Developer's Profits Up 245% Despite Gloom

Source : The Straits Times, Dec 16, 2008

DEVELOPER Low Keng Huat has defied the gloom in corporate Singapore by reporting that its third-quarter net profit surged 245 per cent to $13 million.

Low Keng Huat's gross profits were lifted by the completion of construction projects such as Domain 21 last year. PHOTO: KHENG LONG CO

Revenue for the three months ended Oct 31 nearly doubled to $52.2 million from $26.4 million last year, the company announced yesterday.

The nine-month numbers were equally impressive, with net profits up from $11.4 million last year to $23.4 million on the back of a 66 per cent jump in revenue to $148.1 million.

Low Keng Huat's robust bottom line was due to higher development profits from associated companies, lower construction losses that were offset by lower profits from its hotel and investment segments, and a higher taxation charge.

The group's construction segment, however, was its key driver, with revenue for the nine months hitting $60.6 million.

Gross profit for the same period rose by $9.1 million to $18.3 million, mainly due to ex gratia payments from partners for the Domain 21 condominium development, cost recovery for concrete due to the Indonesian sand ban, and the completion of construction projects like The Chuan, Novena Phase 3, Twin Regency and Domain 21 last year.

Two of its new projects - Meritus Mandarin Hotel and Hard Rock Hotel at Sentosa - have also started to contribute to the group's performance.

Earnings per share for the quarter rose from 0.51 cent to 1.75 cents, while net asset value per share was at 28 cents as at Oct 31, down from 54 cents as at Jan 31.

No dividend has been declared or recommended for the nine months ended Oct 31.

Managing director Low Keng Boon hinted in the group's financial statement that harder times are ahead. He said: 'There is no certainty on how long the recession is going to last.'

The firm secured a $295 million project last month to build a shopping mall with an integrated bus interchange at Serangoon Central. This took its total order book to about $900 million.

Mr Low was also quoted in the statement as saying that the group's remaining two hotels, in Perth and Ho Chi Minh City, are expected to continue to perform well despite the looming recession.

Low Keng Huat shares closed one cent, or 8 per cent, up at 13.5 cents yesterday.

New Private Home Sales 'Could Fall To 18-Year Low'

Source : The Business Times, December 16, 2008

Many of last month's 192 sales were made at just five developments

ONLY 192 new private homes were sold last month, sparking concerns that total sales this year could plunge to levels not seen since 1990.

CBRE Research tips a total sales figure of around 4,300 units - a striking plunge from the boom last year when a record 14,811 new private homes changed hands.












If the projection pans out, private home transactions this year will be the lowest in 18 years when 2,526 units were sold in 1990.

And there is not much cheer on the horizon either with the 'sluggish sales momentum' likely to persist as the economy is expected to weaken further, said CBRE Research executive director Li Hiaw Ho.

The Urban Redevelopment Authority (URA) data yesterday showed that last month's sales were up slightly on the 118 units shifted in October but down from September's 376.

The latest numbers add up to 4,200 private homes sold in the first 11 months.

Sales at a few projects held up reasonably well, probably due to competitive pricing, say experts. Developers launched 382 units for sale last month - up from 159 in October when the market was in shock - but half the 767 units launched in September. It was also below the 12-month average of 541 units, said Knight Frank.

'The increase in November signalled some hope for the private residential market, although general homebuying sentiments remained weak and possibilities for a recovery remained remote,' said its director of research and consultancy Nicholas Mak.

Many sales were made at just five developments with many projects not attracting a single buyer. Last month's top seller was Rosewood Suites in Woodlands, a 99-year leasehold project that moved 42 units at between $512 per sq ft (psf) and $687 psf.

Two prime projects also did relatively well. Newton Edge sold 34 units while 19 went at RV Suites in River Valley Road.

Mr Li said the two have mostly small units, which help contain the absolute price at $550,000 to $900,000 per unit, based on their median prices of $1,201 psf and $1,350 psf respectively.

Buyers snapped up 15 units at Evania in Upper Paya Lebar at between $612 psf and $650 psf after prices were apparently cut from above $800 psf at the launch in March last year, said Mr Li. 'Price remains a critical factor to move sales, as seen by the good response.'

And 11 houses at Andrews Terrace, a project in a new landed estate called Sembawang Greenvale, sold at prices starting from $1.3 million each.

Suburban homes accounted for 53 per cent of developers' sales last month, which shows that there is a pool of genuine buyers out there, said Ms Tay Huey Ying, director for research and advisory at Colliers International.

