Viet Market Seen Hurting S'pore Firms

Source : The Business Times, June 10, 2008

Analysts say they may end up with unsold homes given slowing sales of late

SINGAPORE developers in Vietnam are likely to be affected by a cooling residential property market and tighter government regulations, research houses say.

Keppel Land, CapitaLand, Guocoland, Fraser & Neave, Allgreen and Chip Eng Seng are six developers with residential projects in Vietnam, said BNP Paribas, and Keppel Land has the largest exposure with about US$7 billion of project value.

Safe as houses? Keppel Land's new Dong Nai township project; the company has the largest exposure, about US$7 billion of project value, among Singapore players

While margins may exceed 30 per cent, development risks are high as well.

'Sales have slowed down in the past few months. Selling prices have also become more realistic and some speculators are leaving their deposits forfeited,' BNP Paribas said in a report.

According to BNP Paribas, the first phase of Keppel Land's The Estella fetched an average selling price of about US$2,200 per square metre (psm) early this year. This is around 30 per cent lower than the highest price of US$3,200 psm at end-2007 by CapitaLand's The Vista, which is across the road.

In the same vein, Morgan Stanley said last week that developers may end up with unsold inventory, should speculators forgo their options to purchase units.

'While developers have been announcing strong buying interest for their projects for some time, most buyers have only paid the respective deposits for registered papers - that is, the options to purchase units,' Morgan Stanley said in a report. At The Estella, for instance, sale-and-purchase agreements have been signed for only 200 of the 650 units launched.

Morgan Stanley also projected a 38 per cent devaluation of the Vietnamese dong against the US dollar from current spot levels over the next 12 months. A weaker dong would make residential property less affordable, since rents and prices are pegged to the US dollar.

Morgan Stanley said that it foresees developers delaying launches amid poor sentiment. And it is bearish on prospects for Keppel Land - 'the most vulnerable, with NAV (net asset value) potentially declining by seven cents a share to $7.18 a share'. For CapitaLand and Allgreen, however, Morgan Stanley analysts believed that the impact on NAV would be negligible.

BNP Paribas remained neutral overall on Singapore developers in Vietnam. 'Long-term fundamentals remain favourable with a high urbanisation rate, rising incomes and affluence, returning overseas Vietnamese and an influx of expatriates,' it said.

Both research houses also highlighted regulatory risks in Vietnam. Morgan Stanley, for instance, said that the residential property market could cool further when a 25 per cent capital gains tax on property transactions takes effect in January 2009.

'The Vietnamese government is taking pro-active measures to address economic challenges facing the country,' Keppel Land was quoted as saying in a Bloomberg report last week. 'Foreign investors are still confident of the long-term growth potential of Vietnam. Fundamentals in the property market remain strong.'