Real News‎ > ‎2015‎ > ‎January 2015‎ > ‎

9th January 2015

Singapore Economy

Construction demand to moderate but will remain strong: Lee Yi Shyan

Construction demand hit a record S$37.7 billion last year, but is expected to drop to between S$29 billion and S$36 billion this year, the Building and Construction Authority says.

Source: Channel News Asia / Singapore

SINGAPORE: Construction demand is expected to fall but would likely remain strong over the next five years, according to Senior Minister of State for National Development Lee Yi Shyan.

In 2014, construction demand hit a record S$37.7 billion. The Building and Construction Authority (BCA) attributed the growth to the high volume of institutional and civil engineering construction contracts, including the Thomson-East Coast MRT line and the Tampines Town Hub.

"Major healthcare and infrastructure works, such as the remaining contracts for the upcoming MRT lines and Changi Airport Terminal 5, provide support for the industry," Mr Lee said.

Construction demand is expected to drop to between S$29 billion and S$36 billion this year, with public sector projects expected to account for about 60 per cent, or S$18 billion to S$21 billion, the BCA said. Construction demand in the private sector is expected to moderate to between S$11 billion and S$15 billion, down from last year's S$18 billion, as developers remain cautious amid global uncertainties.

BCA attributes this decline to developers adopting a cautious outlook amid expectations of an interest rate hike, particularly those in the residential sector.

Dr John Keung, the CEO of BCA, said: "I think the slight slowdown we projected for the private sector is partly because of this global uncertainty in the economy. The other, of course, is locally for some specific market sector, like residential. We do not think it will be as bullish as the past years, that is why our projections for the private sector is that it will probably slow down a little bit."

BCA said that it will continue to push ahead with productivity efforts - including a wider adoption of Design for Manufacturing and Assembly framework, where construction work is done off-site and installed on-site later.

- CNA/cy/ac

Singapore Real Estate

HDB resale prices fall 0.4% to 41-month trough in December

SRX flash figures show resale volume is down 4.1%; analysts cite tighter mortgage servicing ratio limits

Source: Business Times / Real Estate

HDB resale prices fell 0.4 per cent to a 41-month low in December compared to November. Resale volume also fell 4.1 per cent to 1,295 units transacted in the traditionally slow last month of the year.

This was according to the latest SRX Property flash figures released on Thursday.

-By Lee Meixian

HDB resale prices down for 11th straight month in December: SRX

Prices of HDB resale flats fell 0.4 per cent on-month in December, hitting a 41-month low, according to the Singapore Real Estate Exchange. Some bright spots for the sector: Resale volume is up 28 per cent on-year, while prices of executive flats increased from November.

Source: Channel News Asia / Singapore

SINGAPORE: The resale prices of Housing and Development Board (HDB) flats fell 0.4 per cent on-month in December, hitting a 41-month low, the Singapore Real Estate Exchange (SRX) said on Thursday (Jan 8).

According to the SRX data, prices are now at their lowest since August 2011.

The price drop was driven by non-mature estates, which saw resale prices decline 0.9 per cent last month. However, prices in mature estates increased 0.2 per cent compared to the previous month.

Four- and five-room flats saw their resale prices fall by 0.7 per cent and 0.3 per cent respectively. Prices for three-room flats remained flat, while executive flats saw a price increase of 1.8 per cent.

Overall, prices have declined 6.1 per cent from the same period a year ago and 10 per cent from the peak in April 2013, SRX said.

A total of 1,295 HDB resale flats were sold last month, a 4.1 per cent decrease from the 1,350 transacted units in November.

Mr Nicholas Mak, head of research and consultancy at SLP International, said: "There is a seasonal factor; typically, at the end of the year in November, in December, the transaction volume tends to be lower.

And at the same time, that is also when both buyers and sellers may take a holiday, as a result, prices could also remain flat or soften, but in this case, prices softened because of the various cooling measures that the Government has put in place.

“In the public housing market, one of the property measures that actually reduced the amount or demand is the mortgage servicing ratio (MSR). The MSR actually restricts the amount of income that an individual can use to service the loan, and by restricting the amount of financing available to the home buyer, the Government also in a way restricts their housing budget, and this actually has an impact on softening the prices."

Meanwhile, compared to a year ago, resale volume was up 28 per cent, SRX said.

Mr Mak noted: "In 2013, the Government imposed more cooling measures, while in 2014, the Government is actually letting those existing cooling measures work its way through the system. So when the cooling measures were introduced in 2013, it actually (shocked) the system and hence there might be a more immediate effect then.

“But the important thing is actually to look at the general trend, over these two years or three years, and we can see that for the whole of 2014, the property prices and volume have actually been contracting."

For the rest of the year, some property analysts expect prices to slide further - between 4.5 per cent and 8 per cent.


Overall median Transaction Over X-Value (TOX), which measures whether people are overpaying or underpaying the SRX estimated market value, remained negative in December at -S$4,000.

For HDB towns with more than 10 resale transactions last month, Queenstown reported the highest median TOX of S$3,000, followed by Bukit Merah and Jurong East with S$1,500. The lowest median TOX was in Ang Mo Kio, Bukit Panjang and Choa Chu Kang, at -S$19,500, -S$14,000 and –S$11,000 respectively.

- CNA/cy/ms

HDB resale prices fall for 11th straight month in December

Property analysts expect trend to continue in coming months as prices hit 41-month low

Source: Today Online / Singapore

SINGAPORE — Resale prices of Housing and Development Board (HDB) flats dipped 0.4 per cent last month, marking 11 consecutive months of decline, with property analysts expecting the trend of low prices and fewer flats being resold to continue in the coming months.

A flash report by the Singapore Real Estate Exchange (SRX) showed that prices were at a 41-month low since August 2011 and had declined 10 per cent since prices peaked in April 2013.

The SRX Property Price Index was driven down by four- and five-room flats, which saw prices slip 0.7 per cent and 0.3 per cent, respectively.

On the other hand, prices for three-room flats held steady, while executive flat prices gained 1.8 per cent.

The HDB resale data compiled by SRX Property showed 1,295 flats were sold last month, down 4.1 per cent from the 1,350 units transacted in November. However, more flats changed hands compared with the 1,012 units resold in December 2013.

While property analysts attributed the declining resale prices and volume to the annual year-end lull, they also expect continued declines in the next few months as flat owners put off buying and selling until after Chinese New Year.

Mr Chris Koh, director of Chris International, said prices of four- and five-room flats are expected to come down since more home owners are choosing to upgrade, making them more eager to sell their flats and consequently increasing the supply of these larger flats in the market.

