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Property shares take a beating

Developers with inventory in prime districts may face pricing pressure

PROPERTY analysts were still busy yesterday predicting how the market will be affected by the end of the deferred payment scheme (DPS) as property shares received their expected drubbing when trading opened.

A report by OCBC Investment Research forecast tough times for the residential sector – but not everyone was gloomy.

The OCBC researchers said: ‘The significance of the current government move is that it is targeting at the demand side of the equation while previous measures (since end-2006) were mainly supply side . . . Demand-side measures historically tend to have severe repercussions on demand and hence pricing.

‘We thus see the latest action (and subsequent action if speculation continues) to be negative on the residential sector.’

A seasoned property consultant said: ‘The withdrawal of DPS will affect speculators, who have been focusing mainly on high-end homes but who have also filtered into mid-market projects as seen in One North Residences and The Rochester. However, even genuine home buyers and investors whose budgets are stretched by the rapid price appreciation will be affected. Sales volumes will come off.’

CIMB-GK Research said: ‘We believe developers with inventory in the prime districts could face pricing pressure as punters retreat. Developers are also likely to bear the brunt of greater financial prudence exercised by genuine home buyers as they no longer have the luxury of time to build up funds for repayment.’

The government’s announcement on Friday of the immediate withdrawal of the DPS means an end to the system in which private property buyers could buy units in uncompleted developments with just a 10 or 20 per cent downpayment, with the payment for the rest of the purchase price in some cases postponed until the completion of the project.

CIMB said in its research note yesterday: ‘We believe this move is aimed at discouraging speculative activity and is also a preventive measure to keep mass-market price escalations in check.’

There will be no new DPS developments available, although developers which have already obtained approval to offer the scheme for a project may continue to do so.

One development that seemed to be benefiting over the weekend from its approval for DPS was United Industrial Corporation’s (UIC) Park Natura, a five-storey freehold condo in the Toh Tuck area near the Bukit Batok Nature Reserve. The condo has an average price of about $1,000 per square foot. UIC is said to have sold more than 60 units over the weekend in the project, which has 192 units in total.

The developer is offering a partial deferred payment scheme where buyers pay an initial 10 per cent, with progress payments needed only after one year.

On the stock market yesterday morning, the Singapore Properties Equity Index fell as much as 2.1 per cent from Friday’s close to 1,545.16 points. It later recovered to end at 1,557.52 points – just 1.3 per cent lower than Friday’s finish.

City Developments lost 50 cents to close at $15.80, followed by SC Global Developments which eased 35 cents to finish at $5.50. Singapore Land lost 25 cents, closing at $9.85.

‘Purer developers with sizeable residential inventories are likely to be the most affected,’ CIMB said.

‘Stocks under our coverage with revalued net asset values that are particularly sensitive to asset price changes include Allgreen, Bukit Sembawang, City Developments, Ho Bee and UOL. We estimate that every 10 per cent change in residential prices will result in 5-10 per cent changes in stock valuations for these companies.

‘The sector is currently under review . . . we expect to lower our residential selling price assumptions by 10-15 per cent in the upcoming results season in view of mounting uncertainties in the property market,’ CIMB said.

Citigroup said that the DPS withdrawal has ‘probably removed the champagne from the party’ since property prices have been fuelled to some extent by the availability of deferred payments, which account for more than 70 per cent for some projects.

‘Sentiment will likely weaken in the short term, particularly in the luxury segment. Longer term, fundamentals, including strong economic growth, immigration and low interest rates will likely be supportive of property prices,’ the report said.

But other analysts, like JP Morgan’s Chris Gee, said that he was recommending investors to be underweight on the sector even before Friday’s announcement.

‘Pricing power is shifting very firmly away from developers because they now have more products to sell,’ he said.

‘But they’re not just competing among themselves for buyers but also with specu-vestors who’ve bought properties since 2005 and who can offer buyers properties that will be physically completed sooner than those that will be launched by developers in the near future.’


Source: Business Times 30 Oct 07

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