Opportunities for property investors

THESE are troubled times, and the global real estate sector has borne the brunt of the sub-prime fallout.

But now the property world is turning its attention to Asia as investors are hoping that 2009 will be the year to begin picking up undervalued assets ahead of economies in the region emerging from the global financial crisis, say the organisers of Cityscape Asia.

The annual real estate exhibition and conference – which is being held in Singapore from today until Thursday – comes amid talk of ‘green shoots’ of recovery for the Singapore and global economies.

Cityscape Asia focuses on all aspects of real estate development.

The real estate investment market in the Asia-Pacific region and the rest of the world saw a further contraction of market volume in the first quarter of 2009 against the backdrop of the global financial turmoil and the sustained problem of a credit crunch. However, analysts are beginning to see opportunities as the world and Asia rides out the crisis.

‘Established firms, family enterprises and individuals with cash reserves, limited debt and an appetite for risk are expected to be among the first to begin searching the Asian market for bargains in the coming months,’ said Graham Wood, group exhibition director of Cityscape.

This year’s Cityscape Asia will examine topics relevant to the downturn such as surviving the global financial crisis, the future for real estate funds, and markets to invest in for long-term growth and returns.

But long-standing topics such as Asian real estate investment trusts (Reits), green investments and the retail scene in Asia will also be explored.

More than 4,000 top deal-makers from leading developers, banks, institutional investors and investment authorities, as well as senior officers from the foremost private equity funds and investment advisory firms will gather in Singapore over these three days to discuss key issues and investment opportunities.

This year, more networking functions and face-to-face interaction have been factored in to ensure that delegates have ample opportunity to conduct real business at Cityscape Asia. Participants could well walk away from the conference with signed deals.

Cityscape Asia is an extension of the successful Cityscape Dubai exhibition, which has grown to include Abu Dhabi, India, Saudi Arabia, Russia, the United States and Latin America.

The Singapore conference will focus on Asia. It will discuss and debate the recovery, opportunities, and the strategies adopted by leading real estate investment and development firms across Singapore, Malaysia, the Philippines, Thailand, Vietnam, Hong Kong, Indonesia, China and India.

In its recent inaugural Asia-Pacific investment market overview report, Colliers International said that opportunities remain in the region for investors. ‘Although the regional real estate investment market in Q1 2009 was relatively quiet and despite the fact that the market will continue to be challenged by the economic environment for the rest of 2009, we believe there are still potential investment opportunities in the region in the coming quarters,’ said Piers Brunner, Colliers’ chief operating officer for Asia.

Real estate investment yields in the Asia- Pacific region have gone up further by 25-75 basis points in the first quarter of the year as investors held back from entering the real estate market, Colliers said. This should make investing more attractive now compared to a few quarters ago.

One market that will be much debated at this year’s Cityscape Asia is China. ‘In current times, the brightest light glows in China with the economy seeing a huge inventory adjustment,’ said DTZ in April.

In the first quarter of 2009, mainland China’s residential property sector staged a recovery of sorts, with transactions in some cities rebounding to levels not seen in years. However, the recovery did not spill over to the commercial sector as office markets in the major cities remained sluggish with fewer transactions amid declining rents and prices. A recovery in China could do much to help property markets in the rest of the region, analysts said.

Cityscape Asia also incorporates a host of ‘mini events’ designed to create business opportunities, such as developer project showcases, interactive discussion forums and investor roundtables.

Developers and other stakeholders from Europe and the US will be at Cityscape Asia looking for Asian investors. In its May bulletin, Citi Private Bank said that it expects to see a new global consumerism marked by a thrifty West and an affluent East, which should see investment flow from the East to the West.

Just one example – Philippe Chaix, director of La Defense, the prime office district of Paris, will be in Singapore during the conference to discuss the future of business property in the French capital, specifically, what it means for Asian investors.

London is also expected to get its share of attention. Asian interest in London properties is growing on the back of a devaluation in the pound, market watchers say. For example, the value of the British pound has fallen about 30 per cent against the Singapore dollar since December 2007. With London property prices down by about 15 per cent from their peak, Singaporean investors could reap savings of about 45 per cent off prices if they choose to invest in London.

