Published April 2, 2009

MCA backs DAP's call for govt to buy out Plus

By PAULINE NG
IN KUALA LUMPUR

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CALLS for the government to take Malaysia's biggest highway concessionaire private appear to be gathering steam. A senior component party of the ruling federal coalition Barisan Nasional is the latest to back the idea.

The Malaysian Chinese Association (MCA) on Tuesday suggested that public interest would be better served if the government acquired the remaining shares in listed Plus.

Because its proposal comes on the heels of one made by the opposition Democratic Action Party (DAP), some view it as 'more of a political statement'.

However, the push comes amid hefty government compensation payouts to toll concessionaires. In the recent RM60 billion (S$25 billion) stimulus package, a whopping RM480 million was slated for toll subsidies so that consumers would ostensibly have more cash for other spending.

Proponents of a government buyback maintain that, in the longer term, it would be cheaper for the authorities to acquire these concessionaires.

Although there are more than 20 tolled highway concessionaires in West Malaysia, Plus is the main target since it operates the country's largest network of tolled roads, including the North-South Expressway (NSE).

Since the government's effective interest in Plus - mainly through Khazanah Nasional - is nearly 75 per cent, nationalising it ought to be easy, especially with the depressed share price.

Proponents say that a RM3.30 to RM3.50 per share general offer to minorities - over its current price of about RM3 - would only cost the government about RM4.6 billion. Together with Plus's long-term debts of about RM9.4 billion, the total acquisition cost would total RM14 billion - a sum that could be funded by the issue of government bonds.

Plus's cash flow remains strong, and MCA calculated that even excluding government compensation for scheduled increases not allowed, the company's cash flow amounted to RM1.1 billion to RM1.4 billion from 2004 to 2007.

'In terms of profit after tax margin inclusive of government compensation, the Plus business yields a profit margin of above 50 per cent from 2004 to 2008,' it said.

DAP, which first mooted the buy-back idea, feels that because of the strong earnings, the bonds could be repaid by 2015.

However, it is precisely because Plus is such a cash-cow that the government would prefer to keep the status quo, a banker observed.

MCA also questioned the lop-sided terms of agreements awarded to-date, noting that there were several issues that necessitate further deliberations and explanations at the Cabinet level.

Although the government is against privatising the concessionaires, it has found itself in an increasingly difficult position, with road users having to bear the burden of rising costs.

Last month, a decision to hike rates on five major highways was reversed over fears of a public backlash. 

Published April 2, 2009

Abdullah to resign today, rues missed opportunities

Many fault him for failing to boost govt transparency, multiracial unity

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(KUALA LUMPUR) Malaysian Prime Minister Abdullah Ahmad Badawi bade farewell to his Cabinet yesterday, the eve of his resignation after more than five years of lacklustre rule.

Mr Abdullah: My biggest regret is the fiasco in the 2008 general election

Mr Abdullah is scheduled to meet Malaysia's king, the constitutional monarch, to submit his resignation today.

Cabinet ministers and dignitaries have received invitations to a palace ceremony tomorrow, when Deputy Prime Minister Najib Razak is likely to be sworn in as premier.

In his final interview before handing over power, Mr Abdullah told editors of Malaysian media on Tuesday that his time in office was marked by 'missed opportunities'.

He did not elaborate, but many have criticised him for failing to fulfil his pledges of boosting government transparency and multiracial unity.

Mr Abdullah, 69, was pressured to step down after the ruling National Front coalition suffered its worst results ever in a general election a year ago.

He said in the interview that the electoral fiasco was his biggest regret since taking office in October 2003.

'When your time's up, it's time to go,' Mr Abdullah said, according to a transcript published by The Star newspaper.

'No fanfare necessary. What has been done has been done,' he added.

Domestic Trade Minister Shahrir Samad said yesterday that he was attending the final Cabinet meeting that Mr Abdullah would chair.

Mr Najib is expected to announce a major Cabinet reshuffle next week after April 7 special elections to fill legislative vacancies.

