Singapore Business Review (Oct-Nov 2014)

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PROPERTY ISSUE WHY ARE LUXURY PROPERTIES LOSING THEIR LUSTRE?

+

say goodbye to

easy credit shophouses in the

retail doghouse sg corporates build

a mountain of debt

who’s winning the $5b pawnbroking race?

THE 20 most influential lawyers aged 40 and under

MICA(P) 244/07/2011 KDM No: PPS1645/3/2008

FROM THE EDITOR Publisher & EDITOR-IN-CHIEF Tim Charlton ASSOCIATE PUBLISHER Laarni Salazar-Navida production EDITOR Roxanne Primo Uy graphic artist Tamara Pangilinan Editorial Assistant Joanna Rizza Bagano Editorial Assistant Alex Wong ADVERTISING CONTACTS Laarni Salazar-Navida lanie@charltonmediamail.com Gladys Roño gladys@charltonmediamail.com

ADMINISTRATION Lovelyn Labrador accounts@charltonmediamail.com Advertising advertising@charltonmediamail.com Editorial editorial@charltonmediamail.com

SINGAPORE Charlton Media Group #06-09 E, Maxwell House 20 Maxwell Road Singapore 069113

This issue of Singapore Business Review tackles different issues surrounding the city state’s property market. Our research revealed that while there is still interest in the Good Class Bungalows market, buyers tend to be mainly end-users rather than investors. Analysts blame the investor fallout to tighter property loan measures and the shift in negotiating power to buyers. In this issue, we also bring you the annual list of the largest real estate agencies in Singapore based on the number of real estate agents.

Meanwhile, in the retail property sector, we found out that sales activity in the shophouse segment tremendously slowed as prospective purchasers hold off investment and mortgage loan constraints for individual investors. The attractiveness of shophouses also started to wane among F&B operators as rents have been increasing annually by about 12% on the average since 2009.

We also examined the latest issues affecting the Singapore economy and found out that the downward pressure on property prices is particularly pernicious as it could trigger a more vicious credit cycle.

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We have a lot in store for you in this issue so start flipping the pages!

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SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 1

CONTENTS

who’s winning the $5.6b 24 analysis pawnbroking race?

More agents exit in 2014 as 28 Rankings the job now offers less money

STORY 26 CoVER Why are luxury properties in Singapore losing their lustre?

FIRST 08 Why shophouses are in the

retail doghouse

09 7-day eateries emerge in CBD 09 The Chartist: Singapore’s non-oil

domestic exports

10 Singapore’s med

tourism fatally threatened

12 Banks brace for margin pressure and net interest income slowdown

REGULAR

ANALYSIS 22 Say goodbye to easy credit

20 Financial Insight

24 Who’s winning the $5.6 billion

28 Rankings

pawnbroking race?

38 China as the mega-trader 42 Modi takes on Indian

32 Legal Briefing 34 CMO Briefing

growth conundrum

44 What could temper Singapore’s

growth as an insurance hub?

14 Fears of rising household

debt overdone

16 Singapore’s 20 most influential

lawyers aged 40 and under

Published Bi-monthly on the Second week of the Month by Charlton Media Group #06-09 E, Maxwell House 2 20 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 Maxwell Road

For the latest business news from Singapore visit the website

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SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 3

News from sbr.com.sg Daily news from Singapore most read

residential property

Stingy expats hardest hit by SG’s property cooling measures A study by DTZ Research revealed that the number of non-Singaporean private home purchases plunged in the first half of the year, as expats are adversely affected by the hike in ABSD rates.

In the second quarter of this year, the the share of private home purchases by foreigners fell to 8%, the lowest since Q213 when additional ABSD and TDSR measures were rolled out.

economy

residential property

Nearly half of Singaporean households subsisting from paycheck to paycheck A report by CLSA revealed that almost half of households across the island are saving less than 10% of their monthly incomes, leaving them unable to cope with unexpected financial expenses.

Unsurprisingly, 73% of lowincome households are saving less than 10% of their monthly income.

However, an unexpected 37% of the top-income bracket is essentially spending everything they earn.

Desperate developers slash prices by 15% to dodge hefty gov’t fines According to CLSA, the pace of price cuts could accelerate as developers struggle to avoid paying applicable extension fees and stamp duties for unsold inventory beyond a stipulated timeframe.

Under the Residential Property Act, developers will have to pay an Additional Buyer Stamp Duty of 10% for land acquired after December 2011 and 15% for land bought after January 2013.

Three ways to rapidly grow your start-up in Singapore

BY SIMON DAVIES According to Bloomberg, 8 out of 10 businesses fail within the first 18 months. While the Singapore start-up sector appears vibrant and successful, there is opportunity to turbo charge this growth through technology.

Opting for the cloud, empowering staff with mobile devices, and a focus on customer service are three key elements that start-ups can now easily look to, in order to reach the heights of growth and profitability.

Singapore’s disengaged workforce and the millennials

BY MARK STUART According to a Gallup Survey, 76% of staff in Singapore are disengaged with their work. This is one of the highest rates of disengagement in the world, and has forced many Singaporean firms to urgently address the issue of employee engagement.

Some solutions include increased flexible work arrangements. Or, could the solution be as simple as placing the right person in the right role?

MOST READ COMMENTARY A checklist before applying for a Singapore Employment Pass

BY SAMARPITA DEB With the Fair Consideration Framework in place since August this year, employers need to be judicious in their application for an EP, which is normally issued to professionals, or specialists with good experience.

Thus, it’s always advisable to be reasonably sure about securing an EP approval before initiating the application process, which otherwise can turn out to be a waste of time, money, and other resources.

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Agenda PEOPLE | PLACES | SERVICES | OPPORTUNITIES

services

Places

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the prime society

Publicist PR Consultants is a boutique communications agency offering a range of public relations and marketing services, from social media consultancy to luxury lifestyle, beauty, travel, hospitality and F&B clients.

Our specialty is in developing highly creative bespoke PR strategy. Want your brand to enjoy strong brand loyalty and a distinct market positioning? Please contact our PR Consultant Ms Amelie Marivain at + 65 6220 6022 or amelie@ publicistpr.com www.publicistpr.com

The Prime Society offers a modern contemporary cuisine, showcasing the very best breeds of Australian beef. From premium grass fed and grain fed, to 100% full blood Wagyu, dry and wet aged beef.

All beef is sourced from suppliers that do not use growth hormones or antibiotic feed supplements. Our steaks are served with house made flavoured salts and condiments.

For reservations please call +65 64747427 or email bonnie@theprimesociety.com

PLACES

ambassador in paradise Located in one of the finest beaches in the world, Ambassador in Paradise Resort is accredited by the Department of Tourism as a 5-star AAA Resort designed with high standard quality service and facilities.

Ambassador in Paradise Resort has 60 well-appointed rooms, elegantly designed with fine furnishings and en suite bathrooms to give guests high class quality comfort and style. Delight in the sumptuous & delectable dishes at our Al Fresco Restaurant as we are also known to serve the best food in Boracay.

places

Picc A culture of hospitality.

Serving our guests and making sure that their needs are well taken care of are the inherent characteristics that exude naturally from the people in Malaysia.

With its charming disposition, PICC was designed on the premise that everyone who uses the facilities will feel very much at home. Rising majestically on Putrajaya’s highest point and commanding a panoramic view of the entire Putrajaya Precints, PICC straddles the peak to ensure that the safety and security of its guests are well guarded.

PICC is the brainchild of Malaysia’s fourth Prime Minister, Tun Dr Mahathir Mohamad. It is built for the nation to offer the best possible venue and hospitality to host world leaders.

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PLACES

MEGAWORLD Megaworld is the Philippines’ leading residential condominium developer and business process outsourcing office developer. It has a record of completing more than 320 residential buildings, office towers, commercial centers and world-class hotels since 1989. Through large-scale township developments in the most preferred locations in the country, Megaworld continues to make a complete lifestyle more accessible to people.

Contact us at +632 815 1888 or +639 887 8696; customerrelations@ megaworldcorp.com; or visit www.megaworldatthefort.com

Discover the pulse of the city at Concorde Hotel Singapore Nestled between the world-famous Orchard Road and commercial district, Concorde Hotel Singapore is ideally located to provide the perfect combination of comfort and convenience for your corporate and leisure needs.

Achieve productive meetings with our wide selection of conference rooms which can accommodate from 10 to 500 guests, equipped with technologically-advanced equipment and dedicated hosts to manage your events. Guests in residence at Concorde Hotel Singapore will also enjoy complimentary Wi-Fi connectivity for multiple devices.

Rejuvenate and recharge in our spacious and comfortable rooms with rates starting from $208++ per room per night.

For more information about our Meeting Packages, please contact our Event Specialists at +65 6739 8339 or email cateringsales.chs@concorde.net.

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FIRST Female-FRIENDLY

While the rest of the world thinks girls run the world, female Singapore finance professionals strongly disagree as half of them believe they are not fairly paid.

A survey by eFinancial Careers reveals that while Singapore is one of the most female-friendly city states, it’s struggling to achieve equality in compensation and representation at senior levels. Two in three women say men are paid more in equivalent positions, but only 29% of men believe so.

According to eFinancialCareers, of those who believed men are paid more than women in equivalent positions in the financial industry, most respondents (44%) perceive there to be an 11% to 20% gap; while just over a third (34%) evaluate the gap at 21% to 30%. The survey results also show that finance professionals have split views when it comes to the situation of the pay gap improving in the future: 44% think it will narrow, 41% say it will stay the same and 15% believe the gap will increase. While 89% of financial services professionals believe that women are equally represented at junior levels, only two thirds (66%) believe that women are fairly represented at senior positions.

Pro-women But despite the apparent inequality in compensation and representation, majority (87%) of finance professionals in Singapore would still recommend their company to a female friend.

This was the most positive response globally, with Australia (83%) the UK and the US (82%) close behind.

The lowest responses came from professionals working in the Middle East (66%), Germany (69%), France (76%) and Hong Kong (77%).

8 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

Shophouse or doghouse?

Why shophouses are in the retail doghouse

S

ingapore’s property market is beleaguered by the government’s property cooling measures, and the niche shophouse segment is no exception. Sales activity tremendously slowed as prospective purchasers hold off investment and mortgage loan constraints for individual investors.

According to Mary Sai, executive director & head of commercial sales at Knight Frank, market resistance was evident since 2H 2013 due to an increasing mismatch between vendors’ asking prices and the prices that buyers are willing to pay.

Sai notes transaction volume of shophouses continued to fall further in 1H 2014, totalling 40 transactions compared to 49 transactions in 2H 2013. “Prices of leasehold shophouses fell drastically by 23% in 1H 2014 to an average of $4,717 per sq ft on land area, compared to $6,163 per sq ft per land area in 2H 2013. However, the high average price in 2H 2013 was solely attributed to 2 transactions in Duxton Hill ($8,779 per sq ft on land area) and Peck Seah Street ($7,818 per sq ft on land area),” adds Sai. The average transacted price of freehold shophouses also fell 10.8% in 1H 2014 compared to 2H 2013. Sai reveals that a significant

Prices of leasehold shophouses fell to an average of $4,717 per sq ft of land area, compared to $6,163 per sq ft in 2013.

proportion of the shophouses sold in both periods was in the Little India area.

Sai notes that while leasehold shophouses were transacted at higher prices per sq ft per land area compared to freehold shophouses in 1H 2014, this was generally due to the smaller land sizes of leasehold shophouses, and they are mainly found in more central locations such as Tanjong Pagar, Chinatown, Little India and Kampong Glam areas.

Toby Dodd, managing director at Cushman & Wakefield Singapore, expects shophouse investment sales to remain slow going forward.

“However, due to the limited supply of shophouses in downtown, any moderation in prices is not expected to be large and the market is expected to remain resilient in the long term.

Shophouse owners who purchased their properties in recent years at lower prices generally have strong holding power and are able to enjoy good yields at their purchase prices,” he adds.

Weakening demand from F&B The attractiveness of shophouses has started to wane among F&B operators as rents increase and become more unaffordable. Dodd notes that rents have been increasing annually by about 12% on the average since 2009, ranging between S$5 - S$6 psf in 1H2014. Sai concurs and says that the attractiveness of shophouses as a business space, has, in fact, started to wane among F&B and retail operators. “Nonetheless, there are some districts that see sustained demand or rising popularity from more prospective investors.”

Transaction volume and average price of shophouses - freehold and leasehold

Source: REALIS, Knight Frank Research

FIRST Ground floor F&B space in office buildings would have rents generally ranging from $14 to $25 per sq ft per month.

Coffee, tea, or me?

7-day eateries emerge in CBD

W

hen Artisan Boulangerie was first set up in Asia Square last year, it was open only on weekdays. But in July, the French-influenced contemporary bakery decided to serve brunch even on Saturdays to accommodate the growing weekend crowds in the central business district.

ABC is even considering having an all-week presence in the CBD, possibly offering family-centric dining options on Sundays, says a spokesperson for ABC. “We do believe that there will be more traffic to the CBD on weekends.

More residential buildings are coming up in the CBD, and this will justify more restaurants being open during the weekends.”

The CBD is slowly shedding its image as a weekend ghost town amid a spate of nonoffice properties and mixed-use developments in the area. The retail and commercial transformation in the CBD is most noticeable in the Downtown Core area where the existing supply of non-shop space – comprising F&B, entertainment, as well as health and lifestyle outlets – has grown 10% to 3.3 million sq ft in just three years.

But not all F&B brands are convinced that a 7-day trading week will be worth the increase in operating costs.

CBD-based shops command higher rents compared with those outside the downtown area, except for the Orchard area, says Xian Yang Wong, manager of research and consultancy at Orange Tee. For instance, ground floor F&B space in office buildings would have rents generally ranging from $14 to $25 per sq ft per month, according to Colliers.

F&B outlets in the CBD will also have to offer better promotions to attract even more residents outside the area, says Eugene Lim, key executive officer at ERA Singapore.

“Walk-in patrons and tourists are so used to dining outside the CBD on Saturdays and Sundays that they will need that extra bit of enticement to troop to the CBD,” Lim adds.

Existing supply of non-shop retail space in the downtown core

Source: Knight Frank

The Chartist: singapore’s non-oil domestic exports Already on a losing streak, Singapore’s non-oil domestic exports experienced a glimmer of hope in recent months, with nonelectronic items pulling up the statistics.

A report by Maybank Kim Eng revealed that Singapore’s NODX gained 12.1% on a yearly basis, led by capacity enhanced petrochemicals which chalked up its latest in a string of double digit gains and supplemented by pharmaceuticals which rebound 26.9% this year. Both items accounted for 22.3% of total NODX value thus far in 2014.

Maybank adds that the other notable contributor to NODX topline growth for the month came from structures of ships & boast which surged by a staggering 1,337% this year.

Non-oil domestic exports

Source: IE Singapore, CEIC, Nomura Global Economics

Singapore NODX: Contribution to growth by components

Source: CEIC, Maybank-KE

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 9

FIRST

Singapore’s med tourism fatally threatened

STARTUP WATCH

Cool 3D pen

M

edical tourists are keeping the heart of private hospitals beating, with data from Singstat and MOH showing that 70% of the medical tourists to Singapore visit private hospitals and that they contribute more than 20% to the revenue of these private hospitals. But all that is feared to change as more medical tourists who used to travel to Singapore are now turning to India, Malaysia and Thailand.

John Cheong, an analyst with Maybank Kim Eng, warns that the neighboring countries are quickly catching up with Singapore in providing premium hospital services and that there is very limited room for Singapore’s hospitals to compete on prices. “Due to Singapore’s high cost structure, its private hospitals have been focusing on the premium segment. However, improving standards, lower costs and slower currency appreciation in neighbouring countries are increasing threats,” he adds.

Competing with neighbors Singapore is expected to endure this heightened competition for long, as Frost and Sullivan has higher

Is Singapore’s med tourism in a 50/50 state?

2014E-20E spending CAGR forecasts for Malaysia’s (19%) and Thailand’s (18%) medical-tourism industries than for Singapore’s (13%).

Cheong notes that spending by medical tourists in Singapore grew at a 22-year CAGR of 12.6% over 1990-2013 but their 2012 spending of SGD1.1b was below their peak spending of SGD1.3b in 2007, suggesting that the industry is not immune to external shocks.

OCBC analyst Andy Wong cites an independent research firm Business Monitor International which projects Singapore’s health spending to grow at a CAGR of 8.8% from S$17.8b in 2013 to S$32.0b in 2020.