Source : Business Times – May 2009

China property recovery not expected till H2

Prices need to fall further before buyers are attracted, says Goldman Sachs

China’s real estate developers do not expect the property market to recover until at least the second half of this year, as prices need to fall further before attracting more buyers, according to Goldman Sachs Group Inc.

‘A sustainable property market is out of sight,’ Goldman Sachs analysts Thomas Deng and Kinger Lau write in a report, which was based on observations from company visits in southern China and published yesterday.

Home prices in China fell 0.9 per cent in January, the second consecutive monthly decline and the longest losing streak since the government started issuing the data in August 2005. Property prices more than quadrupled in the five years through 2007 as urban incomes rose.

Goldman Sachs said that a recent increase in property transactions is not evidence of the market bottoming out. The analysts visited China Vanke Co, the nation’s largest publicly traded developer, Shenzhen Investment Ltd and Gemdale Corp.

Sale volumes in the southern city of Shenzhen, bordering Hong Kong, more than doubled to 787,800 square metres in December from 358,300 sq m in November and 338,000 sq m in October, according to a report by property agency DTZ earlier this month. House prices in the city dropped 16 per cent in January from a year earlier.

Source : Business Times -  Feb 2009

HK developer ups luxury home prices

 

After selling 150 units in 10 days, they plan a 5% raise

Sun Hung Kai Properties Ltd, Hong Kong’s biggest developer by market value, is raising prices for a new luxury residential project by 5 per cent after selling 150 units in 10 days.

‘The response has been so good, we are raising the prices gradually,’ Victor Lui, executive director of Sun Hung Kai Real Estate Agency, said in a phone interview yesterday.

The builder, which released 200 apartments at its Kowloon project in the first launch, sold the 150 units for HK$14,000 to HK$20,000 a square foot, generating HK$3.5 billion (S$689.2 million) revenue, Mr Lui said. It’s now selling three-bedroom units at the project, called The Cullinan, for HK$14,700 to HK$21,000 a square foot, based on Bloomberg calculations using his figures.

The sale may indicate investment in Hong Kong’s luxury homes is picking up, Centaline Property Agency Ltd, one of the city’s biggest real-estate agencies, said. Prices of luxury homes, defined as those worth at least HK$10 million, fell 19.2 per cent in the fourth quarter from a year earlier, CB Richard Ellis Group Inc said last week.

‘There’s a bunch of cash-rich people out there who prefer holding real assets such as property, gold as they become more wary of other financial investments,’ said Wong Leung-sing, an associate director at Centaline. ‘Under the current environment, The Cullinan sale has exceeded expectations and it’d be a harbinger of an increasingly active investment luxury market.’

Sun Hung Kai’s shares rose as much as 4.2 per cent on the news, the most since Feb 9. They traded 0.8 per cent higher at HK$60.65 at 3.05pm Hong Kong time, while the Hang Seng Property Index, which tracks the shares of six developers, advanced 2.7 per cent.

The number of units sold and the revenue generated were earlier reported by the South China Morning Post.

Prices fetched at The Cullinan may entice Hang Lung Properties Ltd, Hong Kong’s fourth-biggest developer by value, to sell units at its nearby Harbourside project, analyst Manfred Ho said. Shares of Hang Lung rose as much as 6.9 per cent yesterday, snapping a nine-day losing streak. They traded 4.7 per cent higher at HK$14.30.

Hang Lung has ‘quite a big number of unsold units at The Harbourside, so if The Cullinan is selling well, definitely they will be one of the direct beneficiaries’, said Mr Ho, a Hong Kong-based analyst at BOC International Group.

Hang Lung has about 2,000 homes unsold at its Harbourside and Long Beach developments in Hong Kong, as it held back apartment sales last year after prices fell as much as 25 per cent from last year’s peak.

Sun Hung Kai may start selling the second batch of units next week, Mr Lui said, adding that the developer will decide on the number after wrapping up the first launch. Buyers in the first launch included investors from China, he said.

Sun Hung Kai is also in the final stages of negotiating the sale of four penthouse units, Mr Lui said. One of them, a 4,000 square-foot duplex, is priced at HK$50,000 a square foot while the other three smaller ones at more than HK$30,000, he said.