Even as the Mortgage Servicing Ratio — which is capped at 30 per cent of the borrower’s gross monthly income — continues to limit loan size and affect those buying larger flats, property agency ERA’s key executive officer Eugene Lim said: “As we are expecting bank housing loan interest rates to increase this year, we can also possibly expect resale HDB prices to decline further before stabilising. For the whole of this year, we are expecting another 5 to 8 per cent decline in overall prices.”

New sub-indices from SRX Property also showed that flats in mature estates held their prices better than those in non-mature estates.

Non-mature resale flats saw a price drop of 0.9 per cent, while prices for flats in mature estates inched up 0.2 per cent. Since their peak in early 2013, resale prices have fallen 7.4 per cent and 12.4 per cent in mature and non-matures estates, respectively.

“The large supply of Build-to-Order flats has drawn demand away from the HDB resale market and as a result, dampened the prices of resale flats,” said SLP International Property Consultants executive director Nicholas Mak.

“However, with the expected relatively lower supply of BTO flats this year, the HDB prices may bottom or fall at a slower rate if the Government were to relax some of the property curbs.”

The overall median Transaction Over X-Value (TOX) remained negative last month at -S$4,000, which indicated buyers are still paying below the SRX estimated market value.

In HDB towns with more than 10 resale transactions last month, Queenstown posted the highest median TOX, where buyers bought units at S$3,000 above the estimated market value. Units in Ang Mo Kio fetched the lowest prices compared with the estimated market value at -S$19,500.

“This shows there may be more buyers attracted to flats in mature estates as prices continue to stabilise and the days of paying high cash premiums are over,” said Mr Lim.

-By Laura Elizabeth Philomin

Demand in construction sector holding up this year

BCA estimates contracts to hit S$29b-36b with public sector taking the lead, after a record S$37.7b in 2014

Source: Business Times / Real Estate

PUBLIC sector projects will be key demand drivers for the construction sector this year, as private sector projects take a back seat amid wariness among developers. (see infographic)

Even so, the construction sector is still expected to secure contracts worth S$29 billion to S$36 billion this year, the Building and Construction Authority (BCA) estimates.

The sector marked a new record of S$37.7 billion contracts last year - which was at the upper-tail of BCA's forecast - on the back of more institutional and civil engineering construction contracts.

"Construction demand over the next five years will remain strong," said Senior Minister of State for National Development and Trade & Industry Lee Yi Shyan.

BCA is projecting the sector will achieve S$27 billion to S$36 billion of contracts per year for 2016 and 2017, and S$26 billion to S$37 billion per year for 2018 and 2019.

"Major healthcare and infrastructure works, such as the remaining contracts for the upcoming MRT lines and Changi Airport Terminal 5, provide support for the industry," Mr Lee said at the annual BCA-Redas Built Environment and Property Prospects seminar.

Public sector projects are expected to account for 60 per cent (S$18 billion-S$21 billion) of all construction contracts, up from 52 per cent last year.

While public housing projects will moderate from a ramp-up in previous years, a sustained pipeline of institutional and civil engineering works as well as an increase in industrial projects will lend support going forward, according to BCA.

Construction demand from the private sector, however, is going through a soft patch. This is estimated to ease further from S$18 billion last year to S$11 billion-S$15 billion as developers remain cautious given a tepid housing market and increased global uncertainties.

Lo Yen Lee, director for economics research and business development at BCA, said that weakness in the private residential market may be reflected in construction demand over the next four to five quarters.

As the building zeal wanes, the construction sector is seeing a structural shift in demand towards civil engineering works, whose share of total contracts in the construction sector already grew to 27 per cent in 2014 from 19 per cent.

Going by BCA's forecasts, industrial projects and civil engineering works are the only two segments that could likely see an uptick in contracts this year.

Contractors that BT spoke to said that the projected decline in construction contracts for 2015 is marginal and is not likely to affect their business.

Singapore Contractors Association president Ho Nyok Yong noted that while the construction sector may not mark another record year, it will have sustainable volumes for the next two to three years.

Eric Ng, executive director of Singapore Exchange-listed Logistics Holdings, noted that the strong demand forecast for public sector projects bodes well for the group as it mainly undertakes public construction projects. "We are optimistic that there will still be many projects to tender for this year," he said.

BCA is expecting construction output to remain strong at S$35 billion-S$37 billion this year, though a high base effect from a record 2014 (estimated S$36 billion) will result in muted year-on-year comparisons. A decade-long expansion of the sector has seen construction output surge 200 per cent in nominal value from 2005's S$12 billion, Ms Lo noted.

Construction output typically accounted for under 5 per cent of Singapore's gross domestic product (GDP). Advanced estimates by the Ministry of Trade and Industry released last week showed real GDP in the construction sector growing 3 per cent in 2014 on the back of strong public-sector activities.

Projects that kept contractors busy last year included Changi Airport Terminal 4, Project Jewel, Sengkang General & Community Hospitals, as well as contracts for the Thomson-East Coast Line (TEL).

This year, projects in the pipeline include the TEL MRT line, proposed infrastructure works for Changi East Runway 3, State Courts Building at Havelock Square, JTC Space@Tuas, and Far East's commercial project Woodlands Square.

Cost consultancy and project management firm Davis Langdon KPK projects that construction tender prices here will rise by 1-2 per cent from Q4 2014 to Q4 2015, similar to last year.

But some cost relief has lately come in the form of lower energy prices, which are likely to stay low this year, CIMB regional economist Song Seng Wun pointed out. Also on the downtrend lately are building material prices given a slowdown in China, he said.

"As far as the (residential) property market is concerned, we already see that the supply of new homes is likely to keep downward pressures on prices, especially when the global economy and Singapore's growth environment remain subdued," Mr Song added. When prices fall, people start scouring for properties, he observed.

Also speaking at the BCA-Redas seminar, BCA chief executive John Keung said that the agency will continue to focus on enhancing productivity and working with the industry to adopt the Design for Manufacturing and Assembly approach to move more construction work off-site.

This, he said, will allow for better quality control, faster completion of work and better cost management in the long run.

-By Lynette Khoo

Another bumper year for construction

Deals to hit up to $36b this year on healthy pipeline of public projects

Source: Straits Times / Money

IT LOOKS like another lucrative year for Singapore's construction industry - though not quite as good as the record year in 2014.

The value of construction deals here will reach $29 billion to $36 billion this year, as a healthy pipeline of public sector projects offsets lacklustre private building, official estimates show.

This is a fall from last year's all-time high of $37.7 billion in deals, with 52 per cent driven by public sector demand.

This year, public sector projects will account for about 60 per cent, or between $18 billion and $21 billion, of contracts.

Private developers are set to exercise caution amid a slowdown in private home sales and global economic uncertainties, said the Building and Construction Authority (BCA) yesterday.

Major public works this year will include the construction of Defu Industrial City, the Centre for Oral Health at the National University Hospital, the National Centre for Infectious Diseases and the Centre for Healthcare Innovation at Tan Tock Seng Hospital, and the east coast stretch of the Thomson-East Coast MRT line.

