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14th July 2014

Singapore Economy

Singapore’s GDP growth slows to 2.1% in Q2

The increase in second quarter gross domestic product (GDP) was slower than the 4.7 per cent year-on-year growth in the first quarter.

Source: Today Online / Singapore

SINGAPORE — The Republic’s economy expanded at a slower pace of 2.1 per cent in the second quarter from a year ago, hurt by a slowdown in manufacturing, according to advance estimates from the Ministry of Trade and Industry (MTI) today (July 14).

The increase in second quarter gross domestic product (GDP) was slower than the 4.7 per cent year-on-year growth in the first quarter, and slower than the median estimate of 3.1 per cent by economists in a Reuters poll.

The manufacturing sector grew 0.2 per cent in the second quarter from a year ago, down from the 9.9 per cent increase in the first three months of 2014. The deceleration in growth was largely due to a contraction in electronics output and slower growth in transport engineering output, MTI said.

Services rose 2.8 per cent, while construction gained 5 per cent.

On a quarter-on-quarter seasonally-adjusted annualised basis, Singapore’s economy contracted by 0.8 per cent, a reversal from the 1.6 per cent growth in the preceding quarter.

Singapore releases advance GDP data shortly after the end of each quarter and follows up with detailed estimates about a month later.

By Channel News Asia

Singapore Real Estate

URA policy may reduce demand for shophouses

It tightens approval for applications for hotel, boarding house, back- packers' hostel uses

Source: Business Times / Singapore

A NEW Urban Redevelopment Authority (URA) policy to tighten approval of new development applications for hotel, boarding house and backpackers' hostel uses will likely dampen demand for contiguous shophouses - unless they already have prior approval for such use.

In a circular last week, URA noted that hotels, boarding houses and backpackers' hostels - which provide accommodation for visitors to Singapore - are generally found in commercial areas. "However, such uses should not dominate and displace other commercial activities in these areas. In addition, they are generally not permitted within or at the fringe of residential estates so as to protect the amenity of nearby residents," URA said.

The planning authority added that in recent years, it has received more applications for new hotels, boarding houses and backpackers hostels, including change-of-use proposals to such uses on sites that are not zoned for hotel use.

"To address the potential proliferation of such developments", URA minted the new policy, which took effect on July 7; it will be reviewed in two years.

Within the Central Area, proposals for new hotels, boarding houses and backpackers' hostels, including any change-of-use proposals to such uses on sites that are not zoned or permitted for hotel use, will generally not be allowed within certain areas inside the Outram, Rochor, Downtown Core and Singapore River Planning areas.

The affected areas include a big chunk of Chinatown and Little India shophouses.

In Chinatown, the affected area is bounded by Upper Cross Street, New Bridge Road, Cantonment Road, Neil Road, Craig Road, Tanjong Pagar Road and South Bridge Road. The stretch includes Mosque, Pagoda and Temple streets, Keong Saik and Kreta Ayer roads, Duxton Hill and Duxton Road.

In Little India, the affected area is bounded by Sungei, Race Course and Kitchener roads extending to Rochor Canal. Other areas hit by the new policy include a stretch near Bugis MRT Station - covering Tan Quee Lan, Liang Seah, Purvis and Seah streets.

Also affected is an area surrounded by North Canal, South Bridge, Upper Circular and New Bridge roads.

For proposals in other parts of the Central Area, URA will evaluate them individually, considering its planning intention for the locality and the potential traffic impact generated by the proposal.

Although there was no mention of "shophouse" in URA's circular, Mary Sai, executive director at Knight Frank, said: "We interpret these locations straightaway as shophouses because these streets are dominated by shophouses."

According to Ms Sai, from a planning point of view, URA is not allowing change of use for shophouses in certain areas not only to hotels but also food and beverage outlets, as that would add to traffic congestion and parking woes.

"Morever, in some areas, we're seeing commercial amenities like retail shops, bakeries, coffee shops, all being replaced by hostels and hotels," she added.

