CapitaLand rattles off a few blunt 'home truths'

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http://www.businesstimes.com.sg/arch...ruths-20130726

Published July 26, 2013

CapitaLand rattles off a few blunt 'home truths'

By Kalpana Rashiwala


[SINGAPORE] In a candid assessment of the Singapore residential property market, CapitaLand yesterday warned of headwinds in the near term.

Following the introduction of a 60 per cent cap on total debt servicing ratio that financial institutions must apply before issuing property loans, effective June 29, CapitaLand said in its latest financial results statement that "prices and sales volume of Singapore residential property are expected to moderate as the cumulative impact of the various property measures continue to be played out in the coming months".

Analysts note that CapitaLand has been quite responsive to market changes and introduced discounts at its projects d'Leedon, Interlace and, most recently, Sky Habitat in Bishan.

Referring to Sky Habitat, CapitaLand Residential Singapore CEO Wong Heang Fine said: "We are doing selective unit discounts - but not on a mass basis."

BT understands that CapitaLand is testing the market with a selected 100 units at Sky Habitat for release at below $1,500 per square foot. Prior to this, the project had been selling at around $1,600 psf on average.

A CapitaLand Singapore spokesman said: "We streamlined our promotion scheme two weeks ago. Selected units are marketed at a range of prices - such promotions are not new. As this is an ongoing promotion, we are monitoring the response."

According to government data, as at end-June, 166 of the 250 units released in the 509-unit project were sold.

Meanwhile, CapitaLand posted a 0.7 per cent dip in second-quarter net profit to $383.1 million on the back of lower portfolio gains and one-time losses of $27.7 million incurred in the convertible bonds repurchase in June.

Revenue came to $1.18 billion, up 37.1 per cent from a year ago.

First-half net profit totalled $571.3 million, an increase of 10.1 per cent from a year ago. Revenue rose 22.7 per cent to $1.8 billion.

Earnings before interest and tax (Ebit) climbed 2.4 per cent to nearly $1.08 billion. Singapore and China operations accounted for 77.4 per cent of this amount.

At yesterday's results briefing, CapitaLand president and group CEO Lim Ming Yan said that the group would continue its focus on Asia, because of growth, urbanisation and consumer demand. And the group is in a position to tap these opportunities, given its strength in integrated and mixed developments.

Unlike their Australian or American counterparts, Asian cities, particularly Shanghai and Beijing, are so densely populated that the authorities have no choice but to put in significant transport infrastructure, said Mr Lim.

Once that happens, there is a need for higher-density developments, which makes a strong case for integrated/mixed developments.

"This is where it will play to our strength," said Mr Lim.

It will not be easy for anyone to replicate the group's full competencies across different asset classes, he added.

In Singapore, CapitaLand will be launching in the current half another condo, next to Sky Habitat, which Mr Wong said would "be targeted at a different market sector". The group also plans to release its Marine Point project.

Despite the challenging near-term outlook, CapitaLand said that long-term prospects for the Singapore residential property market remain positive and that there would be sustainable demand for new homes.

It cited Singapore's sound economic fundamentals and policies to support population growth. "Hence, CapitaLand Singapore will continue to source for well-located sites to build its pipeline."

In its other key market of China, the group's 2013 target is to launch about 3,000 homes.

At yesterday's briefing, CapitaLand officials highlighted that the group took a one-time loss arising from the convertible bonds repurchase to enjoy future lower interest expense and lengthen its debt maturity. In all, it would have reduced annual interest expense by about $18 million over the next seven years.

Interest cover has fallen from 5.5 times for the whole of last year to 4.8 for the first half of this year. The net debt-to-equity ratio was 0.45 times at end-June, unchanged from end-December.

Earnings per share for Q2 dipped to nine cents from 9.1 cents a year ago. However, first-half EPS rose to 13.4 cents from 12.2 cents. Net asset value per share rose to $3.69 at end-June from $3.55 at end-December.

In the stock market yesterday, the counter ended one cent higher at $3.22. CapitaLand released its results before the start of trading.

Mr Lim also revealed that the group was targeting a return on equity of 8-12 per cent on a sustainable basis. Over the past five financial years, ROE has ranged from 6.2 per cent (FY2012) to 12.2 per cent (FY2008).

He also indicated that the group was comfortable with a two-thirds/one-third mix between operating assets and projects under development. That is, two thirds of projects will be contributing and one third still under development and hence not contributing yet. "You need that one-third because it will give you growth in the future."

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http://www.straitstimes.com/archive/...sales-20130726

Loan curbs expected to hit home prices, sales

CapitaLand's statement comes as it reports 0.7% dip in Q2 earnings

Published on Jul 26, 2013

By Melissa Tan


HOME prices and sales volumes are likely to head south over the next few months as various measures to curb excessive borrowing take their toll on demand, property giant CapitaLand said yesterday.

"The group envisages some headwinds for the private residential property market in the near term," CapitaLand said in its earnings statement.

"Prices and sales volume of Singapore residential property are expected to moderate as the cumulative impact of the various property measures continue to be played out in the coming months," it added.

CapitaLand Singapore chief executive Wen Khai Meng added at a results briefing held at Capital Tower yesterday: "It's difficult for us to make a call at this point, but it may flow to lower volumes. We have no crystal ball."

The comments come a month after the Monetary Authority of Singapore (MAS) unveiled a new framework for mortgage loans to ensure prudent borrowing. The framework specifies that a borrower's total debt repayments should not exceed 60 per cent of gross monthly income.

CapitaLand group chief executive Lim Ming Yan said yesterday that "on the whole, our households are still fairly prudent" and the Singapore market was still "fairly resilient despite the policies that have been implemented".

"We will continue to be active and continue to participate, but at the same time, we are mindful that the market is volatile, so we will take all this into consideration."

He added that while Singapore households are generally "fairly prudent", he was not surprised that up to 10 per cent of borrowers here are overstretched, a figure that MAS managing director Ravi Menon revealed last week.

He added that the proportion of at-risk borrowers could rise to 10 to 15 per cent if mortgage rates go up 3 percentage points.

Analysts are of the view that prices are likely to ease.

UOB Kay Hian research analyst Vikrant Pandey told The Straits Times yesterday that the impact on private home prices depends on their vacancy rate, which is a function of demand.

The vacancy rate for private residential units here is about 5 per cent at the moment, which is still quite low, but if it goes up to around 8 per cent, then home prices could drop by 5 to 10 per cent, Mr Pandey added.

Maybank Kim Eng analyst Wilson Liew reckons that property prices could fall by up to 10 per cent, though the drop would be seen mainly in the mass-market segment.

"The price run-up has largely been in the mass-market segment and that segment is more likely to include investors who tend to be over-leveraged compared with the high-end segment."

Religare Institutional Research analysts said earlier this week that over 9,000 households here may face problems paying off their mortgages when interest rates rise.

This is based on 10 per cent of 90,000 new homes coming onto the market from now to 2016.

CapitaLand yesterday posted a marginal 0.7 per cent dip in second-quarter earnings from the preceding year to $383.1 million due to lower portfolio gains.

Revenue for the three months to June 30 jumped 37.1 per cent to $1.18 billion.

The property giant sold 139 homes in the second quarter, 31 per cent fewer than in the corresponding period last year.

For the first half of the year, net profit rose 10.1 per cent to $571.3 million and revenue climbed 22.7 per cent to $1.84 billion.

Earnings per share stood at nine cents for the second quarter, down slightly from 9.1 cents the preceding year. Net asset value per share was $3.69 as at June 30, up from $3.55 as at Dec 31.

CapitaLand's share price rose a cent to end at $3.22 yesterday.

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