Market Could Do With Wing Tai Plainspeak

Source : The Business Times, August 22, 2008

WHEN Wing Tai Holdings holds its fourth-quarter and full-year results briefing next Tuesday, it will be the last of the major Singapore-listed property groups to announce results for the period ended June 30, 2008. Net earnings are expected to be lower than the $382 million record performance for the preceding year. But the wait may still be worth it, if the Cheng brothers who helm the group once again give a candid assessment of the state of the Singapore property market.

The duo has made some of the frankest pronouncements on market prospects. Last August, during the early days of the US sub-prime mortgage crisis, Wing Tai chairman Cheng Wai Keung was probably the first major developer to say publicly that sub-prime woes had slowed property transactions across the entire market in Singapore.

He said: 'Yes, temporarily, it has affected some of the take-up rates. But it is actually not a bad thing. The market needs a bit of consolidation. High-end home prices have gone up 100 per cent within the last 6-9 months. It's just not sustainable. But if sub-prime settles within a reasonable period, I believe there is still room to grow in the property market. We're not at the end of the property cycle.

'On the other hand, if sub-prime or the credit market continues to be in turmoil and it affects confidence in general, then, of course, it will be a completely different scenario,' he had added.

That was in August last year. By February this year, when the sub-prime crisis and its bite on the local property market had worsened, some developers here were still singing a positive tune, hoping the sub-prime gloom would blow away after mid-year.

Upfront

But Wing Tai deputy chairman Edmund Cheng told BT at the time that it may not be realistic to expect sub-prime problems to fade away by mid-year. 'They are likely to linger beyond this year, as the exposure has extended to many other areas, and it may still take some time for the full extent of exposure to be discovered,' he said.

Now, with the official forecast for Singapore's GDP growth this year trimmed and all-round warnings for tougher times ahead, the market will hopefully once again be able to count on the Cheng brothers to deliver an honest verdict for the property market - and perhaps even offer some advice for property investors caught in the turbulence.

After all, Wing Tai itself has been through tough times. It was one of the worst-hit developers during the Asian financial crisis. It chalked up huge losses and was strained by a pile of debt.

It had bought some high-priced residential plots in Singapore in June 1997, on the eve of the Asian crisis. These included a 99-year leasehold residential site at Draycott Park that it purchased at $1,103.60 per square foot per plot ratio (psf ppr) and another plot in the Newton Road area for $611.91 psf ppr. The price of the Draycott plot remained a record for 99-year leasehold prime district residential land for about a decade.

Better shape

Wing Tai had high net gearing ratios (over 1) during the Asian crisis years and again during the more recent property slowdown in 2000-2004. Today, the group is in much better financial shape. As at March 31, 2008, its net gearing ratio was 0.5.

Like all developers, Wing Tai will try to hold off launches given the current weak market sentiment, especially since it has strengthened its financial position from the recent Singapore residential market boom between 2005 and 2007.

But, as Morgan Stanley Research said in a recent report: 'Should the residential market remain subdued for a prolonged period, Wing Tai may have no choice but to stomach lower selling prices to entice buying activity, particularly if the other developers have cut selling prices in their projects.'

The group's existing Singapore residential land bank was by and large acquired at more attractive prices, except for a 40 per cent stake in a 99-year leasehold plot at Alexandra Road bought for $639 psf ppr late last year.

Fortunately for Wing Tai, its other prime district freehold sites like Anderson 18, Ardmore Point, Belle Vue and Newton Meadows were acquired between 2005 and May 2007 at relatively attractive prices of $1,650 psf ppr and $1,369 psf ppr for Anderson 18 and Ardmore Point respectively and about $660 psf ppr for both Belle Vue and Newton Meadows.

If necessary, Wing Tai could take a hit on selling prices for new condos on these sites and should still be able to make a decent profit. Wing Tai seems to have learnt its lessons from the past and, hopefully, history will not repeat itself. As a bonus, the Cheng brothers may again offer probing insights into the local property market next week.