. By fine-tuning and extending many of the policies first promulgated in the aftermath of the 2009 downturn, the message demonstrates an unwavering commitment to the next phase of national progress.

In line with its declaration of a focus on depth, the Budget’s productivity message has coalesced around three key challenges: Technological upgrading, the resource constraints faced by small and medium enterprises (SMEs) and the skills of the workforce.

In terms of technological upgrading, the focus is squarely on infocomm technology (ICT). While ICT has pervaded our society, the exploitation of ICT to serve as a viable technological complement to employees has a long way to go. Since we are starting from a low base, the potential for productivity gains is significant.

For example, in the case of security companies, using remote cameras instead of personnel on the ground is a solution that has been available since the advent of high-resolution digital cameras and enhanced Internet bandwidth.

However, this technology has not been fully absorbed by the industry for many reasons — including, possibly, the degree of comfort with industrial applications of Internet technology. Industrial applications are different from casual usage in important ways, relating to issues such as reliability, bandwidth costs, online security and customers’ privacy.


Some of the Budget’s initiatives are clearly aimed at encouraging long-term innovation. Hence they may not yield productivity improvements in the short run. Even basic productivity-enhancing practices take time to show results.

There are still some quite basic challenges in introducing ICT that, if addressed, could yield large gains. Consider the use of iPads to take and convey orders in a restaurant.

In order for this to be a truly effective innovation, not only must the service workers and food preparation professionals be comfortable with such a system, there must also be adequate technological support. In other words, there must be a network of technology vendors to which the restaurants can turn to — if not, early adopters may be frustrated rather than aided by such a foray into innovation.

Some consideration should thus be given to analysing the extent to which such concerns prevent firms from undertaking more sophisticated productivity-enhancing initiatives.


The Government has made strong efforts over the years to boost productivity. These efforts, originally spearheaded by agencies such as the National Productivity Board and the Productivity and Standards Board, exhorted our workers to work smarter and faster.

In contrast to the colourful mascot and catchy acronyms marking those initiatives (including WITS or work improvement teams), this Budget’s tone is more sombre. I believe that is a good thing, because it injects a sense of gravity about the challenges we face.

The longer we put off the real changes that need to be made in embracing a productivity-centred work culture, the further behind we will be compared with our global competitors. One thing we should be careful to avoid is the over-optimistic expectation of a spectacular improvement in productivity in a short time.

Since most people usually get better at their jobs if they do it long enough, it may be interesting to consider what could inhibit productivity growth, even given the massive undertaking of the past few years. The most serious factor would be a lack of preparedness — the workforce may be unprepared for changes that would occur with greater ICT penetration into their work processes.

The fact that key productivity-related initiatives are to take effect only from next year indicates that the changes are not meant to take anyone by surprise. The lead time of almost two years built into the next round of levy increases for the construction sector, for instance, should give employers enough reaction time to make the necessary adjustments.


From 2005 to 2008, the pressing needs of growth had a negative impact on productivity. The problem was that, contrary to the short-term imperatives of that period, which resulted in too heavy a dependence on manpower, productivity is very much a long-run challenge.

In contrast, by maintaining a more steady focus, the Budgets of the past few years as a whole will come to be seen as achieving a much-needed consolidation in what had been an inchoate stream of initiatives targeting productivity over the past few decades.

Still, based on experience to date, it is almost certainly clear that this Budget alone will not be enough. Productivity is more of a guiding philosophy than a pursuit: We should want it because it represents the correct way to do things.

Indeed it is possible — as has been noted by some economists — that fewer workers will be needed once productivity is achieved.

This is the other prong that a long-term policy on productivity must contain; this is why the focus on elevating workforce skills is required. That this Budget has sunk another S$500 million into the Lifelong Learning Endowment Fund, in anticipation of expanded needs from a review of the Continuing Education and Training system, is reassuring.

In short, while technology is an enabler, the central figure continues to be the worker.


Given the urgent priority that the restructuring of the labour market plays in the scheme of things, I believe it would have been better to have delayed the Central Provident Fund (CPF) changes.

For older workers, for instance, with the change, employers will ultimately have to contend with a 2-percentage point hike for those aged 50 to 55, which is more than half the 3.5-point difference between that age group and the main one before the change.

It is unclear how the ongoing effort to increase older workers’ labour force participation rates will be affected by this.

More generally, while the 1-percentage-point increase in Medisave contributions is important as a long-term objective, I feel the timing could be better. I would think it should not be more urgent than the economic structuring still going on in the labour market.

Something similar to the two-year lead time for new levy increases in the construction sector could have been considered as it could make a difference in terms of substituting local for foreign workers.

The employment credits present a clear signal of the Government’s concern about hiring costs. But getting the taxpayer to fund hiring costs is quite extreme and may not be a good idea if it occurs with regularity. Short of an emergency measure in a recession, such employment credits may actually lead to labour market distortions.

So, the 0.5 percentage points funding through the two employment credit schemes to ameliorate the impact of the CPF increase is another indication, in my opinion, that it would have been better to delay the CPF increase by a longer time.

Delaying the CPF increase to a later time would have concentrated our focus on the labour market changes that are meant to contribute to the productivity-enhancement targets.

-By Randolph Tan

Singapore Real Estate

Stamp duty forecast not proxy for property market

Source: Business Times / Top Stories

[SINGAPORE] The Budget's estimated 30 per cent drop in stamp duty revenues may not necessarily foretell a dire year for the property market, an analysis by The Business Times has found.

According to Finance Minister Tharman Shanmugaratnam's Budget announced on Friday, revenue from stamp duties is expected to fall to $2.8 billion for the year ending March 2015, compared to an estimated $4.1 billion for the year ending March 2014.

That projected 30 per cent reduction is the sharpest among the key sources of income for the Budget, and at first glance it would seem troubling.

Property consultants are expecting a 10 per cent correction for the property market in 2014, while DBS chief executive Piyush Gupta recently reckoned that a 10 to 15 per cent decline might be in the works.