The BCA predicts private sector deals will moderate to $11 billion to $15 billion this year, down from $18 billion last year.

But the number of public sector contracts awarded each year has climbed over the last three years.

And if it hits the upper bounds of BCA's forecast of $21 billion this year, it will be the highest public sector contribution to construction demand.

"Construction demand over the next five years will remain strong," Mr Lee Yi Shyan, Senior Minister of State for Trade and Industry and National Development, told 400 members of the built environment and banking sectors at a seminar yesterday.

He cited the BCA's forecasts for contract values to range between $26 billion and $37 billion a year over the next five years. "Major health-care and infrastructure works... provide support for the industry," said Mr Lee, who urged industry players to "press on with the restructuring of the built environment industry".

The seminar on construction and real estate prospects was organised by the BCA and the Real Estate Developers' Association of Singapore (Redas).

CIMB economist Song Seng Wun is optimistic about the construction sector this year.

He said that in recent years, contracts awarded have typically hit the upper end of the BCA's forecast.

"The construction sector expanded for the 10th straight year last year, albeit by a more modest pace in 2014.

"I expect construction to again register modest growth in 2015, led again by public sector contracts, to account for about 5 per cent of gross domestic product (GDP)."

Construction GDP came in at $4.6 billion for the third quarter last year, or 4.8 per cent of GDP, according to the latest figures from the Ministry of Trade and Industry.

SIM University economist Randolph Tan said that private sector construction has weakened, and that "a recovery will be some time in coming".

However, he added that the shortfall comes mainly from a "high base accumulated by the strong and sustained growth the construction sector has experienced over a number of years".

-By Marissa Lee

Property slowdown hits demand in construction sector

Source: Today Online / Singapore

SINGAPORE — A deepening slowdown in Singapore’s housing market is having a domino effect on the city’s construction industry, with expected building demand this year expected to fall from a record last year, official estimates showed.

Construction deals are expected to reach between S$29 billion and S$36 billion this year, down from a record S$37.7 billion last year, said the Building and Construction Authority (BCA), with most of the contracts expected to come from industrial projects and a pipeline of institutional and civil engineering works.

Construction demand from the private sector is expected to fall to between S$11 billion and S$15 billion, compared with S$18 billion last year, as developers turn cautious amid a slowdown in private home sales and global economic uncertainties.

Public sector projects are expected to account for about 60 per cent, or between S$18 billion and S$21 billion, of the demand this year.

“(It is) partly because of the global uncertainty in the economy. Locally, for some specific market sectors, for example residential, we don’t think it will be as bullish as it was in the past years,” BCA chief executive officer John Keung told reporters at the BCA-REDAS Built Environment and Property Prospects Seminar yesterday.

“But then, if you look at (all) construction demand, we believe that the public sector projects such as infrastructure and institutional buildings like hospitals will pick up,” he added.

Last year’s “exceptionally strong” performance was ramped up by a high volume of institutional and civil engineering contracts, including the Sengkang General and Community Hospitals, the Tampines Town Hub project and various major contracts for the Thomson-East Coast MRT line and the coming Changi Airport development.

And although construction demand will decrease this year, the slowdown is likely to be cushioned by a rise in private sector engineering projects, such as proposed infrastructure works for the development of the Changi East Runway 3, the BCA said.

Mr Lee Yi Shyan, Senior Minister of State (National Development and Trade and Industry), who was officiating at the seminar, noted that construction productivity improved by about 1.2 per cent per year from 2010 to 2013.

But he urged the industry to become more efficient.

“Our end goal is to see a more efficient industry structure. We should orientate the industry towards Design for Manufacturing and Assembly in order to achieve higher manpower savings while raising the quality of the finishing components. Our construction sites will also become safer, cleaner and quieter.”

Mr Lee said that in the second Construction Productivity Roadmap, a key focus will be on training workers for new materials, technologies and construction methods.

The BCA forecast that annual construction demand will range between S$27 billion and S$36 billion over the next two years, and between S$26 billion to S$37 billion in 2018 and 2019, sustained by mega public sector infrastructure projects required to meet long-term population needs.

-By Tan WeiZhen

Non-mature estates see bigger fall in resale prices

Experts predict better transaction volume amid gradual price falls

Source: Straits Times / Top of The News

RESALE prices in non-mature Housing Board estates were hit harder in last year's cooling market, falling more than twice as hard as those of flats in mature estates.

Flat prices in non-mature estates such as Punggol and Sengkang fell 8.3 per cent over the year compared to a 3.1 per cent fall in mature estates like Queenstown and Bishan.

This made for an overall fall of 6.1 per cent in HDB resale prices last year, according to SRX Property flash figures yesterday.

But more flats changed hands, with 15,914 deals last year, up from a low of 14,220 in 2013.

Experts are expecting transaction volume to stabilise or even pick up this year, amid another year of gradual price falls.

Resale prices edged down 0.4 per cent last month for the 11th straight month, reaching a 41-month low.

This was driven by four- and five-room flats, with prices falling 0.7 and 0.3 per cent respectively.

Three-room prices stayed flat while executive flat prices were up 1.8 per cent.

Non-mature estates performed worse, according to SRX Property's new price sub-indexes.

Last month, prices fell 0.9 per cent in non-mature estates but rose 0.2 per cent in mature ones.

Experts said it was unsurprising that flats in mature estates were better able to weather the sluggish market conditions.

"In a market with falling prices, the focus is back on market fundamentals... Buyers are willing to pay for flats with good location attributes," said OrangeTee director of research Christine Li.

A good location is why housewife Eileen Teo, 50, is not worried about selling her five-room flat in Serangoon, a mature estate.

"People are interested," she added. Her flat has been up for sale for only a week or so, but she has already received inquiries.

During the traditionally slow end-of-year period, 1,295 flats changed hands last month, down from 1,350 in November.

"We could possibly expect similar transaction levels for January and February 2015 and the pace may pick up only from March, after the Chinese New Year festivities," said ERA Realty key executive officer Eugene Lim.

Although low due to seasonal factors, last month's transaction figures were still higher than the 1,012 deals in December 2013.

As prices continue to slide this year, more buyers are likely to return, said experts.

"Most buyers will be 'opportunity buyers' who will buy a flat after a long wait," said R'ST Research director Ong Kah Seng.

ERA Realty and OrangeTee expect resale prices to fall by 5 per cent to 8 per cent for the whole of this year.

Mr Ong expects prices to fall 4 per cent in the first half of this year, then stagnate if cooling measures are not relaxed.

