But measures announced during the Budget will help alleviate some of the burdens of property developers.
By Uma Shankari 24 January 2009
Keppel Land, Singapore’s third-largest property group by market capitalisation, on Wednesday reported an 88 per cent fall in fourth-quarter earnings, which led to a 70.8 per cent drop in 2008 net profit. The developer is seen as the harbinger of bad news as other property companies, set to announce their financial results in the coming weeks, are also expected to report lower year-on-year earnings on weaker sales in Singapore and abroad.
Analysts issued ‘hold’ and ‘underperform’ calls on KepLand following its Q4 results announcement. ‘The outlook remains challenging, with little visibility over the timing of launches both in Singapore and abroad,’ said Deutsche Bank analysts Gregory Lui and Elaine Khoo. They scaled back their assumptions of average selling price, launch schedules and take-up rates and reduced their revalued net asset value (RNAV) and earnings per share (EPS) forecasts by 8 per cent, and issued a ‘hold’ call on the stock. DBS Vickers analyst Lock Mun Yee also issued a ‘hold’ call and said that KepLand’s outlook remains challenging.
Other developers are likely to see the same fate as they announce their 2008 results. On Jan 13, Goldman Sachs warned that the 2009 and 2010 earnings of property companies could disappoint. Analysts Paul Lian and Natasha Parchani reduced their 2009/2010 earnings estimates on the back of deferred launches and expected continued slow sales throughout the two years.
But they also said that the deferment of stamp duty and property tax rebates from the Budget would be positive for the industry. Developers told BT that they were hoping for the same thing.
When the government unveiled its 2009 Budget on Thursday, developers were granted some of their wishes. A property tax rebate of 40 per cent for industrial and commercial properties for 2009 was announced - a move which is expected to reduce developers’ operating cost and cash burden.
And to make it easier for developers to hold back some developments in these weak market conditions, the government is also deferring property tax for land approved for development for two years or till the project attains its temporary occupation permit (TOP), whichever is earlier. The time developers are given to complete private residential projects will also be extended by one year. These measures are expected to help prop up home prices by reducing supply.
‘Property market measures announced during Singapore’s 2009 Budget will come as a timely relief for property developers which had been experiencing declining sales in light of the weak economy and property market,’ said OCBC Investment Research in a note yesterday.
Said Kim Eng’s research team: ‘This initiative will make it easier for developers to phase out their projects, at a time when demand is weak and more challenging for developers to pre-sell units to fund their construction. This could reduce the supply of completed units coming into the market in the near-term, alleviating some fears of an impending supply overhang.’
In its report, OCBC Investment Research identified CapitaLand, UOL Group, City Developments and Singapore Land as the key beneficiaries of the government measures announced on Thursday. ‘Developers with significant exposure in industrial and commercial properties will be the primary beneficiaries of the budget measures as their bottom-lines will directly benefit from the 40 per cent property tax rebate and the early property tax assessments, which should see the assessed annual value of properties coming down with the softening in rental rates,’ the report said.
Property stocks with hotels in their portfolios will also enjoy one more year of a 20 per cent assessment rate on hotel rooms, instead of the 25 per cent assessment originally intended for 2009. This will help through a difficult 2009 as tourist arrivals fall.
However, demand-side initiatives that developers were hoping for - the deferment of stamp duty and even re-instatement of the deferred payment scheme (DPS) - did not materialise. Home sales are therefore expected to continue to be weak this year.
This means that one cause for concern highlighted by analysts - unsold inventory that is building up - will remain in 2009.
‘With competition coming from the cheaper secondary market, unsold uncompleted inventory in the system has been creeping up since end-2007. This is starting to become a worrying trend,’ said CIMB analyst Donald Chua in a report earlier this month.
On Wednesday, KepLand had one reason to rejoice - the developer made no provisions or writedowns in its Q4 financials. Analysts said that most developers are unlikely to make provisions or write-downs when they report their Q4 earnings.
