Property Scene Not Too Frothy: CDL

Source : The Straits Times, August 14, 2009

Resuming regular land sales is what Govt may do if there is over-exuberance

PROPERTY tycoon Kwek Leng Beng believes the Government may try to cool the property market - if it gets too frothy - by resuming its regular land sales programme as a way to boost supply.

However, the City Developments (CDL) chairman also said yesterday that the current buying momentum can be sustained and should not be seen as over-exuberant.

He was speaking at a press conference during which CDL unveiled its second-quarter results - another weak set of figures.

Mr Kwek said the recent resurgence in property sales should be put into context.

'It should not be viewed as over-exuberant or extraordinary, bearing in mind that developers had put on hold many of their launches in 2008,' he said.

He added that property prices for the low- and mid-tier market had yet to recover since their peak in 1996.

In response to a question on whether the Government would introduce any cooling measures, he said: 'I think Mr Mah (Bow Tan) is correct to say he doesn't want a bubble to be built, but I don't know if he is going to introduce (any measures).

'Probably what he would do is offer a confirmed list. The deferred payment scheme has already been abolished. Maybe he will abolish interest paid for on behalf of the buyer.'

Mr Mah, the Minister for National Development, warned on July 29 against a property bubble forming and speculation creeping back into the market. He vowed to 'take whatever action is necessary'.

Mr Kwek said the Government would have to approach this decision carefully.

'Don't forget that the Government's statement is that the market is still uncertain. In an uncertain time if you press the wrong button, it will be a disaster. I'm a strong believer that whatever the Government is going to do, they have to think very carefully and they will,' he said.

With a confirmed list, sites are put up for tender at scheduled dates, regardless of developers' interest. It is a way of forcing supply into the market.

The Government suspended confirmed list land sales last October, but Mr Mah has suggested that it could be reintroduced in the first half of next year.

The interest absorption scheme allows buyers to defer the bulk of their payments until their units are completed.

Mr Kwek said that the low property prices in the market were a result of developers being realistic.

He added: 'I am always afraid to encourage people not to buy, because especially in a low market, if you encourage not to buy and the market goes up, they lose the opportunity of buying cheap.

'If you are smart, you make money; if you're not smart, you speculate, you lose your pants. Nobody in this world can really predict whether the market is going up or down.'

He said property investors should take a medium- to long-term perspective.

Mr Kwek said that he hoped to resume construction of CDL's stalled South Beach project as soon as practicable, adding that it would probably be in the third quarter of next year and be completed before 2016.

He added that CDL and Hong Kong property group Nan Fung, the newest investor in the consortium, would be willing to pump more money into the project should the need arise.

The $2.5 billion project, originally slated for completion in 2012, had been delayed by the financial crisis.

Mr Kwek said the other two Middle Eastern partners, El-Ad and Dubai World, had other priorities.

Under the terms of the agreement with the Government, the consortium has till 2016 to complete the project.

Mr Kwek said that the partners are on very good terms, but that CDL is taking the lead and has Nan Fung's support.

He added that people have asked if the other partners want to sell their stakes in the project, but the other partners, so far, have not indicated to him that they want to.

CDL's second-quarter net profits were down 15.3 per cent from the same period last year to $140 million as hotel occupancies kept falling. Revenue edged up 0.8 per cent to $787 million.

For the first half, net profits sank 32.4 per cent to $223.1 million as revenue fell 8.4 per cent to $1.41 billion.

One positive trend: net profits shot up 68.3 per cent from the first quarter, in line with a gradual global recovery.

The group's net profits do not include valuation differences arising from investment properties.

Revenue for the second quarter was split almost evenly between hotels and its property development and rentals segments.

Revenue from hotels was hit bad, dropping 25.2 per cent to $364.5 million in the second quarter from the same period last year. Occupancy rates had fallen across Asia, Europe and the United States.

However, CDL was able to realise profits from beginning the construction of The Arte @ Thomson last year even before its launch in March this year.

Earnings per share for the three months was down 16 per cent at 14.7 cents over the same period last year. Net asset value per share was $6.18 as at end-June, up from $5.97 as at Dec 31.

Net borrowings stood at $3.35 billion at end-June, down from $3.36 billion as at March 31. CDL shares closed 19 cents or 1.9 per cent higher at $10.02 yesterday.