Property Counters Lose Ground Over Rising Costs, Pricing Power Concerns

Source : The Business Times, July 16, 2008

CITY Developments Ltd fell the most in more than four months, leading declines by Singapore developers after Credit Suisse Group AG said that rising construction costs and an inability to raise prices will erode profits.

City Developments, Singapore's second-largest developer, fell 58 cents, or 5.3 per cent, to $10.36 at the close of trade. CapitaLand Ltd, its closest domestic rival, dipped 21 cents, or 3.6 per cent, to $5.60, its biggest decline in three weeks, and Keppel Land Ltd, the third-largest real estate firm, lost 6 cents, or 1.3 per cent, to $4.65, its weakest since Sept 13, 2006.

Singapore private home prices rose at the slowest pace in almost four years in the second quarter on concerns that the global credit squeeze will dampen economic growth. Prices of so-called mass market homes, defined as those that cost between $1,000 and $1,200 per square foot, may change 'marginally' this year, said CapitaLand chief executive officer Liew Mun Leong in an interview on July 10.

Developers' profits may decline because of 'the risk of increasing construction costs', weaker confidence and lower 'pricing power, even for mass-market projects', Credit Suisse analyst Tricia Song wrote in a report yesterday.

Singapore's private home sales rose 82 per cent as slowing price increases attracted buyers. A total of 801 residential units were sold last month, compared with 441 in May, and 284 in April, the Urban Redevelopment Authority said on its website yesterday.

Still, a higher proportion of new homes available for sale was not sold in the month, said Nicholas Mak, head of research and consultancy at Knight Frank in Singapore. 'This would result in a gradual increase in the number of unsold properties in the developers' inventory,' he said.

Singapore's biggest developers will start reporting second-quarter earnings at the end of this month. -- Bloomberg