-By Kenneth Lim

No housing bubble in Singapore: Citigroup

Mortgages of $203b only 24.2% of property values in Q3, says lender

Source: Business Times / Property

[SINGAPORE] Citigroup Inc said that it's "encouraging" that Singapore's household debt tied to the real estate market is only a fraction of property values, downplaying concerns of a bubble.

Singapore's $203 billion of mortgages amounted to 24.2 per cent of the value of residential properties in the third quarter, according to Citigroup's analysis of government data. The lender, the biggest employer among foreign banks on the island with 10,000 employees, offers housing and car loans as well as credit cards and other banking services.

"Nobody has walked me through the mechanics of a total crash of the real estate market for it to be compelling," Michael Zink, who heads Citigroup's operations in South-east Asia, said in an interview in Singapore on Feb 20. "Ninety per cent of households live in a home that they own, so where's the bubble?"

Singapore's fourth-quarter home prices slid 0.9 per cent, falling for the first time in almost two years as the government introduced more taxes and restrictions to widen a campaign that began in 2009 to curb speculation. The central bank said last month that new residential loans have declined and household balance sheets are strong, following a Forbes article that said the city is headed for an "Iceland-style meltdown".

No relaxing of property curbs means continued weak market: Analysts

Source: Today Online / Business

SINGAPORE – With the assurance from the Government that the property cooling measures are here to stay, housing market sentiment will remain weak as buyers stay longer on the sidelines, said analysts yesterday.

This is because those looking to buy a new property can look forward to further downward price correction, after Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said on Friday that there is room for more moderation before any tweaks are made to the curbs.

Mr Ku Swee Yong, Chief Executive of property agency Century 21, said: “Local buyers will definitely wait and see a little more. Foreign buyers hoping for a reduction in the ABSD (additional buyer’s stamp duty) might just buy now that they know it is here to stay, especially if they have decided on Singapore as their long-term home; but those interested to buy properties as investments might be chased away.”

Mr Donald Han, Managing Director of property firm Chesterton Singapore, said: “Those looking to buy property can hold back for more price correction. Good projects launched at a price lower than those sold in the vicinity will definitely see interest.

“But overall sentiment is still the status quo. Some relaxation of cooling measures was on the wish list (for this year’s Budget) and that will remain on the wish list,” he added.

Mr Tharman said in his Budget speech that it was too early to start relaxing the property cooling measures, given the rise in prices in the past four years.

The moves, he said, are meant to help moderate the market and prevent prices from getting “too far out of line” with income levels.

Mr Colin Tan, Director of Research and Consultancy at Suntec Real Estate Consultants, said the decision to keep the cooling measures provides clarity to the housing market in coming months.

“Some developers have been holding back launches to observe the market. Now, with this clarity, they can make a decision whether to hold back more or to launch. But sentiment will remain weak since nothing was done to change it,” he said.

Mr Tharman also said the property market would be closely monitored in the coming quarters and, if necessary, adjustments to the cooling measures would be made.

Mr Ku said the continuous downtrend in cash-over-valuation (COV) premiums of Housing and Development Board resale flats might lead to the Government taking its first step to relax the curbs.

He said: “The market is trending downwards, but not fast enough — it’s a gradual downtrend.

“But COV is going down very quickly and there are now more cases of negative COVs. If valuation also falls quickly, it might actually kick-start the process for (the Government) to make changes.”

-By Lee Yee Nee

Sim Lian to buy 5 shopping malls in Australia

Source: Business Times / Companies

PROPERTY and construction group Sim Lian is acquiring five neighbourhood shopping centres in Australia for A$133 million (S$151.2 million), in a bid to smoothen fluctuating development profits.

The properties - four in operation and the fifth to be ready in April - are in the states of New South Wales, Victoria and Queensland.

Sim Lian's executive director Kuik Sing Beng said in a statement: "It represents our entry into the Australian shopping centre market and we are confident it will further enhance the quality, diversity and income profile of our investment portfolio."

The five shopping centres will be acquired through an off-market transaction from a wholly owned subsidiary of Woolworths Limited. They have a total gross leasable area (GLA) of around 28,875 sq m.

-By Raphael Lim

200 out of 300 units at RiverTrees Residences sold

Strong sales over weekend launch suggest project has set its psf prices right

Source: Business Times / Property

RIVERTREES Residences, the latest condominium project launched in Sengkang, attracted strong buyer interest, with 200 units out of the 300 units launched snapped up over the weekend.

Buyers purchased units from all unit types available; Frasers Centrepoint, the lead developer of the project, said two-bedroom units and strata-titled landed homes known as "Cove Houses" were "selling particularly well".

The two-bedroom suites start from $618,000 while the eight duplex three-bedroom "Cove Houses" are selling for under $2 million. Permanent residents need to obtain approval from the Land Dealings Unit under the Singapore Land Authority to qualify for the landed homes.

Buyers of the units include both HDB upgraders who are buying their first private apartment as well as investors, according to Frasers Centrepoint which is jointly developing the 495-unit waterfront project with Far East Orchard and Sekisui House.

-By Lynette Khoo

Units of RiverTrees Residences released to robust demand

Source: Today Online / Business

Frasers Centrepoint has sold 220 of the 300 units for its latest project, RiverTrees Residences, in Sengkang’s Fernvale district, which were released for sale last weekend, said the developer yesterday.

Mr Cheang Kok Kheong, Frasers Centrepoint Chief Executive for Development and Property in Singapore, said: “This validates our belief that there is still depth in the market and that there is robust demand for high-quality homes at the right prices.”

The selling price for the 495-unit RiverTrees Residences ranges from S$950 to S$1,150 per sq ft in the initial phase, with two-bedroom homes priced from S$618,000.

Riviera Point up for en bloc sale - for 5th time

Source: Business Times / Property

RIVIERA Point, a 33-unit freehold residental development at the junction of Kim Yam Road and River Valley Road, was yesterday re-launched for collective sale by public tender - for the fifth time.