Spending by medical tourists in Singapore grew at a 22year CAGR of 12.6% over 1990-2013.

survey

1 in 2 Singaporeans prefer better skills to higher pay It comes as a pleasant surprise to hear that Singapore’s professionals aren’t all that obsessed with wage increases.

Acquiring new skills is a priority for professionals in Singapore, with many placing more value on obtaining them than securing a pay rise or promotion, according to the latest results from the Kelly Global Workforce Index (KGWI).

When given the choice between advancing to a higher level in their organization and acquiring new skills, 51% of respondents opt for new skills. This is higher than in other countries across the region, including Hong Kong (42%), Malaysia (43%), Thailand (37%), China (35%) and Indonesia (30%).

In fact, skills are so highly valued by employees that there is even a willingness to sacrifice higher pay and career growth for them.

10 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

3D printing pens are making waves but consumers might not be aware of their health risk.

According to Swedish Andreas Birnik, 3D pens typically rely on heating ABS and PLA plastic to temperatures of around 4800F. Engadget has previously referred to such pens as “sort of like a hot glue gun that melts plastic.” Andreas teamed up with Russian Dmitry Starodubstev to work on inventing the world’s first photopolymer paste where the viscosity can be controlled. The CreoPop 3D pen is the first they came up with. It offers cool inks with no hot parts, no melting plastic, and no unpleasant smell.

It now has US$500K total funding with major investor HAX Asia, and MDA’s iJam programme. It also raised US$185K during its Indiegogo campaign.

Lighter aircraft seat

A 2014 survey shows that nearly 90% of passengers want a more comfortable seat and 45% said they are willing to pay extra. However, the gap between economy and business makes it an unreasonable upgrade that not many can afford. This is what the AirGo team wants to revolutionize. In mid-2013, 23-year old Alireza Yaghoubi, with friends Mikko Alanko and Ali Jahanshahi, founded AirGo Design which creates an aircraft seat design based on actual 3D scanning data of the human body.

AirGo makes seats 50% lighter and uses design technologies which dampen shock waves during accidents and vibration caused by turbulences. The team is looking at closing about US$2M for Series A.

Pool

Living Room

FIRST

Banks brace for margin pressure and net interest income slowdown

S

ingapore’s top three banks have been beating earnings estimates, but dipping margins and slowing non-interest income (NII) could end up dragging them down in the near-term.

The first challenge for Singapore banks are dipping margins for the second half of 2014 (2H14), says OSK DMG, which could dampen gains made in the first half.

Singapore banks have so far been posting flattish net interest margins (NIMs) and intense competition for deposits may exert further downward pressure.

The looming implementation of liquidity capital ratio on January 2015 will make it even tougher to attract deposits at lower rates, says Kenneth Ng, analyst at CIMB, although he notes that Singapore banks do not seem too concerned about funding cost pressures.

“There is an environment to price out the funding cost pressures… the banks are less concerned with Singapore dollar competition and point to the task of fighting for deposits in Indonesia, Malaysia and US dollars in Singapore as the trickier tasks,” he adds.

NII slowdown News of reported loan fraud in China’s

Qingdao port triggered a wave of worry about the exposure of Singapore banks to the Mainland, but analysts say that a more worrying factor is the downswing in or NII among the banks.

Ng says that Singapore banks had smaller-than-expected exposure to China trade loans, which may turn fears on rising non-performing loans in China into a non-issue. He instead expresses concern over the dip in NII. “Even though China NPLs may be a non-issue, the slowdown in non-interest income from reduced client activities is real,” he says, citing the tepid growth in trade fees, loan fees and treasury income. Of the three Singapore banks, OCBC has been the only one that delivered fee growth in the second quarter of the year.

Positive developments Notwithstanding these challenges, analysts foresee Singapore banks cruising along with minimal hiccups. Singapore’s new liquidity coverage ratio, which is expected to create more competition for deposits, will actually be credit positive for the three largest Singapore banks, says Eugene Tarzimanov, vice president – senior credit officer at Moody’s Investors Service.

Singapore banks’ core earnings are also

DBS MBFC branch self-service banking

benefiting from three positive trends, says OSK DMG. The first is, healthy asset quality with no major issues found in the banks’ China books.

Secondly, NIM seems to be holding up better than expected as of 1H14 results.

Thirdly, loan growth is projected to strengthen in 2H14. “Overall, we expect sector earnings to grow 10% in FY14F and 8% in FY15F,” says OSK DMG. Of the three banks, he identifies DBS as the one investors should accumulate.

OFFICE WATCH

Check out this awesome shared workplace at 501

501 is the co-working space of six media companies: Big 3 Media, The Barnett Group, Fixx Digital, Massive Infinity, Crave FX and Gushcloud. Located in the heart of Toa Payoh, in General Magnetics building, the space boasts a hotel lobby-themed reception area, and five themed meeting rooms: the Gush meeting room, the toy room, the green room, the cinema room, and the book room.

Its corridor has an upside-down garden with an astroturf ceiling and inverted hanging plants, Gushcloud, Fixx and The Barnett Group open concept office, and the Pub Crawl Alley are just few highlights worth mentioning. “The whole space was designed to feel reminiscent of familiar spaces like libraries, cinemas, gardens and more. A twist on the concept of working from home,” says Vincent Ha, managing director of Gushcloud.

12 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

Book room

Cinema room

Green room

Toy room

co-published Corporate profile

Why timeless business practices are the best innovation for SL Education Owner Susan Lim believes that classic principles may still be relevant as long as it is excellently combined with modern technology.

Susan Lim and her mother

Owner Susan Lim awarded SME of the Year

I

n this day and age where start-up SMEs are increasingly looking to set up shops in high growth industries such as IT, one SME has shown that thriving in mature industries is possible despite highly challenging conditions.

SL Education Centre is an education company geared towards helping young academically struggling students maximise their potential. Established in 2005, the company has already received the 2014 SME of the Year award despite having been in the industry for less than ten years.

Timeless business practices SL Education stands out as an excellent enterprise through a well thought combination of modern technology and classic education principles an values. The company’s focus on its staff is one example of these tightly-held values. According to Susan Lim, owner of SL Education, “the success is built on people. We have qualified teachers and specialists on board to share their knowledge as well as their experience with the students.” Any successful business will know that people are a firm’s most valuable assets.

Another principle that has been a source of growth and loyalty for SL Education is their genuine care for the well-being of their customers. Unlike other industry players who are focused on

just learning the material (whether it be Science or Maths), SL Education focuses on the core of their students and not just on the lessons. “We create a fair and warm environment, and we teach them ownership and responsibility,” says Lim. “With this open concept, kids learn to make initiatives and care for one another.”

Despite SL Education’s grounding in basic core principles, the company is likewise unafraid of newer methods.

For instance, SL Education possesses the savviness of tech companies as they build in house apps to enhance teaching.

“We try to teach beyond the textbooks to make learning interesting for students so that they can go far on their own in the future.” Truly, a grounding on timeless principles paired with the creativity to utilise modern technology is a formidable combination for a solid enterprise.

Results oriented growth Beyond the awards and recognition, the test of an educational institution’s true success is what they are able to make out of their students. And SL Education’s teaching philosophy is truly reflected in

SL Education’s students

how their students grow and change.

“We have students who used to be mischievous in schools and are now studying in university, taking law or even marketing,” says Lim. What’s next for SL Education? “We hope to go into franchising after the fundamentals are done. We will take it one step at a time.”

CONTACT For more information, kindly visit: SL Education Centre Bedok Branch 84 Bedok North St. 4 #01-19 SG 460084 or Tampines Branch 267 Tampines St. 21 #01-37 SG 520267 www.sleducation.edu.sg

“Despite SL Education’s grounding in basic core principles, the company is likewise unafraid to take advantage of newer methods.”

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 13

FIRST NUMBERS

The new media consumer in SG

Singaporeans take on more debt on back of low interest rates

Fears of rising household debt overdone

H

at Standard & Poor’s. One or a combination of these could erode household net wealth and increase the likelihood of loan defaults.

Likelihood of loan defaults Most household loans in Singapore are at variable rates so these loans would reprice shortly after interest rates change and make it difficult for many to repay. He cites government estimates that around 10-15% of mortgage borrowers will become overstretched if interest rates increase by 3%.

Banks are also vulnerable to an economic slowdown, less favourable labour market conditions, or a property price correction, says Ivan Tan, director, financial services ratings

Banks are ready Tarzimanov is fairly confident that large Singapore banks can easily withstand the shocks due to their good internal buffers that offset risk, including robust capital adequacy levels, good profitability and prudent provisioning policies.

He also discounts worries surrounding the 75% household leverage level. While on the rise, this will not likely reach the precarious 95% level of ten years ago.

Banks are also losing less sleep over potential problem mortgages given how well government cooling measures have dampened momentum in the property market, where real estate prices have increased by around onethird since 2008.

“These measures are working well, and we see that banks are more selective in originating new household loans,” says Tan, citing the introduction of a higher stamp duty for buyers and a total debt servicing ratio framework for loan applicants. “Ultimately, this decreases the risk of a sharp correction on the property market, and will lead to better quality of new household loans,” he states.

ousehold leverage is nearing its five-year high at 75% of gross domestic product, but because this is not as bad as it was ten years ago when the ratio was 95%, banks are unfazed. They know that even if interest rates do rise and saddle them with more problem loans, they have plenty of internal safeguards to shield against the fallout.

Singapore has one of the highest levels of household indebtedness in Asia. Low prevailing interest rates have encouraged more Singapore households to take on even more debt. This trend could prove problematic if interest rates rise, says Eugene Tarzimanov, vice president–senior credit officer at Moody’s Investors Service.

14 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

The Government estimates that around 10-15% of mortgage borrowers will become overstretched if interest rates increase by 3%.

Source: The cross-platform series 2014

by Nielsen

FIRST

Singapore’s 20 most influential lawyers aged 40 and under

S

ingapore Business Review put together a list of the 20 most influential lawyers aged 40 and under who are thought leaders and have influenced the legal industry, one way or another. They are from a handful of firms, with local outfits Rajah & Tann and Stamford Law leading the way.

Arranged from the youngest to the oldest, the list recognizes executives for their lofty positions and client lists that would be the envy of any of their peers.

Some of them advised on the country’s major transactions, and/or advised on one of the country’s most controversial cases.

The others are authors of important legal articles and textbooks that are published not only in Singapore but also overseas.

3 Daniel Chia, 34, Stanford Law Daniel acted for the widow of the assassinated governor of Punjab, Mr. Salman Taseer, in contentious high-profile estate proceedings in Pakistan.

Stamford Law acted for Mrs. Taseer in respect of the Singapore proceedings and liaised closely with her Pakistan counsel to advise on the impact of Singapore law on the estate’s assets in Singapore. The most recent proceedings revolve around the ownership of a high end property in Sentosa. The children from Mr. Taseer’s first marriage had lodged a caveat on the property in Singapore seeking to frustrate its sale.

6 Timothy Cooke, 37, Stamford Law Timothy led a team acting for an investment holding company of a major private equity house in claims worth US$1.1B, and successfully obtaining an emergency arbitration award for wide ranging injunctive relief to protect those claims.

He also acted for the purchaser of shares in a Central Asian company against the seller in international arbitration proceedings for US$1.8B losses suffered as the result of the seller’s fraud. Timothy also acted for Central Asian power company in international arbitration proceedings.

1 Elizabeth Kong, 33, Stamford Law Elizabeth advised in the F&N US$11.1B takeover saga which involved the much-discussed use of the break fee, an incentive for a potential competing bidder to make its bid in a takeover situation. The F&N takeover saga also implemented for the first time in Singapore an auction procedure as the competitive bid situation became protracted. Elizabeth also advised on key reverse takeovers in the region including the proposed UFS RTO, one of the largest RTOs in Singapore’s corporate history.

4 Paul Seah, 34, Tan Kok Quan Partnership Paul was lead counsel at the Kon Ying Tong vs Leow Boon Cher trial where he successfully represented the liquidators of a company who had made claims against the company’s former directors for fraudulent trading and preferential payments. The case is now commonly cited as the leading decision in Singapore on numerous insolvency issues, such as fraudulent trading. Paul also has been a co-counsel of the City Harvest Case, one of the largest and highest profile white-collar crime cases in Singapore.

7 June Ho, 37, Wikborg Rein, Singapore June’s outstanding deals list includes the US$550M/- share swap between Paka Capital/ Khazanah/ and Parkson; a US$200M/- secured credit transaction

by Deutsche Bank; and most recently a US$400M refinancing involving Deutsche Bank; DVB Group Merchant Bank (Asia); Nordea Bank; Nordea Bank; Skandinaviska Enskilda Banken; HSH Nordbank AG and Credit Agricole Corporate and Investment Bank, as mandated lead arrangers.

2 Gareth Deiner, 33, Herbert Smith Freehills Gareth’s recent groundbreaking headline transactions include Oil India’s US$1B SGXlisted dual tranche bond issue, the largest ever Regulation S-only issuance by an Indian company. He also worked on Tata Communications’ S$400M Regulation S bond issue as well as on Tata Motors’ S$350M SGX-listed bond issue, the largest-ever five-year Singapore dollar bond benchmark by an Indian corporate issuer.

5 Jeremy Chase, 36, Herbert Smith Freehills Acting for Virgin Australia, Jeremy was a core part of the team that structured and brought to market the very first Enhanced Equipment Trust Certificate (structured as an Enhanced Equipment Note) for an Asian Pacific-based airline. Work on that transaction helped market for EETC issuances in other Asian jurisdictions. It is believed to be influential in unlocking further financing and investment options to Asian based airlines and investors.

8 Mohammed Reza, 38, Rajah & Tann Reza has contributed to the textbooks Singapore Precedents of Pleadings and Law and Practice of Corporate Insolvency.

Reza is currently acting for Standard Chartered Bank in one of the most complex banking cases coming on for trial this year, involving the multi-billion dollar sophisticated fraud perpetrated by former New York NASDAQ Chairman Bernard Madoff. He is currently acting for an Australian company in a US$750M dispute in the Singapore High Court.

16 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

FIRST 9 Ian Teo, 38, Rajah & Tann Ian successfully defended two Republic Singapore Navy officers in a criminal prosecution arising from the high profile collision between a naval vessel and a container ship which resulted in several deaths. He conducted regular shipping law courses at the Singapore Shipping Association.

13 Mark Robinson, 38, Herbert Smith Freehills Mark advised Essar on India’s largest inbound M&A at the time and its subsequent JV arrangements with Vodafone in India. He also advised Bharti Airtel on the second largest acquisition ever by an Indian company at the time (the US$10.7B acquisition of Kuwait-based Zain’s businesses in 15 African countries).

17 Adrian Wong, 40, Rajah & Tann Adrian successfully defended a bank in a highly publicized claim brought in the name of a wealthy 92-year-old customer against the bank for breach of duty.

As a result of this case, Adrian was involved in the drafting of banking industry guidelines for how banks should deal with customers with suspected mental capacity issues.

10 Mark Cheng, 38, Rajah & Tann Mark is the Deputy Head of Rajah & Tann’s Business Finance and Insolvency Practice Group. He is currently acting in a dispute between JV partners in a solar photovoltaic project, where the amount in dispute exceeds EUR 50M. Mark set up Rajah & Tann Thailand with only 6 lawyers 2 years ago in Bangkok.

14 Sharon Lau, 38, Latham & Watkins Sharon is a trusted advisor to many of the largest corporations and financial institutions across Asia including in Singapore, India, Indonesia and Malaysia.

Recent matters she has successfully led or has played a lead role on include: 7-Eleven Malaysia Holdings Berhad’s IPO on the Bursa Malaysia and KrisEnergy’s IPO on the SGX.

18 Tan Choon Leng, 40, RHTLaw Taylor Wessing Choon Leng is one of the founding members of RHTLaw Taylor Wessing and is the firm’s Head of Private Wealth and co-Head of M&A. He is a regular contributor to trade publications and journals. He also speaks regularly at conferences and seminars such as the Private Client Conference organized

by Legal Week.

11 Howard Cheam Heng Haw, 38, Rajah & Tann Howard is Rajah & Tann’s Deputy Head of Capital Markets. He has acted as lead counsel in the listing of Tosei Corp on the SGX which was the first listing of a Japanese company in Singapore after more than a decade.

Currently, he is involved in the proposed listing of the Accordia Golf Trust on the SGX.