But prime properties dominated last month's launches. Developers have stepped up releases since August, a reversal of the first-half trend when they held back prime homes, she said. 'This could be an indication of weakening holding power among smallish and mid-tier developers with prime development sites.'

Homebuying sentiment and launch activity should remain subdued in the month ahead as the economy further contracts and the employment market is anticipated to tighten further, said Mr Mak.

'Buyers will remain very cautious, even if some re-pricing sets in.'


WEAK SENTIMENTS REMAIN

'The increase in November signalled some hope for the private residential market, although general homebuying sentiments remained weak and possibilities for a recovery remained remote.'

Knight Frank's director of research and consultancy Nicholas Mak

Developer Sales Perk Up With New Launches

Source : The Business Times, December 16, 2008

Launch momentum may continue; price becomes key factor to move sales

The launch of new developments helped pull up developer sales to 192 units in November, up from just 112 units in October.

The number of units launched by developers increased from 159 units in October to 382 units in November.

Urban Redevelopment Authority's (URA) monthly real estate data also revealed that the number of launch-ready units hit 6,512 units in November, a marginal rise over October but an increase of 3,840 units from a year ago.

Rosewood Suites in Woodlands by EL Development (ELD) sold 42 units in November, the most units sold, followed by Newton Edge (34 units) and RV Suites (19 units).

ELD is a unit of local builder Evan Lim & Co. Managing director Lim Yew Soon said that the pricing - at an average of $580 psf - 'may be on the low side' but added, 'We expect construction costs to come down next year so we took a bit of a risk with a lower margin'.

Still, Mr Lim conceded that, 'the price may not be sustainable in the long run', and ELD could begin to raise prices.

He also believes that a price war among developers is not likely because most developers bought sites at about the same price. 'And unless a developer goes bust, there is no reason for them to sell at a loss,' he added.

PropNex CEO Mohamed Ismail said that prices for existing developments in the same area such as Casablanca are going for between $500-$550 psf. He said that Rosewood Suites is 'extremely attractive in today's market' especially considering that new public housing flats are about $300 psf with Design, Build and Sell Scheme (DBSS) flats at about $450 psf.

PropNex was the marketing agent for Rosewood Suites and Mr Ismail added that most of the buyers were HDB upgraders.

Both Newton Edge and RV Suites are in the core central region (CCR) and Colliers International director for research and advisory Tay Huey Ying noted that more than half the 382 units launched were in the CCR.

She added: 'Developers have been stepping up launches of prime properties since August 2008, in a reversal of the first half's trend where developers tended to hold back launches of prime properties. This could be an indication of weakening holding power amongst smallish and mid-tier developers with prime development sites.'

Ms Tay believes developers are likely to continue with the current launch momentum and could launch some 450-500 new units in December 2008, bringing the total launch volume for 2008 to some 6,500 units, less than half of last year's launch volume of more than 14,000 units.

Ms Tay expects developers' sale volume to hover between 150-200 units. This would bring sales volume for the year to less than 4,500 units, or less than a third of last year's volume of more than 14,000 units.

Other developments that registered better sales in November were Evania at Upper Paya Lebar Road and a landed housing project at Andrews Terrace.

CBRE Research executive director Li Hiaw Ho said: 'Price remains a critical factor to move sales, as seen by the good response to these projects.' He also said that prices for units in Evania have apparently been reduced from above $800 psf when it was first launched in March to $610 psf-$650 psf.

Knight Frank director (research and consultancy) Nicholas Mak expects home-buying sentiments and launch activity to remain subdued until after the Chinese New Year in January.

'Buyers will remain very cautious even if some re-pricing sets in,' he added. 'Since the economic drag is expected to persist into 2009, developers may be increasingly open to considering creative marketing tactics and soft discounts to attract buyers,' he added.

Already, Knight Frank notes that the lowest priced non-landed unit sold in November was in Rosewood Suites at $512 psf while the highest priced non-landed unit is Orchard Scotts, which sold for $2,006 psf (The highest-priced unit sold in Orchard Scotts was $2,407 psf).

DTZ executive director Ong Choon Fah also reckons the market is seeking 'clarity' on the economy and could wait for the January Budget measures before moving.

And while some hope for the return of the deferred payment scheme, Mrs Ong believes that if it is brought back, 'It won't be in its former form'.

2008: The Year The Bubble Burst

Source : The Business Times, December 16, 2008

(LONDON) Property prices collapsed worldwide in 2008 as hyper-inflated housing bubbles finally burst, brutally punctured by the global credit crunch - and the slump could continue for two more years, experts say.