Standing at 270 metres, The Cullinan will be Hong Kong’s tallest residential project and includes 825 units.

Still, some analysts said prices for The Cullinan are not enough to lift the entire Hong Kong property market, which is weighed down by a recession and rising unemployment.

‘Hong Kong’s economy is really dependent on the financial sector, which is volatile, and trade, where we don’t see any sign of improvement,’ Cusson Leung, an analyst at Credit Suisse Group AG, said yesterday.

Hong Kong’s economy slid into a recession in the third quarter, its first since 2003, as the global slowdown hurt domestic spending and demand for exports.

Unemployment rose to 4.6 per cent in the three months ended Jan 31, the highest rate since September 2006, the government said on Feb 17.

Home prices on the Peak, Hong Kong’s most-expensive residential area, slumped 30.5 per cent in the fourth quarter of 2008 from a year earlier, the steepest decline since the Asian financial crisis in 1998, CB Richard Ellis said last week. The average price was HK$16,678 a square foot, it said.

Hong Kong’s record price for a luxury home was for a house in Sun Hung Kai’s Severn 8 project on the Peak that sold in the first half of last year for almost HK$56,000 a square foot.

Source : Business Times – Feb 2009

China moves to help housing market

 

Beijing may scrap curbs on purchases of second homes, official media say

China is considering a package of measures to provide long-term support for its residential housing market, including the scrapping of curbs on purchases of second homes, official media reported yesterday.

The China Securities Journal quoted an unnamed, authoritative source as saying that the National Development and Reform Commission, the top economic planning agency, was now reviewing proposals submitted by the construction ministry.

The package would aim to increase demand for owners to improve their homes, cut tax costs for people buying and selling homes, and help low-income people buy homes, the source said.

There are also proposals for the government to buy a small amount of housing stock to help it prevent excessive price fluctuations, and for steps to ensure that home buyers and developers receive ample long-term financing, the newspaper added.

Developers would be allowed to create real estate investment trusts (Reits) as soon as possible to bolster their funding, while rules restricting the amount of institutions’ investment in property would be abolished or relaxed.

The newspaper did not say when the package might be introduced.

The Shanghai Securities News quoted Cheng Siwei, an influential former lawmaker, as saying that the government had placed residential housing on its list of 10 major industries, which would receive policy assistance.

But it remains unclear what specific policies will result from this, partly because the authorities are still debating whether a policy package should focus on the property market’s current slump or its long-term development, the newspaper added.

Two government sources told Reuters yesterday that the State Council, or cabinet, did not plan to include the property sector in its list of industries to receive formal assistance packages.

Since last year, the government has announced a range of steps to aid the real estate market. In December, it cut business and transaction taxes for real estate sales, and said it would let people buy second homes on the same preferential terms normally reserved for those buying first homes, if floor space per person were lower than the average for the city where the homeowner lived.

Source : Business Times – Feb 2009

From slums to world-class city

THE World Bank has held Singapore up as a model of a country which managed to transform its slums and become a world-class city.

In its annual World Development Report 2009, the World Bank attributed this achievement to a government known for its accountability, meticulous planning and coordinated action.

The report discusses the relationship between geography and development and says that a key part of a country’s success lies in implementing sound policies that develop economic activity.

It also observes that stopping people from rural areas migrating to cities can be counter productive as this can stifle innovation and growth.

But by instituting flexible regulations and versatile land use, policymakers can make urban areas attractive to firms and investors.

In illustrating these points, the 383-page report, published last November, highlighted the example of Singapore in one of its nine chapters.

When Singapore gained independence in 1965, the country was in dire straits as it faced massive overcrowding, a lack of public services and high unemployment, it noted.

Seven in 10 households were in badly overcrowded conditions, while a third of its people lived in squatter areas on the city’s edges. An estimated 600,000 homes were needed, but only 60,000 were in private supply.

Unemployment was at a high of 14 per cent, gross domestic product (GDP) per capita was less than US$2,700 (S$4,000) and half the population was illiterate.

Mortality rates were rising rapidly while migration from Malaysia and the surrounding regions put increasing pressure on housing and employment.