15 Wendy Tan, 39, Stamford Law Wendy successfully represented Chimbusco International Petroleum Singapore’s claim against the Prestige Marine Group. This was a very significant case as one of the key legal questions that was clarified by the Court of Appeal for the first time was the test to be adopted in determining when a conditional stay of bankruptcy proceedings may be ordered.

19 Ben Rose, 40, Norton Rose Fulbright Singapore Ben advised Standard Chartered Bank, Fortis Bank S.A./N.V., Brunei Investment & Commercial Bank and Société Générale in connection with the US$505M Islamic lease financing of two newbuild LNG carriers for Brunei Gas Carriers. This was the largest LNG vessel financing in Southeast Asia.

12 Tracy-Anne Ang, 38, Rajah & Tann Tracy-Anne acted for potential international bidders in the privation of each of Singapore’s 3 electricity generation companies in 2008 from Temasek Holdings through a competitive bidding process. She represented the Marubeni-led Lion Power consortium which overcame fierce competition to win the bid to purchase the Senoko generation company for $3.65B.

16 Danny Ong, 39, Rajah & Tann Danny is the youngest partner to have assumed the role of Deputy Head of Rajah & Tann’s dispute resolution practices. He has been at the forefront of some of the most significant disputes from complex multi-billion dollar corporate and commercial litigations to the landmark insolvencies of Lehman Brothers and MF Global, and the recent LIBOR and NDF rate fixing investigations.

20 Robert Driver, 40, Norton Rose Fulbright Singapore Robert advised Standard Chartered Bank as coordinating bank and other lenders on the USD1.85B bridge financing to SapuraKencana Drilling as part of the US$2.9B acquisition comprising both debt and equity elements

by SapuraKencana of the Seadrill tender rig business, involving 18 offshore rigs in total.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 17

FIRST The Analysts’ call

Is the MBFC T3 deal fair?

K-REIT is poised for visible earnings and a stronger tenant base

What will KepLand gain from MBFC?

K

that K-REIT paid for a cap rate of about 3.85%.

The MBFC T3 sale is part of Keppel Land’s continuing core strategy to actively recycle capital, says Eli Lee, analyst at OCBC. On average from 2010 to 2013, the property company has divested around S$700 million per annum terms of proceeds and deployed more than $1 billion per annum into acquisitions and investments.

Keppel Land will likely funnel the MBFC T3 sale proceeds to its expansion plans overseas, particularly office and retail assets in China, Indonesia and Vietnam, says Lee. This diversified exposure across property segments and The Marina Bay Financial Centre geographical markets coupled with a strong balance sheet should Tower 3 sale is part of Keppel Land’s make Keppel Land an attractive continuing core strategy to actively recycle purchase for stock market investors. Keppel Land may also capital. spend a big portion of its proceeds in growing through investing in which will in turn boost Keppel Land’s share commercial space in its core markets either price in the immediate term. Keppel Land through private equity arm, Alpha, or the could potentially distribute up to c. S$0.10 group, says Tan. Scts/share from an estimated total gains of While the sale is seen to provide more c. S$155 million in 2014, including expected positives for Keppel Land, K-REIT will also divestment gains of around S$95.5 million receive a fair amount of boons, including from the MBFC T3 sale and further gains improved earnings visibility and a stronger from the Equity Plaza sale. tenant base. K-REIT’s risk profile will also Analysts believe the valuation for MFBC diminish as the average age of its portfolio T3 at S$2,790 psf is a fair one since it is drops from 6.2 years to 5.5 years, lowering comparable with valuations of recent office the need for extensive and costly asset enhancement initiatives. transactions so far this year. It is also within “We believe the transaction is positive for range of similar grade office properties in the Keppel Land and K- REIT, which has been a vicinity, says Derek Tan, analyst at OCBC. much anticipated acquisition by investors for The fair valuation sentiment is shared by Ivan Looi, analyst at OSK DMG, reasoning some time,” says Tan. eppel Land will sell one-third of its stake in Marina Bay Financial Center Tower 3 (MBFC T3) to Keppel REIT, a deal that should go a long way in financing Keppel Land’s ambitious expansion plans in Asia. The property arm of Keppel Group stands to earn net proceeds of S$648.9 million from the sale. This will strengthen Keppel Land’s financials and enable new investments in its core markets, says Derek Tan, analyst at DBS. He says the MBFC T3 sale will also increase the prospects for a special dividend,

18 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

Eli Lee, analyst at OCBC Keppel Land announced yesterday that it has entered into a conditional agreement to sell its one-third stake in Marina Bay Financial Centre Tower 3 (MBFC T3) at a valuation of S$1,248m or S$2,790 psf, including a five-year rental support of up to a total of S$49.2m. This is line with an independent valuation of S$1,245m

by Colliers and is broadly within our and the market’s expectations.

Derek Tan, analyst at DBS On a psf perspective, the transaction price of S$2,790 psf (or S$2,680 psf net of rental support) is within the range of recent office transactions in 2014, but is at a premium to the price paid by DBS Bank for a 1/3 stake in the tower from Cheung Kong in December 2012.

The price is also in line with recent valuations of similar grade office properties in the vicinity, ranging between S$2,732-2,874psf. This deal is fair to both parties as it allows Keppel Land to reinvest its funds into higher return on equity-generating projects while for K-REIT, earnings visibility will improve and its gains a strong tenant base. Looking at all positives from the transaction, we see more for Keppel Land.

Ivan Looi, analyst at OSK DMG We think that the agreed value of MBFC T3 is a fair one considering that K-REIT paid for a cap rate of about 3.85%. The acquisition would be funded by i) units to be issued to Keppel Land for $185m, ii) a placement to raise $228m, iii) additional borrowings of $120m and iv) partial proceeds from the sale of prudential tower. After the acquisition, KREIT will be the third largest REIT within the REIT sector.

Co-published corporate profile

Singapore’s only automobile manufacturer fuses style and green tech

ALIFE Air Automobiles focuses on designing and developing sustainable solutions for the automobile industry.

B

usiness and competition are usually inseparable concepts for most companies, but for ALIFE Air Automobiles Pte Ltd, Singapore’s only automobile manufacturer, they have a different outlook compared to their “competitors.”

To start, ALIFE decided to build the first motorbike manufacturing and assembly line in Singapore when most companies are setting up their manufacturing facilities in low-cost centres such as Thailand and China.

“At ALIFE, we do not follow the usual industry trends. We are not a Honda, Yamaha, or Suzuki, and we don’t pretend to be,” says Mr Devan Nair, Group CEO & Chairman of ALIFE Air Automobiles.

The ‘Made-in-Singapore’ brand brings value to our products and Singapore is an innovation hub where we use technology and automation to increase our productivity.”

With technology and innovation on their side, this leads to ALIFE’s primary focus and investment – in sustainability.

“At ALIFE, we are convinced that this focus will pay off – not only in the form of social dividends, but also commercially – to create a sustainable solution for the automobile industry.”

With the rapid population growth, there’s the obvious automobile population growth and increase in automobile pollution. The end result is more than 1.5 billion metric tons of

“At ALIFE Air Automobiles, we are convinced that this focus on sustainability will pay off – not only in the form of social dividends, but also commercially.”

greenhouse gases released into the atmosphere each year.

This is where ALIFE chooses to make its mark as they believe that a combined effort is required to ensure the reduction of carbon emissions, with businesses in a prime position to lead the way.

Marrying consumer lifestyle trends and green technology, the first stage of ALIFE’s plan is to create motorbikes for the everyday consumer, using rotary engine technology that can reduce fuel consumption by up to 30 percent as well as increasing overall power.

Beyond the technology, it is also about educating the everyday consumer. ALIFE kick-started this education process through the recently launched “A-Service Centre”.

The new service centre is designed to provide local motorbike users access to cutting-edge diagnostic technologies, innovations and products. But more than that, it is also a hub for the motorbike community and clubs to come together to learn, share, and socialise with regards to safety and sustainability. Mr Nair explains: “Part of our role is education. Consumers need to understand how the energy consumption of nearly all vehicles today will affect the climate. Our goal is to make sure consumers recognize our efforts and reward them through responsible purchasing decisions.”

Like an experienced showman setting the scene for the final act, Mr. Nair ends the interview by hinting at a possible alternative energy solution in the works: “We have a plan, starting with our very own range of motorbikes, soon to feature powerful rotary engines. And what’s next?

I won’t provide all the details now, but we have been working on an alternative green energy solution which could be just around the corner.”

Could the obvious clue be in the company’s name? We will need to stay tuned to find out more.

CONTACT http://alife-air.com/ +65 6659 0028 service@alife-air.com SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 19

FINANCIAL INSIGHT: debt capital markets

Singapore companies the most active borrowers

Singapore’s corporates building a mountain of debt

Who are the biggest contributors to Singapore’s US$19.4b primary bond offerings that represent a quarter of Southeast Asia’s bond issuance?

S

ingapore issuers grew hungry for debt this year, and there was nothing really to suppress their appetite.

The favorable credit spread environment and a possible rise in the Swap Offer Rate meant that issuers would be better off gorging on bond market funds, despite the risk that they could be biting off more than they can chew.

This has led to Singapore’s debt capital market climbing to impressive issuance levels so far in 2014. Singapore companies participated heavily in the borrowing binge to become the most active issuers in Southeast Asia during the first three quarters of 2014, while foreign issuers flocked to the local bond market to take advantage of its attractive liquidity. The activity pickup is far from a fluke with

20 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

The majority of Singapore issuers turned to the local SGD bond market with US$11.5 billion in proceeds, up 66% from last year.

analysts expecting a sustained surge through to the end of the year and likely even spilling over to the next.

Issuance volume in the SGD bond market has outperformed year-to-date, says Jimmy Choi, head of Asia debt capital markets at ANZ. His assessment was based on SGD bond volume rising to over S$19 billion as of mid-September, which is already close to 100% of the 2013 full year volume, and is up 22.6% on the first nine months of 2013.

The number of new issues for the period also increased by 18.3%, as more local companies tapped both domestic and foreign bond markets to raise funds.

In fact, Singapore companies have emerged as the most active borrowers in the sub-region, says Elaine Tan, senior analyst, Deals

Intelligence at Thomson Reuters.

With 90 primary bond offerings amounting to US$19.4 billion, Singapore’s total represents roughly a quarter of Southeast Asia’s bond issuance of $75.8 billion. The majority of Singapore issuers turned to the local SGD bond market with US$11.5 billion in proceeds, up 66% from last year. But a notable number tapped the US dollar or USD bond market with US$5.3 billion in proceeds, up 34.8% from last year, and accounting for 27.5% of total bond issuance for the period.

Meanwhile, foreign issuers tapped the SGD bond market raising $3.7 billion thus far, up 53.6% in proceeds compared with last year, which Tan says shows the growing status of the city state’s local SGD bond market.

Biggest deals The third quarter saw the biggest deal of the year in Singapore bonds, a two-tranche deal from DBS Group Holdings totalling US$1.25 billion under the DBS Bank & DBS Group’s US$15 billion global medium term note programme. The offshore deal,

FINANCIAL INSIGHT: debt capital markets composed of a US$750 million fixed rate senior note and US$500 million floating rate senior note both due in 2019, pushed total proceeds in the Financials sector to US$9.9 billion, according to Thomson Reuters data.

DBS Group Holdings dominates the Singaporean-issued bonds underwriting this year, with related proceeds of US$4.3 billion from 45 new issues. This represents a dominant 21.9% market share. HSBC Holdings came in second with proceeds of US$2.5 billion from 24 new issues to capture a 12.7% market share.

UOB is third on the league table with proceeds of US$1.59 billion from 19 new issues, or an 8.1% market share. UOB should be pleased with this performance because, comparing year-todate, the bank has jumped two places from fifth and increased its proceeds by 77.8% from US$896.5 million.

OCBC and Standard Chartered, meanwhile, have relatively weakened from the same period last year to place fourth and fifth with 7.5% and 6.6% market shares, respectively. ANZ also executed landmark trades in the local bond market, bringing over US$1.1 billion across 13 deals for a market share of 5.6%. This was enough to push the banking group up to sixth place.

DBS Group and ANZ helped boost the Financials industry total so that it now accounts for half of the entire bond offerings raised by Singaporean borrowers at US$9.9 billion. Four of the top five deals in proceeds in 2014 were in the Financials industry. After the US$1.25 billion DBS deal, the second-largest in proceeds was the US$994 million deal from OCBC, followed by a US$991.1 million deal, also from OCBC, and a US$794.9 million deal from UOB. Driving factors Choi says issuers were emboldened by the conducive Asian credit spread environment.

They also had more incentive

to prefund in the face of a potential rising Swap Offer Rate environment. Deal volume climbed as a significant number of these issuers were investment grade, which matched the current investor appetite for more liquid bonds.

“This year, we have witnessed a re-emergence of rare high grade and government-linked issuers capitalizing on the abundant SGD bond market liquidity. Similarly, a relatively strong push from foreign issuers into the local bond market was evident as the proportion of foreign issuers in the market has risen by c.5%.”

“What you see is a larger component of this year’s volume is investment grade, and that really underscores the theme of liquidity,” concurs Devesh Ashra, head of debt capital markets syndicate at Bank of America Merrill Lynch.

“Investors prefer to be in larger, more liquid corporate issuers and sovereigns and banks vis-a-vis the higher BETA, lower-rated debut issuers,” he added.

Near-term forecast Will the volume pick-up persist or fizzle out before the year ends? Choi expects further outperformance in SGD bond supply until the end of 2014, while Ashra anticipates even bigger deals in the pipeline. “Along the lines of the bank capital game, the investor base has really anticipated this supply and they’ve been positioning for it. So one of the things that you’ll see are some very impressive overall deal sizes and possibly multi-currency issuances,” says Ashra.

He says the Financials sector should continue to capture the largest market share, which aligns with increased preference for large cap issuers. But do not count out unrated bonds because, while these are less preferred, there is still appetite for them. “Certainly the theme for the rest of this year is going to remain around the larger large cap issuers. And we’re actually seeing it come through

right now with the theme of near-term issuance being big from the financial institution group sector,” says Ashra. “I think the appetite has slowly come back for unrated bonds, as we continue to become sort of into this rerisking of credit assets,” he adds.

While Singapore bond offering experienced a surge, Ashra anticipates that the headlinemakers in the next two months among primary issuers will be Japan, Australia, China and Korea.

Chinese borrowers in particular have been devouring debt at an astounding rate. In the first nine months of the year, they represented the majority of Asia’s bond offering with 36.7% worth US$210.6 billion in proceeds driven by issuance from sovereigns and financial institutions, according to Tan. Compare this with Singapore and other Southeast Asian borrowers who raised US$75.8 billion–or roughly a third of that raised by Chinese borrowers.

Still, the growth potential in the region has analysts buzzing with the US$75.8 billion yearto-date total increasing 19.6% from the comparative period last year. “With investors looking to diversify their portfolios, Southeast Asian bonds will likely continue to attract good interest,” says Tan. Other factors that could boost bond issuance in Asia include continued investor demand for yield and increased refinancing pressure, as US$130 billion worth of bonds are due to mature during the remainder of the year.

Elaine Tan

Jimmy Choi

Devesh Ashra

​Singapore-domiciled bond issuance

Aggregate total of bonds issued by Singapore-based companies (in all markets, all currencies)

Source: Thomson Reuters​

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 21

economic insight

Singaporean residential property prices seen to decline further

Say goodbye to easy credit With home prices expected to plummet by up to 10% this year, how badly will the credit cycle be hit?

S

teady may have best described Singapore’s economy in recent quarters, but sluggish domestic activity and slowing property price gains are threatening to put it off balance. Of these two worrisome trends, the downward pressure on property prices is particularly pernicious as it could trigger a more vicious credit cycle, analysts argue. Although Singapore is quite prepared to handle this correction, it could nonetheless prove to be a painful one, even with the government performing triage measures.

The growth in Singapore property prices, which are now among the most expensive in the world, has been losing steam due to aggressive cooling measures in the past two years. This has started to put pressure on household wealth, and may even be driving the current dip in domestic spending.

“Negative wealth effects associated with slowing property price gains may be one factor exacerbating the recent sluggish trend in private consumption,” says Benjamin Shatil, analyst at 22 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

Negative wealth effects associated with slowing property price gains may be one factor exacerbating the recent sluggish trend in private consumption.

JPMorgan Chase Bank in Singapore.

He notes that after climbing steadily since the bust of the 2008-09 financial crisis, Singapore property prices and rental incomes have softened through the past several quarters. It also seems that property prices have not yet hit their trough, leaving analysts worried that the worst is yet to come.