The strains had begun appearing in mid-2007 when overstretched US homeowners began to default on loans known as 'sub-prime', a term virtually unknown outside the United States until 2008 when it became a byword for the financial crisis.

These 'bad' loans had been re-packaged by banks and sold on. The number of institutions which had invested in them only became clear this year, and they started a chain reaction which led to banks refusing to lend to each other.

When in September the US government seized control of the giant mortgage companies Fannie Mae and Freddie Mac - which between them account for half of the US home-loan market - the depth of the combined effects of the credit crunch and the housing slump came sharply into focus. 'The system has gone into a really brutal reversal,' said Philippe Waechter, director of economic research at Natixis Asset Management. 'The financing of property has become much more traditional and a lot more cautious.'

Both the commercial and residential property markets are essentially caught in a 'perfect storm'. Potential buyers have been deprived of credit by banks which have become far more cautious about lending. And buyers are holding off because they expect prices to fall even further, or shying away from major purchases while unemployment is rising.

Aaron Guy, real estate analyst at investment bank Collins Stewart in London, said: 'Before the credit markets dried up, 70-80 per cent of the purchase of each building was financed by credit and the remaining equity was in plentiful supply. So if you take a 10-storey building, you can take away seven and a half storeys of its debt financing and 2.5 storeys of equity is also more scarce and expensive. Among the banks I speak to there is very little desire to lend to commercial property and many won't lend at all. We expect this will continue as far as we can foresee into 2009 and it could be more than two years before the property market recovers.'

The biggest falls in house prices came in countries where banks lent the most, especially the US and Britain. A global study by British estate agents Knight Frank showed US house prices plunged by 20.6 per cent in the third quarter of 2008, compared with their peak last year. In Britain, they were down 10.3 per cent over the same period.

While the slide in prices has been fastest recently in Britain, Norway, Canada and Lithuania, the study shows that more than half of all the countries surveyed showed falls in the third quarter compared with the preceding three months.

Nicholas Barnes, head of international research at Knight Frank, said: 'It is now clear that no part of the world is likely to escape the credit crunch as property prices start to fall in more and more parts of the globe.' While eastern Europe is resisting the trend better than some parts of the world, prestige projects are biting the dust amid the crisis - work on the 600-metre Russia Tower in Moscow was halted in November.

Asia has not been spared either. In Hong Kong, the third-quarter fall was 2.5 per cent and in China, house prices fell 0.1 per cent, prompting the government to exempt property transactions from stamp tax and value-added tax to boost the ailing market.

In Spain, property developers have been falling like dominoes. One of the biggest, Metrovacesa, had boldly bought the London headquarters of British bank HSBC last year. But the ailing company was forced to sell the building back to the bank at a loss of 290 million euros (S$577.8 million).

So when will the gloom lift? Mr Waechter, of Natixis, says it will not be soon. 'I don't think the property market will improve before 2011 or 2012,' he said. The Organisation for Economic Co-operation and Development agrees. 'The ongoing adjustment in housing markets still has a long way to go,' said Jorgen Elmeskov, the director of policy studies in the economics department. -- AFP

US Property Recovery To Start By Spring

Source : The Business Times, December 16, 2008

Mogul Sam Zell also sees demand for houses rising soon

(TEL AVIV) A revival in the US real estate market, key to a recovery in the world economy, should begin by next spring, property mogul Sam Zell told an Israeli business conference on Sunday.

Mr Zell: 'By spring 2010 the housing market in the US will look a lot better'

'I believe that in a country that continues to grow and where the population continues to grow, we will see the first signs of equilibrium in the housing market in the spring of 2009 and I will expect by spring 2010 the housing market in the US will look a lot better,' Mr Zell said.

Mr Zell is the owner of Tribune Co, publisher of the Chicago Tribune and the Los Angeles Times, which filed for Chapter 11 bankruptcy protection last week. He declined to comment on his plans to sell the Chicago Cubs baseball team and its Wrigley Field stadium.

Mr Zell said that with the US population continuing to grow and with fewer than 600,000 building starts in 2008, over a million fewer than in each of the past 10 years, demand for houses would soon rise.

He added that after the US housing market begins to stabilise over the next 12 months growth would return to other markets, as the balance of supply and demand evened out 'and the staggering amount of fiscal stimulation that has been enacted around the world will have its impact'.

Mr Zell said he currently saw four global areas with a chance for investments because demand was continuing - Brazil, China, the Middle East, and parts of eastern Europe. 'They have growth, they have political stability, they have natural resources ... and a relatively low cost of entry today,' he noted. -- Reuters