Tendering Practice in Singapore
Tendering is not a total fullproof way to ensure value and transparency in procurement.
(This I will illustrade later in a later blog giving examples through my work experience)
Procurement is not just about products but services or even property developments. It is important for companies first to understand the right culture and then value, then will they be able to do the right things in the right markets for the people and country.

Town councils are set up to manage HDB estates. The managing agents for various estates have since been sourced out to external parties.  These managing agents too need to be regulated with proper transparency through tendering to procure the most effective, efficient agent to manage the estate. And each managing agent should be secured on say; 5 years term on a fixed rate (conservancy fees). Upon expiry it should be subjected to re-tender or review by the estate committee for extension.

Many town councils have their own building, whether through leasing from HDB or otherwise. Take for example one town council, they lease the hall to a  comnunity centre  for use as a badminton hall and events. Is the TC leasing to them at market rate? Are the revenues collected from use of badminton hall and events justified the market rate? Isn't town council accountable to the estate owners how they use the fund.
If you do the sum I am sure it is not, as utilization rate for badminton use is probably at 50% or less. Events are held at the hall less frequently, less than 10 events per year. Can the TC better utilize their facilities as these are accounted for and thus affect the balance sheet. Though the comnunity centre lease the hall for badminton and as comnunity centres  are meant for the community at large including those staying in the private estates. Is there not conflict of interests as town counci'l's fund belongs to estate owners

Are Property in Singapore, Hongkong and China heading for Bust?

Tuesday, August 21, 2012

Are Property in Singapore, Hongkong and China heading for Bust?

Are  Developers Colluding to Push Up Prices, Rendering Control Measures Futile? What are the underlying causes for persistent and rapid price rises in Singapore, Hongkong and China’s property market and what are the possible causes that could lead to a reverse course.

What have caused China’s property prices to rise incessantly? Apart from the demand factor, there are four other factors that have caused dogged upward movement in prices:
Let's study China market in relation to Singapore and Hongkong

Singapore

The property market has exploded partly due to the babyboomers' offsprings entering the market and partly due to sudden influx of foreigners, PRs etc. The massive liquidity from printing of money that cause value of money to go down, inflation to shoot up, interest rate to hit rock bottom, and thus asset class becomes a valuable solution. The casinoes is another compelling factor for foreigners to speculate on our market.

Let me illustrade :

In 1980 say there were 400,000 household of average 6 children per household.Population then will be around 2.4 million Let assume 1 out of 6 remains single and the other 5 got married with average 2 children, that work out to 2.5x400,000 = 1 million new household with 2 million childrens. These childrens are now in the age group of 10s to 30s. Say 50% are married or going to get married. We will have 500,000 new household entering property market. The demands for flats will be a whopping 1 million over the last 10 to the next 10 years. is apart from foreigh buyers, new citizens and PRs. Even our government were caught off guard with this exploding demands

China

(1)  Demands - China is different from Singapore as they have one child policy in the last 30 years But China has one billion population. Say there are 4 persons per household, that gives us 250million household or 250 million childrens in their 10s to 40s. The demands for flats will be a whopping 125millions over the last 10 to the next 10 years.

(2)   Economic power - The chinese are moving up the economic ladder due to huge investments that have flowed into China over the last few years. Businesses are flourishing, so are workers' salary that have moved up by 50% or more. This has fuel the demands from mid to luxury end market.

(3) Manipulation and collusion - Property price rises bring extra profit to developers. No doubt developers are the major pushing force behind the housing market. Most developers’ gearing ratio is 75 percent. That means only one-quarter of the total investment fund is the developer’s equity, while the remaining three-quarters are borrowed funds. For every price rise of 1 percent, the developer’s return on equity will grow 3 percent.

Another point is that in a rising market, even when a project is completed, a developer can choose not to sell out the completed units all at once if they expect future price appreciation will be greater than their carrying cost. They will simply hold on to the units, thereby squeezing the available supply, to maximize their return.