Yet, just 40 years later, Singapore had overcome these and other problems to become ‘one of the cleanest and most welcoming cities in the world’. It is also now one of the world’s top centres of commerce.

With five million people packed into 700 sq km of space, Singapore’s US$300 billion exports in 2006 was close to that of the Russian Federation, which is 16 million sq km, said the World Bank.

‘Improving institutions and infrastructure and intervening at the same time is a tall order for any government, but Singapore shows how it can be done,’ it said.

The secret of Singapore’s success?

‘First, institutional reforms made the Government known for its accountability. Then, the Government became a major provider of infrastructure and services,’ the report said. ‘Multi-year plans were produced, implemented and updated.’

The report highlighted the Housing Board’s role in clearing slums, building public housing and renewing the urban landscape. At one point, the HDB was building a new flat every eight minutes.

As a result, nearly nine in 10 Singaporeans live in public housing, and most of them own their homes.

Through land acquisition laws, the Government acquired one-third of city land and slum dwellers were relocated to public housing.

‘For a city-state in a poor region, it is also not an exaggeration to assert that effective urbanisation was responsible for delivering growth rates that averaged 8 per cent a year throughout 1970s and 1980s,’ said the World Bank.

‘It required a combination of market institutions and social service provision, strategic investment in infrastructure, and improved housing for slum dwellers.’

But the factors for its success also make Singapore an anomaly, as not all countries can have rapid economic growth and a ‘focused government in power since 1965′.

Nor are many countries able to align priorities of country and city together, the way Singapore, as a city-state, can.

Singapore’s transport policies were also cited by the World Bank.

It noted that cars cost four to five times as much as they do in the rest of the world because of the Certificate of Entitlement auction system and car taxes. This was an ‘extreme but effective’ way to optimise private car use.

Source : Straits Times – Feb 2009

New positive spin on S’pore’s real estate sector

Economist calls bottom in 2010, based on an 18-year cycle seen in US

With observers seemingly falling over one another to come up with the most bearish forecasts, Phil Anderson – who calls himself a renegade economist – stands out from the crowd and confidently calls a property market bottom next year.

‘There will be substantial real estate buying opportunities for people with cash next year, which will set them up comfortably for the next 18 years,’ the founder of Economic Indicator Services told The Business Times recently.

Investors, however, will need cash to buy because, by then, banks will have no money and will be very reluctant to lend, he said. So individuals, companies and even countries with no debt, such as Singapore, will be well-placed to take advantage of the next boom.

Mr Anderson bases his prediction on an 18-year cycle which he says has manifested itself in the United States since 1800. ‘The cycle is as regular as clockwork. It is quite bizarre,’ he said.

The US began selling real estate, officially and under a set legal structure, on May 10, 1800, he said. ‘Since then there were speculative peaks every 18 years.’

There were peaks in land sales or real estate speculation in 1818, 1836, 1854, 1888, 1908, 1926 and 1944. The peaks were followed by downturns or depressions, typically lasting four years. World War II disrupted the pattern. But the cycle resumed in 1955.

The real estate market in the US again peaked in 1989 and bottomed in 1991. And 18 years later, in 2006-07, it hit another high. We are now into the third year of downturn, so by next year the market should bottom, which will mark the beginning of the new 18-year cycle, according to Mr Anderson.

The next boom, peaking around 2024, will be huge because hundreds of millions of Chinese will enter the market for the first time, he said. ‘Singapore is well-positioned to take advantage of the next boom because of its proximity to China. I am very bullish on Singapore. It is uniquely placed. Although real estate is already expensive in Singapore, it is going to be more expensive.’

Mr Anderson is confident the cycle will repeat itself as long as land is tradeable and in private hands. ‘It will continue to happen because people will chase the capitalised rent of land,’ he said. ‘It will be gone only if the rent is collected by the government.’

China’s privatisation of its real estate market guarantees a real estate cycle, according to him.

Also, everything that has been done to tackle the current financial crisis is to preserve the system. ‘So the system will start again.’

There are smaller cycles within the big 18-year cycles. The first seven years are characterised by a gradual improvement in activity and confidence following the previous crash. The next seven years see steeper increases in activity and prices, with the sharpest gains taking place in the final two of the seven years.