He has vowed to revive the National Front's support through wide-ranging political and economic reforms, which include efforts to fend off a looming recession.

However, opposition leaders insist there are signs that Mr Najib will crack down on political dissent.

Government officials on Tuesday barred opposition politicians campaigning for next week's ballot from repeating accusations linking Mr Najib to the 2006 killing of a Mongolian woman who was the mistress of Mr Najib's friend.

Police warned that those who defied the ban could be arrested.

Mr Najib has denied involvement in the killing.

'The repression is going to get much more thorough,' said opposition lawmaker Tian Chua.

'I think we are going to face a much bigger clampdown. The bad days are coming.'

Mr Najib says he should be judged by his actions after he assumes office. -- AP

Published April 2, 2009

Bank raises rate on Rickmers Maritime loan

It invokes market disruption clause in loan terms

By VINCENT WEE

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JITTERY financial markets continue to be the thorn in the side of corporates as shipping trust Rickmers Maritime yesterday announced that one of its banks has invoked the market disruption clause in the loan terms and will consequently levy a higher interest rate on its loan.

First Ship Lease Trust (FSLT) got hit with this same problem in October and this time it is Rickmers' turn and it will result in an about US$47,000 rise in interest cost for this fixing period. However, it will not have a significant impact on its earnings per unit for the financial year ending Dec 31, trustee-manager Rickmers Trust Management said.

The market disruption clause is invoked when the US$ Libor, which is the reference rate on the loans, does not accurately reflect the lenders' actual cost of funds.

In response to queries in the wake of FSLT's problems in October, Rickmers said then that though it had the clause in its loan documents it had not been invoked yet. The increased interest costs then caused FSLT to reduce its Q408 distribution per unit guidance by 1 per cent.

Three-month US dollar Libor rates hit their lowest in two months in London falling one basis point to 1.1768 per cent yesterday, Reuters reported.

'The increase in interest rate pursuant to the invocation of the market disruption clause by the bank by no means reflects the credit-worthiness of Rickmers Maritime. Where Rickmers Maritime is concerned, we continue to enjoy strong cash flows and have met all our loan obligations promptly,' reiterated CFO Quah Ban Huat.

Rickmers Maritime has credit lines with nine other banks, none of which has invoked the market disruption clause, Mr Quah added.

Separately, Rickmers said yesterday that is has taken delivery of its 16th containership, Hanjin Newport, the first of four ships chartered to Hanjin Shipping, South Korea's largest container liner company.

The 4,250 twenty-foot equivalent unit (TEU) newbuild vessel from Jiangsu New Yangzijiang Ship Building commences a seven-year fixed-rate time charter to Hanjin Shipping.

Rickmers units closed unchanged at 34.5 cents yesterday.

Published April 2, 2009

Moody's rating on MI-Reit cut over refinancing

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MOODY'S Investors Service yesterday downgraded Macarthurcook Industrial Reit's (MI-Reit) corporate family rating from B1 to B2, and added that it is continuing its review of the rating for possible further downgrade.

'The downgrade reflects the existence of heightened liquidity pressure, given that the company has not yet secured definitive long-term refinancing for its $201 million loan originally due on April 18, 2009,' said Kathleen Lee, vice-president/senior analyst and lead analyst for the trust.

'The downgrade to B2 also reflects Moody's concerns that MI-Reit has unfunded financing needs of $91 million for the completion of a put and call option over 4A International Business Park by Dec 31, 2009; a situation which means funding challenges, given tight credit market conditions and the trust's limited financial flexibility, as all its assets are encumbered to existing lenders.

'Moreover, MI-Reit's committed acquisition was priced at a time when real estate values were still on the uptrend in August 2007, while the values of industrial property assets have softened from Q4 2008.'

In its release, Moody's observed that on Tuesday, MI-Reit announced that its existing bankers, Commonwealth Bank of Australia Limited and National Australia Bank Limited, have granted a 60-day extension to June 16 for the $201 million maturing debt.

