Open Photographer: Brent Lewin/Bloomberg Palm trees stand illuminated at night in front of commercial buildings in the central business district of Singapore.
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Singapore’s developers posted the worst performance on the benchmark Straits Times Index (FSSTI) this year after recording the biggest gains in 2012 as property curbs drove home sales lower and slowed price gains.
Property stocks in Singapore, ranked the most-expensive city to buy a luxury home in Asia after Hong Kong, may further languish next year after the government took measures to cool prices. Home sales may decline 10 percent in 2014 while prices are expected to drop for the first time in two years, according to broker Chesterton Singapore Pte.
The property curbs, which included stamp duties and other taxes on home purchases, led Citigroup Inc. and UBS AG to rate the city’s residential developers underweight in the past two months. CapitaLand Ltd. (CAPL) and City Developments Ltd., the nation’s two biggest listed developers, were among the three worst performers on the index after being in the top 10 last year.
“Singapore property developers have been out of fashion for some time,” said Tim Gibson, head of Asian property equities at Henderson Global Investors Ltd., which manages about $117 billion globally. “We would remain cautious of developers with exposure to the residential sector, given that demand for primary units have cooled post the numerous rounds of government measures.”
Commercial buildings in the central business district are reflected on a building facade in Singapore.
Commercial buildings in the central business district are reflected on a building facade in Singapore. Close
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Photographer: Brent Lewin/Bloomberg
Commercial buildings in the central business district are reflected on a building facade in Singapore.
Stricter Measures
The city-state, an island off the southern tip of the Malay Peninsula, began introducing residential curbs four years ago. The government of Prime Minister Lee Hsien Loong intensified efforts this year as prices jumped to a record, driven by low interest rates, demand from Singaporeans to upgrade from public housing, as well as purchases by overseas buyers.
The measures included a cap on debt at 60 percent of a borrower’s income. That policy and other curbs have moderated property transactions and housing loan growth, the Monetary Authority of Singapore said in its annual review of financial stability earlier this month, adding that the government will monitor the market and take further steps if needed.
Prices and transaction volumes of Singapore residential properties are expected to decline for the rest of the year due to the cumulative impact of government measures, CapitaLand, Southeast Asia’s biggest developer, said on Oct. 31. Developers are beginning to cut prices in existing and new projects and take lower profit margins, City Developments, Singapore’s second-largest developer, said on Nov. 12.
The Marina Bay Residences, second left, stands next to office buildings in the central… Read More
The Marina Bay Residences, second left, stands next to office buildings in the central business district of Singapore,. Close
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Photographer: Nicky Loh/Bloomberg
The Marina Bay Residences, second left, stands next to office buildings in the central business district of Singapore,.
Sales of new private homes could drop to 15,000 units this year from 22,197 in 2012, according to Desmond Sim, associate director at CBRE Research.
Price Correction
Higher borrowing costs, falling public housing resale prices, slower population growth and a record number of apartment completions suggest that residential demand will wane, Wilson Liew, an analyst at Maybank Kim Eng Securities, wrote in a Dec. 17 note.
“Physical prices look set to correct and we expect continued share price weakness unless the government removes some of the cooling measures,” Liew said.
Fund managers expect developers to lead declines in Singapore amid a real estate slump and the prospect of higher interest rates. The decline in property stocks pushed the Straits Times Index 0.4 percent lower this year, the only drop among developed markets in 2013.
City Developments (CIT) fell 25 percent this year, making it the second-worst performer on the Straits Times Index and reversing a 45 percent gain in 2012.
‘Some Relief’
CapitaLand declined 18 percent, the third-worst on the measure this year after a 67 percent advance in 2012. Four of the 10 poorest performers on the benchmark were property companies. The property index, which tracks 50 developers in the city, slid 10 percent this year, after surging 48 percent in 2012. It closed down 0.1 percent in Singapore trading today.
Developers may get a reprieve as the government cut the number of sites it plans to sell in the first half of 2014, according to SLP International Property Consultants, citing its analysis of the data from the Urban Redevelopment Authority.
The decrease “could bring some relief to developers who have unlaunched residential projects or projects with substantial number of unsold units,” said Nicholas Mak, executive director of research consultancy at SLP in Singapore. “The reduction in land supply could be to prevent an oversupply in the private housing market.”
Expanding Overseas
The developers aren’t just reliant on Singapore. CapitaLand’s holdings in the city-state make up 36 percent of its assets, lower than 39 percent for properties in China, it said Nov. 12. For Keppel Land, Singapore contributed to 41 percent of sales in the third quarter. City Developments, which has a controlling stake in Millennium Copthorne Hotels Plc, relied on the global hospitality chain for almost half of its sales in the three months through September, outpacing contributions from property development, according to its latest earnings statement.
Developers, including CapitaLand and City Developments, are expected to report profit increases this year, according to estimates from Maybank. CapitaLand may report a four percent rise in net profit for the year ending Dec. 31, 2013 while City Developments profit may increase 7.8 percent, it said.
Those two companies, along with Keppel Land, are still selling homes in Singapore. City Developments said in its earnings statement its Echelon project that’s a 10-minute drive to the financial district was almost sold out. A 1,572-square-foot apartment at the development was last sold for S$2.5 million in August, according to government data.
The decline in stock prices also made some developers attractive relative with the Singapore market. CapitaLand and Keppel Land Ltd. trade at 0.8 times their book value, compared with a multiple of 1.4 for the benchmark stock index. City Developments trade at 1.2 times.
More Buys
Of the 24 analysts who cover CapitaLand, 21 have buy recommendations on the stock, according to data compiled by Bloomberg. For Keppel Land, 14 out of 24 analysts have buy calls. Fewer than half of the 25 analysts tracking City Developments advised investors to sell.
Maybank Kim Eng’s Liew said concerns over the tapering of bond buying by the U.S. Federal Reserves are expected to weigh down the property sector because it’s interest-rate sensitive. Barclays Plc has a “negative” outlook on the developers as the prospect of higher interest rates coincides with a looming oversupply, Tricia Song, an analyst at the bank, said in a note to clients this month.
“We’re not jumping right now in loading up on properties, although we think the weaknesses have been priced in,” said Chong Yoon-Chou, a Singapore-based investment director at Aberdeen Asset Management Asia Ltd., which manages about $324.6 billion globally. “While valuations have come back to more attractive levels, we haven’t seen the kind of discount back in the crisis years.”
To contact the reporters on this story: Pooja Thakur in Singapore at pthakur@bloomberg.net; Jasmine Ng in Singapore at jng299@bloomberg.net
To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net
Singapore"s Developers Move From Best to Worst: Southeast Asia
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