URA's new policy is expected to dampen demand for bigger chunks of shophouses. "The entry price for this segment is usually higher and with this ruling, it will reduce the attractiveness of rows of shophouses to be sold together - unless buyers see potential for other uses such as restaurants or corporate offices," said Ms Sai.

Currently, most people buy a row of adjoining shophouses with the intention of converting them to a hotel or hostel.

On a brighter note, Ms Sai points out that one segment of shophouse owners will benefit from the new policy. "Over the years, shophouses in the affected areas that have been approved for change of use to hotels - whether they are zoned full commercial; or residential with commercial on first storey; or commercial and residential - these are the types of shophouses that will be well sought after by investors and hotel operators keen on boutique hotels."

URA, in its circular, also stated that Outside the Central Area, it will generally not allow proposals for new hotels, boarding houses and backpackers' hostels including any change-of-use proposals to such uses, on sites that are not zoned or permitted for hotel use.

As for existing approved hotels and boarding houses on sites that are zoned or permitted for hotel use, any proposed intensification of the gross floor area (GFA) will continue to be subject to evaluation.

Expansion of the existing approved boarding house and backpackers' hostel uses that are on Temporary Permission (TP) will be considered individually, up to the total GFA of the existing building that it occupies. "URA will only allow further renewal of the TP for these uses if they have not caused any adverse traffic impact and disamenity to the surrounding users," according to the circular.

Summing up the impact of the new policy, Ms Sai said: "While demand for shophouses may be dampened by the new rules, on the other hand, owners of shophouses already approved for hotel use will find their assets rise in value over time because of difficulty in getting hotels sites."

For a detailed map of the locations in Central Area affected by the new policy go to:

-By Kalpana Rashiwala

Shophouse prices fall as demand weakens

Gap widening between sellers' and buyers' price expectations

Source: Business Times / Singapore

PRICES of shophouses here have started to see resistance from the market, said a report from Knight Frank, which noted an increasing mismatch between sellers' high asking prices and prices that buyers are willing to pay.

Sellers who need to let go of their properties have thus had to lower their asking price, which has sent the prices of shophouses down.

The average transacted prices of freehold shophouses have taken a tumble, falling 10.8 per cent from $3,626 per sq ft in H2 2013 to $3,235 per sq ft in H1 2014.

The demand for shophouses among food and beverage (F&B), and retail businesses is also waning, pushing their prices down, said the report.

- By Sheena Tan

Building firm takes on the glitz

KOP takes its business to the next level with entertainment, reports LEE MEIXIAN

Source: Business Times / Companies

YOU could say that the Singapore Flyer sparked KOP Limited's venture into entertainment.

When the $240 million wheel was placed under receivership in May last year, it set KOP's CEO, Ong Chih Ching, hypothesising what she would do to revamp the attraction. The research 

she embarked on and ideas she brainstormed lured her into that glitzy world. "We wanted the Flyer to become a city amusement park which is common in many places, because it's a small site," she told BT. The developer company eventually submitted, but later withdrew, a bid for the Flyer.

At that time, the company had already been preparing to list for about a year. Ms Ong was also looking at how to transform KOP to take it to the next level, having developed iconic projects such as The Ritz-Carlton Residences at Cairnhill, Hamilton Scotts in Orchard (whose units boast "sky garages"), and 10 Trinity Square, a swanky hotel cum luxury residence in London.

"You've kind of made waves in the marketplace as a newcomer and you have a certain brand identity associated with your name, so the next step is: How do you make yourself better and make more money? So that's like creaming the premium that you've created."

-By Lee Meixian

Brick-and-mortar with its back against the wall

Stores struggle with rising rentals and scarce manpower

Source: Business Times / Top Stories

[SINGAPORE] If life were theatre, retailers would be the Greek chorus. Of late, theirs has been a tale of woe, with rentals high and manpower scarce. Online players are nipping at their heels, local shoppers are increasingly price-conscious and foreign ones are kept at bay by the strong Singapore dollar.