'And while Moody's recognises the steps taken by the trust to address this maturing loan, it remains uncertain as to what terms and conditions will accompany any refinancing exercise,' Ms Lee said.

Moody's review for possible further downgrade will focus on MI-Reit's progress in, and the terms of, the refinancing efforts for its debt maturing on June 16; funding of the 4A International Business Park acquisition under a 'sale and lease back' call and put option by Dec 31 2009; and steps to refinance the company's loan of 1.5 billion yen (S$23 million) due in December this year.

Published April 2, 2009

Volatile but familiar start to Q2

STI tracked the Hang Seng Index before falling victim to expectations of an impending fall on Wall Street

By R SIVANITHY
SENIOR CORRESPONDENT

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AS far as the Straits Times Index was concerned, the second quarter kicked off on a volatile though familiar note yesterday when it tracked Hong Kong's Hang Seng Index on a second-by-second basis, before falling victim to expectations of an impending fall on Wall Street and probable 'window-undressing' after Tuesday's 27-point end-of-quarter window-dressing push.

The outcome was an early spike up of about 20 points for the STI, a drop into negative territory at lunchtime, a bounce up and finally a slide which resulted in a net gain of just 2.27 points at 1,702.26 at the close.

The Hang Seng's negative close, Europe's soft opening - the average loss at 5pm was around 1.5 per cent for all markets - and a 90-point drop in the June futures contract on the Dow Jones Industrial Average suggested a weak Wednesday for the US market.

Citi Investment Research said in its March 31, 2009 report on Singapore banks that although loans fell for the fifth month, there are tentative signs of the economy bottoming - non-oil domestic exports fell at a slower pace in February and Citi's 3-6 month leading indicators are showing signs of stabilising in January-February. 'Q1 2009 may prove to be the quarter of maximum GDP contraction in this recession, a critical marker of the end of past STI bear markets. Our Singapore economist predicts Q1 2009 GDP of -10 per cent year-on-year and expects GDP contraction for a further two quarters, turning positive in Q4 2009,' said Citi.

However, it said that it is negative on the banks given its bearish take on the economy and its in-house view that the STI could head to 1,500.

It therefore called a 'sell' on all three banks, with target prices for DBS, OCBC and UOB of $7.50, $4.25 and $9.80 respectively, using dividend discount models and various EPS estimates. Citi said that while DBS is the most leveraged play on an economic recovery, it also has the highest operating risk to a deteriorating macroeconomic outlook.

'DBS is trading at bear-trough cycle consensus PE levels, but consensus estimates may have downside risk if the downturn deepens' said Citi.

DBS, OCBC and UOB ended at $8.45, $4.80 and $9.80 respectively yesterday.

In its April 1, 2009 Singapore Market Strategy, Credit Suisse (CS) maintained an 'underweight' on the local market after its 12th Asian Investment Conference (AIC) in Hong Kong at which 18 listed companies were present.

'With more companies focusing on volume over pricing, overall margins are likely to contract further in 2009. This is notwithstanding lower operating costs . . . we are projecting EBIT (earnings before interest and taxes) margins for Singapore Inc (based on CS coverage) to decline from 12.7 to 10.8 per cent in 2009 . . . while we are expecting Singapore Inc's dividends to decline by 4 per cent to $11.4 billion in 2009, the risk remains on the downside,' said CS.

Turnover, excluding foreign currency issues, amounted to a low 822 million units worth $755 million yesterday, down sharply from the $1.24 billion done on Tuesday.

Citi called a 'sell' on the Singapore Exchange with a $4.70 target price, on the grounds that history suggests the counter could slide further until the bear market reaches its trough. 'Profit expectations are still largely dependent on volatile securities market turnover, which we view will continue to wane until the bear market comes to an end,' said Citi.

SGX shares rose four cents to $5.14.