For the second time, Jones Lang LaSalle (JLL) is the sole marketing agent. Nicholas Ng, the local director of investments at JLL, said this sale follows JLL's first sale attempt last October, when the changes in the Total Debt Servicing Ratio had given prospective buyers pause.

This time around, Riviera Point's owners are seeking offers in excess of $68 million - no different from what they sought in the previous tender launch. This translates to about $1,379 psf per plot ratio on the gross floor area (GFA).

Back in September 2011, when Knight Frank was the marketing agent, the asking price was $70 million, or $1,420 psf ppr.

ArchXpo show to be pillar of Archifest

Source: Business Times / Property

ARCHXPO 2014, an inaugural international architecture and built environment exhibition, is set to be an iconic pillar of the annual Archifest, which will be held at Marina Bay Sands Singapore from Sept 29 to Oct 1, 2014.

The strategic inclusion of ArchXpo in Archifest will allow it to act as a bridge between ideas and their physical manifestations through a showcase and sourcing platform of relevant technologies, products and related services for professionals in the architecture and built environment industries, said the Singapore Institute of Architects (SIA).

"We are thrilled to have ArchXpo as a part of this year's edition of ArchiFest," said Theodore Chan, president of SIA.

"While we continue our outreach with the general public, ArchXpo will definitely value-add to the festival, providing a professional industry component for all visitors, in synergy with the pavilion, conference, architours, awards and various fringe activities."

Real Estate Companies' Brief

Wheelock Q4 loss trebles on project provision

Poor take-up rate for The Panorama development

Source: Business Times / Companies

MAINBOARD-listed Wheelock Properties sank deeper into the red with a loss of $91.3 million for the fourth quarter ended Dec 31, 2013, versus a loss of $30.8 million in the corresponding period a year earlier. This was due to a $110 million provision for a project.

Revenue for the quarter under review edged up 3 per cent year-on-year to $29 million while loss per share worked out to 7.63 cents, from a loss per share of 2.57 cents previously.

For the full year, the group turned in a profit of $40 million, down nearly 37 per cent from FY2012. Revenue was down nearly 44 per cent to $117 million largely due to the lower sales from Scotts Square compared to the revenue recognised from the sales of Orchard View and Scotts Square in the last financial year.

The group has proposed a first and final dividend of six cents per share.

-By Nisha Ramchandani

UIC makes unconditional $762m offer for SingLand

Latter's shares rise as much as 11.8% but observers say revised bid unlikely

Source: Business Times / Top Stories

[SINGAPORE] United Industrial Corporation (UIC), a company controlled by veteran banker Wee Cho Yaw and Philippine tycoon John Gokongwei, said that it was taking its 80.36 per cent subsidiary, Singapore land (SingLand), private at $761.67 million.

It has proposed an unconditional voluntary cash offer to acquire all the shares it does not already own in SingLand at $9.40 per share in cash, according to its offer announcement.

The news sent shares of SingLand leaping by as much as 11.8 per cent to $9.45 after its trading halt was lifted, before closing at $9.42 yesterday with 836,000 shares changing hands. 

Shares of UIC closed 5.4 per cent higher at $3.11.

Though SingLand's share price was bid up above the offer price, observers say UIC is unlikely to revise the offer price, given that SingLand's current free float of 19.5 per cent, of which 8.16 per cent is held by US-based equity fund Silchester International Investors LLP, means that only 1.4 per cent of acceptances from minority shareholders is required to cross Singapore Exchange's listing threshold of a 10 per cent free float.

Mr Wee and Mr Gokongwei have deemed interests in SingLand through their stakeholdings in UIC of 48.7 per cent and 37 per cent, respectively. 

Describing this as a "fair offer", Maybank Kim Eng property analyst Wilson Liew said that the offer price is at a 25 per cent discount to SingLand's revised net asset value (RNAV), compared to the brokerage's assumed 35 per cent discount to RNAV for its target price of $8.20.

Amid poor market sentiment for the residential property segment, several developers are seeing their shares trading at a widening discount to RNAV or book value. SingLand's low trading liquidity warrants a larger discount, some analysts say.

"We aren't seeing much catalyst mainly from the residential exposure perspective. There are also not many projects left on their landbank. Most of the value is still tied to their commercial properties," Mr Liew said. He also noted that there was no significant upside for SingLand's commercial portfolio, which comprises older Grade A and B office units.

One analyst, who declined to be named, differed in his view on the offer premium, saying that "it is not attractive to minority shareholders".

UIC said that the offer price represents a 11.24 per cent premium to the last traded price of SingLand shares on Feb 19 and a 13.87 per cent premium to the volume-weighted average price for the past three months. It factored in the proposed first and final dividend of 20 cents per SingLand share for the financial year ended Dec 31, 2013.

UIC, whose non-executive chairman is Mr Wee, said that it was taking SingLand private in order to have "greater management flexibility to review the operations, management and financial position of the group, and to evaluate various options or opportunities which may present themselves".

The privatisation will also allow SingLand to save on compliance costs of maintaining a listing in view of its low trading liquidity, it added. Average daily trading volumes of SingLand shares have hovered around 0.02 per cent of the total number of issued shares.

"Hence, the offer represents a unique cash exit opportunity for the shareholders of the company to realise their entire investment at a premium over the market prices of the shares up to and including the last trading day," UIC said.

The deal comes in the wake of market speculation about further privatisation of companies controlled by Mr Wee, following UOL Group's proposed exit offer of $2.55 per share for its 82 per cent owned hotel unit, Pan Pacific Hotels Group.

Observers noted that the proposed privatisation of SingLand suggested that there was consensus between Mr Wee and Mr Gokongwei at least where SingLand is concerned. It would be hard to pull off a privatisation exercise for UIC, where Mr Wee and Mr Gokongwei have long been locked in a tug-of-war for control. Mr Wee did not succeed in his $1.15 billion offer in January 2009 for shares of UIC that he did not own.