Even so, life (and the show) must go on, and some retailers are regrouping or making do in the face of untenable conditions.

Clothing retailer FJ Benjamin, for example, now has a 15 per cent vacancy rate for employees across its network of stores in Singapore. To combat this, the firm moves staff from underperforming stores to those that are doing well, says Ian Lim, CEO of FJ Benjamin (Singapore). The underperforming stores are then downsized or earmarked for closure.

At the same time, the company has already begun to reduce the size of two or three of its stores where it believes the rental rates are fair but the stores are too large. Elsewhere, some leases up for renewal have had their rental rates negotiated down to "acceptable" levels, Mr Lim says.

-By Joyce Hooi

Is traditional fashion retail going out of style?

Source: Business Times / Top Stories

[SINGAPORE] In the tragic Greek chorus of retail, the apparel business must surely be wailing the loudest. Some of them have stopped wailing altogether and simply disappeared.

In 2012, the "wearing apparel" category shrank to 2,576 establishments from 2,681 the year before, even as the majority of retail categories grew in number. The apparel segment was in terrible company, shrinking alongside the twilight category of "books, newspapers and stationery" retailers.

Rising rents and manpower costs have put the squeeze on retailers in general, but those in the business of hawking threads have felt the fallout particularly keenly.

The labour crunch, for example, has been more than a cost issue; having fewer shopgirls on the floor also stealthily eats away at revenue. Experienced salespeople help to upsell additional accessories or clothing items to a customer who'd originally come in to buy one specific thing. Now, the labour crunch indirectly encourages shoppers to do exactly what retailers dread: stick to buying what they need.

-By Joyce Hooi

Global Economy & Global Real Estate

Europe Needs $795 Billion Problem Property Loan Solution

Source: Bloomberg / Luxury

European banks and asset managers plan to sell or restructure 584 billion euros ($795 billion) of riskier real estate as they try to clean up their balance sheets, Cushman & Wakefield Inc. said.

The region’s lenders, asset managers and bad banks, such as Spain’s Sareb, sold 40.9 billion euros of loans tied to property in the first six months, 611 percent more than a year earlier, the New York-based broker said in a report today. Transactions including foreclosure sales will reach a record 60 billion euros this year, Cushman & Wakefield estimates.

Lenders such as Royal Bank of Scotland Plc are accelerating loan-portfolio sales as borrowing costs fall from a year ago and economic sentiment improves. Lone Star Funds and Cerberus Capital Management LP are among U.S. investors that are taking advantage as sellers opt to offer bigger groups of loans, making it more difficult for smaller firms to make purchases, Cushman & Wakefield said.

“U.S. investors have raised an enormous volume of capital targeting opportunistic real estate,” Frank Nickel, executive chairman of Cushman & Wakefield’s EMEA corporate finance group, said in a statement. “‘Mega-deals’ prove popular to these buyers since they offer a chance to gain large exposures to key assets and markets in one transaction, saving on both costs and time.”

The average size of loan-sale transactions in the region increased to 621 million euros in the first half from 346 million euros a year earlier, according to the report.

Biggest Buyers

Lone Star has been the biggest buyer of real estate loans in Europe this year, spending about 15 billion euros, Cushman & Wakefield said. Cerberus is second with 6.3 billion euros of loan purchases.

The 584 billion euros of non-core assets to be sold include loans, foreclosed properties and residential mortgages held on the companies’ balance sheets. The value is before impairments, Cushman & Wakefield said.

“The upcoming stress tests being enforced by the European Central Bank will guarantee that the current high levels of activity in the market will be sustained in the next few years,” Federico Montero, head of loan sales at Cushman’s EMEA corporate finance unit, said in the statement.

Spain has 192 billion euros of non-core real estate that needs to be sold or restructured, the most in Europe, according to the report. The majority is related to residential mortgages and foreclosed properties.

-By Neil Callanan and Patrick Gower