-By Janice Heng

K Line sells six shophouses on Peck Seah St for S$42.8 million to fund manager

Source: Business Times / Real Estate

A fund managed by Phoenix Property Investors has made its maiden acquisition in Singapore. The Pan-Asian private equity property fund manager is buying a row of six shophouses along Peck Seah Street near Tanjong Pagar MRT Station for S$42.8 million. The price works out to S$2,155 per square foot (psf) on gross floor area (GFA) of 19,860 sq ft. The shophouses are on 8,213 sq ft of land that has a balance lease tenure of about 78 years.

-By Kalpana Rashiwala

Second Duxton resale flat sold for S$918,000

Source: Business Times / Real Estate

A second Pinnacle@Duxton unit has been sold on the resale market, The Straits Times Online has reported. The five-room, 106 square metre flat on the fifth floor of the iconic Housing Board project at Tanjong Pagar went for S$918,000 on Monday. A 43-year-old DWG agent who handled the transaction said the buyers - who paid fully in cash - are a local couple in their 60s and their daughter who are downgrading from a private property. The sellers are a local couple in their mid-40s, with two young children.

2nd flat at Pinnacle sold - for $918,000

Buyers of 5-room unit on low floor paid fully in cash

Source: Straits Times / Singapore

A SECOND unit at the Pinnacle@Duxton has changed hands on the resale market, barely a week after the first was sold for $900,000.

The five-room, 106 sq m flat, located below the sixth floor, went for $918,000 on Monday.

Although some industry observers expect five-room units at the unique Housing Board project in Tanjong Pagar to fetch over $1 million, the agent who handled the transaction said the sellers were more "realistic" with their pricing as their flat is on a "very low floor".

"They bought the flat for under $400,000, so they are quite happy with the selling price," said the 43-year-old agent from real estate firm DWG, who declined to be named.

He said the sellers are a couple in their mid-40s with two young children. They started looking for buyers early last month, with an initial asking price of $960,000. There were seven to eight viewings.

The Straits Times understands that the buyers, who paid fully in cash, are a couple in their 60s who are downgrading from a private property.

On Dec 29, a four-room flat in the development, located somewhere on the 34th to 36th floor, was sold for $900,000. Flats there are starting to come on the market, as the five-year minimum occupation period for most of the project's home owners ended last month.

Property analysts said the high prices are due to the project's central location, young age and unique design. Some believe properties there will hit the $1 million mark soon.

"So many owners are asking for $1 million and above, it's only a matter of time before it happens," said Mr Nicholas Mak, research head for SLP International Property Consultants.

While property cooling measures are still in force, R'ST Research director Ong Kah Seng said "there are some buyers with higher liquidity, but this group will be spoilt for choice with other public and private projects".

-By Yeo Sam Jo

Fewer 'goodies' for would-be home buyers

Developers say buyers prefer straight discounts instead of indirect ones

Source: Straits Times / Money

DEVELOPERS are cutting back on offering indirect discounts and furniture vouchers as they are failing to entice would-be home buyers back into the market.

Property consultants say the inducements have not been as effective in attracting new business since cooling measures were introduced. The process usually involves developers or agents throwing in goodies like renovation or furniture vouchers for the purchase of a unit, thereby lowering the overall cost.

"It used to be quite common to give these discounts and we called it all sorts of things, like interior design vouchers," said Chris International director Chris Koh.

"That has more or less stopped since the tightening of the loans requirements, and we have to be very transparent in giving such discounts now."

Consultants told The Straits Times that all rebates and discounts have to be declared to banks when home owners seek loans. These discounts are then deducted from the price so the mortgage granted is based on the lower price but this can work against the buyer as the loan quantum would be lowered.

While the declaration rule has been in place since 2002, consultants said the banks have been more rigorous in the past few years in the wake of tighter loan requirements. ERA Realty key executive officer Eugene Lim said: "Before that, banks could interpret the rules themselves, but now that they have to net off all discounts and benefits, it does not work for the buyer."

PropNex Realty chief executive Mohamed Ismail added that buyers have become more savvy and want direct discounts instead of indirect ones.

"Real buyers are more discerning and they don't fall for these gimmicks anymore. They know if you can offer vouchers, you must have marked up the price elsewhere so they would rather go for a discount on the home than incentive packages," he said.

The issue of indirect discounts came to the fore after United Overseas Bank initiated a lawsuit against Lippo Marina Collection and others, claiming they conspired to get inflated loans.

The bank alleges that the defendants failed to inform it of substantial discounts of between 22 per cent and 34 per cent given to buyers of 38 units at the Marina Collection in Sentosa.

Property consultants said even if furniture vouchers or rebates are given, they would normally price them between $20,000 and $50,000 for units costing between $1 million and $2 million.

This works out to a discount of between 1 per cent and 5 per cent.

Orange Tee managing director Steven Tan said unit refurbishing is a new trend among developers of completed projects with apartments to clear. The renovated units are then sold at a price typically lower than what buyers would have to pay if they bought the furnishings themselves.

"The developers usually spend quite a sum on enhancing the property during renovation and providing the furniture, which make them more attractive and cost-effective to buyers," he said.

-By Mok Fei Fei

Outlook for Singapore hotel sector positive: Report

After a challenging year in 2014 when hotel occupancy rates fell, real estate services firm Cushman & Wakefield said it expects demand to recover in the short term.

Source: Channel News Asia / Business

SINGAPORE: The overall outlook for the hotel sector in the Republic this year appears positive, according to the latest report by real estate services firm Cushman & Wakefield.

After a challenging year in 2014 when hotel occupancy rates fell, Cushman & Wakefield said it expects demand to recover in the short term.

Geopolitical tensions in the region and a spate of aviation incidents last year dampened the demand for hotel rooms in Singapore.

The occupancy rate fell to 84.3 per cent from 86 per cent in 2013 – due to the decline in tourist arrivals and a growing supply of rooms. But Singapore still topped the region in terms of room rates.

It saw an average room rate of US$207 in 2014, with Hong Kong trailing behind at US$193.

With Singapore celebrating its golden jubilee this year – coupled with the South-east Asian Games, market watchers said they expect to see a 4 to 5 per cent climb in tourist arrivals.

Momentum in the luxury segment, in particular, is forecast to be strong.

Said Mr Robert McIntosh, Executive Director of CBRE Hotels Asia Pacific: "Over the last few years, luxury has been the one area that has really stood out. Room rates and occupancy are both increasing very strongly – that’s partly because we went from 2009 when people were not prepared to spend any money on luxury hotels, and now they are, and because there has been a relatively lack of increase in the supply in the luxury segments - whereas the mid-tier and the upscale hotels actually had a decline overall in the revenue per available room."

With Singapore being a key regional hub, inbound business travel is expected to remain strong.

