Singapore’s developers move from best to worst

December 31, 2013 - 10:06:23 am

A general view shows residential estates in Hong Kong yesterday. According to a survey by international real estate adviser Savills of 10 cities including Tokyo, London and New York, Hong Kong home prices are the world’s highest.

SINGAPORE: Singapore’s developers posted the worst performance on the benchmark Straits Times Index 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 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 $117bn 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.”

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. Developers are beginning to cut prices in existing and new projects and take lower profit margins, City Developments, Singapore’s second-largest developer, said.

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. 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.

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 fell 25 percent this year, making it the second-worst performer on the Straits Times Index and reversing a 45 percent gain in 2012.

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 yesterday.

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.”

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