Published April 2, 2009

US investors unload US$4b of SGX stocks in Q4

By CHUANG PECK MING

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(SINGAPORE) American investors dumped a net US$4.07 billion of stocks listed on the Singapore Exchange in the last three months of 2008 - nearly four times their net sales in the first nine months - as the financial crisis deepened at its epicentre in the United States.

The big exit from the Singapore stock market followed a pattern for US investments elsewhere - except for the Caribbean and Latin America - and reversed a US net purchase of US$543 million in Singapore stocks in the July-September quarter, the latest figures released by the US Treasury show.

Analysts had noted that US investors with cash to spare took cover in selective markets abroad - including Singapore - in the third quarter of 2008 when the credit crunch in the US tightened.

The crisis has since grew and spread, leaving investors with few shelters in the global stock markets.

Globally, US investors pulled out a net US$42.56 billion from stock markets in the final October-December quarter of 2008, up sharply from a net withdrawal of US$17.88 billion in the previous third quarter.

Europe, which accounts for the largest chunk of US foreign stock holdings, saw the biggest US divestments - a new US$24.62 billion - during the quarter, helping to push down stock prices in the region by an average 22.74 per cent in the last three months of 2008.

US investments in Asian markets posted a negative US$19.25 billion, the second biggest US sell-off abroad. Asian share prices, excluding the Japanese, sank by 21.48 per cent on average in the same period.

Within Asia, Japan took the heaviest hit in the fourth quarter as US investors unloaded a net US$8.99 billion in the Tokyo stock market, which registered an average 9 per cent down.

Next was Singapore, where the Americans off- loaded a net US$4.07 billion in a quarter when the Straits Times Index tumbled to 1,600.28 points on Oct 24, the lowest in 2008.

US investors dumped a net US$1.35 billion of Singapore stocks in October.

The next two months saw the STI pacing up and down between 1,700 and 1,900 points, with no sign that investor confidence would be restored. US investors got rid of a net US$1.85 billion in November, and US$867 million in December.

For the whole of 2008, US investors sold a net US$5.39 billion of stocks in the Singapore market which was hammered down by 49.2 per cent, among major market falls globally.

While the fourth quarter of 2008 saw a sharp increase in US sales of Singapore stocks, US investors went easy in reducing their holdings of Singapore bonds.

After dumping a net US$4.75 billion of Singapore bonds in the second quarter and US$1.82 billion in the third quarter, US investors sold a net US$405 million in the debt instruments in the final quarter.

Published April 2, 2009

Stanchart to lend US$500m more in trade finance

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(SINGAPORE) Standard Chartered Bank will lend an additional US$500 million to Singapore companies for their trade finance needs under a risk-sharing programme with the World Bank's International Finance Corporation (IFC).

Mr Tan: Customers in New York and London are now being financed through Singapore and Hong Kong

In total, US$5 billion will be lent to some 30,000 companies worldwide for short-term trade transactions under a US$1.25 billion global trade liquidity programme with the IFC, said Tan Kah Chye, Stanchart's global head of trade finance, yesterday.

Stanchart is providing US$750 million to the programme and IFC and other participating development organisations up to US$500 million. The programme will support trade flows in Asia, the Middle East, Africa and Latin America.

'We're looking at another 3,000 Singapore companies to be helped,' Mr Tan said.

Stanchart, which operates in 40-plus countries, generated US$500 billion of trade flows worldwide last year, up 40 per cent from 2007. Out of Singapore, the bank funded about US$5 billion of trade flows, Mr Tan said.

Stanchart Singapore's head of transaction banking, Sumit Aggarwal, said that the latest additional funding would be aimed at a wide range of clients - 'small and medium sized companies, listed companies and regional players'.

The programme - for exporters and importers - will help support trade, which has contracted as international banks turn risk averse and US dollars become scarce.

The World Bank announced a US$50 billion programme yesterday to counter a decline in global trade, and Britain called on G-20 leaders to supply 'the oxygen of confidence' to drag the world economy out of recession, Reuters reported.

Mr Tan said that amid the global recession, banks are afraid to take on risks - and this extends even to government projects.