Said Ms Sigrid G. Zialcita, Managing Director, Research Asia Pacific of Cushman & Wakefield: “Singapore fared among one of the best in terms of office occupancies. A lot of the sectors have grown and what we have seen is actually a snowball effect on the hospitality sector. Looking at the luxury or the upper upscale segments where corporate demand is a significant driver of activity, they have fared quite well over the past years."

As geopolitical tensions ease, experts said continuing investment in infrastructure and visa facilitation measures will further propel growth.

They warned however that slowing GDP growth in Singapore could potentially weigh on corporate demand, while regional leisure visitor numbers could be hurt by the strength of the Singapore dollar in relation to its regional peers. 

- CNA/dl

KKR sets up NBFC for Indian property with GIC investment

Source: Business Times / Government & Economy

With an investment from GIC, global investment firm KKR has established a non-banking financial company (NBFC) that will provide structured credit solutions to India's real estate sector. While GIC did not issue a news release on this, a GIC spokesman confirmed the investment with The Business Times. BT understands that GIC's investment - an undisclosed sum - is in the NBFC, and not KKR.

-By Kelly Tay

GIC and KKR to form India real estate lending firm

It aims to tap growth in residential, commercial property sectors

Source: Straits Times / Money

SOVEREIGN wealth fund GIC is expanding its presence in India, partnering with New York-based private equity fund KKR to set up a real estate lending platform.

KKR said yesterday that GIC is investing in a non-banking financial company that KKR has set up to provide loans to the real estate sector in India. A GIC spokesman confirmed the deal but declined to give further details.

This is the second non-banking financial company established by KKR in India, as it sees growth in the continued development of the country's residential and commercial real estate sectors.

KKR said that India's large and growing business community welcomes non-traditional entities that allow companies to tap into a more sophisticated capital market system.

It added that Indian firms will have greater choice beyond traditional equity or bank loans.

"We are excited to assist a sector that is still under-built," said Mr Ralph Rosenberg, the global head of KKR Real Estate. "While many lenders provide debt to this sector, there is a need for solution-oriented, non-dilutive capital for property developers."

Property transactions have featured prominently for GIC in the past year, with India also catching its attention.

Its affiliate, Reco Berry, announced late last month a deal worth up to US$199 million (S$267 million) to take control of Bombay Stock Exchange-listed Nirlon. Nirlon owns an Indian information technology office park in Mumbai.

GIC also announced last month that it entered into a joint venture with Indian property firm Vatika Group to develop two residential projects near New Delhi.

The co-head for Asia at GIC Real Estate, Mr Loh Wai Keong, had said then that GIC was confident of India's growth potential over the long term.

Other Indian real estate deals that GIC inked last year include one in which it agreed to jointly invest 15 billion rupees (S$318 million) with developer Brigade Enterprises in residential projects in southern India in September.

GIC also raised its stake in Mumbai-listed property developer Phoenix Mills from close to 1.5 per cent to some 5 per cent for 1.06 billion rupees in February.

Apart from India, GIC was involved in Singapore's largest merger and acquisition transaction last year.

Together with its affiliates, it made a US$8.1 billion deal to buy Chicago-based real estate investment trust IndCor Properties, which is one of the largest owners of US industrial real estate.

-By Mok Fei Fei

GIC, US investment firm set up India real estate finance company

The non-banking financial company will provide structured credit solutions to the real estate sector in India.

Source: Channel News Asia / Singapore

SINGAPORE: The Republic's sovereign wealth fund GIC has invested in a non-banking financial company (NBFC) set up by US investment firm KKR to provide structured credit solutions to the real estate sector in India.

Mr Ralph Rosenberg, Global Head of KKR Real Estate, said in a statement on Thursday the NBFC will help bring long-term capital to India's real estate sector.

"While many lenders provide debt to this sector, there is a need for solution-oriented, non-dilutive capital for property developers. We intend to fill that gap and contribute to the continued development of India's residential and commercial real estate sectors," he said.

KKR and GIC did not disclose the value of the investment.

GIC, which manages more than US$100 billion, recently announced plans to buy a controlling stake in Mumbai-based real estate firm Nirlon in a deal that could cost about US$200 million. It also announced a joint venture with Indian firm Vatika to develop two residential projects near Delhi.

- CNA/cy

Jurong East - shoppers' haven in the west

More variety for consumers with swanky malls and HDB shops

Source: Straits Times / Singapore

WHEN Mrs Karen Liang moved to Jurong East about two decades ago, there were just a handful of shops at the HDB blocks near the MRT station.

But over the last three years, four malls have sprouted up in the area, including Big Box which opened last month. They join IMM which has been there since 1991.

The 58-year-old retiree now frequents both the familiar shops and the swanky new malls which house hundreds of stores. "I still like the old shops because of the homely feel, but I also like going to Westgate as there are so many food outlets there - an endless supply."

Not long ago, Jurong East was thought of as a place with dull factory buildings and a poor sister to, say, Tampines, which won the World Habitat Award given out by the United Nations.

However, the sun has since risen in the west, with retailers and consumers increasingly taking a shine to an area which has become an attractive shopping destination outside town.

Ms Quah Lai Hoon, 43, who works in a church, drove from her home in Hougang to Jurong East earlier this week. "I come here only occasionally because it is quite far from my house, but I would not come here at all if not for all the shopping malls."

Retailers like the large catchment of the area.

Last month, Big Box deputy chief executive officer Julia Tong-Sng told The Straits Times the Jurong area has about 1.2 million residents, including those living in Bukit Batok and Clementi. Not to forget an additional mobile population of about 1.2 million people from about 2,200 factories in the area, she added.

The Jurong East malls have in turn attracted visitors with differentiated offerings. For instance, three of the five malls near Jurong East MRT station are run by CapitaMalls Asia and each is positioned differently. IMM has nearly 60 outlet stores including brands such as Agnes B. and Desigual; JCube targets youth with its ice-skating rink, Shaw Theatres and a youth-oriented shopping zone; Westgate is family-oriented with an outdoor playground and upmarket stores like fashion brand Kate Spate Saturday.

Jem, managed by property developer Lend Lease, calls itself a lifestyle and entertainment hub. Big Box, which is managed by supply chain and logistics firm TT International, has a warehouse store concept featuring products from groceries to furniture.

"While there are some repetitions in terms of product categories... by maintaining their unique selling points, they are able to complement each other rather than compete directly," said retail expert Samuel Tan of Temasek Polytechnic's school of business.

The changes in the area began around 2008 when the Urban Redevelopment Authority earmarked a 70ha area around Jurong East MRT station for a regional commercial centre known as Jurong Gateway.

About a year later, the 1990s Jurong Entertainment Centre was demolished to make way for JCube, which opened in 2012. This was followed by Jem and Westgate in 2013.

While consumers welcome the greater variety of shops, businesses at the nearby HDB blocks have seen foot traffic fall by 30 per cent to 40 per cent over the last three years.