"This exercise for SingLand makes sense. If you look at the way the parent is held, much of the value of UIC comes from SingLand. To take UIC forward, it makes sense to delist SingLand first before considering where to take UIC," Mr Liew said.

Analysts note that other property players who are closely held by founding family members, such as Ho Bee and Wing Tai, are also privatisation candidates.

-By Lynette Khoo

Billionaire Wee’s UIC to Buy Remaining Singapore Land Stock

Source: Bloomberg / News

United Industrial Corp. (UIC), part-owned by Singapore’s richest man Wee Cho Yaw, is offering S$762 million ($601 million) for the remaining 20 percent of Singapore Land Ltd. it doesn’t own to take the company private.

United Industrial, or UIC, will pay S$9.40 for each stock in Singapore Land, one of the city’s biggest office landlords, according to a filing to the Singapore stock exchange today. That’s an 11 percent premium over the closing price on Feb. 19, the last trading day before the stock suspended.

The transaction adds to a list of real estate related companies taken private by their biggest shareholders in the past 18 months, including SC Global Developments Ltd. and Pan Pacific Hotels Group Ltd. UIC said delisting Singapore Land (SL) will help manage it more effectively.

“UIC believes that privatizing the company will give the UIC Group and the management of the company more flexibility to manage the business of the Group and optimize the use of its management and capital resources,” the company said in the statement.

Singapore Land shares had their biggest gain in almost a decade, surging 11 percent to close at S$9.42. UIC climbed 5.4 percent to S$3.11, closing at its highest since Oct. 14.

Before the two stocks were halted, about 136,000 Singapore Land shares were traded on Feb. 19, five times more than the three-month average volume. The stock climbed 3.7 percent that day, the most in 14 months.

UIC also said the offer allows Singapore Land shareholders to sell their shares easily because of “generally low trading liquidity” in the stock.

UIC, whose chairman is Wee, currently owns or controls 331 million share in Singapore Land, according to the statement. Wee has a net worth of $7.2 billion, according to the Bloomberg Billionaires Index.

-By Klaus Wille

Frasers Centrepoint

We initiate coverage on Frasers Centrepoint Ltd (FCL) with a "buy" rating. As the fourth-largest listed developer, FCL offers investors a sizeable listed investment option with a market cap in excess of S$4 billion and asset value of S$11.5 billion. An estimated 47 per cent of its gross asset value is exposed to development properties, 33 per cent to investment properties and Reits, and the remaining to hospitality and other activities. Its core markets are Singapore, China and Australia.

Feb 24 close: S$1.475

DBS Group Research, Feb 24

WE initiate coverage on Frasers Centrepoint Ltd (FCL) with a "buy" rating. As the fourth-largest listed developer, FCL offers investors a sizeable listed investment option with a market cap in excess of S$4 billion and asset value of S$11.5 billion.

Views, Reviews & Forum

Budget '14: Tackling the twin challenges

Source: Business Times / Editorial & Opinion

THE need to transform its economy coupled with having to cope with changing social demographics means that Singapore as a nation has crossed an inflection point, when it has to embark on new directions in its strategy for sustainable growth.

Recognising this early, the government has introduced a number of measures to promote innovation and productivity in recent years. Budget 2014 seeks to build on these measures, with a particular focus on Singapore businesses and small and medium enterprises (SMEs). These include enhancement to the Productivity and Innovation Credit scheme for SMEs, financial 

assistance to encourage early and wider adoption of info-communications technology solutions, as well as the extension of financing schemes for companies at different stages of growth. 

Businesses were reminded of "the permanent reality of a tight labour market", and this means there is no choice but to increase efficiency, move up the value chain and explore new markets outside Singapore.

The raft of tax and financial assistance schemes should be welcomed by businesses, as they provide some relief against rising costs while businesses restructure and expand beyond Singapore's shores. It would, however, be useful if more targeted tax measures could have been introduced to complement this overall strategy, for example, in the commercialisation of intellectual property. In other areas such as asset management, the enhancements will ensure that Singapore stays competitive but more can be done to take it to the next level.

With an eye on quality growth, the proposals in Budget 2014 reflect the government's intention to reward the more dynamic and efficient players - those who are prepared to invest and restructure so as to achieve innovative breakthroughs; or in the Finance Minister's words - help is given to those who have their "own money in the game".

-By Paul Lau and Loh Eng Kiat

Global Economy & Global Real Estate

GLP tightens its grip on China's logistics industry

Source: Business Times / Companies

GLOBAL Logistic Properties (GLP) has signed a strategic partnership with China's largest state-owned logistics company to develop a national network of logistics facilities there.

The deal with Sinotrans Logistics Investment Holding will strengthen GLP's position as the top logistics solution provider in China, GLP said yesterday.

The companies will initially develop logistics facilities in Shanghai and Guangdong. GLP will use its expertise in the development and management of logistics parks, while Sinotrans will focus on logistics operations and land-sourcing, GLP said.

GLP's chief executive officer Ming Z Mei said: "There is much room to reduce costs and improve efficiency in China's logistics industry, even as strong growth in domestic consumption continues to drive demand.

-By Raphael Lim

RM1m floor price won't impact Iskandar projects

Source: Business Times / Property

THE new RM1 million (S$385,500) floor price for foreign property buyers will not have much impact on Iskandar Malaysia as only an estimated one in five purchasers is a foreigner, according to a property consultant.

Speaking at a 2014 property outlook briefing by the Malaysian Institute of Estate Agents (MIEA) in Kuala Lumpur yesterday, Loo Kung Hoe of Rahim & Co (Johor) said that half of the residential property buyers in the economic zone are Malaysians working in Singapore and about 30 per cent are locals.

As foreigners are more inclined to acquire properties costing more than RM1 million, Mr Loo said the new ruling, which takes effect on May 1, would have little impact. Some areas of Iskandar, including Medini, Putri Harbour and China Garden's Danga Bay development, are also exempt from price restrictions or quotas, though homes there are more likely to exceed RM1 million than not.