“Singaporean resident property prices and household residential property wealth have begun to decline and, from a relative value perspective, could decline further,” says Edward Teather, economist at UBS. Market consensus points to a decrease of around 5-10% in residential prices in the second half of 2014, with more downward pressure in the coming years if current cooling pressures remain untouched. Given that a big chunk of Singaporeans’ wealth is tied up in residential property, it is not surprising that many have been wincing as their household balance sheets dwindle in value.

Teather argues, though, that the

decline is to be expected. Household balance sheets are currently bloated by high house prices and leverage. For years, Singaporeans basked in an easy credit environment, borrowing aggressively to capture some of the growing wealth in the property sector. Many were unfazed by the spectre of loan defaults should they become unemployed, because the job market offered plenty of opportunities.

But this could all unravel soon, warns Teather. The deterioration of household balance could lead to a depressing effect on the credit cycle, employment and domestic spending.

The once positive cycle hinged on easy credit and property acquisition that has built up Singaporean wealth in recent years could bite back at home owners.

Teather predicts that in time the prevailing low interest rates will rise and help provoke a shakeout in the labour market as corporate indebtedness reaches a critical point. With their jobs no longer as secure, Singapore households will shy away from risky assets and thus depress property prices even further. This will then crimp domestic demand as households curtail their spending.

“Household balance sheets are a source of economic risk, not resilience,” says Teather, realizing that his analysis is counter to some assessments that Singapore household balance sheets are a source of strength which will carry the country through the oncoming period of higher interest rates. “The resulting fall in net worth promises to impact domestic demand.

We think the feedback loops between credit, employment, property prices, household net worth and domestic demand are underappreciated. These have formed a virtuous cycle in recent years, but could become more vicious.”

Is Singapore prepared?

A silver lining is that Singapore will not be caught flat-footed. The government is well aware of this, and will likely try to manage the correction pains that will take the form of staff layoffs and further asset price reductions. But do not expect the government to prevent all volatility in employment and assets prices, says Teather, which will mean employees

economic insight and home owners will not be entirely shielded from the correction.

Some analysts wonder whether the current sluggishness in domestic activity is in fact already an indicator that Singaporeans are feeling the pinch on their wealth and have cut back on spending.

Recent data flow points to sluggish domestic activity past the midyear mark across a broad set of indicators, says Shatil, with domestic demand contracting on a sequential basis in both of the past two quarters. Highfrequency monthly data reports also suggest continued weakness in early 3Q, particularly in private spending.

“The softness is striking against the backdrop of a persistently tight labour market and sustained wage growth that have buoyed incomes,” says Shatil.

Are employment and wages still at healthy levels?

Shatil says that unemployment has held at around 2% over the past couple of years and employees have seen steady wage gains.

The upward pressure on wages is a by-product of measures such as curbs on foreign workers, who typically have lower wages, as Singapore tries to structurally rebalance into a higherproductivity and knowledge-based economy, says Joseph Incalcaterra, economist at HSBC Global Research.

With employment and wages at still-healthy levels, the weakness in household spending could therefore be a reaction to falling house prices and moderation of rental incomes in the first half of the year, says Shatil.

Economic data trends suggest that house prices will sink further, and if Contribution to y-o-y inflation

Source: CEIC, HSBC

the correlation holds, spending should remain subdued even if Singaporeans manage to avoid layoffs and pay cuts.

“Leading indicators – including the large stock of real estate currently under construction, as well as declining occupancy rates – point to further easing in house prices to come. A cooling real estate market could damp sentiment and curb private spending, even if Singapore’s labour market stays tight and wage growth remains stable,” says Shatil.

But taking the whole Singapore economy into account, anaemic domestic activity could be offset by a pick-up in external demand in the second half of 2014.

Shatil points to the broad-based strength in July non-oil domestic exports or NODX. Tech exports performed solidly, reversing declines in the previous month. Certain patches of weakness persist though, such as the volatile pharmaceutical sector and electronics exports, the latter of which have lagged alarmingly behind regional peers.

Will there be a policy response?

In managing the correction, Shatil cites press reports that suggest Singapore authorities are already considering the timing of easing restrictions on the property market. This should help prop up property prices, or at least stem the bleeding.

He says the government may also be induced to further expand its social safety nets in the upcoming budget, a move that will bolster spending confidence even if corporate shakeouts do occur.

Meanwhile, the Monetary Author-

Anaemic domestic activity could be offset by a pick-up in external demand in the second half of 2014.

ity of Singapore (MAS) will likely loosen currency policy settings, says Teather. The Singapore dollar NEER band slope should shift to flat possibly

by October 2015 and potentially ultimately lower the mid-point of the band. This will likely take the form of consecutive easing in April 2015 and again in October 2015.

“We now expect the MAS to ease currency policy in 2015. As and when the downside risks to Singapore growth and asset prices become clearer, the SGD could surprise on the downside. Although the SGD is constrained by MAS policy within a trade weighted band, a combination of declines in trading partner currencies, expectations of policy easing and actual MAS policy easing could generate a swift fall in the SGD against the USD. We look for USDSGD 1.30 by end 2015,” says Teather.

But the SGD NEER band should remain unchanged this year, says Gao Qi, analyst, trading strategy, EM Asia at RBS.

US* and Singapore household assets as a share of GDP

*Note: US data refers to household and non-profit organisations Source: UBS, CEIC, Haver

Singapore property prices elevated in real terms

Source: UBS, CEIC, Haver

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 23

analysis: Pawnbroking industry

Gone are the days of unwelcoming pawnshops with heavy bars

Who’s winning the $5.6 billion pawnbroking race?

The industry boomed with only $1m needed to set up a pawnshop branch.

T

he number of new pawnshops in Singapore is growing at a record pace, spurred by changes in legislation reducing the minimum required paid up capital to establish pawnshops to just $1 million.

Yeah Lee Ching, honorary secretary of the Singapore Pawnbrokers’ Association (SPA), says branches were not allowed before and the minimum paid up capital to set up a pawnshop was $2 million. But when branches with merely an additional paid up capital of $1 million was allowed, the number of pawnshops set up as branches increased.

Pawnbroking has existed in Singapore for over a century, but never has it experienced growth this massive until recently. Pawnshops in the island surged 88% from only 114 in 2008 to more than 214 today.

24 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

Pawnshops in the island surged 88% from only 114 in 2008 to more than 214 today.

Pawnbroking has become one of the most common forms of micro loans for Singaporeans today, generating an annual loan size of $5.6 billion in 2013.

Contributing to the tremendous growth of the pawnbroking industry are individuals who find it harder to apply for bank loans and turn to pawnshops to get fast cash. Jarick Seet, an analyst with OSK DMG, notes that pawnbroking is a cheaper source of funding compared against credit cards, which charge rates that are much higher than the maximum 1.5% per month that pawnshops are allowed to charge. “People turn to pawnbrokers instead of banks when they are in need of a short-term loan, as pawnshops process loans faster and have no requirement for credit checks or proof of salary,” adds Seet.

SPA’s Yeah Lee Ching says while

pawnbroking provides mmediate cash to meet financial needs of borrowers, it is still an industry that is tightly regulated by the Registry of Pawnbrokers under the Ministry of Law. “Our association members operates with strict compliance to regulations, ensuring operational transparency to the public.” She adds that pawnbroking in Singapore has existed since 1920.

The Pawnbrokers Act was established in 1977 and raised the standards of operation.

But over time, all pawnbrokers became computerized and used electronic weighing scales.

The industry has clearly undergone a radical change in profile from its traditional roots.

“Pawnshops with intimidating and solemn-looking shopfronts caged with steel bars are a thing of the past. Today, pawnbroking shops have a friendlier and more modern look,” adds Seet.

Pawnshops’ new look For MoneyMax co-founder and CEO Peter Lim, gone are the days when “stores were unwelcoming with heavy bars or grills, distancing the service provider, often a haughty elderly man, from its customers.

We foresee that this trend is likely continue alongside the modernization of pawnshops, and as we capture the younger market segment.”

MoneyMax, a big player in the pawn industry, have also grown to become one of the largest pawnbroking chains in Singapore, with 37 outlets islandwide and recently venturing into Malaysia. MoneyMax recently concluded a transaction to take a 51%-stake in a chain of eight pawnshops in Malaysia, which has plans to eventually launch 26 new pawnshops within the next two years.

“This is expected to immediately expand MoneyMax’s network to 45 outlets in Singapore and Malaysia, from only 37 in

analysis: Pawnbroking industry Singapore,” says DMG’s Seet. For Lim, a thriving business is all about satisfaction, or giving it to the customer fast. “We want to provide ‘doorstep’ pawnbroking services to our customers, striving to bring our services to where our customers are – which has been one of the main drivers for our growth and expansion,” he says.

As it is, MoneyMax is the only pawnbroker in Singapore to be awarded both the Casetrust and ISO9001:2008 accreditations for fair trading and transparency, and for delivering customer satisfaction. The company has also been listed on the SGX Catalistboard last August, and had been included in the MSCI Singapore Micro Cap Index since November 2013. In August, Phillip Securities reported that MoneyMax’s net profits in retail sales have gone higher by 7%. Gross profit for the second quarter was at S$6.1 million due to better yields from retail sales over trading and stable gold prices.

MoneyMax is not ruling out the possibility of expansion into new markets and locations, just like what it has done in Hong Kong.

“We are always on the lookout for strategic alliances and partners to export our business model overseas,” Lim says.

Growth drivers But the company’s success is not entirely its own doing. Lim’s company has noted changes in the market that allows pawnshops to thrive. “Getting fast cash has never been so convenient before, which we believe contributed to the growth,” he notes. MoneyMax has even extended its working hours to accommodate those working at offices who need to pawn off or redeem items. These are just among the perks MoneyMax provides, given the competitive environment in the industry.

“Competition has also stiffened.

That said, we believe that healthy competition will spur improvements within the industry to provide the best services for the customers,” he notes. One of its competitors is ValueMax,

which ventured into Malaysia in 2007 with its local partner, Kedai Pajak Well Chip in Johor. The business has since grown with ValueMax now owning six outlets in Malaysia.

OSK DMG reports that with the opening of three pawnshops in Singapore in the last two months (in Bukit Batok, Yishun and Punggol, as well as a pawnshop acquired in Bedok), Valuemax’s total number of outlets increases from 18 to 22.

In Malaysia, its pawnshop outlet in Taman Universiti, Johor, began pawnbroking operations in June, with two other outlets undergoing renovation at the moment. Once ready, the group will have a total of eight outlets in Malaysia, it reports.

“To date, we are the only pawnbroking chain in Singapore with an overseas presence,” says Yeah Hiang Nam, CEO and managing director of ValueMax. The company, which started operations in Singapore in 2001, has 22 outlets nationwide. “This allows ValueMax to be synergistic in the pre-owned jewelry supply chain and grow steadily through the years,” he says, adding that pawnbroking meets a need that traditional financing cannot fulfill.

“There is also greater acceptance of using pawnbroking as a form of borrowing, due to the convenience it provides,” he notes.

Making money from gold And with gold prices increasing, the stage is set for pawnshops to make a fortune out of the gold pot.

Peter Lim

Yeah Hiang Nam

Yeah Lee Ching

SPA’s Yeah Lee Ching says this is further supported by the Singapore government, which intends to build a new gold refining and trading cluster, corresponding with the introduction of the goods and services tax (GST) exemption for investment-grade gold and precious metals in the Singapore Budget.

“Private ownership of gold bars may increase. When the need arises, some of these gold bars may become pledges for pawn loans.

This policy should be beneficial for the pawnbroking industry,” she says.

But Lim of MoneyMax says with changes and uncertainties in the geo-political environment, gold prices will continue to fluctuate.

“However, gold prices are but one factor impacting the pawnbroking sector. With greater convenience and the ability to convert your assets to cash in a couple of minutes, we believe the industry will continue to grow,” he says.

Loans given by Singapore’s pawnshops

Source: Singapore government statistics

How much for this Rolex?

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 25

COVER STORY

There’s no place like home

Why are luxury properties in Singapore losing their lustre?

Buyers are shying away from glitzy units and are being drawn to cheaper ones worth $10-15m.

S

ingapore’s home buyers are starting to snub ultra high-end living as Good Class Bungalows become an unattractive and costly choice for them. Only 15 bungalows were sold in 1H2014, a whopping 48.3% drop from 2013’s 29 units, and only five were priced above $30 million each. This massive crash is to be blamed on tighter property loan measures and a mismatch in price expectations between buyers and sellers. These two factors are shooing buyers away, pushing them to opt for more affordable bungalows with prices ranging from $10-$15 million.

Although there is still interest in the GCB market, this interest is only because of it being a limited commodity.

“Under the soft market conditions as well as with the property measures in place, buyers tend to be mainly end-users rather than investors,” says Desmond Sim, Singapore head of research at CBRE. The first half of the year saw a slowdown with only 15 GCB transactions registered, compared with 29 in 2013. Sim says a mismatch in price expectations between buyers and sellers can explain the increased difficulty in finishing deals. Of the 15 bungalows sold in 1H 2014, only five fetched prices above S$30 million each, the most expensive of which was a Cable Road unit fetching S$31.80 million or S$1,904 per square feet (psf). There 26 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

was also a GCB land parcel at Cluny Road sold for S$25 million. “There are no fire sales because owners have a strong holding power,” says Sim. The second half of 2014 could see more buyer interest in bungalows of lower value in the S$10 to S$15 million range. At about half or a third of the price of prime GCBs, these bungalows have smaller land areas and less prestigious locations outside districts 10, 11 and 21, such as the Chestnut Avenue and Windsor Park GCB areas.

Sim notes that Sentosa Cove has been hit particularly hard by the slowdown with only one bungalow sold in 1H14, compared with 18 in 2013. Citing media reports, he says the stalemate could be due to the 15% Additional Buyer’s Stamp Duty imposed on foreign buyers, among other restrictive measures. The sole Sentosa Cove transaction in 1H 2014 was a bungalow on Treasure Island, which was sold for S$17 million at S$1,506 psf. The same property was last transacted in 1H 2010 for S$17.80 million.

The second half looks more upbeat for Sentosa Cove as developer Pearl Island steps up efforts to sell the remaining 12 bungalows on the island, priced between S$14 million and S$25 million each, says Sim. Sentosa Cove can bank on its limited supply and unique features to shore up its appeal among the ultra-wealthy crowd.

“The first half of 2014 saw a slowdown with only 15 GCB transactions registered, compared with 29 in 2013.“

COVER STORY “There are only 317 bungalows in Sentosa Cove and resort-like waterfront living is not replicated elsewhere in Singapore. There will be interest among high net worth individuals to own a trophy home here.” But Sentosa Cove could be the exception rather than the rule, says Sim, sharing forecasts that about the same number of GCBs to be sold bring the total number of GCBs sold for 2014 to 20-30 units.

Luxury apartments Similar to GCBs, luxury apartments also took a sales beating due primarily to more restrictive loan approval requirements for buyers. Luxury apartments worth S$5 million and above in the Core Central Region experienced a more than 50% drop to 48 transactions in 1H 2014, from 107 transactions in 1H 2013. This performance was worse than the already weak 78 transactions registered in 2H 2013.

“The significant fall in sales could be attributed to the introduction of the Total Debt Servicing Ratio framework introduced at end-June 2013,” says Sim, referring to the policy that prevents financial institutions from approving a property loan when borrowers fail to meet the 60% ratio of income that can go into servicing the said loan.

Some developers are trying to drum up interest by appealing to bulk purchasers, while others are lowering purchase barriers by offering direct discounts and additional buyer’s stamp duty rebates, notes Sim. If prices drop – and this is more likely than not – then sales should pick up in the luxury apartment segment.

While the sluggishness in luxury property sales and prices might seem more pronounced, it follows an overall softness in the residential property segment. It is not helping developers and sellers that supply in the island is projected to increase, further diminishing their capacity to negotiate higher prices. Some 8,066 new private residential units are expected to be completed by the end of 2014, and this could possibly drive the islandwide vacancy rate up to double digits before the year ends, says Alan Cheong, director, Singapore at Savills Research. Cheong says newly completed major projects are crowded around suburban areas such The Lakefront Residences on Lakeside Drive with 629 units, Foresque

Residences on Petir Road with 496 units and Waterfront Gold on Bedok Reservoir Road with 361 units. Central areas also saw a surge in new supply, led by the completion of Silverseas on Marine Parade Road with 383 units and Sophia Residences on Sophia Road with 272 units.