'International bank funding has deteriorated significantly,' he said. 'Customers in New York and London are now being financed through Singapore and Hong Kong because availability of US dollars is so restricted and misallocated.'

This is where Stanchart has stepped in, having been in business 150 years in some of the toughest markets in the world, he said. 'We understand counter-party risks in Indonesia, India, Tanzania, Brazil and so forth and can help customers.'

The default rate, while higher than usual, is 'nothing out of the ordinary', he said.

Stanchart is the first bank to partner the IFC to facilitate trade finance under the global trade liquidity programme. 

Published April 2, 2009

NEWS ANALYSIS

Be afraid of black boxes in US bank bailout

The worrying thing is that very few people seem to know exactly how the banking system is being rescued - and by whom

By R SIVANITHY

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IF YOU were to visit the US Federal Reserve's website, you'd find that it currently uses the following means to inject cash into the US economy: the Term Auction Facility (TAF, created on Dec 12, 2007); the Term Securities Lending Facility (TSLF, created on March 11, 2008); the Primary Dealer Credit Facility (PDCF, created on March 16, 2008); the Commercial Paper Funding Facility (CPFF, created on Oct 20, 2008); the Money Market Investor Funding Facility (MMIFF, created on Oct 21, 2008); and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (ABCPMMMFLF, created on Sept 19, 2008).

Most readers would find these names and the acronyms bewildering, and quite rightly so. The explanations of what these are, however, are much worse. Under the ABCPMMMFLF (which has been mercifully shortened to AMLF), for instance, this is what the Fed's website says: 'Eligible borrowers may borrow funds from the AMLF in order to fund the purchase of eligible ABCP from a money market mutual fund (MMMF) under certain conditions. The MMMF must be a fund that qualifies as a money market mutual fund under Securities and Exchange Commission Rule 2a-7 (17 CFR 270.2a-7) issued pursuant to the Investment Company Act of 1940 (Rule 2a-7). See 7.A. for further details on eligible ABCP under the program.'

Note that most of these facilities were created over the past 15 months in response to the collapse in the US banking system to complement the Fed's traditional means of liquidity injections, which was through repurchase agreements, or repos. And, to be honest, an extraordinary crisis probably justified extraordinary measures.

However, maverick but nonetheless respected music-cum-current affairs publication Rolling Stone (RS) believes otherwise. In its April 2 issue, its National Affairs correspondent points out that, at the start of the credit crunch in summer 2007, the Fed started buying repos at an alarming rate - US$33 billion in August, followed by US$48 billion in November. This escalated to US$77 billion during the Bear-Stearns rescue in early 2008 and US$115 billion in May 2008. These figures were readily available from the Fed's weekly reports but, oddly, at the start of 2009 the figure dropped to zero.

The reason, according to RS, is that the Fed has stopped using the transparent repo method and instead has invented the earlier-named instruments like the TAF, TSLF, MMIFF and so forth, all of which no one understands, to deliberately avoid accountability. And the reason it can do so without Congressional oversight is the Auditing and Accounting Act of 1950, which says no one can audit the Fed when it comes to monetary policy matters,

In other words, no one knows how much has been pumped into the US banking system so far and neither does anyone know who has been getting the money. The article mentions a possible US$3 trillion in loans and US$5.7 trillion in guarantees of private investments - and this is on top of the US$700 billion TARP (Toxic Assets Relief Program).

Extraordinary opaqueness

Granted, an extraordinary crisis calls for extraordinary measures. But why extraordinary opaqueness?

If this is a worry even to the most neutral of observers, more disconcerting is the assertion that questions about where the money is going are being actively discouraged by the incumbent administration - the attitude being a condescending 'it's too difficult for you to understand, best to leave it to the experts'.

Here's the clincher: those 'experts' are all ex-investment bankers with close ties to Wall Street - the very people who caused the collapse in the first place and who may be using the present crisis to further enrich themselves.