Mr Loo said a Feb 13 circular by the state land office stated that there is a 2 per cent approval fee for all property transactions, whether primary or secondary.

-By Pauline Ng

Wall Street-backed landlords take bad mortgage route

Shift to loans comes after foreclosure starts slump to their lowest level since 2006

Source: Business Times / Property

[NEW YORK] Wall Street- backed landlords are showing a greater appetite for bad mortgages as a source for cheap property as the supply of foreclosed homes declines while housing prices continue to climb.

The companies have dominated US foreclosure auctions in the last two years by buying as many as 200,000 single-family homes. Now, American Homes 4 Rent, the second-biggest single-family landlord, Barry Sternlicht's Starwood Waypoint Residential Trust and Altisource Residential are leading acquisitions of non-performing loans, or NPLs, to expand their holdings of rental properties.

The shift to loans comes after foreclosure starts dropped to the lowest level since 2006 and house prices jumped in Atlanta, Phoenix and other markets where investors have made the most purchases. The development is raising concern among housing advocates that private equity firms and hedge funds will be more likely to take possession of the properties rather than offer loan modifications. Residents may be displaced or transformed into renters of their former houses.

Doug Brien, co-chief executive officer of Starwood Waypoint, said that his firm plans to give delinquent residents a chance to stay put as owners or renters.

-From New York, US

China's home price gains slow in major cities

Source: Business Times / Property

[SHANGHAI] New home price growth in China's first-tier cities slowed in January after local governments implemented property measures to rein in escalating values and banks tightened lending.

Home prices in the capital city of Beijing and the southern business hub of Shenzhen both rose 0.4 per cent from a month earlier, the National Bureau of Statistics said in a statement yesterday, the slowest pace since October 2012.

Prices in Shanghai added 0.5 per cent, the smallest increase since November 2012, and those in Guangzhou increased 0.7 per cent.

Property shares slumped after the data was released and as Shanghai Securities News reported that Industrial Bank Co suspended loans to some developers.

-From Shanghai, China

Buffett Warns of Liquidity Curse, Celebrates Property Bet

Source: Bloomberg / Personal Finance

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., cited a farm he’s owned since 1986 to caution individuals against frequent buying and selling of stocks.

Investors should treat their equity holdings like real estate purchases, focusing on the potential for profits over time rather than short-term price fluctuations, Buffett, 83, wrote in an excerpt from his annual letter published on the website of Fortune magazine today.

“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations,” Buffett said. “For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.”

Buffett has pursued a buy-and-hold investment approach as he built Omaha, Nebraska-based Berkshire into a $280 billion company accumulating the largest holdings of Coca-Cola Co., American Express Co. and Wells Fargo & Co. He’s said individual investors may be better off avoiding his approach to picking stocks, instead purchasing a fund that holds every company in the Standard & Poor’s 500 Index.

“The goal of the nonprofessional should not be to pick winners,” Buffett wrote. “The ‘know-nothing’ investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results.”

The S&P 500 has returned about 7 percent annually over the past decade, beating by almost a percentage point the average yearly advance of Buffett’s company. Buffett has said he aims to increase Berkshire’s book value, a measure of assets minus liabilities, more rapidly than the S&P 500.

Retail Property

Buffett’s track record of profitable stock picks and takeovers has helped make his letters a must-read on Wall Street. The billionaire has said he writes them to be understood by his sisters, who don’t work in finance. The full document will probably be released by March 1, along with financial results for 2013.

In today’s excerpt, Buffett cited the agricultural holding and a 1993 investment in New York City real estate. Annual distributions on the retail property, near New York University, now exceed 35 percent of the initial investment.

He purchased the 400-acre (1.6 square kilometer) farm, located 50 miles (80 kilometers) north of Omaha, for $280,000 in 1986. He says he calculated the farm’s return to be about 10 percent, based on production estimates for soy and corn. The farm is worth about five times what Buffett paid, and earnings have tripled, he wrote.

‘Moody Fellow’

The billionaire compared the daily fluctuations in stock values to an erratic neighbor standing near his property, yelling out offers for the land.

“If a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his -- and those prices varied widely over short periods of time depending on his mental state -- how in the world could I be other than benefited,” Buffett wrote. “If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming.”

That’s not how equity holders often react, Buffett said.

“Owners of stocks, however, too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally,” he wrote. “Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits -- and, worse yet, important to consider acting upon their comments.”

Market Fluctuations

Buffett has said that he regrets not taking advantage of such irrationality to sell holdings. Coca-Cola Co., one of Berkshire’s largest equity holdings, was one of the billionaire’s most successful investments in the 1990s, reaching prices that were more than 45 times earnings at the end of 1998.

The investment has fared worse since then. While the stock price has recovered most of its losses since falling from the 1998 peak, Coke’s price-to-earnings ratio is less than half of what it once was. Shares have declined this year as the soft-drink maker faces sluggish growth outside the U.S. and concerns about the healthiness of its product at home.

“Though I said at the time that certain of the stocks we held were priced ahead of themselves, I underestimated how severe the overvaluation was,” he wrote in a 2005 letter to shareholders, reflecting on stocks in Berkshire’s portfolio in the late 1990s. “I talked when I should have walked.”

Despite that regret, Buffett reiterated his view today that excessive trading can diminish returns.

‘Frictional Costs’

“Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions,” he wrote. “The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit.”

Berkshire last week decided to stop letting high-speed traders purchase direct access to press releases distributed by its Business Wire unit. Such firms often enter and exit positions in less than a second. Buffett said last year that such activity is “not contributing anything to capitalism.”

-By Zachary Tracer and Noah Buhayar

NYC Stables in Developer Crosshairs as Carriage Ban Looms

Source: Business Times / Luxury

New York City carriage driver Cornelius Byrne doesn’t need horse sense to figure out what’s happening on Manhattan’s far west side.