The vacancy rate of private residential units in the second quarter climbed to 7.1% from 6.6% in the previous quarter, reflecting a total of 21,268 vacant private homes across Singapore, which Cheong says is a significant jump of 10.3% from the previous quarter.

Outer regions gain buzz With luxury property sales experiencing lukewarm growth, more forward-looking investors could diversify into long-term, high-potential areas such as the outer regions of Singapore. The current buzz is focused on the Jurong Lake District following the government’s strong push to transform the area into a major leisure and business hub.

Development plans for the Jurong Lake District had been previously unveiled, but Prime Minister Lee Hsien Loong further added fuel to the fire by revealing two more projects in his National Day Rally speech.

The first is that Jurong Lake Gardens will be developed further and the possibility of a Jurong terminal for the Singapore-Kuala Lumpur High Speed Rail was broached, notes Tricia Song, analyst, Asia ex-Japan real estate at Barclays.

She says the government plans to build more residential housing to the north of the planned Chinese Garden MRT, and replace current industrial plots when their leases expire in 20 to 30 years’ time. These residential properties will be supported with enhanced transportation systems such as the building of the Jurong Region and Cross Island lines. “We believe the buzz created from the efforts for greenery attractions in the area could improve home values there eventually when the vision materializes. However, we do not expect a significant uplift to home prices near term as private home prices have risen an average 63% since the unveiling of the plans for Jurong Lakeside District in 2008,” says Song.

Alan Cheong

Desmond Sim

Tricia Song

GCB sales activity

Source: URA, CBRE Research July 2014

Higher home prices are dealing heavier blows to Singaporeans’ wallets

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 27

Singapore’s 30 largest real estate agencies

PropNex Realty’s strong force

More agents exit in 2014 as the job now offers less money The average number of salespersons employed by Singapore’s largest real estate agencies declined by 12% to 954.

S

ingapore’s real estate market is seeing an exodus of property agents as recent statistics reveal that 4,032 agents left the industry after March 2012 due to increased marketing costs and less profits. Our compiled data show that the average number of salespersons employed by the city’s largest real estate agencies declined by 12% to 954.

Moreover, half of the agencies on this year’s list of the largest real estate agencies in Singapore reported decreased employment.

The result is consistent with CEA’s latest data on the total number of registered agents and our channel checks with property experts.

Citing data from CEA, SLP International Property Consultants executive director Nicholas Mak notes that although there were 5,245 new agents

28 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

Some of the property agents are making less money in 2014 compared to the boom period from 2H 2009 to 1H 2013.

joining the industry from October 2010 to March 2012, the total number of agents after March 2012 only increased by 1,213. This means that 4,032 agents left the real estate industry after March 2012.

“This could be due to the poorer sentiments in the real estate market from 2013 onwards,” says Mak while noting that some of the property agents are making less money in 2014 compared to the boom period from 2H 2009 to 1H 2013.

“From mid-2013 to now, the transaction volume had fallen drastically, even though the price decline was fairly gradual.

For example, in 2010, the total transactions volume in the private residential property market was about $63.2 billion. In 1H 2014, it was only $11.1 billion,” explains

Mak. ECG Property’s Eric Tng concurs while adding that more agents, especially those ‘average’ ones which have less leads are discouraged by increased marketing costs. “It is taking a longer time to close a sale and more money has to be spent on advertising. I know of some resale or rental cases which the marketing costs reached 60% of the commission which typically should not exceed 30% in good times. For those salespersons doing new project sales, they will have to spend more time canvassing for a prospective buyer.”

According to Tng the top 10% in this business can easily receive $1 million or more commission annually but usually slow down after 3 - 5 years. For an average fulltime salesperson, Tng says that they should be making a 5-digit income monthly or else they are better off working as an employee.

Who made it to SBR’s list?

ERA Realty Network has once again topped Singapore Business Review’s second annual ranking of the largest real estate agencies in the city based on the number of real estate agents. The data obtained from the Council for Estate Agencies showed that ERA has a total of 5,911 agents as at September this year, up by 16%. ERA is closely followed

by PropNex Realty with 5,685 salespeople, up by 16%.

The list ranked 30 agencies this year, a slight increase from last year’s 25. The new entrants are SLP Scotia, MORE Property, Vestor Realty, Knight Frank,and SLP International Property Consultants.

Most impressive among them is SLP Scotia which made its way to the top 10 with 679 agents. According to its website, the joint venture between Scotia Properties and SLP was established last year with only about 300 agents, and it is now on track to achieve its phase one growth target of 1000 agents by 2014.

Singapore’s 30 largest real estate agencies

Singapore’s largest real estate agencies 2014 2013 Ranking

REAL ESTATE AGENCY

NO. OF REGISTERED SALESPERSONS 2013 2014

KEY EXECUTIVE OFFICER

1

Era Realty Network

1

5911

5103

Lim Tong Weng (Eugene)

2

Propnex Realty

2

5687

4847

Lim Yong Hock

3

Huttons Asia

3

3495

2811

Tiang Ai Seek (Peggy Ngiam)

4

Orangetee.com

4

2172

2460

Tan Wee Sin (Michael)

5

DTZ Property Network

5

2033

2153

Chan Hwai Hao (Eric)

6

Dennis Wee Realty

7

1479

1496

Wee Chuan Peng (Dennis)

7

HSR International Realtors

6

1324

1719

Wong Cheong Hong

8

KF Property Network

8

911

1016

Tan Tee Khoon (Harry)

9

Savills Residential

9

748

879

Ang Ying Hui Phylicia (Phylicia Ang)

10

SLP Scotia

-

679

-

Goh Hock Leng (Adrian)

11

Global Property Strategic Alliance

10

670

657

Yong Dennis

12

CBRE Realty Associates

11

636

638

Leong Boon Hoe

13

C & H Properties

13

525

574

Lu Nguan Soo (Albert)

14

SLP Realty

15

358

385

Koe Jian Eng (Tony Koe)

15

ECG Property

12

265

632

Cheng Lye Meng (Eric)

16

MORE Property

-

235

-

Tan Yeow Siong (Chen Yaoxiong) (Shawn Tan)

17

Mindlink Groups

17

183

241

Chow Yi Tong (Merson)

18

Jones Lang LaSalle Residential

16

179

265

Tan Hong Boon

19

Vestor Realty

-

133

-

Ang Yen Ney

20

Real Centre Group

19

131

114

Toh Choon Keong (Kennie)

21

Rea Realty Network

18

130

139

Woon Chuen Thiam (Winston C.T. Woon)

22

Colliers International (Singapore)

21

103

96

Dennis Yeo Huang Kiat

23

Jones Lang Lasalle Property Consultants

20

88

106

Fossick Christopher John

24

House & Home Property

22

82

84

Er Cheng Hiang (Alvin)

25

CBRE

24

79

78

Pauline Goh

26

District 65

14

77

430

Ler Kok Heng (Lu Guoxing) (Dave Ler)

26

Singapore Estate Agency

22

77

84

See Lye Keong (Shi Laiqiang)

26

Real Centre Properties

25

77

69

Tan Thiam Hee (Thomas Tan)

29

Knight Frank

-

76

-

Yeo Eng Ching (Danny)

30

SLP International Property Consultants

-

69

-

Teo Mian Sze / Zhao Minsi (Tricia Teo)

Total

28,612

AVERAGE

954

27,076 1083

Data obtained from the Council of Estate Agencies as at September 8, 2014.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 29

CO-PUBLISHED CORPORATE PROFILE

Megaworld celebrates 25 years of success with McKinley West

The leading Philippine residential developer unveils its most upscale township yet.

McKinley West

M

egaworld Corporation has spent the past 25 years amassing an impressive portfolio of properties in the Philippines to become one of its leading developers, completing more than 320 residential buildings, office towers, commercial centers and world-class hotels.

But its lasting legacy will arguably be its posh townships, the latest of which is McKinley West, which stand as the iconic residential enclaves in the country’s most preferred locations.

Exceptional living only at McKinley West Megaworld is developing McKinley West as a 34.5-hectare exclusive township community, defined by unparalleled security and a satisfyingly luxurious lifestyle. Megaworld has committed to spend more than USD1 billion (PHP45 billion) in the next 10 years to build McKinley West. The township is well located on the former JUSMAG property,

30 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

next to Fort Bonifacio CBD, Forbes Park Residential Village and Manila Polo Club. Around this elite community Megaworld is looking to build its second “complete”township development with residential condominiums, an IT park, BPO buildings, mixed-use commercial centers and even an international school.

Once complete, the township will offer an exceptional, well-rounded LIVE-WORKPLAY-LEARN-SHOP lifestyle concept.

From their exceptionally designed homes, McKinley West residents can easily venture out to the rest of the Manila metro. The Bases Conversion and Development Authority has committed to expand Lawton Avenue from six to

“Once complete, Megaworld’s McKinley West will offer an exceptional, well-rounded LIVE-WORK-PLAY-LEARNSHOP lifestyle concept.”

eight lanes, enabling convenient travel to key destinations and thoroughfares such as Bonifacio Global City, South Luzon Expressway, C5 Road, the Ninoy Aquino International Airport and the Makati central business district. The road development plan will also grant residents direct access to Megaworld’s McKinley Hill.

Aside from the McKinley West Village where lots have appreciated as much as 110 percent since its launch in 2010, McKinley West will have luxury residential estates offering their own state-of-theart security features and first-of-its-kind luxury amenities. St. Moritz is the first luxury condominium development in the township.

Modern European luxury at St. Moritz private estate St. Moritz private estate is inspired by a modern European aesthetic brought to life by UK-based architectural firm Broadway Malyan. Megaworld has also

CO-PUBLISHED CORPORATE PROFILE partnered with three top European luxury brands to ensure that the home appliances and room decor complement the high quality of the development’s infrastructure design.

Opulent home innovations in St. Moritz will include select bathroom pieces by Philippe Starck from Duravit, sophisticated kitchen design by luxury German brand Leicht, and energy-saving and eco-friendly built-in home appliances from Bosch.

Exclusivity and safety are of paramount consideration in St. Moritz. The luxury residential estate is a low-rise low-density condominium with nine storeys, offering two- to four-bedroom units ranging from 78 to 218.5 square meters. Individual balconies are allotted per unit and even the most discriminating residents should be impressed by the bi-level penthouse lofts with individual swimming pools.

Units are protected through advanced key card access systems, and residents are pampered with world-class amenities including a roof deck, a swimming pool complex, cabanas, a gym and yoga room, a game room, a kids’ play area and expansive function rooms fitting for glitzy celebrations. For Megaworld, every feature in St. Moritz serves as a decadent toast to its high society and A-list dwellers.

Pioneering the township concept McKinley West is the most upscale township project that Megaworld has undertaken, but the company is undaunted having been the pioneer of the township concept in the Philippines.

Its first township, Eastwood City, was established in 1996 and since then it has successfully founded 10 townships across the country.

Some of Megaworld’s most successful projects include the McKinley Hill Village which has appreciated in value 229% in the 10 years since its launch, and also Stamford Residences which has appreciated in value 112% in the 8 years since its launch.

The developer has an esteemed reputation in the industry as a professionally managed corporation with streaks of innovation not only for its township devlopments, but also for the rest of its portfolio that includes tourism resorts, and world-class hotels and casinos.

Since its founding in 1989, Megaworld

has received numerous awards that acknowledge its role as a first mover and pioneering maverick in the Philippine real estate industry. Megaworld projects not only rise to become landmark buildings and key communities in their locations, they also serve as major employment hubs that provide jobs for a 180,000-strong workforce.

Future success Megaworld is looking to further solidify its place as the country’s largest township, residential condominium and business process outsourcing developer.

Its strategies will include expanding into

“The developer has an esteemed reputation in the industry as a professionally managed corporation with streaks of innovation for the rest of its portfolio.”

new markets and locations, as well as capitalizing on opportunities brought on by sustained economic expansion.

Driven for growth, Megaworld has outstanding development plans in Fort Bonifacio in Manila, with focal points on the McKinley West and Uptown Bonifacio townships.

These two projects represent Megaworld’s first ventures into the luxury residential property market, with Uptown Bonifacio showcasing the throes of cosmopolitan luxury - modeled after the world’s most fast paced and cutting edge cities amid Bonifacio Global City, and McKinley West embodying modern European luxury. Megaworld is also developing footholds in growth centers in the south, including the cities of Cebu, Iloilo and Davao.

CONTACT www.megaworldatthefort.com (+63) 917 887 8696 mckinleywest@megaworldcorp.com

St. Moritz

Pool deck aerial view

Penthouse interior view

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 31

legal briefing

Dodgy food labels go under microscope Consumers can be more confident when purchasing products touting their prestigious origins.

S

ingaporeans have become quite discerning when it comes to their food products, and some fraudulent producers have taken advantage of this fact by adding false geographical indications (GIs) to their wines, beers, meat products and other merchandise.

Under the existing system, it is difficult to check whether a product, say, wine claiming to be from France or cheese from the Netherlands, really did originate from the said country or region. But it is hoped the new GI Act of 2014 will protect consumers and authentic producers alike from false claims.

How will the new GI Act improve on the existing Act? The new GI Act will replace the existing Act when it comes into effect, and establish a system of registration for GIs, Lam Chung Nian, who heads the intellectual property practice group at WongPartnership LLP, and Jeffrey Lim, his fellow partner, said.

“The present system does not require GIs to be registered in order to enjoy protection. This has meant, however, that a producer of a particular product will not know whether it enjoys protection as a GI product unless he brings an application in court. This makes the system uncertain and expensive to enforce.”

The Registry of GIs will be created and will reside

“With the new bill, it will no longer be easy to slap a GI mark on just any product.” within the Intellectual Property Office of Singapore.

Who will benefit most from the new Act? Singaporean consumers can be assured of higher certainty as to the origins of products they purchase, says Sapna Jhangiani, legal director and member of dispute resolution and international arbitration group at Clyde & Co Clasis Singapore. “As a practical matter, the GI Bill would ensure that consumers can enjoy refreshing tea from Darjeeling, fine wine from Bordeaux, and baked Camembert cheese from Normandy with comfort as to their authenticity.”

Jhangiani argues that with the new bill, it will no longer be easy to slap a GI mark on just any product.

“The establishment of the GI Registry comes with clear standards that have to be fulfilled by a product before it is given a GI mark. This sets the bar high so that the ample protection that comes with a GI mark is not simply given freely.”

32 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

Lam Chung Nian

Jeffrey Lim

Cheah Yew Kuin

Sapna Jhangiani

The new legislation also enhances certainty of protection as holders of GI registrations will know that the GIs they have registered will be recognized and protected, says Cheah Yew Kuin, local principal, intellectual property practice group at Baker & McKenzie.Wong & Leow. “The new law also provides enhanced levels of protection and introduces border enforcement measures which will allow GI proprietors to seek the assistance of customs authorities to detain infringing goods before they are imported to or exported from Singapore,” adds Cheah.

Which categories of goods may be submitted for GI protection?

Only wines, spirits, beers, cheese, meat and meat products, seafood, edible oils, non-edible oils, fruits and vegetables, spices and condiments, confectionery and baked goods, flowers and parts of flowers, and natural gum may be submitted for application for registration of a GI, say Lam and Lim. What are its weaknesses?

So far, only the specified categories of goods as listed above may be registered under the bill. Jhangiani says that this means that regardless of how meritorious an application may be, the Registrar has no discretion to register goods that are not in the schedule bill. Only the Minister may amend the schedule.

How does one apply for GI registration?

GI registration will be a 3-stage process that is similar to the trade mark registration system in Singapore, according to Lam and Lim. The first step is applying for GI registration, which requires the applicant to specify the quality, reputation, or characteristics of the goods in question and how that is attributable to the geographical indication.

The second step is examination, which will involve detailed scrutiny of each application to ascertain that the applicant fulfils certain fundamental requirements. Why is this step important? “It will be crucial that each application for a GI mark is carefully examined to ensure that it fulfils certain fundamental requirements, thus ensuring that no person or entity can willfully manipulate the system to gain a monopoly,” says Jhangiani.

The third and final step is publication and opposition wherein the application will be made public for a period of time. Lam and Lim explain that this will allow third parties an opportunity to object to the registration, for example, on grounds of “generic-ness” (meaning that the GI has become a common name for describing that product in Singapore).

co-published Corporate profile

Drive by a prime one-stop leisure destination Everything you can imagine from spa and boutiques to a business center.

W

idus Hotel and Casino is the premier one-stop leisure destination in the Clark Freeport Zone, the major economic and aviation hub north of Manila. Located along the zone’s main avenue, it is a mere fiveminute drive from Clark International Airport inside Clark and 10 minutes from the central land transport terminal that makes Widus easily accessible to Manila, Subic and other cities in Central and Northern Luzon.