If these allegations are accurate, it confirms what we have said before in previous columns - namely, that there seems to be an unhealthy urgency within US officialdom to keep Wall Street happy at all costs by avoiding hard measures such as bank nationalisation, and to get credit flowing again as quickly as possible so that people will start borrowing again.

Critics of this approach have pointed out that instead of recognising that a hugely flawed banking system was the source of all the world's problems and therefore needs a complete overhaul, present efforts seek a quick return to that failed system by arguing that it only needs more regulation in order to operate successfully.

RS's revelations suggest otherwise. It alleges that Wall Street insiders have intentionally infiltrated the uppermost ranks of US officialdom and have turned the Fed and Treasury into their own 'black boxes' - opaque and unaccountable to no one for their actions because they and only they understand the complexity of the problem that they helped create.

The conclusion is that America has unknowingly turned over its political and economic future to the very villains that wreaked havoc on the world in the first place, and that Americans should as a result be very worried.

If this is true, then it isn't just every American who should be worried; it's everyone, everywhere else, too. 

Published April 2, 2009

SIA buckles down to shorter work month

Senior management first to go on scheme, others to follow

By NISHA RAMCHANDANI

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(SINGAPORE) Singapore Airlines (SIA) is gearing up for the effects of capacity cuts in its current financial year.

It is implementing, with immediate effect, a shorter work month for senior management, a scheme that will be extended to other managers as well as ground staff and cabin crew from May 1.

In addition, management will take a wage freeze.

At this point, in-principle agreements have been signed with two of the three in-house unions. These are the Singapore Airlines Staff Union representing ground staff and cabin crew, and the Airline Executive Staff Union which represents administrative staff. Discussions are still going on with the third union, the Airline Pilots Association.

Come May 1, the scheme will be rolled out to all ground staff and cabin crew, although 'the implementation date is predicated on the scheme applying to all employees across the company', the airline said in a statement yesterday.

Managers and ground staff will have to clear one day of leave every month, either as annual leave or no-pay leave. However, pilots and cabin crew will be required to take no-pay leave due to over-staffing.

SIA has a headcount of around 14,500, which includes 7,000 cabin crew, some 3,500 ground staff and about 2,000 pilots.

On top of the shorter working month scheme, SIA has approved no-pay leave applications from 1,405 staff - a response to the voluntary no-pay leave initiative offered to staff for periods ranging between one week and two years. Most of the applicants are cabin crew, opting for leave periods of under a month.

'The take-up rate will certainly help meet the projected reduction in staffing levels required because of capacity reductions during this financial year,' said spokesman Stephen Forshaw.

And while these measures aim to tackle the problems at hand, they may not nearly be enough. 'The airline cannot rule out further measures to contain costs if the downturn worsens,' SIA said.

This could just be a matter of time, given that deteriorating global economic conditions forced the International Air Transport Association (Iata) to recently hike its loss forecast for the global air transport industry to US$4.7 billion in 2009, a sharp rise from the US$2.5 billion loss forecast made in December last year.

Faced with slumping travel demand, SIA announced previously that it is reducing capacity by 11 per cent and grounding 17 of its over 100 aircraft for the financial year ending March 31, 2010.

This came on the back of other capacity changes announced earlier, including the withdrawal of service to Amritsar and Vancouver, a lower flight frequency to India, as well as a cutback on non-stop flights between Singapore and the US.

For February, SIA saw a load factor of just 69.7 per cent - down 7.1 percentage points from 76.8 per cent a year earlier - in spite of a capacity reduction of 8.5 per cent. The number of passengers carried dropped 20.2 per cent from a year ago to 1.18 million.

Meanwhile, SIA will continue to push for the right to fly the trans-Pacific Sydney-Los Angeles route, despite being repeatedly shut out by the Australian federal government.

V Australia - the long-haul arm of Australian carrier Virgin Blue - and Delta Airlines are set to join Qantas and United Airlines on the protected route.

SIA is prepared to be patient in its long-running battle, CEO Chew Choon Seng was reported as saying to Australian media earlier this week.

