http://www.businesstimes.com.sg/arch...arket-20131113

Published November 13, 2013

CDL raises red flags on private housing market

Group posts 10.4% fall in Q3 earnings; revenue dips 1.2% to $822.7m

By Kalpana Rashiwala [email protected]


While developers are starting to cut their prices in existing and new projects, willing to take in lower profit margins, land prices continue to escalate.
- CDL executive chairman Kwek Leng Beng


CITY Developments Ltd (CDL), which posted a 10.4 per cent year-on-year drop in third-quarter net earnings to $120.6 million yesterday, has raised some red flags on the Singapore private residential property market.

CDL pointed out that while developers are starting to cut their prices in existing and new projects, willing to take lower profit margins, land prices on the other hand are continuing to escalate.

At state tenders, non-traditional developers, especially foreign construction companies, are entering the arena, bidding aggressively to secure land, while sacrificing their profit margins on construction.

"As a result, many developers have formed joint ventures to bid for land and noticeably, successful bid prices between sites can vary widely, reflective of the lack of land stock in trade. This is a very potent trend that may affect the industry in the medium to long run and the group is hopeful that the government will study this carefully," said CDL's executive chairman Kwek Leng Beng.

He also touched on private housing unit oversupply concerns and highlighted that the property cooling measures are beginning to bite.

The group has remained more conservative in tendering for land this year. Instead, it has has been focusing on developing its overseas growth engines.

A segmental breakdown of profit before income tax (including share of after-tax profit of associates and jointly controlled entities) showed that profit from property development rose to $88.9 million in Q3 2013 from $76.5 million in Q3 2012.

However, pre-tax profit from hotel operations fell to $49.3 million from $55.7 million.

Profit from rental properties at $32.2 million was less than half the $71.2 million in the year-earlier quarter. The decrease was due to lower gains booked on the disposal of non-core investment properties; in Q3 2013, gains were recognised on the sale of only one strata floor in GB Building while in the year-earlier quarter, profit was recognised on disposal of several strata units in Citimac Industrial Complex, Elite Industrial Building II, GB Building and Pantech Business Hub.

Group revenue dipped 1.2 per cent year on year to $822.7 million in Q3 2013.

Earnings per share fell to 13.3 cents in Q3 2013 from 14.8 cents in Q3 2012. Net asset value per share rose to $8.36 as at end-September 2013 from $8.03 as at end-December 2012. The counter closed one cent higher at $10.08 yesterday. CDL released its results after trading hours.

For the first nine months of 2013, revenue fell 3.2 per cent year on year to $2.4 billion, though net profit rose 7.7 per cent to $462 million. Pre-tax profit from property development fell to $241.8 million for the first nine months from $273.7 million previously. Notwithstanding the good take-up rate for residential sales launched by the group this year, it was unable to recognise profits as construction of these projects has yet to begin or reach recognition stage. Examples include Echelon, Bartley Ridge, D'Nest and Jewel @ Buangkok.

There was also no profit recognition for three executive condominium (EC) projects, two of which are fully sold (The Rainforest and Blossom Residences) and one substantially sold (Lush Acres), until completion of construction, in accordance with prevailing accounting treatment. However, nine-month pre-tax profits from rental properties nearly doubled to $252 million from $135.1 million. Profit from hotel operations slipped to $130.3 million from $166.5 million.

In London, subject to planning approval, the group intends to develop a luxury residential project on a prime, multi-storey car park site at 28 Pavillion Road in Knightsbridge that it bought in September. Located in close proximity to Harrods, the freehold site cost the group £80 million (S$159 million).

"Though buying land in a rising market in London remains challenging, the group is actively pursuing a few other projects for strategic acquisitions. It is confident that it will be able to secure a few more sites in due course," CDL said.

In China, assuming favourable market conditions, sales will begin next year at Eling Residences in Chongqing and the residential component of Hong Leong City Center in Jinji Lake in Suzhou. Sales in the residential component of the Huang Huayuan project, also in Chongqing, will probably start in 2015.

At home, the group will monitor the market and not rush into the launch of South Beach Residences. The project remains on track to complete in 2015.