From the second floor of Central Park Carriages, the West 37th Street stable he bought for $90,000 in 1979, Byrne can see construction cranes rising above the site for the extension of the 7 train to 11th Avenue. The new subway stop, slated to open this year, is a key piece in the evolution of the Hudson Yards area, one of Manhattan’s hottest neighborhoods for commercial real estate, where companies such as Related Cos. and Brookfield Office Properties Inc. (BPO) are planning new skyscrapers.

With Mayor Bill de Blasio pledging to ban horse-drawn carriages from Central Park, the owners of the four stables that house the animals regularly field calls from investors interested in their properties. Byrne has seen billions of dollars pour into the blocks surrounding his 7,000-square-foot (650-square-meter) building, an area once rife with drug dealing and prostitution, and wants to be around for the next chapter.

“This area has been rough over the years and it’s finally starting to bloom,” said Byrne, 67, standing in front of the stall where Henry, a Belgian workhorse, resides. “I want to be part of that.”

The push to outlaw the city’s more than 150-year-old carriage-horse trade, called inhumane and outdated by supporters of the ban, has drawn attention to the potential value of the stables, each located west of 10th Avenue. As the businesses face an uncertain future, demand for lots in the area by builders of offices and luxury-apartment towers is surging.

‘Best Use’

“The highest and best use of this real estate is not as horse stables,” said Robert Knakal, chairman of brokerage Massey Knakal Realty Services. “The development rights are worth a heck of a lot more than the buildings currently there.”

Prices for Manhattan development sites jumped 22 percent last year to an average of $445 a square foot, according to a report by New York-based Massey Knakal. Commercial-building prices averaged $1,041 a square foot, up from $897 in 2012.

In the Hudson Yards neighborhood, a real estate company run by former New York Governor Eliot Spitzer paid $88 million in December for land on West 35th Street between 10th and 11th avenues. The price made brokers in the area take notice, according to Alan Miller of Eastern Consolidated.

“Land is trading like crazy over there,” he said. “It’s the Wild West.”

Related, Brookfield

Construction projects in the area are picking up after being stalled by the financial crisis. Related, the firm founded by Stephen Ross, is building the first tower at its Hudson Yards project, which the company says is the largest private development in U.S. history. Brookfield has plans for 4 million square feet of offices and a residential tower at its Manhattan West site at Ninth Avenue and 33rd Street.

The addition of a new subway stop in the neighborhood will add momentum to a development push that is driving up property prices, said Joseph Koicim, a broker with Marcus & Millichap Real Estate Investment Services.

“It’s going to transform that area in terms of accessibility,” he said. “That push west is only going to continue.”

Hanging On

Byrne and the other stable owners argue the carriage ban was proposed to push them out and make way for more new development. If de Blasio’s plan is approved, Byrne said his business will dry up and he may be forced to sell for less than the fair value of the property.

“If they ban the horses, buyers will have me over a barrel,” he said.

Byrne wants to hang on to his stable, which has room for 17 horses, partly because of an experience about 13 years ago. At that time, he sold a stable around the corner on 11th Avenue for $1.2 million, after purchasing it for $44,000 in 1976. He said he could have gotten a better price if he had waited longer and isn’t eager to make that mistake again.

“We won’t know how good it’s going to be until that train shows up,” Byrne said of the 7 line extension. “Obviously, you want things to happen that make your property more valuable.”

Byrne’s stable and another one block north, West Side Livery, could fetch about $10 million apiece, according to Miller and Knakal. That would be about an 11,000 percent return on Byrne’s 1979 investment. The Standard & Poor’s 500 Index (SPX) has climbed about 1,700 percent since that time.

Zoning Rules

The properties, both originally built as stables, would appeal to developers seeking to capitalize on growth in the vicinity of the train yards, Miller and Knakal said.

Zoning for both sites allows for hotels or buildings with a mix of office and residential space. Current rules permit buildings of about 25,000 square feet on the lots, with bonuses available through a city program that would more than double that figure.

The stables may especially appeal to adjacent landlords, such as Chetrit Group, who could fully leverage buildable space on the lots, Miller and Knakal said. The company has a stretch of vacant buildings that touch both Byrne’s property and West Side Livery, the brokers said.

Joseph Chetrit, head of Chetrit Group, declined to comment on potential plans for the buildings his company owns on 37th and 38th streets.

Tony Salerno, the manager of West Side Livery, is aware the stable where he has worked since the 1970s is in a high-demand area. Like Byrne, he frequently gets calls about the property.

Big Profit

He said he didn’t know how much the owners, the Spina family, paid for the 9,600-square-foot building, but that they could make a big profit if they wanted to sell.

Antonina Spina, who took over the stable after her husband died, “could put a lot money in her pocket,” said Salerno, 61. “If it was just about the business, she would sell, but she loves the horses.”

Visitors to New York City also delight in the horses, which have been giving paid rides in Central Park since 1859. There are about 160 active drivers in New York and 68 city-issued medallions for carriages, according to Stephen Malone, spokesman for Horse and Carriage Association of New York. About another 100 workers make a living caring for the animals.

De Blasio pledged during his campaign for mayor to ban horse carriages once he took office. He was backed by New Yorkers for Clean, Livable and Safe Streets, an animal-rights group co-founded by Steve Nislick, the former chief executive officer of Edison Properties, an owner of self-storage buildings and parking lots. NYCLASS helped fund advertisements attacking Christine Quinn, de Blasio’s opponent in the Democratic primary, who didn’t support the ban.

City Council

NYCLASS, in an e-mailed statement, said real estate has nothing to do with the effort to ban horse carriages.

“Mr. Nislick will not bid on any property if it is put for sale, nor will anyone connected with this effort,” NYCLASS said. “If the real estate were offered for free, we wouldn’t take it. Our sole interest is in the health and safety of the horses.”

The next step is for City Council Speaker Melissa Mark-Viverito, a Democrat, to introduce a bill barring the carriages. She hasn’t said when that will happen.

The city’s other two carriage-horse stables are west of 11th Avenue, on 48th and 52nd streets, outside the Hudson Yards area. Both sites are in manufacturing zones that would accommodate retail and commercial development.