There are a number of prodigious developer groups who are known to manipulate the property market by collusion, enabled by their dominating market shares. Unless something can be done to restrict their market shares, none of the cooling measures such as raising interest rates and other administrative controls like regulating land grant procedures is going to be effective. As long as they can exercise dominance in the market, they can easily pass on to consumers any additional costs like interest rate cost and land cost.

(4) Grafts and Corruption - Local government officials are prone to take a rising property market as a sign of economic prosperity. Besides, it also brings them higher tax revenue and other grey area income. So they would only be happy to see an upwardly mobile property market. We have seen in the news how large developers receive favors from government officials to win lands.

So what would cause the property market to reverse gear :
(1) If some drastic negative economic fundamentals surface, like an abrupt rise in long-term real interest rates or dramatic changes in the tax system, these could cause the property market to tank. However, given the serious lag in reforming China’s tax system, all the various taxes that have been introduced as cooling measures are in fact useless as such.

(2) Relaxing land supply may apply some pressure on prices in the short term. In big cities like Beijing and Shanghai, the increase in land supply in 2006 was seen as an effective coolant. However, in the coastal cities where land is becoming very scarce, this measure is simply not workable.

(3) Experience shows that short-term restrictive measures like tightening monetary supply, directly taxing speculators and some price rise capping measures can have a cooling effect. However, such measures cannot be effective over the long term, as these would be off set by people’s natural expectations of price appreciation.

To make a final judgment on the causes of property price rises and falls would be crucial to improving and regulating China’s property market and preventing a financial crisis. The most urgent thing to do now is to establish a high quality research institution to collect and analyse all relevant data.

Generally speaking, it appears that all the property price huge rise causes are due to low interest rate, huge money flow and high economic growth. However despite all cooling measures prices are resilient except for China 2nd & 3rd tier cities where prices have crashed up to 30%. Based on this observation, we can conclude that property prices will be flat or with 10-20% downward bias in the next 10 years.

 

August 21 2012

“关系”Guanxi - Do we really know the roots meaning of this word

“关系” “Guanxi"  literally means "relationships",  and is usually use in the Chinese business world. It is also understood as the network of relationships among various parties that cooperate together and support one another.
The Chinese businessmen mentality believe in exchanging favors, which are expected to be done regularly and voluntarily, if one is to function effectively in Chinese society.

In China it is the right "Guanxi" that makes all the difference in ensuring that business will be successful. By getting the right "Guanxi", the organization minimizes the risks, frustrations, and disappointments when doing business in China. Often it is acquiring the right "Guanxi" with the relevant authorities that will determine the competitive standing of an organization in the long run in China. And moreover, the inevitable risks, barriers, and set-ups you’ll encounter in China will be minimized when you have the right “Guanxi” network working for you. That is why the correct "Guanxi" is so vital to any successful business strategy in China.

How relationship is established in China
Although developing and nurturing the "Guanxi" in China is very demanding on time and resources, the time and money necessary to establish a strong network is well worth the investment. What your business could get in return from the favors for your partners are often more much more valuable, especially in the long run, and when you’re in need. Even domestic businesses in China establish wide networks with their suppliers, retailers, banks, and local government officials. It is very common for individuals of an organization to visit the residence of their acquaintances from other organizations, bringing gifts (such as wine, cigarettes, etc.). 

The wrong education on "Guanxi"
And yet educations, businesses, governments advocate their staffs, counterparts, students to pay close attention to the importance of Chinese network or  "Guanxi", thinking that it can indirectly link them to new acquaintances and information resources, thus helping them to develop other right "Guanxi" they need. Not knowing that it actually poison wrong value on their minds. Many of  the young professionals have invariably and unconciously drunk in the evils of the roots of "Guanxi" into their character, i.e. corruption

"Guanxi" or relationship with high rank officials are still important for doing business in China, though declining to some extent. 

Roots of "Guanxi"
Though it is completely legal in their culture and not regarded as bribery in any way.  The roots of "Guanxi" actually stem from corruption. It is disguised as network relationship building, goodwill, information gathering etc but honestly it all boils down to humans' basic needs of wanting to fill the stomach first (as China came out poverty very fast) and then meeting the higher needs like flashy cars, big houses, branded goods, exotic holidays, exquisite cuisine, luxury hotels, first class travels etc that cause men to crave for more wealth through corruptions and grafts.
Therefore this kind of "Guanxi" is always very one-sided. When "Guanxi" is involved, there is a risk of obtaining an invoice of twice the amount that you bargained for.