Said Ms Ann Chin, who runs shoe shop Moda Paolo: "When Jem opened in 2013, two banks moved from the HDB block to the shopping centres and our sales fell badly because a lot of our walk-in customers were those who visited the banks."

During the festive period last month, when sales typically rise for retailers, the shop's business fell by about 30 per cent, compared with the same month in 2013.

Sales have also taken a hit at undergarment shop The Brahouse. There used to be a constant stream of passers-by and regulars, but sales are now "up and down", said Madam Kelly Chew, 57, who runs the store.

New Time Watch Station depends on regulars to cover costs. Sales have fallen by 20 per cent at the store over the last three years, said the shop's manager, Ms Christine Ong, who is in her 30s.

HDB shops are not the only ones affected. Even shops in JCube, including those in its youth shopping zone, J.Avenue, have been hit.

At Pinkdot House, which sells items like badges and T-shirts, sales fell by more than half last weekend after Big Box opened. Said its owner, Mr David Tan, 30: "Shoppers like to go for new things and this might last for a while before it gets better.

"I think the opening of the hotel and hospital will help my business in the future. This area has good potential."

Genting Singapore Hotel and Jurong Community Hospital are slated to open this year.

Jurong East's prospects look bright: Leasing demand for retail space in the area has been very strong after the rejuvenation, said Mr Ong Kah Seng, director of property market research firm R'ST Research.

Some property owners are cashing in on Jurong East's new-found allure.

Over a month ago, the owners of popular Teochew eatery Boon Lay Raja Restaurant sold their unit in Jurong East Street 13 for about $15 million, up from the $3.5 million they paid over two decades ago. One of them, Mr Henry Tan, 73, said: "In the past, no one wanted to open a shop here, but the Jurong of today is very different."

-By Cheryl Faith Wee

EcoHouse winds up, creditors to meet next week to start liquidation proceedings

Singapore investors who put money into its Brazilian housing project have filed a class-action suit

Source: Business Times / Real Estate

Ecohouse Developments Limited, the Brazilian social-housing developer that amassed up to S$65.55 million from Singapore investors and then left them largely unpaid, has met its demise. Come Jan 15, creditors will meet at the Talbot Hotel in the UK for updates from EcoHouse's directors on the company's statement of affairs, and then appoint a liquidator to wind up the company and distribute its assets appropriately.

-By Chan Yi Wen

Three-month Sibor continues to rally while SOR crashes

Renewed upside momentum in USD/SGD could drag SOR higher

Source: Business Times / Banking & Finance

LOCAL interest rates remain very volatile amid market uncertainties.

The key three-month Singapore interbank offered rate (Sibor) continued its upward trajectory on Thursday, though the pace eased slightly, while the more volatile three-month swap offer rate (SOR) crashed for the second day running.

On Thursday, the three-month Sibor rose to yet another high of 0.63920 per cent, up 0.00213 point from Wednesday's 0.63707. The three-month Sibor, used mainly to price home loans, is now up 40 per cent from a week ago, since Jan 2.

But its more market-oriented cousin, the three-month SOR, has crashed. On Wednesday, it was quoted at 0.70588 per cent, down 12 per cent from Tuesday's 0.80224. And against Monday's high of 0.92956 per cent, the three-month SOR, used typically for commercial loans, has plunged 24 per cent. The SOR reflects Sibor and Sing dollar fluctuations.

The SOR fixings for Jan 7 were lower by 8 to 10 basis points and the curve has reverted to a normal upward sloping one, said Victor Yong, United Overseas Bank interest rate strategist. "The lower SOR yields helped to moderate the Sibor curve," said Mr Yong.

Saktiandi Supaat, Maybank's head of FX research, warned that the volatility is far from over as US dollar strength is likely to continue. "The expectations in SGD has come off, there was a bit of overshooting, but is this temporary?" posed Mr Supaat.

He said that the SOR tends to move first as it is more market-oriented while the Sibor lags because it's what banks charge one another.

He noted that the Sing dollar strengthened on Thursday - it was 1.3416 at 1am, up 0.3 per cent to 1.3381 around 6.28pm.

"It's very volatile, oil is not helping, euro is not helping, Greece is not helping," he said.

Mr Yong said: "Renewed upside momentum in USD/SGD will drag SOR rates higher and faster than equivalent moves in USD."

Although there was better risk appetite on Thursday for Asian markets, downside risks are still lurking, he said.

"Commodity prices remain fragile and could suffer further drops depending on the outcome of Friday's (US) payrolls (data), an upside surprise here would invigorate the long USD trades and the immediate impact would be negative for commodities," he said. "The combined strong USD and weak commodities spillover into Asia may prompt outflows and this would be negative for equities and Asian currencies."

-By Siow Li Sen

More homeowners look to refinance loans as SIBOR inches up

More homeowners who took housing loans from banks are now looking for refinancing options after the recent spike in SIBOR (Singapore Interbank Offered Rate). Some are, however, tied down by the loan's lock-in period.

Source: Channel News Asia / Singapore

SINGAPORE: More homeowners who took housing loans from banks are now looking for refinancing options. Loan specialists said they have been getting more inquiries since the recent spike in SIBOR (Singapore Interbank Offered Rate).

Homeowners - whose mortgages are tied to SIBOR - are now facing higher monthly payments. One of those affected is 30-year-old engineer Lai Ming Kwan, who bought an executive condominium with his wife two years ago and he opted for a bank loan that is tied to SIBOR.

With the benchmark rising sharply in recent days, Mr Lai is concerned about how it will affect him. He said: "They predicted that it will stay at 0.3 per cent to 0.4 per cent for a few years. I did not expect it would go up to so high ... SIBOR is increasing so fast that my pay cannot catch up with the financing rates."

Both Mr Lai and his wife are working and have a 16-month-old child. "Expenses, lifestyles will have to change a bit because I have to save up more to contribute to the housing loan ... so there'll definitely be an impact, maybe less shopping. With the child coming up, there is also school fees, childcare fees, so the depletion will come from my savings. Having a second child will also mean more expenses," he added.

Some homeowners, like Mr Lai, cannot look into other financing options yet because their loan deal has a lock-in period, which requires them to stick to the same bank for a couple of years. However, loan specialists said that those whose lock-in periods are up are already starting to look at refinancing options. This can include looking for a housing loan with fixed interest rates instead of being tied to one with variable rates.

One mortgage consultancy said that it has received many inquiries on refinancing in recent days, about 30 per cent more when compared to last year. Mr Sean Lim, the mortgage consultant head at iMoney, said: "They want to know what is happening in the market ... So they are taking time to digest and understand what is happening in the market.

"The pace of increment did catch me by surprise. But it is also half-expected. The trend has been going up slowly over the last six months. Looking at the market trend, it will continue to go up."