Family Business

Gloria McGill, the 81-year-old owner of Chateau Stables on 48th Street, doesn’t want to sell her almost 5,000-square-foot building, which she purchased with her husband in 1967.

“Maybe in another 10 years, if I’m lucky to be here, but I don’t think so,” said McGill, whose daughter, Anita Gerami, now manages the stable. “My daughter loves it and I can understand why.”

The fees paid by carriage drivers who board their animals at the stable are only part of her business, McGill said. She said she would still operate even if the ban took effect, renting out animals for television shows and theater productions and hosting a therapeutic riding program for children.

Clinton Park Stables, on West 52nd Street, is the largest of the four and home to 79 of the estimated 150 carriage-horse stalls in Manhattan. The 35,000-square-foot building, more than a century old, is owned by a cooperative of 15 drivers.


Conor McHugh, 49, the stable manager and one of the owners, pushed his colleagues to cobble together $4 million to buy the building in 2003. He knew development was coming to the far west side and that if the drivers didn’t have a building of their own, they’d be at the whim of landlords facing a barrage of lucrative offers.

Those offers now come to McHugh, who said any decision on the future of the property would have to be voted on by the owners.

“We didn’t buy this land to sell it,” said McHugh, who got his first job in the business at the stable owned by Byrne, just a few months after emigrating from Ireland in 1986. “We bought this land to use it, so we could raise our families, so our kids could become doctors and lawyers and teachers.”

“We knew we’d be in trouble if we didn’t have our own place, and we were right,” McHugh said. “If we hadn’t bought this building, we’d be long gone.”

-By Craig Giammona

New Home Owners Aided by Rousseff Buoy Her Re-Election

Source: Bloomberg / Luxury

Sitting in his freshly painted living room as his son plays nearby, Joao Pedro de Souza recounts a peak moment in his life. Last year his family left a shanty in the vast slums of Sao Paulo and moved into this new two-bedroom apartment, with a full kitchen and bathroom.

He credits one person for his good fortune: Brazil’s President Dilma Rousseff.

“If it wasn’t for the government financing, I would never be able to buy an apartment,” said Souza, 34, who is unable to hold back a smile as he relaxes on a new black couch financed with subsidized credit.

Rousseff’s My House, My Life program has helped cement her frontrunner status prior to the October election. The president, who’s struggled with massive street protests, high inflation and the exodus of investors from Brazil, touts the success of her housing initiative everywhere she can -- in speeches, TV appearances, radio addresses, blog posts, Twitter posts and ribbon-cutting events.

“This program is the government’s direct line to its base of support,” said Joao Augusto de Castro Neves, a Latin America analyst at Eurasia Group in Washington. “They’re giving people houses, things to put in their houses and jobs because someone has to build the houses.”

The loans and subsidies from state banks that fuel the initiative also are driving up Brazil’s deficit and the debt needed to finance it. The budget gap will expand to 3.9 percent of gross domestic product this year, the widest since 2009, according to a survey of forecasters by Bloomberg in January. That’s double the deficits of Turkey, Russia and Indonesia and above Brazil’s average of 2.9 percent over the past decade.

Credit Downgrade

The International Monetary Fund said Brazil’s gross debt will reach a decade-high of 69 percent of GDP this year. Further debt growth could lead to a downgrade for Brazil from its Baa2 rating, which is two levels above investment grade, Moody’s Investors Service analyst Mauro Leos said in January.

The yield on Brazil’s bonds due in 2041 rose 14 basis points, or 0.14 percentage points, since they began trading in October 2009, to 5.821 percent.

“The fiscal situation is very delicate already,” said Vinicius Botelho, an economist at Getulio Vargas Foundation in Rio de Janeiro and a former consultant to the World Bank on fiscal matters. “The deficit must be cut to stabilize gross debt, and that must come from a reduction in state bank lending.”

On Feb. 20, the Finance Ministry said it will pare 44 billion reais ($19 billion) from the budget in 2014. The cuts, which didn’t affect My House, My Life, represent 28 percent of the previous year’s deficit.

Rousseff’s Program

Rousseff, 66, created and helped roll out My House, My Life in 2009 while serving as chief of staff under former President Luiz Inacio Lula da Silva. Run by the Ministry of Cities, it gives low-income Brazilians a shot at owning a home by reducing mortgage payments or by cutting interest rates, sometimes in half.

The government had initially planned to spend 34 billion reais to place Brazilians in one million new homes built by private developers. After winning the 2010 election, Rousseff more than tripled the program, approving 126 billion reais the following year to create as many as 2.6 million more dwellings.

Last year, as the pace of economic growth was slowing to 1 percent, the president announced another 19 billion reais in subsidized lending for new home owners to buy appliances, TVs and tablets.

Political Battlefront

“This isn’t a matter of alms, it’s not a matter of donations, nor is it a gift,” the president, a member of the Workers’ Party, said in a November speech at a convention center in Brasilia, raising her voice above cheers of supporters. “It’s an obligation of the state and it’s a right of each citizen.”

The program has become a battlefront in the campaign for president. Senator Aecio Neves, one of the president’s main challengers, said in a column that housing is the ruling party’s way of “putting the state machinery and public money at the service of their project to stay in power.”

Neves, the leader of the Social Democratic Party, said most of the associations overseeing housing construction are run by members of the Workers’ Party. He said some of the associations select applicants with a point-based system that accounts for their participation in Workers’ Party-affiliated events.

“I fear, as a Brazilian, four more years of a government that isn’t transparent, that isn’t efficient and thinks it can fool everyone all the time,” Neves said on his blog. He declined to comment for this story.

Corruption Allegations

Ines Magalhaes, the Ministry of Cities housing secretary, said that state lender Caixa Economica Federal analyzes the viability of participants using technical criteria only.

“The same way we don’t ask the homebuilders if they are affiliated to any party, we don’t ask the families,” Magalhaes said from Brasilia.

