S'pore Builders Seen Lagging Asian Peers

Source : The Business Times, December 20, 2007

Policy risks, fallout from sub-prime crisis may hurt property developers in 2008

Singapore's property companies may lag behind Asian real estate developers for a second straight year in 2008 as government limits on speculation cool the housing market.

CapitaLand Ltd, South-east Asia's largest developer, is suffering its biggest quarterly decline in more than six years after the government raised development charges by as much as 58 per cent. The Singapore Property Equities Index has dropped 19 per cent so far this quarter, the most since a 35 per cent plunge in the third quarter of 2001.

International buyers, who accounted for more than 40 per cent of real estate purchases in 2006, bought 38 per cent fewer properties last quarter as capital-market gridlock caused by rising US sub-prime mortgage defaults curbed borrowing worldwide. The supply of new homes for sale next year may almost double by value compared with 2006, weighing on prices, according to CLSA Ltd.

'We can find better propositions elsewhere in the region, where there's more growth and value to be found,' said Leslie Phang, who helps manage US$1 billion at Commonwealth Private Bank in the city. He does not own local builders and prefers Hong Kong developer Sun Hung Kai Properties Ltd.

The decline in Singapore's property gauge compares with a 10 per cent drop in the Bloomberg Asia Pacific Real Estate Index, which tracks 164 companies. The Bloomberg World Real Estate Index has slipped 8.9 per cent this quarter. Singapore's property index climbed 1.3 per cent yesterday, the biggest rise since Nov 29.

Singapore's home price index increased 8.3 per cent in the three months ended September from the second quarter. That matched the June quarter's pace, the first time the growth rate failed to rise since mid-2005.

Demand for apartments grew this year as banks hired more expatriates. New York-based Morgan Stanley, the No 2 securities firm by market value, said in February that it would open a local prime brokerage office servicing hedge funds. Citigroup Inc, the biggest US bank by assets, followed with its own prime brokerage office in March.

About 19,200 jobs were created in financial services through September this year, government data showed. Foreigners accounted for about 43 per cent of total purchases in 2006, up from 14 per cent in 2005, according to CLSA, the Asian investment-banking arm of Paris-based Credit Agricole SA. Singapore home prices rose 13 per cent last year, beating all other Asian markets, according to Global Property Guide, a Manila-based researcher.

The number of foreign purchases fell 38 per cent to 2,073 last quarter, from a record high of 3,332 in the three months ended June 30, according to DTZ Singapore, the local unit of DTZ Holdings plc, a London real-estate brokerage.

The government scrapped a program on Oct 26 that allowed buyers of planned apartments to pay 10 per cent of the asking price and defer the remainder until completion. Builders face higher fees on new developments after the government raised charges by 58 per cent for apartment projects and by 42 per cent for commercial properties, starting Sept 1.

'There are still a lot of policy risks in this segment,' said Daphne Roth, vice-president of equity research at ABN Amro Private Banking in Singapore. 'The government doesn't want home prices to go up too much, too quickly and the policy changes introduced so far have already impacted the market.' CapitaLand has slumped 25 per cent in Singapore stock exchange trading during the fourth quarter, set for its biggest quarterly drop since a 47 per cent plunge in the three months ended September 2001. It has lost 29 per cent after reaching a record high on Apr 26, even though third-quarter profit more than doubled from a year earlier.

City Developments Ltd, controlled by billionaire Kwek Leng Beng, declined 18 per cent since the start of this quarter and plunged 23 per cent from its all-time high on June 19.

The selloff has left local property shares cheaper than their regional peers. The Singapore Property Index is valued at 11 times earnings, less than a third of its high of 38 times in March 2006. The Bloomberg measure of Asian real-estate stocks is valued at 19 times, while the global index is at 17 times.

Thue Isen, who helps oversee US$1 billion at Bankinvest Group in Singapore, including shares of CapitaLand and City Developments, said that the decline is a chance to buy local developers, which he finds more attractive than those in Hong Kong and China.

'People's expectations for the property market here have definitely dampened, which justifies some of those declines,' he said. 'If you look at economic and income growth and new offices starting up, the fundamentals haven't changed that much, so the pullback looks a bit excessive.'

CIMB-GK Research, based in Singapore, cut its price forecasts in a Dec 10 note. Properties costing at least S$1,200 a square foot may climb 8 per cent in 2008, compared with an earlier forecast of 15 per cent. Overall home prices will rise 15 per cent from a previous estimate of a 25 per cent increase, said Donald Chua, a Singapore-based analyst.

The brokerage, a unit of CIMB Bank Bhd, Malaysia's largest investment bank, also cut its rating on the industry to 'underweight' from 'overweight', citing slowing growth. The firm lowered its recommendation on CapitaLand to 'neutral' from 'outperform'.

CLSA forecasts that as many as 12,000 new homes under construction could be up for sale in the next year to 18 months in the most expensive residential districts, driving up supply and hurting prices. The 'unprecedented' inventory is worth S$21 billion, almost twice the S$11 billion invested in real estate in 2006, according to Yew Kiang Wong, a CLSA analyst in Singapore.

'There's just too much negative news out there right now, with the government regulations and concerns over sub-prime,' said Nicole Sze, Singapore-based investment analyst at Bank Julius Baer, which manages US$350 billion. 'We're unlikely to see the same kind of broad-based rally that we've had.' - Bloomberg