With interest rates rising, banks can be expected to review their mortgage rates and plans. Analysts said that potential home buyers or those who are hoping to refinance their housing loans should choose a package that best suits their financial needs. 

- CNA/ac

Companies' Brief


Source: Business Times / Companies & Markets

Guocoleisure (GLL) recently completed the re-financing of its debenture stock, which expired in December 2014. The £138 million security, issued at coupon rate of 10.75 per cent back in 1989, was redeemed by GLL and refinanced at below 4 per cent, by our estimates. GLL expects interest savings of US$7 million for the six months ending June 2015, and annual savings should be in the range of US$14 million.

Singapore Reits 

Source: Business Times / Companies & Markets

We reaffirm our "positive" rating on the S-Reit sector, though are much more cautious and selective compared with our stance at the start of 2014. For 2014, the S-Reit sector outperformed the overall market (with an absolute gain of 9.2 per cent for the FTSE ST Reit index versus 6.2 per cent for the FTSE Straits Times index).

Global Economy & Global Real Estate

Road builders recover from a slump as projects speed up

Source: Business Times / Real Estate

Record low mortgage rates in Japan may lure back buyers

Source: Business Times / Real Estate

Beware of pitfalls in Australian property buys

Source: Business Times / Real Estate

Widodo plans land bank to kick-start infrastructure projects

Source: Business Times / Real Estate

U.S. Mortgage Rates Fall With 30-Year at a 19-Month Low

Source: Bloomberg / News

U.S. mortgage rates dropped to the lowest level in more than a year and a half as falling oil prices and concerns about the strength of the euro drove investors to the safety of the U.S. government bonds that guide borrowing costs.

The average rate for a 30-year fixed mortgage tumbled to 3.73 percent from 3.87 percent last week, Freddie Mac (FMCC) said in a statement today. The average 15-year rate declined to 3.05 percent from 3.15 percent, the McLean, Virginia-based mortgage-finance company said.

“The dip is sizable,” Keith Gumbinger, vice president of, a Riverdale, New Jersey-based mortgage-data company, said in a telephone interview. “Troubles beyond our borders have been, over the last few years, the friend of the American homebuyer.”

The 30-year rate is the lowest since May 23, 2013, when it was 3.59 percent, Freddie Mac data show. U.S. housing demand has gotten a boost from borrowing costs that are close to record lows. Loan applications rose 11.1 percent in the week ended Jan. 2, the Washington-based Mortgage Bankers Association said yesterday. That gain followed an 18.2 percent plunge the previous week that took the group’s index to its lowest level in more than 14 years.

Investor demand for 10-year (USGG10YR) U.S. Treasuries, a benchmark for mortgage rates, caused their yields to fall for seven days before rising yesterday.

-By Prashant Gopal

Canadian Pension Buys Stake in San Francisco Office Tower

Source: Bloomberg / News

Canada Pension Plan Investment Board agreed to pay about $219.2 million for part of a San Francisco office building where ride-sharing company Uber Technologies Inc. and mobile-payment provider Square Inc. have their headquarters.

The pension fund plans to buy the 45 percent stake in 1455 Market St. from Hudson Pacific Properties Inc., the companies said today in a statement. Los Angeles-based Hudson Pacific has owned the 22-story tower since December 2010 and will continue to oversee management and leasing.

The purchase is the Canadian pension’s first direct office investment in San Francisco, where office rents have soared 88 percent in almost five years, according to Jones Lang LaSalle Inc. (JLL)Demand for office space has been buoyed by annual job growth of 3.6 percent in the city, outpacing the U.S. by one percentage point, the brokerage said in a report this week.

San Francisco is “one of the best-performing U.S. office markets and a key strategic market for CPPIB in that country,” Peter Ballon, head of real estate investments in the Americas for the pension, said in today’s statement.

Last year, the technology industry reached its greatest share of total office employment in the city, with growth surpassing that of the finance, legal and professional-service sectors, according to Jones Lang LaSalle.

The 1.03 million-square-foot (95,300-square-meter) property, formerly a Bank of America center, was built in 1976 and has ground-floor retail.

The Canada Pension Plan Fund totaled C$234.4 billion ($198.3 billion) as of Sept. 30, including C$25.4 billion of real estate investments.

-By Nadja Brandt

Hong Kong’s Lee Gives $118 Million to MIT for Real Estate Lab

Source: Bloomberg / News

Hong Kong real estate developer Samuel Tak Lee gave $118 million to Massachusetts Institute of Technology to create a lab for sustainable real estate development.

The gift will fund fellowships for U.S. and international students, support research on sustainable development and put the lab’s curriculum online, Cambridge, Massachusetts-based MIT said in a statement.

Lee said the gift will help design a program that ties the study of real estate to 21st-century realities such as land reform, environmental challenges, burgeoning populations and an evolving global economy.

“The issues that create complexity in Chinese real estate, such as migration, land ownership, and environmental impacts, make it a fertile area for research and practice,” Eran Ben-Joseph, head of MIT’s department of urban studies, said in the statement. “Lessons learned from China can serve as models worldwide.”

The gift, one of the largest in MIT’s history, will create the Samuel Tak Lee MIT Real Estate Entrepreneurship Lab, which will be housed in the Department of Urban Studies and Planning and the Center for Real Estate.

Lee earned two degrees from MIT: a bachelor’s degree in 1962 and a master’s in 1964, both in civil and environmental engineering. He then joined Prudential Enterprise, a Hong Kong–based real estate company founded by his father and a cousin.

-By Chris Staiti

KKR Said to Recruit Rialto Team for Real Estate Debt Expansion

Source: Bloomberg / News

KKR & Co., the private equity firm run by Henry Kravis and George Roberts, is hiring about 12 dealmakers from Rialto Capital Management to invest in real estate debt, according to a person with knowledge of the matter.

The team is led by Matt Salem, Goldman Sachs Group Inc.’s former head of commercial mortgage-backed securities trading, and will be co-run by Chris Lee, a director in KKR’s real estate group, said the person, who asked not to be named because the hires haven’t been finalized. They plan to focus on mezzanine debt, preferred equity and risky slices of loans, the person said.

KKR, which formed a real estate group in 2011 with the hire of former Goldman Sachs partner Ralph Rosenberg, is expanding the unit after committing about $1.8 billion of equity to 29 deals in the U.S., Europe and Asia. The New York-based firm plans to use its balance sheet to fund the credit team’s initial investments, the person said, a similar approach to the way KKR started Rosenberg’s group before raising money from outside investors.

Kristi Huller, a spokeswoman for KKR, declined to comment. The Wall Street Journal reported the team’s hire yesterday.

Boom Years

Investment firms are piling into commercial real estate debt with $295 billion in loans from the boom years coming due over the next three years. Abundant financing is aiding a recovery in U.S. property values, with prices on prime properties in large cities surging to records.