The hotel offers a broad range of accommodation – 233 rooms spread across five categories, from deluxe to the presidential suite. All rooms are furnished with king, queen or twin beds with plush linens; separate bath area with bath tub and designer toiletries; coffee- and teamaking facility; mini bar; refrigerator; flatscreen LCD television with cable service; IDD/NDD telephone; in-room safe; and high-speed wi-fi internet access. Every room also features a balcony that provides guests a great vantage point to admire the scenery.

Food and beverage outlets Salt Resto is the hotel’s main dining that offers a daily breakfast buffet. It also boasts of international cuisine selections like Korean, Japanese, Italian, American and Filipino dishes. With a live kitchen, guests can see and watch how their food is prepared and cooked. Located at the lobby area of the hotel, Salt Resto can comfortably accommodate 120 persons at

Unwind far from the bustling city

each seating. Prism Lounge is the perfect choice for unwinding. It offers a wide selection of wines and spirits and creative cocktail mixes that are sure to keep one glowing all night. Malt Bar and Coffee Shop offers menu selections for snacks, lunch and dinner. As the premier one-stop leisure destination in the Clark Freeport Zone, Widus Hotel & Casino strives to redefine fun and leisure and bring entertainment to the ultimate level.

Widus Convention Center The Widus Convention Center was opened in September of 2012 with 2 main halls- Vegas and Macau. It has a total area of 701.95 square meters and is equipped with sound proof dividers, dimmable and themed lights, digital signage systems, centralized control system devices and wifi connectivity.

The Vegas Hall can be divided into 3 hallsand can accommodate groups for 50 up to 600 persons. The Macau Hall on the other hand, has 2 halls with a capacity of up to 240 persons. Ideal for weddings, small meetings to mediumsized conferences and other events, the Widus Convention Center has played host to several wedding receptions,

“Widus Hotel & Casino is awarded as 2014 Traveller’s Choice Award by travel site TripAdvisor.”

Be entertained with 25 gaming tables

business seminars and conferences and concerts. For months, Widus Hotel and Casino never stop to bring world-class performances and concerts.

After the international performances of Rex Smith, The World Famous Platters, John Ford Coley, The Stylistics – a preValentine Show last February 13, 2014, and the recently concluded show of the Pioneers of the 80’s Romantic Movement and one of Pop Music’sGreatest Vocalists, Tony Hadley, lead singer of Spandau Ballet.

Widus Hotel & Casino mark of excellence is exemplified not only with its facilities, but by the service provided by its highly competent staff. Committed to provide TOTAL guest experience, the Widus team embodies caring beyond compare.

Widus Hotel & Casino is accredited as De Luxe Class Hotel by the Department of Tourism and awarded as 2014 Traveller’s Choice Award, Top 10 Best Hotels for Families in the Philippines by the prestigious Tripadvisor.com.

Widus is currently undertaking expansion efforts, with the Grand Lobby and the new Casino slated to open formally on this year.

Widus Hotel and Casino is located at 5400 M.A. Roxas Highway, Clark FreeportZone, Angeles City, Pampanga.

For more information and inquiries, please call +6345 499 1000 or visit our website www.widus.com.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 33

CMO Briefing

The power of bespoke content

How brand journalism and social media can help build reputation and drive sales.

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hen cloud-based learning company Skillsoft wanted to penetrate Asia Pacific, it gambled on a bespoke content strategy that eventually turned the unknown brand into a regional thought leader in just two years.

Skillsoft began 2012 with a daunting goal of increasing market share and brand presence among C-suite executives, and senior human resources professionals in the Asia Pacific region, but had little idea where and how to approach them. This convinced Skillsoft to perform a communications ecosystems audit – a process that mapped audience information consumption journeys – which then identified LinkedIn as the most relevant social network channel for the brand in APAC, says Justina Phoon, director, marketing communications, Asia Pacific at Skillsoft.

The audit encouraged Skillsoft to focus its communications efforts on LinkedIn. It started modestly by setting up the LinkedIn profile, then gradually ramped up the engagement with its growing business execuetive audience through a torrent of APAC-specific bespoke content. By sending their LinkedIn members a steady stream of useful articles and resources tailored to their region and country, Skillsoft earned the trust of discerning professionals in their industry.

As members shared Skillsoft content within their circles, Skillsoft triggered every content marketer’s dream result: Viral word of mouth. The Skillsoft APAC LinkedIn group grew to a sizable membership, which helped the brand earn close to 3.6 million online impressions for branded content since July 2013.

Phoon says if there was one key factor for success in growing Skillsoft’s LinkedIn presence, it would be the creation of unique content like its annual

34 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

As members shared Skillsoft content within their circles, Skillsoft triggered every content marketer’s dream result: Viral word of mouth.

Skillsoft learning & development report that zeroes in on the concerns of their target market.

“Such bespoke content has enabled Skillsoft to address very specific needs of business leaders in this region and further propels the business as a thought leader in the industry. We were able to link leads generated by these and other marketing initiatives to sales opportunities and revenue.”

Companies should use their new online communication tools to push agenda but to engage where audiences can freely give feedback, says James Walton, deputy clients & markets leader at Deloitte Singapore and Southeast Asia.

“Messages need to be timely, relevant and authentic. It’s not enough to create the sites and then gather ‘likes’. Social media success is about building engagement with staff, with potential candidates, and with clients. News consumers are also emerging who more sophisticated, demand respect and are ready to challenge information.”

Walton says engaging customers with content can raise awareness for your brand or product and encourage loyalty, which can in turn help drive sales. Of course this assumes earning a certain level of credibility from readers. He cites five factors that are essential to create trustworthy brand journalism: it has to be based on facts; act fast and be relevant; generate new content often and consistently; provide value to the reader; and provide full transparency on the origins of your content.

Tell a cohesive story In communicating with customers across so many online channels, companies may dilute the broader brand narrative. Sony Mobile and Suntec Singapore both resisted this urge and focused on telling a cohesive story that was both compelling and convincing to their audiences. Sony Mobile keeps its messages unified by anchoring them on the concept of a “One Sony” experience. “The development and haring of content and information has ceased to be the exclusive domain of traditional media outlets; brands now have the power to tell their own story on their own social channels. We believe in telling the larger ‘One Sony’ narrative, and showing how the strengths of Sony come together to deliver a compelling consumer proposition to our target audiences,” says Chang Seng Hock, marketing director, South East Asia & Oceania at Sony Mobile Communications.

For Suntec Singapore, a unified brand story is even more paramount given its very broad constituency of stakeholders which include event planners and organizers, multinationals, associations, government agencies, and industry peers, among others. “With so many diverse channels, it is tempting to over- customize messaging to the point where a brand’s identity can be diluted,” says Marc Bakker, assistant director, marketing & communications at Suntec Singapore.

co-published corporate profile

Is your organisation suffering from a lack of leadership capabilities at various levels?

Northpoint Training offers articulated learning and development strategies with brilliant execution to develop a solid leadership pipeline.

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Jim Livingstone Managing Director Northpoint Training

“Northpoint Training have specialists in learning and development, and partner with organisations around the world to cultivate excellence in sales and leadership.”

s your organisation suffering from a lack of employee retention and engagement?

If your answer yes, then chances are your organisation is also wasting countless dollars on learning and development initiatives that fail to deliver a measurable return on investment. In the recent Global Human Capital Trends 2014 study from Deloitte Consulting, building leadership capabilities and employee retention and engagement were cited as the two most perceived urgent trends facing organisations in a globalised economy.

Now more than ever, organisations need leaders who have the ability to improve performance, motivate and inspire a workforce that is getting younger, older and more geographically dispersed.

Organisations need to find innovative ways to boost passion, and engage employees with more than just monetary incentives.

A clearly defined and articulated learning and development strategy with brilliant execution will help to develop a solid leadership pipeline, retain and engage employees. This is where

Northpoint Training comes in. Northpoint Training has specialists in learning and development, and partners with organisations around the world to cultivate excellence in sales and leadership.

Q. What makes Northpoint Training different?

A. Our consultants, facilitators and coaches have real world business experience, said Jim Livingstone, Northpoint Training’s Managing Director.

I think it’s this and the fact that we are all very passionate about potential.

Q. How do you work?

A. Although their needs may be similar, there is one thing we know for sure; no two customers are the same. They all require their own unique learning and development solution. Our continued success is achieved by applying a very simple fourstep process: 1) Assess. Using a variety of assessment tools and processes, we assess the needs of the organisation.

Where they are now, and where they want to be; 2) Identify. Upon consulting with key stakeholders, we identify training and non-training

interventions. In 90% of cases, training is not the solution; 3) Develop. Design is everything. We develop a highly detailed learning and development roadmap and L&D initiatives using appropriate learning strategies; 4) Execute. Our highly experienced and qualified facilitators and coaches deliver highly pragmatic learning solutions that are strategically aligned to the business.

Q. Do you value accountability?

A: Very much. We believe that effective learning requires a 100% commitment from the learner, their manager and organisation. This commitment is reinforced with a learning contract. We also expect to be held accountable for our work, and will not agree to any project unless we believe we are completely capable of doing an outstanding job. We will not invoice for any part of a project where we fail to meet an agreed deliverable.

To find out how Northpoint Training can help to cultivate excellence in sales and leadership, please call +65 6835 7012 or visit www. northpoint-training.com.

testimonials

Davide Zornetta

“Northpoint Training is a trusted partner of Bata Shoe Organisation, and has played an integral role in defining and developing global training initiatives for sales staff, store managers and senior Gerard S Rajendra management teams.”

– Davide Zornetta, Group HR Director, Bata Brands

“I have worked with Jim and the team at Northpoint Training for over 2 years, and they have consistently exceeded expectations by delivering highly effective and pragmatic training programs. They are able to connect to and engage the learners effectively.”

– Gerard S Rajendra, Assistant Vice President, Learning & Development, Jurong Port

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 35

SPECIAL FEATuRE: MICE REPORT

Asia’s MICE market hinges on modernity

Discover why Concorde Hotel Singapore and Putrajaya International Convention Centre lead the way in technology and building efficiency.

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oncorde Hotel Singapore has long been a favorite among business travelers for its attentive service, understated elegance and easy access to the airport and key districts. Even more of the C-suite crowd is expected to patronize the hotel as it ramps up technology upgrades and begins booking larger MICE events.

Concorde breaks higher ground with innovations in technology The focus on the MICE market is a natural evolution for Concorde Hotel Singapore, which has been operating for nearly three decades, initially as Le Meridien Singapore until it was rebranded to its current name in 2008.

Business travelers frequent the hotel for its affordable luxury service hinged on exceptionally gracious staff, reasonable rates, and accessible location in the heart of Singapore’s famous Orchard Road.

Executives can quickly reach meetings during the day, then unwind at night with an array of entertainment and shopping options nearby.

Concorde Hotel Singapore is also known for its high standards in security and hospitality, which are highly regarded by business travelers. It won the Hotel Security Excellence Award from the Singapore Hotel Association (SHA) and crime prevention agencies, and was awarded with the TripAdvisor® Certificate of Excellence in 2013, an accolade given only to establishments that consistently achieve outstanding traveler reviews on the popular site.

Having built a great following among business travelers, Concorde Hotel

Singapore aims to become the preferred venue in Singapore for large-scale MICE events by upgrading its technology capabilities.

“Moving forward, we need to maintain and constantly improve our facilities and keep up with technology,” says Kenneth Looi, Director of Catering.

The hotel plans to ramp up the quality of WiFi access, acquire advanced AV equipment and train more personnel in banquet operations as well as audiovisual technicians to ensure the success of all MICE events. With these technology and training upgrades, Concorde Hotel Singapore seeks to establish a stronger MICE clientele. Already, it has been a host of many successful international conferences including ASEAN meetings from various Government Agencies.

“Our strategic location on Orchard Road makes us a prime venue for conferences and meetings. Concorde Hotel is also located next to the palatial Istana building, which enhances its image as a safe abode,” says Leo Llambi, General Manager

“The hotel plans to ramp up the quality of WiFi access, acquire advanced AV equipment and train more personnel.”

Concorde keeps up with the hustle and bustle of Orchard

36 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

of Concorde Hotel Singapore.

Another key attraction for Concorde Hotel is its pillar-less ballroom with a ceiling height of 14.5 feet and a capacity for up to 500 guests (ballroom style), which makes it an ideal plenary venue for conferences. The ballroom is linked to many medium and smaller-sized meeting rooms for break out

SPECIAL FEATuRE: MICE REPORT

Putrajaya’s breathtaking location away from the city

sessions and small-scale exhibitions.

As Concorde remains to be a hotspot for business travelers in Singapore, Putrajaya International Convention Centre rallies its way to become Malaysia’s most efficient convention center.

Breathtaking PICC boasts energy efficient, state-of-the-art facilities More than just eye candy, the breathtaking Putrajaya International Convention Centre (PICC) packs state-of-the-art facilities and energy efficient infrastructure that has won over not just Malaysia but a number of award-giving bodies locally and internationally.

“Rising majestically on Putrajaya’s highest point and commanding a panoramic view of the entire Putrajaya Precints, PICC straddles the peak to ensure that the safety and security of its guests are well guarded,” CEO Badlishah Hj. Ahmad says .

The brainchild of Malaysia’s fourth Prime

Minister, Tun Dr. Mahathir Mohamad, the PICC debuted in 2003 for the 10th Organisation of I amic Conference (OIC) and has since become an international landmark.

Among the awards it has won are 1st runner-up in the 8th ASEAN Energy Efficient Building 2007 for Best Practices Competition, Congress & Convention Centre in Asia in the 2012 Travel Awards, and Best Brands in Services - Convention Centre by Asia Pacific Brand Foundation (APBF) in the 2013-2014 Brand Laureate Awards.

Since its debut, the PICC has become a premier MICE destination, hosting local and international events.

Located 20 minutes from the Kuala Lumpur International Airport (KLIA), it is just a stone’s throw away from famous hotel chains such as Pullman Putrajaya Lakeside, Putrajaya Shangri-La, and Marriott Putrajaya. At the same time, PICC may soon have its own hotel to cater to

guests attending international conventions.

More can be expected from one of the largest convention centers in Malaysia with the corporatization of the facility. It is now wholly owned by Perbadanan Putrajaya (Putrajaya Corporation) and headed by chief executive officer (CEO) Badlishah Bin Hj. Ahmad.

Among the basic services provided by the PICC are information kiosks, wireless LAN, simultaneous interpretation system, provision for live television broadcast, holographic rear projection system, videoconferencing facilities, and plasma display/ LCD. Its audiovisual facilities also boast of newly installed Barco projectors that have widescreen displays that show highcontrast and superior quality images while its state-of-the-art kitchen facilities were refurbished to cater to banquets.

Banking on the natural landscape of Putrajaya as a tourist destination, guests of PICC may enjoy the sights by having breakfast at its café or having dinner on a steamboat.

“Its audiovisual facilities also boast of newly installed Barco projectors that have widescreen displays that show quality images.”

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 37

REGIONAL ANALYSIS 1: GLOBAL TRADE a sharp reduction in China’s current account surplus and slowing GDP growth over the last few years, has raised concerns about China’s ability to continue to drive global trade higher.

China has emerged as a mega-trader Exports, major trade corridors,1990 and 2012 Source: IMF DOTS, Standard Chartered Research

China as the mega-trader

China’s ability to continue to drive global trade higher is questioned.

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recent paper from the Peterson Institute suggested that China is the only genuine mega-trader to have emerged since the time of the British Empire (Subramanian and Kessler 2013). The authors define a mega-trader as a country with a significant share of trade both domestically (relative to its own GDP) and globally (relative to world trade). While other Asian economies such as Singapore and Korea enjoy very trade to GDP ratios, they do not have a significant share on a global scale.

The significance of China on the world trade map is evident from its dominance in terms of the world’s largest ports, a good proxy of world trade.

China’s rise to the secondbiggest economy has been partly driven by its booming exports.

China has grown to be the biggest contributor to world trade, accounting for over 11.5% of total world trade, second only 38 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

China has grown to be the biggest contributor to world trade, accounting for over 11.5% of total world trade, second only to the EU.

to the EU. While world trade has slowed following the GFC, the emerging markets have shown resilient growth. China’s share of world trade has risen to 11.5% in 2012 from 7.5% in 2007 even as developed markets’ trade has fallen by 10ppt and even as China’s share of trade in its own GDP has gone down.