Rousseff’s project is also beset by corruption allegations. Federal prosecutors have opened 224 investigations related to the program, including fraud and corruption probes, according to the attorney general’s office in Brasilia. Authorities are looking into whether participants lied about their income to qualify for the program and if former Ministry of Cities officials received bribes from prospective home buyers.

Magalhaes said that all of the government’s social programs are subject to controls and audits.

“We forward all complaints to the internal control authorities,” he said.

Brazil’s Favelas

Souza moved from his home town in the northeastern state of Pernambuco to Sao Paulo because he said he had a better chance of qualifying for the program in South America’s biggest city. He built a brick and mortar room on the roof of his sister’s small home in one of the favelas that ring Sao Paulo. The favelas, neighborhoods mostly composed of substandard housing, began spreading across the country more than a century ago after the liberation of the world’s largest slave population triggered mass migration to industrial hubs.

“Even though my sister and my brother-in-law said that it was our house just the way it was theirs, we didn’t feel comfortable,” Souza said. “We didn’t have privacy. I wouldn’t rest until I could have my own house.”

The lack of affordable housing in Brazil is most acute in Sao Paulo, with a population of 19.6 million. In the country’s eight biggest cities, more than 50 percent of families can’t afford a home, led by Sao Paulo at 62 percent, according to a 2012 Inter-American Development Bank report.

Housing Bubble

As housing prices skyrocket due to a shortage of homes and an escalation of private and state bank mortgage lending, buying property in Brazil is only getting harder. Home prices in Sao Paulo have jumped 197 percent and 243 percent in Rio de Janeiro since January 2008, according to the Fipe Zap index published by the Economic Research Institute Foundation. Yale University professor and Nobel laureate Robert Shiller said in August that a housing bubble had formed in Brazil’s biggest cities.

In five states, squatters, many of whom are too poor to participate in the housing program, have invaded new homes before the owners have moved in. This month, squatters in Sao Paulo set fire to barricades and hurled rocks to prevent police from evicting them.

Rousseff’s housing initiative, the largest in Brazil’s history, reduces mortgage payments to 5 percent of a family’s income for those making less than 1,600 reais a month. And it provides mortgages with rates as low as almost half of what the market offers for families earning less than 5,000 reais a month.

Souza’s Payments

Borrowers have a low default rate of about 2 percent. Almost 20 percent of the monthly payments of the program’s poorest recipients, which account for 43 percent of the houses approved, are behind schedule, according to a statement from Caixa. The bank said it has seized 2,186 properties in the program for breach of contract.

Souza, who earns about 1,100 reais a month as the doorman of the apartment complex where he lives, qualified for a subsidized mortgage in 2009 to purchase a 43-square-meter (463-square-foot) apartment worth 80,000 reais. He wasn’t required to make a down payment. After 10 years, he will have paid off his mortgage and own the apartment. The government will have covered about 90 percent of the total costs.

State Banks

Souza’s new apartment is a vast upgrade from his home in the favela. His unit, located in a complex of 15 brick buildings in a modest neighborhood, has a stove, a refrigerator, a flat screen TV and a bathroom with a shower. The only thing missing is outdoor space for children and parking.

“The kids need a place to play,” said Jane Cleide da Silva Souza, 28, who with Joao is raising Pedro, 5, and Vitoria, an infant.

Brazil’s Treasury has lent more than 440 billion reais to state banks since 2008, helping fund their balance sheets. Caixa gave a total 49 billion reais in housing subsidies and mortgages in 2013, more than triple the amount released in 2009, according to the bank, which responded to a Bloomberg News freedom of information request.

Moody’s and Standard & Poor’s cited the boom in state banks’ loans, deteriorating finances and a lack of fiscal transparency when cutting their outlooks on Brazil’s credit grade in October and June, respectively.

Concern over Brazil deepened after Morgan Stanley warned in August that the real is among the “fragile five” emerging-market currencies most vulnerable to the Federal Reserve’s tapering of monetary stimulus. The real tumbled 18 percent in the past year, the most among major currencies after South Africa’s rand.

Davos Pledge

The BM&FBovespa Real Estate Index fell 28 percent in the past 12 months and is down 7.1 percent this year.

Rousseff told investors in Davos on Jan. 24 that she has been working to improve Brazil’s fiscal situation. She said she plans to bring government indebtedness to one of the lowest levels in the world as private firms increase lending to allow state-owned banks to reduce credit.

The president probably won’t pare back the housing program in a year in which she is campaigning for re-election, Eurasia’s Neves said. Brazil’s lack of affordable housing also makes it difficult to reduce spending on it, said Teotonio Rezende, Caixa’s executive director of housing.

Caixa, which has distributed program subsidies and mortgages worth 176 billion reais since 2009, has said it plans to grow its credit portfolio by as much as 28 percent this year. That’s down from 37 percent in 2013.

President’s Lead

“They might make adjustments or change the name of the program, but I don’t believe there’s any room for not taking strong actions to build housing,” Rezende said from Brasilia. “Without the program, the housing deficit would be growing. In all of Brazil’s history, there’s never been such an effort on housing.”

Less than eight months before the election, the president leads Senator Neves in the latest poll by Datafolha. She would win 47 percent of ballots in the first round compared with 17 percent for Neves in one potential election scenario, according to the Feb. 19-20 survey of 2,614 people.

Rousseff’s support comes almost exclusively from low-income Brazilians. Her approval rating is 52 percent among those earning less than 1,356 reais a month, and zero among those who make more than 33,900 reais, according to a November Datafolha poll.

Supporting Rousseff

Souza, who said he has been making mortgage payments on time, is furnishing and decorating his home. He’s planning to buy a new refrigerator and cabinets for the kitchen after he finishes paying for the floor tiles.

Pedro and Jane said that they voted for Rousseff in the past election and will do so again.

“It seems just fair to me that we vote for the people that are working to improve our lives,” the doorman said.

-By Blake Schmidt and Denyse Godoy