Property stocks may further languish next year after the govt took measures to cool prices
[SINGAPORE] Singapore's developers posted the worst performance on the benchmark Straits Times Index this year after recording the biggest gains in 2012 as property curbs drove home sales lower and slowed price gains.
Property stocks in Singapore, ranked the most-expensive city to buy a luxury home in Asia after Hong Kong, may further languish next year after the government took measures to cool prices.
Home sales may decline 10 per cent next year while prices are expected to drop for the first time in two years, according to broker Chesterton Singapore.
CapitaLand and City Developments, the nation's two biggest listed developers, were among the three worst performers on the index after being in the top 10 last year.
"Singapore property developers have been out of fashion for some time," said Tim Gibson, head of Asian property equities at Henderson Global Investors, which manages about US$117 billion globally.
"We would remain cautious of developers with exposure to the residential sector, given that demand for primary units have cooled post the numerous rounds of government measures."
Singapore began introducing residential curbs four years ago. The government of Prime Minister Lee Hsien Loong intensified efforts this year as prices jumped to a record, driven by low interest rates, demand from Singaporeans to upgrade from public housing, as well as purchases by overseas buyers. The measures included a cap on debt at 60 per cent of a borrower's income.
That policy and other curbs have moderated property transactions and housing loan growth, the Monetary Authority of Singapore said in its annual review of financial stability earlier this month, adding that the government will monitor the market and take further steps if needed.
Prices and transaction volumes of Singapore residential properties are expected to decline for the rest of the year due to the cumulative impact of government measures, CapitaLand, South-east Asia's biggest developer, said on Oct 31.
Developers are beginning to cut prices in existing and new projects and take lower profit margins, City Developments, Singapore's second-largest developer, said on Nov 12.
Sales of new private homes could drop to 15,000 units this year from 22,197 in 2012, according to Desmond Sim, associate director at CBRE Research.
Higher borrowing costs, falling public housing resale prices, slower population growth and a record number of apartment completions suggest that residential demand will wane, Wilson Liew, an analyst at Maybank Kim Eng Securities, wrote in a Dec 17 note.
"Physical prices look set to correct and we expect continued share price weakness unless the government removes some of the cooling measures," Mr Liew said.
Fund managers expect developers to lead declines in Singapore amid a real estate slump and the prospect of higher interest rates.
The decline in property stocks pushed the Straits Times Index 0.4 per cent lower this year, the only drop among developed markets in 2013.
City Developments fell 25 per cent this year, making it the second-worst performer on the Straits Times Index and reversing a 45 per cent gain in 2012.
CapitaLand declined 18 per cent, the third-worst on the measure this year after a 67 per cent advance in 2012. Four of the 10 poorest performers on the benchmark were property companies.
The Singapore property index, which tracks 50 developers in the city, slid 10 per cent this year, after surging 48 per cent last year. It climbed 0.2 per cent at 11.20am in Singapore trading yesterday.
Developers may get a reprieve as the government cut the number of sites it plans to sell in the first half of next year, according to SLP International Property Consultants, citing its analysis of the data from the Urban Redevelopment Authority.
The decrease "could bring some relief to developers who have unlaunched residential projects or projects with substantial number of unsold units," said Nicholas Mak, executive director of research & consultancy at SLP in Singapore.
"The reduction in land supply could be to prevent an oversupply in the private housing market," he added.
The developers aren't just reliant on Singapore. CapitaLand's holdings in the city-state make up 36 per cent of its assets, lower than 39 per cent for properties in China, it said on Nov 12. For Keppel Land, Singapore contributed to 41 per cent of sales in the third quarter.
City Developments, which has a controlling stake in Millennium & Copthorne Hotels, relied on the global hospitality chain for almost half of its sales in the three months through September, outpacing contributions from property development, according to its latest earnings statement.
Developers, including CapitaLand and City Developments, are expected to report profit increases this year, according to estimates from Maybank. CapitaLand may report a 4 per cent rise in net profit for the year ending Dec 31, 2013 while City Developments profit may increase 7.8 per cent, it said.
Those two companies, along with Keppel Land, are still selling homes in Singapore.
City Developments said in its earnings statement its Echelon project that's a 10-minute drive to the financial district was almost sold out. A 1,572 sq ft apartment at the development was last sold for S$2.5 million in August, according to government data.
The decline in stock prices also made some developers attractive relative to the Singapore market. CapitaLand and Keppel Land trade at 0.8 times their book value, compared with a multiple of 1.4 for the benchmark stock index. City Developments trade at 1.2 times.
Of the 24 analysts who cover CapitaLand, 21 have buy recommendations on the stock, according to data compiled by Bloomberg.
For Keppel Land, 14 out of 24 analysts have buy calls. Fewer than half of the 25 analysts tracking City Developments advised investors to sell.
Maybank Kim Eng's Mr Liew said that concerns over the tapering of bond buying by the US Federal Reserves are expected to weigh down the property sector because it's interest-rate sensitive.
Barclays plc has a "negative" outlook on the developers as the prospect of higher interest rates coincides with a looming oversupply, Tricia Song, an analyst at the bank, said in a note to clients this month.
"We're not jumping right now in loading up on properties, although we think the weaknesses have been priced in," said Chong Yoon-Chou, a Singapore-based investment director at Aberdeen Asset Management Asia, which manages about US$324.6 billion globally.
"While valuations have come back to more attractive levels, we haven't seen the kind of discount back in the crisis years." - Bloomberg
Source from Business Times