More than half of China’s burgeoning trade is with Asia, accounting for 52% of China’s exports and 56% of its imports. In addition, China is the biggest trade partner for almost all the Asian countries.

China’s exports to emerging Asia suffered a mild setback during the GFC, but did not experience as significant a reduction as did trade with developed markets.

The contribution of net exports to China’s growth has fallen significantly since 2008 and growth has been powered increasingly by investment and domestic consumption. This, together with

Slowing trade growth China’s trade is beginning to slow. This is only natural given the rising dominance of China in global trade and output. But the process seems to have intensified since the GFC. There has been no contribution of net trade to overall growth since 2010. This reflects a greater slowdown in China’s exports than imports.

China’s exports fell as a share of GDP to 25% in 2012 from around 35% in 2007, while imports fell by a smaller 5ppt to 22% of GDP. This is more dramatic than for other major countries.

China’s export slowdown has been quite broad-based, with even export growth to Asia easing to just 12% annualised since 2010 from around 20% annualised during the 2000-07 period. Exports to other EM partners such as Latin America and Africa have also slowed, but are still growing at double-digit levels.

China’s export growth has been dragged lower by a sharp decline in exports to the developed world, with exports growing at an average 6% to Japan (from 12% in 2000-07), 7% to North America (from 21%) and a mere 3% to Europe (from 26%).

China’s exports to countries such as Italy and France have fallen as these countries have battled recessions.

As export growth slowed, and given China’s role in the global supply chain, import growth also weakened over the last few years.

Big drops in import demand are seen from Latam (averaging 9% annual growth during 2010-13 compared with 32% pre-GFC) but import growth has also slowed from Asia due to supply chain inter-linkages (7% now

REGIONAL ANALYSIS 1: GLOBAL TRADE compared with 20% pre-GFC).

Meanwhile China’s GDP growth has powered ahead, boosted by high investment in infrastructure, housing and industrial capacity, all of which have a lower import content than does export activity.

There are several reasons why we remain constructive on China’s position as the leader of world trade.

Why China’s still a trade leader First, China stands to gain considerably from the ongoing recovery in the developed world.

China’s trade has been growing at a rate of more than 10% since the GFC, despite muted demand from the developed world. The DM growth outlook is picking up now so China should benefit overall. The United States was, until recently, China’s biggest export destination. 45% of China’s exports to the United States are machinery and electrical equipment, which amounted to USD 169bn in 2013, bigger than the total exports of several EM countries. These exports will grow as US consumption increases and demand for technology rises. As a result, we expect China’s trade surplus to rise in the near-term, led by stronger exports over 2014.

Second, China remains a leading force in world trade, having consolidated its position as key player in global supply chains. As we argued above, while China’s low-cost advantage is eroding, the pace of movement China: Asia’s biggest trade partner % share of total

Source: CEIC, Standard Chartered Research

China’s trade has been growing at a rate of more than 10% since the GFC, despite muted demand from the developed world.

of manufacturing to lower cost countries or to reshoring/ onshoring by developed countries is likely to be slow.

China is moving up the valuechain, increasing its share of medium- to high-technology exports. Almost a third of China’s overall exports are hi-tech products, particularly mechanical and electronics products. While many of these exports are still only assembled in China, they require semi-skilled labourers as well as technology infrastructure. We believe it is unlikely that there will be significant migration of these processes out of China for lack of suitable replacement centres, with both the infrastructure and the scale to accommodate these exports.

Locations such as Vietnam, Bangladesh and Sri Lanka certainly provide cheaper options than China for low-end exports such as clothes and toys, particularly as Chinese wages continue to rise.

However, it will likely prove hard for migration of semi-skilled, value-added activities, such as the assembly of tech products, to these economies in the absence of significant investment in infrastructure and an increase in the availability of skilled labour.

Additionally, reverse migration to Taiwan or back to the United States is unlikely, as the cost of labour in China is significantly cheaper than in developed markets.

Countries tend to be exporters in industries where they have large domestic markets (Krugman 1981). Even if China pursues policies that support greater domestic consumption over time, it could still be a strong exporter in those sectors where there is large domestic demand on account of improving efficiency.

Finally, we believe that concerns about China’s trade dynamics focus too much on export performance.

China’s growing weight in the global economy has already made it the marginal buyer of a host of commodities.

China has the largest share of demand for most major

commodities except oil, where it is second to the US; and natural gas, where it is the fourth-largest buyer. The focus on more balanced growth and structural reforms domestically will, over time, allow for lower savings and higher consumption.

It will also lower the emphasis on infrastructure spending, as is already happening. Some of this shift towards consumption will filter into greater imports from the rest of the world, strengthening global trade growth and SouthSouth trade in particular.

China’s trade to double by 2020 We expect China’s trade to continue growing at a steady rate, doubling in size by 2020. It is likely to increase its share of world trade significantly as it will be a key driver of growth in both emerging and developed markets.

China’s trade growth is unlikely to rebound to the double-digit level seen over the last couple of decades. However, it is important to remember that the sheer size of China’s trade will mean that even 7% GDP growth, faster than the growth in developed world trade, would make China the single biggest contributor to world trade in absolute terms. This further reinforces China’s status as a world leader in trade and reiterates the central role that it will likely play in the continued growth of global trade.

As the world’s mega-trader, China will have an increasing interest in promoting and maintaining free trade. And to satisfy consumer demand, to successfully move up the value chain and to keep trade partners happy, China will likely want to open up further to imports over time.

Moreover, it will remain heavily dependent on imports of raw materials (unlike the US). Hence, like Britain in the 19th century and the US after 1945, China could, over time, become a champion for liberalising world trade. By Madhur Jha, Macroeconomic Research, Standard Chartered SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 39

REGIONAL ANALYSIS 2: Population Ageing continue to experience a rapid increase in the old age dependency ratio and as the median age rises,” Neumann says, particularly referencing China, Hong Kong, Japan, Korea and Singapore.

Asia threatened by an ageing population

Asian economies struggle with severe ageing pressures Asia is running out of time to adapt to the demographic divide.

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oming from an era of robust economic growth on the back of its promising demographics and labour force, Asia is now threatened by a force beyond its control – its ageing population.

The region is set to experience a drag in economic boom, due to the declining labour force supporting an ever-burgeoning, increasingly dependent, elderly population.

While the worst is yet to come, policy makers are faced with the challenge of dealing with the inevitable demographic trend in Asia and finding ways to offset the pitfalls of an ageing citizenry.

Greying Asia Japan, one of Asia’s economic giants, has one of the oldest populations in the world. And some other Asian giants are set to follow Japan’s footsteps, alarmingly at an even faster rate–among them, South Korea, Hong Kong, Taiwan, and

40 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

By 2050, there are expected to be two working adults for every adult over 65 in developed countries and four working adults for every adult over 65 in the developing world.

Singapore.

These are just some examples of Asia’s speedy ageing rate, Frederic Neumann, an economist from HSBC Global Research, says. “We have been saying for some time that Asia is ageing at an unprecedented rate– arguably the fastest the world has ever witnessed,” Neumann says.

He adds that while Western countries had time to adapt to the demographic divide and industrialize, Asia is running out of time to do so.

Elena Duggar, group credit officer from Moody’s Investors Service, adds that Hong Kong and Thailand will join Japan in the “super-aged” category those the elderly comprising 20% of its population–by 2025.

Meanwhile, Vietnam and Cambodia will be ageing those with the elderly at 7 % of population–in ten years’ time.

While Europe and North America remains the “greyest” regions in the world, Asia still has to face “severe ageing pressures as their societies

Reduced labour force With an ageing population comes a reduced workforce to support an ever more dependent elderly population. This poses serious threats to the economy, as it will be affected by lower labour participation and a dampened savings rate, Duggar says.

“Over the course of the next half-century, Asia’s demographic composition will change inexorably as hundreds of millions of people across the continent enter into the ranks of the global senior citizenry, supported by a thinning contingent of working age adults. This doesn’t bode so well for dependency ratios and long-term growth prospects,” Neumann notes.

For instance, in Japan, Moody’s predicts that for every 100 people in the 15-64 years old working age, there will be 48 people over 65 by 2020. This means that the burden of taking care of one elderly person will be borne by two working adults. Five years from now, the median age in Japan is set to increase to 50 years old from its current level of 45, Duggar says.

He adds that East Asian countries like China, Hong Kong and Korea will also face rising ageing pressures. For China, six working adults will have to take care of one elderly person by 2020, but this will decrease to only four working adults by 2030 and two working adults per elderly person by 2050.

Hong Kong and Korea will have three and four working-age adults per elderly person in 2020, and two both by 2030, and one both by 2050.

“Looking ahead, by 2050, there are expected to be two working adults for every adult over 65 in developed countries and four working adults for every adult over 65 in the developing world,” Neumann says of the global trend.

As if the threat of a dependent

REGIONAL ANALYSIS 2: Population Ageing found that ageing Asian economies like Singapore, Hong Kong, Korea, Thailand, China, and Taiwan will suffer from the negative effects of an ageing population on their economic growth in the 2010-20 period. “The negative effect of ageing will be due to the negative contribution of the labour force and capital accumulation to economic growth,” Duggar says.

Offsetting the costs of age An ageing population is not only a global trend, it’s also an inevitable consequence of a booming economy that will soon run out of fuel. That is why policy makers must strive to make a dent on the declining working age population by increasing labour participation rates and improving employment opportunities, Neumann says.

Duggar adds that it is only natural for Asia to lose steam from its history of economic growth. This does not leave much chance, however, to overlook the ageing problem.

“Asia’s favourable demographics drove a large share of its spectacular economic growth in the past, especially in East Asia. However, due to its very rapid growth and industrialization, the region is experiencing economic and demographic transformation over a much shorter time period than the advanced economies,” Duggar says.

Urbanization may just be one of the many solutions to improve the labour situation, particularly in China and Indonesia, where the urban setting

elderly population is not enough, Asia is also faced with the prospect of declining economic growth. This is primarily due to a lower savings rate from a declining working age population, two of the main drivers of Asia’s economy, Duggar says.

Drag in economic growth Duggar adds that in the period 2015 to 2030, Hong Kong and Japan will suffer a 10% decline in their workingage populations. HSBC adds that China’s working age population has already shrunk by 3.45m, “much sooner than many expected, and at a rate that will accelerate in an almost exponential manner over the coming decades.” A smaller workforce to take care of more elderly people will mean lower savings. Duggar says that in Japan,the savings rate increased until 1975 on the back of a decline in youth dependency ratio, but this reversed from a peak of 23.2% in 1976 to -0.3% in 2012, as more elderly depended on the thin labour contingent.

Similarly, in Korea, the savings rate rose to its peak of 25.1% in 1988 but slumped to 5.1% in 2013. “The reduction in the savings rate is credit negative for the affected economy as it reduces investment and consequently long-term economic growth,” Duggar says. According to Moody’s, among the countries classified as superaged by 2030, Korea, Hong Kong, and Singapore will have the largest declines in growth rates due to rapidly ageing populations. Among the ‘aged’ countries, China is expected to have the largest decline by then.

Moody’s also cites a 2011 Asian Development Bank study which

Asian economies like Singapore, Hong Kong, Korea, Thailand, China, and Taiwan will suffer from the negative effects of an ageing population on their economic growth in the 2010-20 period.

is promising for economic growth.

But the long-term solution is “broad productivity growth,” a task easier said than done. “Seeing that there will be fewer workers, one way to offset this is to have each worker simply produce more: a task much harder to achieve than it seems,” Neumann says.

Moody’s also suggests the experience in Germany, where in 2002 to 2005 the goverment initiated reforms that reduced unemployment benefits and increased incentives for the unemployed to find jobs, boosting the labour force participation rate after 2003 in all working-age cohorts, particularly among the 55-65 age group. Moody’s emphasizes the need to improve the participation of women amid declining birth rates.

“The policy response in Germany clearly shows that the ageing of the population does not have to imply a reduction in the labour force.

Labour force participation rates respond to policies designed to lengthen the employment duration of older, more experienced workers,” Duggar says.

In the end, it is up to policy makers to find a long-term solution to the age problem by taking advantage of the trend, instead of problematizing it. “In spite of the challenges, there are also numerous opportunities across a variety of sectors and industries. It boils down to whether investors can position themselves correctly to take advantage of these trends,” Neumann says.

Among countries classified as ‘super-aged’ by 2030, Korea, Hong Kong, and Singapore will see some of the largest declines in growth rates due to rapidly aging populations

Source: Conference Board, WDI, Moody’s Investors Service Source: The CEIC, HSBC

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 41

regional economy briefing: india

Food prices in India are rising more than global the average

Modi takes on Indian growth conundrum With the Indian economy recovering, the new government thinks it has the right growth plan going.

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ndian Prime Minister Narendra Modi came to power in May with the promise of jumpstarting a decelerating economy, characterized by growth that remained below 5% over the last two years. Although still in the early phase of his leadership, the Indian premier is dropping hints about working on a systematic model reminiscent of strategies employed

by Japan and China – the East Asian model – responsible for the rapid modernization of two of the world’s biggest economies.

“The East Asian model of growth is a well-trodden path, and has now been used by a succession of countries to generate and sustain rapid economic expansion. It is also accompanied by risks, especially in the financial system that could derail the whole project. If India succeeds, it would prove to be a major turning point in the lives of 1.2 billion people and would have very significant ramifications for the world economy,” says David Folkerts-Landau, group chief economist of Deutsche Bank.

42 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

The new Indian government came to power amidst a backdrop of slowing growth, after the global economic meltdown punctuated stellar growth rates above 9% from 2005-2008.

Edward Teather

Atsi Sheth

How was the Indian economy before Modi?

The economy managed a brief bounce following the global financial downturn, but it has since been running below 5 percent for the last two years.

“The once booming services sector has slowed, but it is the manufacturing sector that has performed especially poorly by recording an expansion of barely 1.1% growth in 2012-2013 followed by a contraction of 0.7% 2013-2014,” Folkerts-Landau says.

Some economists blame two things for the protracted slowdown of the Indian economy. Weak external demand and a decline in domestic investment led to a lack of demand, which created a dent in an erstwhile

solid growth trajectory. Exports have been anaemic in the past years and gross capital formation plunged from 38% of gross domestic product in 2007-2008 to 31.4% in 2013-2014. In the same period, capital formation dropped from 32.9% to 28.3%.

Folkerts-Landau points out, however, that these proximate factors do not explain why the economy slowed down while simultaneously also suffering from persistent-inflation and a current account deficit.

Consumer price inflation was an average of 10% every year since 2009, while the current account deficit averaged 3.2% of GDP. “Persistent inflation and a large current account deficit are not signs of weak demand but of the inability of the production capacity of the economy to meet excess demand.

The inflation rate and the current account deficit have moderated somewhat in the latest data, but this is partly due to deliberate monetary tightening, and partly due to stalled projects – not some exogenous lack of

regional economy briefing: india demand for final goods and services.

An investment project stalled by policy paralysis may reduce demand but the resultant economic slowdown it is really a reflection of systemic inefficiency,” Folkerts-Landau says.

What should be on Modi’s to-do list?

Food inflation in India, which contributes greatly to the country’s overall inflation, is much higher than the global average, says Atsi Sheth, senior vice president of Moody’s Investor Service. Since India’s huge population demands a large amount of food, food comprises a significant portion of the average consumer basket. A huge gap in supply and demand does not help in tempering these food price pressures.

“The authorities have yet to set out concrete plans vis-à-vis certain other major constraints on supply.

For instance, it is hard to see how significant private investment in cold storage facilities will be, if current restrictions on foreign direct investment in the retail sector remain in place. It is also not clear whether officials will substitute the previous practice of ad-hoc trade bans on food items with a medium-term trade policy that would enhance predictability in food supply,” Sheth says.

She says that if the gap between food demand and supply does not narrow, food costs will continue to shoot up. As growth picks up, the increasing cost of food could more quickly feed into rising wages, leading eventually to higher non-food inflation as well. “In the absence of a significant increase in food output, the risk that inflation could limit India’s growth prospects remains salient,” Sheth adds.

As the Modi government bats for growth beyond previous levels, it is also confronted with the need to generate employment for millions of Indians. Between 2015 and 2020, the working age population in the country (15 to 59 years old), will jump from 804 million to 856 million. This needs 10 million additional jobs every year to keep up with the demographic expansion. Another problem with India’s employment generation is

the disproportionate share of the workforce still locked in agriculture.