Mr Chew, who was in Brisbane to receive SIA's revamped A330 service, also indicated the Australian travel market was proving to be more resilient than other regions, the report said.

Published April 2, 2009

Private home prices take double-digit dive

Even gravity-defying HDB resale prices show signs of cracking in Q1 with 0.6% slide

By UMA SHANKARI

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(SINGAPORE) Private home prices plunged 13.8 per cent in the first three months of this year - a record quarterly drop as developers and other market players slashed their expectations.

It was the third quarterly fall in prices - and much steeper than the 6.1 per cent drop in the preceding Q4 2008, according to advance estimates released by the Urban Redevelopment Authority (URA) yesterday. Private home prices dipped 1.8 per cent in Q3 2008 after 17 straight quarters of growth.

Prices of resale HDB flats, which seemed to defy gravity and grew throughout 2008, also fell in Q1 2009 - by 0.6 per cent - after nine quarters of growth.

Analysts were expecting a significant drop in private home prices, but the actual fall was bigger than thought. In recent months, developers have cut the selling prices of new homes and sellers of secondary properties have also trimmed their asking prices.

'The fall is not surprising as a lot of developers have reduced prices to move new units, and in the resale market, people are now asking for more reasonable prices,' said DTZ's senior director Chua Chor Hoon.

Related article: Click here for URA's news release

DMG & Partners Securities' analyst Brandon Lee said that new projects and units in previously launched but unsold projects, were being launched or relaunched at 10-30 per cent discounts to the original intended selling prices. Also, there were distressed sales in the secondary market.

Aggressive price cutting by developers seems to have paid off. An estimated 2,100-plus new homes were sold in Q1 - the highest level since the market was hit by the US mortgage crisis in the last quarter of 2007 and more than four times the number of new units sold in Q4 2008. But the pick-up in sales volume was at the expense of prices.

URA's non-landed private home price index for the Core Central Region, which includes the prime districts, financial district and Sentosa Cove, fell 15.2 per cent quarter-on-quarter in Q1. In the Rest of Central Region, prices fell 17.2 per cent. And in the Outside Central Region, which is a proxy for suburban mass-market locations, they fell 7.5 per cent.

The drop in HDB resale prices took some observers by surprise, as analysts tracking the sector had said that they would continue to rise in the first half of this year, though at a slower pace than in 2008.

'HDB resale prices increased some 32 per cent since Q1 2007 before reaching a new peak in Q4 2008,' said ERA Asia-Pacific associate director Eugene Lim. The marginal decrease in Q1 shows HDB resale prices are now moving in tandem with the deteriorating economic and unemployment conditions.

Analysts said that the main cause of the fall in HDB's resale index is the lower cash-over-valuation (COV) amounts that buyers are now willing to pay. 'The slight dip is probably due to more buyers of HDB flats being resistant to paying high levels of COV,' said PropNex chief executive Mohamed Ismail. 'While demand for HDB resale flats is evidently still strong, sellers in this economic climate are realising the weaker buying power of consumers.'

Private home prices are expected to continue falling in the rest of the year. 'While the fall in prices of private residential properties in the first quarter was acute, the drab economic situation is expected to continue to place downward pressure on home prices in 2009,' said Nicholas Mak, director of research and consultancy at Knight Frank.

But the pace of decline is expected to taper off. 'Developers have already made a quantum leap in reducing prices in Q1 2009 and although further declines in launch prices can be expected, the incremental drop is likely to be marginal and more gradual,' said Tay Huey Ying, director for research and advisory at Colliers International. Ms Tay expects the rate of decline in the URA price index to taper off to about 8 per cent in Q2 2009 and then 3-5 per cent for each of the subsequent two quarters.

For the full year, analysts put the overall drop in private home prices at 20-30 per cent, with homes in the suburban areas taking the smallest hit.

The fall in HDB prices, on the other hand, is expected to pick up steam in the rest of 2009. Analysts expect that HDB resale prices will fall by between 5 and 15 per cent for the whole of 2009.