Blackstone Group LP, the largest private equity firm, started its real estate debt group in 2008. The unit oversees $9.3 billion in assets.

Salem, who didn’t respond to a request for comment, left New York-based Goldman Sachs in 2011 after five years. He previously worked at Morgan Stanley.

Rialto, run by founder Jeffrey Krasnoff, focuses on distressed loans in commercial and residential real estate. The Miami-based firm is owned by Lennar Corp., the second-biggest U.S. homebuilder by market value.

-By Devin Banerjee

British Land Sells U.K. Properties for $386 Million

Source: Bloomberg / News

British Land Co. (BLND) announced the sale of four commercial properties across the U.K. for 256 million pounds ($386 million) as the company took advantage of rising investor demand for real estate outside of London.

British Land sold retail and office buildings in Birmingham, Hull and Maidenhead to Legal & General Group Plc (LGEN) for 219.6 million pounds, according to a statement today. In a separate deal, the London-based company sold a shopping center in Barnstaple to an undisclosed buyer for 36.1 million pounds.

“Throughout the financial year, we have taken advantage of strong investment markets to make selective disposals of more mature assets,” British Land, the U.K.’s second-largest real estate investment trust, said in the statement. “This activity is in line with our strategy to evolve the portfolio to meet the needs of our occupiers and their customers.”

Net initial yields on the transactions ranged from 5.7 percent to 6.8 percent. The deals lift sales of income-generating assets in the U.K. to 620 million pounds over the past 12 months, the company said.

-By Dalia Fahmy

Canada Housing Market Is 63% Overvalued: Deutsche Bank

Source: Bloomberg / Luxury

Canada, Australia and New Zealand are in the top ranks of the developed world’s most overpriced housing markets, according to Deutsche Bank AG.

Homes in Canada are the most expensive, being 63 percent overvalued, the bank said in a survey ranking Organization for Economic Co-operation and Development countries’ markets. The measure reaches 56 percent in New Zealand, the second-most priciest, 53 percent in Belgium and 49 percent in Australia.

In Wollongong, a seaside city in the Australian state of New South Wales, homes are more expensive than in New York when the median house price is compared to the median household income, economists Torsten Slok, Matthew Luzzetti and Peter Hooper wrote in the report. The survey compares home values to their historic multiples of rent and household income.

Central bankers have been using financial policy to reduce the risk of house-price bubbles in countries including the U.K., Hong Kong and Singapore. Restrictive policies reduce credit growth and price gains by 1 percent annually, Goldman Sachs Group Inc. economist Hui Shan estimated last year.

Warnings by Canadian policy makers about overvalued homes are starting to sink in, with households the least optimistic since May 2013 about further price growth. In Australia, home prices have climbed 19 percent over the past two years, driven by a cash rate that’s remained at a record low since August 2013, contributing to record-high debt levels.

Home values in the U.S. are about 5 percent below their historical average based on the measurement, the Deutsche Bank report said. In the U.K., where the government has encouraged low down payments on mortgages, they’re 38 percent overvalued.

Values in Canada are 35 percent above the historical average relative to incomes and 91 percent higher when compared with rents. Prices in Belgium are 51 percent higher than the average relative to income, and in Australia 60 percent above the average relative to rents.

-By Neil Callanan and Nichola Saminather

It’s Deja Vu as Carney Holds U.K. Interest Rates

Source: Bloomberg / News

This year is looking a lot like 2014 for Bank of England Governor Mark Carney.

With the outlook dominated by a weak euro-area economy that’s showing few signs of recovery, political risks at home and inflation below the 2 percent target, the Monetary Policy Committee left the benchmark interest rate at 0.5 percent today. Investors see borrowing costs staying at a record low for the rest of the year.

The mix of events is giving the nine-member panel little reason to end almost six years of emergency stimulus. While improving wage growth may support the case of two members who have argued in recent months that a rate increase is needed now, the prospect of another year of weak inflation as oil prices tumble is keeping them in the minority.

“The global backdrop and the euro area don’t exactly look supportive, we’ve got a significant and sustained fiscal tightening coming, and we’ve got a dollop of political risk,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London who sees BOE keeping policy unchanged until February 2016. “All of that just gets us to a bit of a policy stalemate. I’m more comfortable with the forecast that U.K. rates are not going to rise this year.”

Strains in the euro zone, Britain’s biggest trading partner, are holding back an economy that is starting to feel the effects of tumbling oil prices. Consumer prices rose an annual 1 percent in November, the least in more than a decade.

ECB Stimulus

In the euro region, European Central Bank President Mario Draghi is moving toward full quantitative easing after consumer prices fell for the first time in more than five years in December.

ECB officials met in Frankfurt yesterday, though they aren’t scheduled to make their first monetary-policy announcement of the year until Jan. 22. The Governing Council has reduced the frequency of its policy-setting meetings, a change Carney is preparing for the BOE.

At home, a general election that’s four months away also provides reason for the BOE to hold fire. Opinion polls show no clear winner, setting the stage for another coalition or a minority administration.

The 53 percent drop in oil prices in the past six months is compounding the inflation slowdown in the U.K. Brent crude fell below $50 a barrel this week for the first time since 2009.

Carney Letter

BOE forecasts published in November show inflation won’t return to its target until 2017. Data next week may show inflation below 1 percent in December, which would force Carney to write his first-ever open letter of explanation to Chancellor of the Exchequer George Osborne.

Interest-rate futures show only 12 basis points of interest-rate tightening is being priced in by November. As recently as August, the market was fully factoring in a 25 basis-point increase by next month.

Like their German counterparts, U.K. government bond yields have also been falling. The two-year yield fell this week to the lowest since October 2013.

Recent surveys show some of the shine has come off of the recovery, and Markit Economics’ Purchasing Managers Indexes suggest economic growth slowed to 0.5 percent in the fourth quarter, which would be the weakest pace in a year.

“For most of the committee, they don’t see the point of rushing and choking off the recovery,” said Alan Clarke, an economist at Scotiabank in London. “Inflation heading close to zero is a sticking point.”

Bright Spots

There are some bright spots. Wage growth has strengthened and is now outpacing inflation for the first time since 2009.

That recovery may help MPC members Martin Weale and Ian McCafferty keep up their dissent. They voted for a quarter-point rate increase between August and December, saying a move is needed to prevent wage increases from feeding price pressures.

“The economy is growing robustly, unemployment is falling quickly and no one is going to delay buying a television because it costs less to fill up a car,” said Rob Wood, an economist at Berenberg Bank in London. “They face absolutely no need to raise interest rates when inflation is heading down towards zero but they will need to be careful about when they start hiking, so it’s not too late.”

-By Jennifer Ryan

Additional Articles of Interests - Local & Overseas Real Estate