SINGAPORE, (Reuters) - Hopes that a slowdown in
Singapore's property market is temporary are fading as an
uncertain economic outlook and a looming housing glut threaten to
plunge the sector into a prolonged downturn.
Homebuilders such as CapitaLand <CATL.SI>, Keppel Land
<KLAN.SI> and GuocoLand <GUOC.SI> have delayed launching new
projects in the moribund market, taking a hit to first-quarter
earnings as they hoped for a rebound later this year.
Prospects could be dented further in coming months if smaller
developers face financing troubles and have to unload properties
at massive discounts. Some have gorged themselves on expensive
land acquisitions over the past two years.
With home prices expected to fall 30 to 40 percent over the
next three years, Singapore's developers could be badly hit and
analysts may slash their earnings estimates further.
"This is the start of a multi-year price correction. Private
residential property prices could easily fall by up to 30 percent
by 2010," said Barclays Capital economist Leong Wai Ho.
Credit Suisse in a report this month saw rents and property
prices falling even more steeply by as much as 40 percent, and
downgraded its investment recommendation for the sector to
"underweight".
Warning signs have been flashing as first quarter 2008 sales
volumes slumped to the lowest in five years and price growth
slowed for two straight quarters, with concerns about a global
economic slowdown and the U.S. subprime mortgage crisis scaring
off potential homebuyers.
Leong said an impending oversupply will worsen the problem,
with 66,000 new homes expected to be completed over the next four
years, against forecast demand for 50,000 in the same period.
The three-month Singapore Interbank Offered Rate <SISGD3MD=>
-- a benchmark for mortgage loans -- has fallen to near record
lows below 1.3 percent, but that may not be enough to revive
buyers' flagging confidence, economists say.
"Negative real interest rates will be at best a cushion,
rather than a boost to housing demand in the near term, although
they could lift property demand if and when sentiment turns,"
said Citi analyst Kit Wei Zheng.
STEEP DISCOUNTS
"The worst is yet to come and price cuts are imminent, as the
holding power of property players is weakening and speculative
demand is diminishing," said ABN AMRO analyst Fera Wirawan.
BNP Paribas has flagged high financial risks for small
developers including Bukit Sembawang <BSES.SI>, Low Keng Huat
<LKH.SI>, and Lian Beng <LIBG.SI>, which have almost all their
debts due within a year.
Even major builders such as Allgreen <AGRN.SI>, KepLand and
GuocoLand could face difficulties after steep drops in profit in
the last quarter as they launch fewer projects, analysts say.
Slower sales and rising costs could raise developers' gearing
or debt-to-equity ratio to dangerous levels above 70 percent, up
from the industry average of about 62 percent.
"We identify three developers, namely Allgreen, GuocoLand and
Keppel Land, that could face some pressures on cash flow,"
JPMorgan analyst Christopher Gee said in a report, noting that
gearing levels could be pushed up to between 80 and 130 percent.
The risk of price falls has been heightened by property
speculators buying in recent years with little upfront cash,
relying on a deferred payment scheme. The government scrapped the
scheme last October in a bid to cool down the sector.
Analysts expect speculators will dispose of about 700 units
on the cheap this year, and another 2,000 next year, as the
properties near completion and installments are due.
"Forced selling may becomewidespread next year as
speculators with weak bargaining power may not be able toafford
the installment payments," said Wirawan.
TEMPORARY HICCUP?
Some developers are still counting on home prices in the city
state to rise for at least another year, as they see the market
in the middle of an upswing even as the U.S. housing market
grapples with its worst downturn since the Great Depression.
"This is a temporary hiccup. We just had a boom starting in
2006 and it's usually a seven-year cycle," property tycoon Kwek
Leng Beng, who heads Singapore's No. 2 developer City
Developments <CTDM.SI>, told Reuters.
The property market will be supported by greater foreign
investments as Singapore sees the completion of two casino
projects and the influx of major events such as Formula One races
and the Youth Olympics over the next few years, Kwek argued.
But Barclays' Leong said his bearish scenario, which calls
for a near one-third drop in property value, already takes into
account any boost resulting from these economic developments.
"It's not the worst-case scenario. This is the most likely
scenario based on the numbers," he said.
(Editing by Neil Chatterjee & Kim Coghill)
(([email protected]; +65 6403 5669; Reuters
Messaging: [email protected]))
Please double-click on the following newslinks:
[E-REAM-SG] for stories on Singapore's property market
[ID:nN04374814] for a package of stories on U.S. housing
.
Copyright © 2008 Reuters. All rights reserved.
Republication or redistribution of Reuters content, including by caching,
framing or similar means, is expressly prohibited without the prior written
consent of Reuters.
Reply With Quote
Originally Posted by Icekopi