Land use rights in China

August 21 2012

Land use rights in China 

By Brad Herrold, Lovells Beijing

China’s legal framework on property ownership and development : legislative and administrative system for property development in China, land use rights system, property development approvals process, and licensing requirements for enterprises involved in a development project.

The Legislative and Administrative System

The legislative pillars of China’s legal system in regard to land are the Law of the People’s Republic of China on Property Rights, enacted by the National People’s Congress (NPC) and effective on 1 October 2007 (“Property Rights Law”), the Law of the People’s Republic of China on Land Administration, adopted by the NPC and effective on 1 January 1999 (“Land Administration Law”) and the Law of the People’s Republic of China on the Administration of Urban Real Estate, enacted by the NPC and effective on 1 January 1995 (“Urban Real Estate Law”).

The Property Rights Law and the Contract Law of the People’s Republic of China, enacted by the NPC (as amended) and effective 1 October 1999 (“Contract Law”), govern contracts for transfers of buildings and other immovable property. The construction of buildings and other improvements are governed by the Construction Law of the People’s Republic of China enacted by the NPC and effective 1 March 1998, and a slew of other administrative regulations, rules, decrees and orders issued by the relevant departments in charge of the administration of construction quality control, environmental protection, fire protection, safety, labour and health.

The Ministry of State Land and Resources is in charge of the administration of land at the national or “central” level. Provincial land authorities are commonly referred to as the Real Property and Land Resources Administration Bureaux, while district-level authorities under each Provincial Land Bureau generally are called the District Planning and Land Administration Bureaux, or the District Real Property and Land Administration Bureaux. For simplicity, we refer to each department in charge of the administration of land at the various levels in China’s bureaucracy as the “Land Authority”.

The Land Use Rights System

There is a fundamental distinction in China between “rights of ownership in land” and “rights to use land”. All land is owned by the State or by a rural collective. Rights of ownership in land are not transferrable. By contrast, the right to use State-owned land use rights is transferrable and such land use rights can be leased or mortgaged. Provided that the land is first requisitioned by the State and, in effect, converted to state-owned land, the land use rights to collectively-owned land can be transferred, leased or mortgaged.

Land is classified in China as agricultural, construction or unused, and as a general rule only state-owned land for construction purposes may be requisitioned and used for development of commercial or profit-making real estate projects.

The State Council reviews and revises the national land use plan, i.e., it alters the classification of specific parcels of land, only once every five years. Despite frequent claims to the contrary by

developers and local government officials, provincial, municipal, district and county level governments are prohibited from issuing land use plans that are not in strict compliance with the State Council’s plan.

Generally, land use rights can be obtained only by grant or by allocation. Allocated land use rights refer to land use rights that were allocated by the Land Authority to a State-owned enterprise or other public entity for an indefinite term and without the payment of consideration.

Allocated land use rights cannot be transferred, leased or mortgaged. Granted land use rights, by contrast, involve the execution of a State-owned Land Use Rights Grant Contract (“Land Grant Contract”) between the land user and the Land Authority and the payment of a grant fee.

The grantee of properly granted State-owned land use rights to land that is properly planned forindustrial or residential use (1) may enjoy an enforceable right to use the land for a fixed term of between 40 and 70 years, (2) may use the land for the purposes specified in the Land Grant Contract during such term, and (3) subject to certain restrictions, generally is free to transfer, lease or mortgage the land use rights freely.

Land Grant Contracts often form documents prepared and promulgated by the Land Authority, but should be scrutinized — they often set tight deadlines for payment of the land grant fee and the commencement and completion of construction. Penalties for non-compliance can be draconian. Land Grant Contracts also contain planning parameters for the development of land and describe the location of the land, identify the type of user (residential, commercial, industrial, comprehensive) and prescribe the grant period.

