Property Stocks Slip On Fears Over New Rules

Source : The Straits Times, August 29, 2007

CHANGES TO EN BLOC RULES

Investors worried over impact on land-banking; office market retains shine

RESIDENTIAL property stocks took a beating yesterday as investors got the jitters over tougher en bloc legislation that could slow land-banking.

City Developments slipped 40 cents or 2.6 per cent to $14.70, CapitaLand lost five cents or 0.7 per cent to $7.40 and Keppel Land shed five cents or 0.6 per cent to $7.90.

The counters were hit in a lacklustre market, as the benchmark Straits Times Index slid 45.44 points or 1.3 per cent to 3,343.

CIMB-GK property analyst Donald Chua said property firms were sold on worries the government could take further measures to contain prices.

'Investors are sitting back to wait and see what policy comes out and how it affects the market,' he said. 'But even if you look at the en bloc legislation, it has no real impact on fundamentals.'

Other analysts also said proposed changes to en bloc sale rules are unlikely to have a major impact on developers, with the pace of such sales having already slowed because of higher asking prices.

Winston Liew of OCBC Investment Research said the dispute between en bloc sellers at Horizon Towers and buyers including Hotel Properties Ltd has been a dampener. 'And these changes to legislation are just further impediments that have been put in place to reduce the rate of en bloc developments.'

OCBC has a 'hold' call on CapitaLand and Keppel Land while keeping a 'buy' call on City Developments given its exposure to the office market and substantial pre-sold projects that reduce earnings risk.

Some analysts feel the new legislation will not hit developers' earnings too hard. 'It's a tweaking of rules but not very prohibitive,' said Macquarie Research Equities analyst Soong Tuck Yin said. 'The pace of land-banking depends more on pricing than the rules.'

CIMB-GK's Mr Chua said: 'The property market is still strong and prices for the past half-year have consistently surprised on the upside. But at current levels, we don't think investors are willing to take much risk, so the bullish view of further physical price appreciation may be halted for the moment.'

He is more upbeat about the office market, with rents expected to keep going up amid the supply crunch. The highest current office rent of about $18.50 per sq ft per month is expected to breach $20 for prime space by this year, Mr Chua said.

He reckons the residential sector is expected to 'take a step back' to see whether demand is sustained.

Among developers, he favours those that have aggressively built up landbanks at lower prices, such as Ho Bee Investment and CityDev. He has a 'buy' rating on both stocks in view of current low valuations caused by the recent market correction.