‘That’s when most people take on more debt. That’s also the easiest time to buy real estate because loans are easy to get as banks have a lot of money. But that’s absolutely the wrong time to do so,’ said Mr Anderson.

The next four years, of course, are the downturn, during which the banks will clear their problem loans, the market will absorb the excess stock and the governments will get organised.

Mr Anderson has detailed his research in a book The Secret Life of Real Estate – How it moves and why, published last year. Based in London and Melbourne, his firm has ’several hundred’ online subscribers who pay £200 (S$442) a year each for his ‘big picture analysis and ways to take advantage of turning points in market cycles’.

Source : Business Times – Feb 2009

HK luxury homes sales climb a notch

Lack of supply, lower prices bolster deals. But analysts think it is too early to say market has stabilised

SALES of Hong Kong luxury homes rose to their highest level in six months in January, indicating that prices may have stabilised, according to a report by Centaline Property Agency Ltd, as buyers seek out bargains.

Completed transactions of existing properties increased 31 per cent from December, and the value of the deals rose 9 per cent to HK$2.7 billion (S$522.8 million), the highest since July, the property broker said on Thursday. Luxury homes are those valued at more than HK$10 million.

A lack of supply and lower prices bolstered sales of existing luxury homes amid a deteriorating outlook for Hong Kong’s property market as a recession hurts sentiment. Prices for luxury homes dropped 19 per cent in the fourth quarter from the preceding three months, Marcos Chan, an analyst from Jones Lang Lasalle, said yesterday.

‘Since the meltdown of the financial markets in the fourth quarter, it’s no surprise to see a rebound after a sharp drop’ in prices, said Mr Chan, head of research for the Pearl River Delta at Jones Lang Lasalle. ‘Most buyers are those with old money and who hardly need to get financing from banks.’

Billionaire Joseph Lau, chairman of developer Chinese Estates Holdings and the city’s fifth-richest man, spent HK$170 million buying a 5,657-square-foot duplex, local newspaper Ming Pao said on Thursday, citing unidentified people. The price is about 16 per cent less than what the seller had paid.

A total of 144 transactions were completed in January, the Centaline report said. The data excludes new properties released to the market last month. January was the second straight month that transactions for existing luxury homes rose, posting a cumulative increase of 82 per cent, Wong Leung-sing, an associate director at Centaline, said in the report. ‘With the lack of new luxury homes, buyers are turning to the second- hand market, rejuvenating activity there,’ he said.

Sun Hung Kai Properties Ltd, Hong Kong’s biggest developer by value, said it expects to fetch HK$50,000 per square foot for its three-storey penthouse units at a new property, the Hong Kong Economic Times reported yesterday, citing a company executive. Buyers from China, Australia, Europe and the US have expressed interest in the pre-launch sale of the property, called The Cullinan, the paper said, quoting Victor Lui, executive director of Sun Hung Kai Real Estate Agency.

Overall, January home sales gained 3.6 per cent from December, the Land Registry said this week.

Still, it’s ‘too early’ to say that the luxury property market has stabilised, Jones Lang’s Mr Chan said. ‘We will continue to see pressure this year, whether it’s luxury or mass market real estate, as there are still uncertainties in the economy and unemployment will shoot up.’

Source : Business Times – Feb 2009

Tokyo ranked as Asia-Pacific’s top property investment city

Tokyo has been ranked as the top property investment city in the Asia-Pacific, according to a survey by Washington-based Urban Land Institute and PricewaterhouseCoopers.

But while investors see plenty of opportunities in the regional property sector, financing may prove to be a key challenge in the coming year.

Together with Tokyo, Singapore, Hong Kong, Bangalore and Shanghai round up the list for the top five property investment cities in the Asia-Pacific.

And they have been seeing growing interest from overseas investors in recent years.

But market watchers said that it may not be that easy for everyone interested to get into the market.

Stephen Blank, senior fellow, Finance, Urban Land Institute, said: “Borrowers are going to find themselves, in some instances, with loans that are so-called ‘upside down’ financially. They can’t be re-financed because the value of the properties declined below the collateral necessary to support the loan.”