Property developers in China may choose from several options to acquire land use rights, including a grant to develop a new project, the acquisition of an existing development project, the acquisition of an equity interest in an entity that holds land use rights or a lease of land use rights.

Developers rarely lease land use rights. The State is not permitted to lease land use rights for commercial developments, though land use rights may be available for lease in the secondary market, i.e., previously granted rights. Under the Contract Law, the term of a lease is not valid for more than 20 years. Instead, the term must be renewed. In addition, lessees are seldom able to successfully negotiate for the right to assign, sublease or encumber land use rights.

Land use rights may be granted by means of negotiated agreement, public bidding, auction or listing process, though a grant by negotiated agreement is no longer permitted in relation to land intended for industrial, commerce, tourism, entertainment and residential use. Instead, pursuant to the Provisions on the Assignment of State-owned Construction Land Use Right through Bid

nvitation, Auction and Quotation, promulgated by the Ministry of Land and Resources and effective 1 November 2007, such land, as well as land intended for more than one user, must be granted by way of public bidding, auction or listing on a land exchange. Land use rights granted by auction or public bidding may not be sold below a government specified minimum price rate.

Land use rights also may be obtained by transfer from the original land user in the secondary land market, and a transfer may be conducted by exchange or gift, subject to government supervision. Transfers of land use rights normally occur pursuant to a transfer agreement.

The use term obtained by the transferee of land use rights is equivalent to the remaining term of the granted land use rights at the time of the transfer.

Though ownership rights in regard to other forms of immovable property such as buildings and other improvements are regulated separately from land use rights (and, generally, different certificates are issued to evidence the ownership rights in each), Chinese law recognizes the principle of unity of title. Hence, where land use rights are granted, transferred or bequeathed, improvements to the land are disposed together with the land use rights.

Under the Property Rights Law, the creation, modification, transfer or termination of property rights in regard to immovable property, including land use rights and buildings, is effective only upon registration. To be clear, if a transfer of land use rights occurs pursuant to an enforceable transfer contract, the parties would have enforceable rights and obligations under the contract, irrespective of a failure to register the transfer. If, however, the transferor under the land transfer contract were to again transfer the land use rights to a bona fide third party purchaser and the purchaser were to register the transfer, it would be the legal owner of the land and the original transferee’s only recourse would be an action for damages under its contract.

August 21 2012
Strategic Value Management
The construction/retrofitting industry is increasingly growing at a dynamic, demanding and challenging pace. This has also resulted in a lot of conflicts, discontent and unhappiness between clients and designers. The recent case in the US where the design teams were being thrown out for consistently busting the budget by a whopping margin.

Construction projects have in the past suffered from three major problems: (1) cost overrun; (2) time overrun; and (3) quality short fall. Predicting contract prices at the design phase is a necessary, albeit a difficult task in construction design and project management. Evidence shows that projects often suffer delays and costly disruptions because of the differences between design cost predictions and contractors' bids or not meeting value for money for user of the facility.

What are the crucial task to determine why design estimates are consistently significantly lower than construction bids and what study can show how strategic value management can help to address this problem.

Strategic value management is broadly divided into three main areas; namely value management, design value management and value engineering management.

Can we devise an implementation strategies for SVM; in developing a design costing system capable of producing prices and quality design; and lastly in enhancing value for money for the facility.

Are we able to do a research to investigate the theoretical basis of SVM in order to offer improvements to current practice :
(i) To evaluate the existing approaches, the benefits and pitfalls to implementing SVM
(ii) To evaluate the available literature on SVM
(iii) To determine the extent to which theory can contribute to working designs within budget and achieving value for money in building design.
 (iv) To develop a new methodology for value management which is both theoretically rigorous and practical in its implementation.
(v) To provide guidance on the types of situation within which the new methodology is applicable.
(vi) To evaluate the application of the new methodology in a real situation.

It is hope that the industry will act to inculcate the awareness and importance of SVM in delivering design within budget and value for money within the construction/refurbishment industry. It is also hope to update practitioner and provide essential information for all parties involved in the industry.