“The share of the primary sector has fallen from 28.5% of the economy in 1990-1991 to 23.2% in 1999-2000 to around 14% of GDP today, but it still employs 49% of the active workforce,” Folkerts-Landau says.

In contrast, the services sector only employs 28% of the workforce despite growing from 43% to 60% since 1990.

He adds that this growing imbalance is one of the reasons that India has been a reluctant urbanizer and two-thirds of the population still lives in rural areas. “Not surprisingly, the children of farmers can see that they are getting cornered into a shrinking segment of the economy and want to opt out. Meeting their aspirations is not merely an economic issue but a socio-political one,” he says.

The government is also tasked with including ease of doing business in its long-term goals. The World Bank’s “Doing Business Report 2014” ranked the country 134 out of 189, scoring poorly in areas that involve interface with the government – paying taxes, construction permits and so on.

What’s in store for the Indian economy?

Despite these challenges, however, the Indian economy has recently showed signs that its slow growth below 5% is now poised to smash the psychological barrier.

“India’s (Baa3 stable) economic recovery, manifested in data last Friday showing annual GDP growth of 5.7% in the quarter ended June, is in keeping with our long-held view that growth deceleration to sub-5% levels over the last two years would reverse over time. This forecast has underpinned the stable outlook on India’s rating amid currency volatility, declining investment and poor market sentiment,” Sheth says.

Economist Edward Teather of UBS Global Research says a pickup in the Indian economy is visible, but unlikely to be rapid.

“And while we expect the new government to make progress on infrastructure (we note the acceleration in construction in the

India’s inflation is higher than in comparable peers

Source: Haver Analytics, Moody’s

GDP data at a glance

Source: CEIC and Nomura Global Economics

“Between 2015 and 2020, the working age population in the country (15 to 59 years old), will jump from 804 million to 856 million.”

latest GDP print), the latest news flow in the coal sector highlights the potential for challenges. The weak monsoon could also be a drag on agricultural activity. We continue to project a sustained but gradual acceleration in GDP growth in FY 15 and FY 16 on average,” he says.

Folkerts-Landau says Modi’s speeches and policy actions present a clear and internally coherent economic model focused on export-oriented manufacturing, heavy infrastructure building and urbanization. If the prime minister’s promises prove to be true, we’ll be seeing mass deployment of labour and capital in India in the coming years.

“Not only are these elements internally consistent, they also look very much like the economic model used by East Asian countries to rapidly modernize themselves. In other words, for the first time since Nehru, we have a wide-ranging, internally consistent economic model,” he says.

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 43

analysis: insurance sector

Asia-Pacific’s non-life insurance industry has grown 8% annually over the past decade

What could temper Singapore’s growth as an insurance hub?

Increasing un-modeled insurance risks in Asia-Pacific due to rapid economic expansion is one.

S

ingapore’s fast growth as an insurance and reinsurance center in Asia-Pacific is no accident.

While the government enhanced Singapore’s competitiveness through tax exemptions and concessions on selected offshore insurance businesses, the Monetary Authority of Singapore (MAS) liberalized entry into the direct insurance industry and lifted restrictions on foreign ownership of local insurers in 2000.

That catalyzed the industry’s development and growth.

Building critical mass to achieve resilience Various factors have contributed to Singapore’s evolution as an insurance and reinsurance hub. Good infrastructure, a skilled labour pool, a favorable taxation regime, and the country’s strategic location in Asia-Pacific aided its growth in the services sector. Although Singapore 44 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

“Singapore’s offshore insurance premiums have risen to more than $6 billion in 2013 from $1.5 billion in 2000.”

is not the cheapest location for doing business, nor does it have the lowest taxes in the region, its fair and transparent legal framework, stable political environment, developed financial system, supportive regulatory regime, and growing pool of technical experts offer compelling benefits and provide a competitive edge.

As economic growth in AsiaPacific propels regional insurance and reinsurance demand, insurers have increasingly been able to satisfy their reinsurance needs in Singapore. Since the MAS’ liberalization of the industry at the turn of the new century, the number of insurers in Singapore has increased, as have overall capacity and the depth of technical and specialty support.

Asia-Pacific’s nonlife insurance industry has grown 8% annually over the past decade and contributed to 11% growth in Singapore’s offshore insurance industry. Assuming these

growth rates continue for the next decade, the offshore insurance business could grow to $18 billion of gross premiums written in 2023 from $6.1 billion in 2013.

However, Singapore’s reinsurance market is regionally focused, relatively small, and lacks critical mass compared with global hubs such as Bermuda. Combined ratios for insurers and reinsurers writing business to Singapore’s offshore insurance fund rose sharply due to the regional catastrophes of 2011. Bermuda insurers are more diversified and have larger premium volumes and thus were better placed to withstand those events of 2011. The aggregate underwriting performance in Singapore could remain volatile until the premium volumes from other lines of business have developed sufficiently to provide diversification against unexpected catastrophe losses.

Singapore’s offshore insurance

analysis: insurance sector “Net premiums from Singapore’s offshore insurance business grew an average of 9.1% a year from 2000 to 2012. ”

The aggregate underwriting performance in Singapore could remain volatile

premiums have risen to more than $6 billion in 2013 from $1.5 billion in 2000. Offshore insurance and reinsurance premiums accounted for nearly two-thirds of total market premiums in 2013, reflecting the magnitude and significance of the overseas business to the overall Singapore insurance marketplace.

About two-thirds of the offshore business was underwritten by reinsurers registered with MAS, while the rest were by direct insurers (including Lloyd’s), captive reinsurers, and protection and indemnity (P&I) clubs.

A P&I club is a mutual insurance association that provides third-party liability insurance for its members, which are generally ship owners, operators, or charterers.

Attaining “critical mass” would bring benefits Using data from the Deloitte’s “Bermuda Insurance Market Report 2014” as a proxy of the Bermudian market (which is mostly offshore business), the Singapore insurance hub is approximately 5% of the size of the Bermudian market in terms of net premiums written. The growing size of the Singapore hub has led to increasing sophistication of underwriters and products, which will contribute to the market’s resilience against large losses. For instance, the participation of Lloyd’s underwriters, global and regional reinsurers, and international brokers have

gradually made Singapore’s market more sophisticated and enhanced its capability to accept specialty business, such as offshore energy, aviation, credit and surety.

Nevertheless, factors that could temper Singapore’s growth as an insurance hub include insufficient development of local talent, the potential for a slowdown in regional economies, and increasing un-modeled or emerging insurance risks in Asia-Pacific due to rapid economic expansion. In 2011, a year in which Asia-Pacific accounted for about 60% of global aggregate catastrophe losses, Singapore’s offshore business was saddled with a 297% combined ratio (a ratio over 100% indicates that the company is incurring underwriting losses). Most insurers and reinsurers with significant losses were subsidiaries or branches of larger global organizations and were able to withstand the hit. A few players reduced their exposure or completely withdrew from the region, and a number of others recapitalized.

Net premiums from Singapore’s offshore insurance business grew an average of 9.1% a year from 2000 to 2012. This compares favorably to net reinsurance premiums written by Bermudian insurers, where survey data from Global Reinsurance Highlights show an average growth of 8.2% over the same period. Singapore offshore insurance premiums grew 5.9% in 2012 as reinsurers focused on

managing 2011’s catastrophe claims and recapitalizing and strengthening capital positions. Nevertheless, premium growth recovered moderately in 2013 and turned more robust in the first quarter of 2014, rising 19% quarter on quarter.

Diversity and skill build strong fundamentals We expect strong growth in property, property catastrophe, and specialty premiums in Singapore’s offshore insurance hub as the country enhances tax exemptions for offshore insurance businesses. In 2013, Singapore gave tax exemption to property catastrophe excess-of-loss reinsurance, and brokers received tax rebates for offshore specialty insurance business.

However, the overall business mix will not change significantly due to tax incentives over the next two to three years because building expertise in new business lines takes time.

Property insurance continues to dominate offshore business for Singapore, and its share of total offshore premiums rose 5 percentage points between 2008 and 2013.

This indicates an increase in property risks, with catastrophe elements, in the Singapore hub.

Although the shares of gross premiums by the other lines fell between 2008 and 2013, their premium volume still grew significantly in absolute terms. Premiums from marine cargo and hull grew about 13%-14% yearly, while casualty increased about 11% yearly.

The growing diversity and increased number of reinsurers in Singapore in recent years has strengthened the hub’s fundamentals by offering more sophisticated prod-

Singapore offshore insurance fund-reinsurers’ premium 2013

Source: Monetary Authority of Singapore

SINGAPORE BUSINESS REVIEW | NOVEMBER 2014 45

analysis: insurance sector ucts to the regional market. The top 15 insurers and reinsurers made up 75% of the offshore insurance market in 2013 and are mostly international reinsurance groups. Premiums written by this group increased by more than 110% over the past 5 years, contributed mainly by property line.

As ASEAN nations open up their borders in 2015, we expect reinsurers to stand ready to support the growth.

“Insurers classified as ‘direct insurers’ exhibited higher and more volatile expense ratios, ranging from 39% to 51%.”

Profitability boosts sustainability The growth of Singapore’s reinsurance market relies on sustainable profitability. Singapore represents an attractive diversification prospect for global insurers and reinsurers and a good investment of capital for local and regional players.

Singapore’s offshore businesses reported a total of about S$26 billion in earned premiums over the decade between 2004 to 2013, while accumulated underwriting losses were S$3.6 billion. This resulted in a combined ratio of about 114% over the period, which indicated underwriting losses for that business. However, if we Singapore insurance market gross premiums

Source: Standard & Poor’s 2014

OIF- Business lines by gross premium, 2013

Source: Monetary Authority of Singapore, OIF--Offshore Insurance Fund

46 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

exclude the extraordinary losses of 2011, the average combined ratio for the past decade was 87%.

The 10-year aggregate underwriting loss result for Singapore’s offshore insurance business may raise some questions about whether the reinsurance business in the region is profitable. While unprecedented events are inevitable, reinsurers will adapt to new information by increasing the sophistication of current models used to assess risk exposures.

Opportunistic players that rush to deploy capital in the region could be more susceptible to short-term forces and could choose to exit the market when they face difficulties.

Singaporean insurers and reinsurers underwriting offshore business have been profitable in most years, except 2011, when extraordinarily high annual losses accrued from the Thai flood, Japan tsunami, and flooding and earthquakes in other regions.

The catastrophic events in 2011 highlighted the importance of a risk management culture which looks beyond quantitative models as well as the need for updated model specifications to ensure companies can use new information to assess risk exposures. The introduction of catastrophe event limits on reinsurance treaties, increasing use of quantitative models, and improving data quality have significantly reduced the likelihood of a recurrence of losses similar to the 2011 Thailand flood.

However, experience and modelling alone cannot completely prepare the industry for exceptional natural catastrophe events. Insurers and reinsurers have to understand the limitations of each model to set appropriate risk limits and margins in risk assessment, pricing, underwriting, and reserving.

As companies increasingly globalize their operations, reinsurers are finding it difficult to account for that in their natural catastrophe risk modeling. Strong regional economic growth and the corresponding growth in insurable asset values are also rapidly lifting catastrophe exposure. Outdated catastrophe models, un-modeled or insufficiently modeled risks, increasing capacity and competition, and weakening under-

writing standards raise the likelihood of unexpected large losses again.

Market commentators have also noted that high management and distribution costs for the offshore insurancebusiness, because of its high numbers of expatriate staff, raise doubts about its sustainability. Regulatory statistics showed that distribution and management expense ratios for offshore insurance were about 33% of earned premiums in Singapore, which is slightly higher than in Bermuda (29%-30%).

Reinsurers in Singapore writing offshore business had expense ratios of 29%-31%. Insurers classified as “direct insurers” exhibited higher and more volatile expense ratios, ranging from 39% to 51%. However, this difference is partially explained by variances in business written:”direct insurers” write more tailored specialty business, while reinsurers tend to have a higher proportion of largeticket business.

Propelling growth requires various factors Strong economic growth in AsiaPacific will fuel demand for insurance and reinsurance. A more sophisticated and developed Singapore insurance industry will help boost penetration in the region, provide profitable growth and diversification for insurers and reinsurers, and reinforce the relevance of the reinsurance industry. At the same time, it will support the industrialization of the emerging economies in the highgrowth region. Singapore’s environment is competitive and conducive to business. Insurers and reinsurers that take the long view on profitability and have strong risk management, market knowledge, and underwriting expertise are likely to be able to manage underwriting volatility and grow their business.

Reinsurers that are able to provide value-added services, such as development of products, information systems, and risk management skills, are likely to have a competitive advantage. All things considered, Singapore’s insurance industry is likely to continue growing and gradually attract a share of global risk. By Philip Chung, CFA, Standard & Poor’s

Hong kong view

Tim hamlett

Numbers games

tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism

Y

ou know, to paraphrase Dirty Harry, in all that excitement I have plumb forgotten the number of Lufsig’s illegal structures.

What was the number of unauthorized adornments for Chez Leung? Was it, as the old song has it, 12 for the 12 apostles, 11 for the 11 who went to heaven, or 10 for the 10 commandments?

Whatever the number was, it was too many for a man to stand up and pontificate publicly about the importance of obeying the law.

Mr C.Y. Leung knows perfectly well that there is a compromise between obeying and not obeying the law: the one he used himself.

You disobey the law until it becomes publicly known and an electoral liability, then you obey and perpetrate a cock and bull story about your ‘mistake’. Michael Chugani’s hyper-sensitive hypocrisy detector must be ringing like mad at this point. Whether that produces any published results remains to be seen.

Another man with numbers problems is my old friend Robert Chow Yung. The point which he seems to have overlooked is that comparing one number with another only works if both the numbers were collected the same way. Farmer Giles says he has 200 animals on his farm: 50 cows, 50 sheep and 100 chickens. Farmer Jones responds that he has 2000 animals on his farm: 50 cows, 50 sheep and 1,900 cockroaches.

Clearly it would be foolish to conclude from this exchange that Farmer Jones is in the lead. But Mr Chow just cannot resist counting the cockroaches. I do not know whether more people support Occupy Central or the Campaign for Peace, Silent Majority… whatever it calls itself this week. I do know that no useful conclusions can be drawn by comparing the number of people who participated in the “plebiscite” and the number of people who participated in the “petition”, because the conditions under which names were collected were quite different. Mr Chow’s lot were willing to accommodate tourists, children, and people who wanted to ‘vote early and vote often’, as they used to say. This produces a higher number but makes comparisons impossible.

The same goes for today’s march. Numbers of marchers on these occasions are notoriously difficult to establish and even more difficult to interpret. But whatever number we eventually accept it cannot be usefully compared with the turn-out on 4 June or any other date, because on those earlier occasions the number was not affected by shameless offerings of bus rides, museum visits, lunch boxes or free post-protest dinners. We do not need to explore the possibility of undue pressure being exerted by employers, or offers of actual cash: what is readily admitted is enough to prevent this event from being compared usefully with others in which bribery was not on display.

Still on numbers of people at protests, we come to the curious aftermath of the propolice demonstration the other week. All these years we have supposed that the police were politically neutral, and the reason why their estimates of numbers were always much lower than those provided by organizers of the event concerned was something entirely innocent:

48 SINGAPORE BUSINESS REVIEW | NOVEMBER 2014

maybe the police counting method was more conservative. But after the pro-police demonstration the normal order of events was reversed. The police number was about twice as big as the one offered by the organizers. This was a small demonstration – the organizers’ figure was 2,000-something – so there is a desperate shortage of innocent explanations for this. It seems that the police figures are just wild guesses like everyone else’s, and like everyone else the police tend to see what they want to see.

Finally we come to the week’s most surprising number, the majority vote of no confidence in the chairman of the Law Society.

This was followed in all channels by the information that the rules of the Law Society do not require a chairman to resign if a vote of no confidence is passed.

This brings to mind the story, for which I am indebted to Bernard Levin, of the domestic helper who came home one day to find an alligator in the bath. She resigned, explaining that “I cannot work in a house with alligators. I did not mention it because I did not think it would come up.” I am sure the drafters of the rules of the Law Society never considered the question of what would happen if a motion of no confidence in the chairman was passed. They assumed that the chairman, as any gentleman would, would resign. Off you go, Ambrose.

Let’s play the numbers game!

Living up to the Tradition.

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Placing sustainability and innovation at the core of the company strategy, we have been partnering customers and delivering value to stakeholders in our commitment to sustainable construction by further developing resource- and energy-efficient solutions. This is Holcim’s aim in Singapore with the recently launched first Centre of Excellence in Asia: to build more with less.

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