Speaking at an Asia Pacific Real Estate conference – organised by PricewaterhouseCoopers – in Singapore on Friday, market watchers said re-financing may be the catalyst that will bring the global financial crisis home to regional real estate markets in 2009.

According to the survey by Urban Land Institute and PricewaterhouseCoopers, Asian banks have become increasingly selective in their lending, despite having sufficient liquidity.

Lending rates are seen rising by at least one percentage point.

And banks are also expected to be willing to fund only up to 65 per cent of projects, down from previous highs of 80-90 per cent.

According to the survey, Singapore ranks among the top 5 cities in Asia for property investment opportunities.

But market watchers said Singapore’s property market faces risks of slower growth and falling demand.

David Sandison, tax partner, PricewaterhouseCoopers, said: “What we are seeing now is a pipeline of supply that is likely to come on towards the end of next year, and dwindling demand. So, the real crossroads are going to be met towards the end of 2009 when that supply comes on and the demand may well not be there.”

According to some estimates, Asian property sales have already fallen 68 per cent year-on-year in the third quarter.

Source : Channel NewsAsia -  Dec 2008

Costs up, but S’pore far cheaper than rivals

The Republic is 12th most expensive city in Asia

WITH inflation and fluctuating exchange rates, Singapore has leapt 27 places up the global rankings of the world’s most expensive cities to live in. The consolation for the Republic is, its regional rivals have seen costs balloon far more astronomically.

Even as it jumped up to 95th place worldwide, Singapore’s Asian ranking rose just one notch up to 12th place – with consumer goods here about 15 per cent cheaper than in Hong Kong, according to findings by human resources firm ECA International.

These goods, which include food items and services, are also 68 per cent cheaper here than in Tokyo, while Beijing is now three times more expensive than Singapore, compared to last year.

Will all this make Singapore a more attractive option for expatriates and international companies setting up base here?

ECA International Asia general manager Lee Quane said that Singapore thought so. “Companies here will have to pay a higher cost of living allowance to keep pace with rising costs, but they would have to pay an even higher allowance elsewhere in Asia,” he said.

In the coming months, Mr Quane expects inflation here to hold steady, and the Singapore dollar value to depreciate as the US dollar strengthens. “I don’t see cost of living becoming more expensive here, but it won’t become cheaper either,” he said.

Singapore International Chamber of Commerce chief executive Phillip Overmyer said multinational companies were now “trying to understand what would happen after the economic crisis”, and how to serve emerging markets after the turmoil dies down.

“With the lower cost of living in Singapore, it will encourage companies to put its analysts here, such as market researchers and R&D personnel,” he said. “It would support companies to use Singapore as regional headquarters for Asia.”

This could take six to eight months to happen, as companies would need to assess their financial position before focussing on Asia’s domestic market. For now, rising costs would spell bad news for expats as companies are reportedly giving out less generous remuneration packages.

The Singapore expat community, said Mr Overmyer, is different than it was ten years ago, when the expats held top positions in companies.

“Increasingly, the expats tend to be here for the learning experience and in mid-level positions with less generous packages,” he said. This group would now be “struggling a little more”, he added. “But if Singapore remains relatively less expensive, we would still be more attractive.”

ECA’s ranking was compiled using surveys done in March and September and using November exchange rates, over 370 territories.

MOST EXPENSIVE IN ASIA

1. Tokyo (global rank: 2)

5. Beijing (31)

6. Hong Kong (33)

8. Taipei (76)

11. Seoul (90)

12. Singapore (95)

Source : Today – Dec 2008

MM Lee: Asia will be first to resume growth

As long as the banking systems of the major economies don’t freeze up, China will resume growth, writes Minister Mentor Lee Kuan Yew

AFTER the dramatic drops in the New York Stock Exchange following the collapse of Lehman Brothers, stock markets and property values in eastern Asia declined significantly. China’s Shanghai index has fallen about 70 per cent this year. Property prices have also dropped, varying in levels among different cities. Visiting Beijing and Shanghai in late October, I found political leaders and businessmen were apprehensive about the coal and iron ore stocks piling up at their wharves as export demands fell.