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KepLand’s bleak results may set tone for industry
But measures announced during the Budget will help alleviate some of the burdens of property developers.
By Uma Shankari
24 January 2009
Keppel Land, Singapore’s third-largest property group by market capitalisation, on Wednesday reported an 88 per cent fall in fourth-quarter earnings, which led to a 70.8 per cent drop in 2008 net profit. The developer is seen as the harbinger of bad news as other property companies, set to announce their financial results in the coming weeks, are also expected to report lower year-on-year earnings on weaker sales in Singapore and abroad.
Analysts issued ‘hold’ and ‘underperform’ calls on KepLand following its Q4 results announcement. ‘The outlook remains challenging, with little visibility over the timing of launches both in Singapore and abroad,’ said Deutsche Bank analysts Gregory Lui and Elaine Khoo. They scaled back their assumptions of average selling price, launch schedules and take-up rates and reduced their revalued net asset value (RNAV) and earnings per share (EPS) forecasts by 8 per cent, and issued a ‘hold’ call on the stock. DBS Vickers analyst Lock Mun Yee also issued a ‘hold’ call and said that KepLand’s outlook remains challenging.
Other developers are likely to see the same fate as they announce their 2008 results. On Jan 13, Goldman Sachs warned that the 2009 and 2010 earnings of property companies could disappoint. Analysts Paul Lian and Natasha Parchani reduced their 2009/2010 earnings estimates on the back of deferred launches and expected continued slow sales throughout the two years.
But they also said that the deferment of stamp duty and property tax rebates from the Budget would be positive for the industry. Developers told BT that they were hoping for the same thing.
When the government unveiled its 2009 Budget on Thursday, developers were granted some of their wishes. A property tax rebate of 40 per cent for industrial and commercial properties for 2009 was announced - a move which is expected to reduce developers’ operating cost and cash burden.
And to make it easier for developers to hold back some developments in these weak market conditions, the government is also deferring property tax for land approved for development for two years or till the project attains its temporary occupation permit (TOP), whichever is earlier. The time developers are given to complete private residential projects will also be extended by one year. These measures are expected to help prop up home prices by reducing supply.
‘Property market measures announced during Singapore’s 2009 Budget will come as a timely relief for property developers which had been experiencing declining sales in light of the weak economy and property market,’ said OCBC Investment Research in a note yesterday.
Said Kim Eng’s research team: ‘This initiative will make it easier for developers to phase out their projects, at a time when demand is weak and more challenging for developers to pre-sell units to fund their construction. This could reduce the supply of completed units coming into the market in the near-term, alleviating some fears of an impending supply overhang.’
In its report, OCBC Investment Research identified CapitaLand, UOL Group, City Developments and Singapore Land as the key beneficiaries of the government measures announced on Thursday. ‘Developers with significant exposure in industrial and commercial properties will be the primary beneficiaries of the budget measures as their bottom-lines will directly benefit from the 40 per cent property tax rebate and the early property tax assessments, which should see the assessed annual value of properties coming down with the softening in rental rates,’ the report said.
Property stocks with hotels in their portfolios will also enjoy one more year of a 20 per cent assessment rate on hotel rooms, instead of the 25 per cent assessment originally intended for 2009. This will help through a difficult 2009 as tourist arrivals fall.
However, demand-side initiatives that developers were hoping for - the deferment of stamp duty and even re-instatement of the deferred payment scheme (DPS) - did not materialise. Home sales are therefore expected to continue to be weak this year.
This means that one cause for concern highlighted by analysts - unsold inventory that is building up - will remain in 2009.
‘With competition coming from the cheaper secondary market, unsold uncompleted inventory in the system has been creeping up since end-2007. This is starting to become a worrying trend,’ said CIMB analyst Donald Chua in a report earlier this month.
On Wednesday, KepLand had one reason to rejoice - the developer made no provisions or writedowns in its Q4 financials. Analysts said that most developers are unlikely to make provisions or write-downs when they report their Q4 earnings.
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