Six companies, some better known in other businesses, make maiden real estate buys
The property boom over the past two years has drawn many new players who are looking to reap the high returns that property development has to offer.
Six companies made their maiden property purchases this year, data compiled by property firm CB Richard Ellis (CBRE) show. Among them are companies that have made a name for themselves in other businesses, such as construction company KSH Holdings and brokerage firm Kim Eng Holdings. Others are lesser known, like Duchess Development which was formed by two stockbrokers.In addition, three other companies - BBR Holdings, Popular Holdings and Eastern Holdings - first made their appearance in 2006 with land purchases. This year, they have gone on to snap up more sites.
'When the market is good, it draws in players who may not have been active before,' said CBRE executive director Jeremy Lake.
He noted that many of the new entrants are construction companies that might have decided to take on development risks, after watching their developer clients reap big profits. During a property boom, such risks are lessened.
'If you get your timing right in property, the profits can be substantial,' Mr Lake said.
Experts said that the same trend was seen during the last property boom, which lasted from 1993 to 1996.
Companies that did not look at property development in the past are now beginning to do so because of the fatter margins.
One example is SuperBowl, which teamed up with its parent company Hiap Hoe to buy two sites for a total of $211.3 million.
SuperBowl's managing director Teo Ho Beng told BT that while the company will continue to focus on its core leisure and entertainment business, it will also increase its exposure to property development where the margins are better.
Similarly, KSH Holdings sees good opportunities in property development. The company's chairman and managing director Choo Chee Onn said that his company invested in residential sites this year because the opportunities opened up at the right time.
'Going forward, we will buy more sites if the right opportunities arise,' Mr Choo said in an interview. The company spent $180.8 million on two residential sites this year.
The first site, which KSH acquired in June with three other partners, was the construction company's first purchase of a land parcel.
Other companies branching out from their traditional core businesses for the first time this year include electrical and mechanical engineering firm Tee International.
However, new developers and developers looking at boutique projects still account for only a small chunk of total purchases in 2007.
CBRE's data shows that the bulk of sites sold this year went to big players such as companies linked to banker Wee Cho Yaw (UOL Group, Kheng Leong, United Industrial Corp and Singapore Land), Malaysian tycoon Quek Leng Chan's GuocoLand and property giant CapitaLand.
New and boutique developers together bought some $2.4 billion worth of land sites in 2007, which account for about 5 per cent of total investment sales so far this year.
In 2006, such developers accounted for about 4 per cent of all investment sales, while in 2005, the figure was about 3 per cent.
However, property analysts warned that these new entrants are by no means guaranteed success. For starters, most bought sites in the more central areas of Singapore, where the price gain is expected to moderate this year even as construction costs are set to keep climbing, leading to a drop in margins.
'For the high-end residential segment, there is now risk of a potential correction,' said OCBC Investment Research analyst Winston Liew.
New developers might not have the resources to keep construction costs down unless they are contractors themselves, experts said.
Next year, established developers who have carved out niches are likely to do best, analysts said.
'Going into 2008, we look for developers with specific niches and themes to outperform the sector as a whole,' said CIMB property analyst Donald Chua. The research firm believed that listed smaller-cap developers are likely to trade at a discount to target valuations in 2008.
OCBC's Mr Liew advocated being defensive when choosing property developer stocks. 'We prefer developers that are domestic focused with substantial pre-sold projects, opportunities to unlock value from investment properties and finally offering valuation upside,' he said.
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