Asian banks have not been snagged by dealing in securitised derivatives they didn’t understand. Their bankers learnt their lessons from the 1997 Asian financial crisis. The fundamentals of eastern Asia’s economies are sound. With the exception of South Korea, eastern Asia’s central banks have substantial foreign currency reserves, limited leverage and low indebtedness, so their governments have the flexibility to use fiscal policies to promote growth and recovery.

China has the largest reserves, with about US$2 trillion – US$500 billion in US Treasuries and US$1.3 trillion invested in US assets. Interbank lending in China continues. However, China’s banks have become cautious and lend only to high-quality companies.

As long as the banking systems of the major economies don’t freeze up, eastern Asia, led by China, will resume growth earlier than other regions. On Nov 6, the International Monetary Fund (IMF) forecast China’s growth at 9.7 per cent for 2008 and 8.5 per cent for 2009 (down from 11.9 per cent in 2007), and India’s at 7.8 per cent and 6.3 per cent, respectively. Both nations’ fundamental growth drivers are increasing labour productivity, urbanisation and the growth of capital stock. The IMF’s forecasts for developing Asian countries in 2008 and 2009 are 8.3 per cent and 7.1 per cent.

China’s inland provinces need infrastructure, and Beijing has announced a stimulus package of four trillion yuan (S$884.4 billion) by 2010. China is extending its railway network, rebuilding earthquake-damaged areas in Sichuan, increasing export tax rebates, lending more to small and medium-size enterprises and spending more on social welfare systems. To revive the housing market, it is reducing taxes on housing transactions and unwinding property-tightening measures introduced earlier to counter speculation. For first-time home buyers, the minimum down payment has been reduced from 30 per cent to 20 per cent, and banks are allowed to offer interest rates as low as 70 per cent of the standard lending rates for such mortgages. The demand for residential housing remains strong, and China’s construction companies are capable of meeting it.

Personal consumption in China should be encouraged; it is only 35 per cent of gross domestic product (GDP), compared with America’s 70 per cent. Beijing is introducing rural land reforms, increasing government funding for low-price housing and basic medical services, and reducing interest rates in order to boost domestic consumption. China is determined to grow by at least 8 per cent, to create enough jobs to sidestep large-scale unemployment and social unrest.

Shanghai and Guangdong, two major exporting provinces, are experiencing declines in export orders.

The 10 countries in the Association of South-east Asian Nations (Asean) have free trade agreements or comprehensive economic partnerships with China, India and Japan. Asean’s growth for 2009 is projected to be between 2 per cent and 5 per cent, depending on how heavily each country relies on exports to the US and the EU. Singapore, whose external trade is more than three times its GDP, will dig into its reserves and survive the downturn because of its economy’s strong fundamentals.

Intraregional linkages that have increased during the past two decades will help fuel growth. They will partially offset the reduced demand from the US, the EU and Japan, and will buffer eastern Asian countries against a severe recession.

China’s economy will continue to grow. Its leaders have stated that the best contribution they can make to offset the current crisis is to keep their economy growing. They can go beyond that by constructing positive policies and not shifting out of US assets or pushing exports via competitive devaluation of China’s currency. If China plays an active part in multilateral measures to help alleviate the global crisis, it will be seen as a responsible stakeholder whose rise will strengthen the world’s financial system. The signs for this are good. On Oct 21 in New York, Treasury Secretary Henry Paulson said: ‘It is clear that China accepts its responsibility as a major world economy that will work with the United States and other partners to ensure global economic stability.’

India’s foreign reserves – US$251 billion – are modest compared with China’s. India’s stock market is 50 per cent below its January levels. The government can cede needed infrastructure projects for roads, railways, container ports and airports to Korean, Japanese and other international companies, which would increase foreign investment in India. If party leaders can overcome interparty politicking when deciding on policies to strengthen their economy, India will be in a position to make a difference internationally. Its leaders have demonstrated that when India musters its resources for strategic projects, such as its moon-probe rocket, it can succeed.

But the health of the US economy is still a major factor in global growth. The economic policies of President-elect Barack Obama will determine how long the global economy takes to recover.

Mr Lee’s article first appeared in the issue of Forbes magazine dated Dec 8, 2008

Source : Business Times – Dec 2008