Feeling heat from cooling property
DEVELOPERS are feeling the heat from a tougher operating environment as property valuations slide, and some have been pushed to make provisions for projects.
Wheelock Properties has made an accounting provision of $110 million for The Panorama, a 99-year leasehold condominium in Ang Mo Kio, while OUE has declared a net fair value loss of $76.8 million on its investment properties.
Wheelock posted a loss of $91.3 million for its fiscal fourth quarter, wider than the $30.8 million a year ago. For the full year ended December, the developer posted a net profit of $40 million, down 36.7 per cent from the $63.3 million a year ago.
Meanwhile, OUE posted a net attributable loss of $36.6 million for the full year ended December, compared with a net profit of $90.1 million a year earlier.
In the case of Wheelock’s The Panorama, the developer paid $550 million for the land in Ang Mo Kio Ave 2. This translates to about $790 per square foot per plot ratio (psf ppr), higher than the range of $560 and $650 psf ppr put forth by analysts when the site was first launched.
Standard Chartered had estimated the break-even cost to be around $1,280 psf and a net profit margin of about 5 per cent based on a selling price of $1,350 psf. In January, Wheelock moved 58 units at about $1,343 psf.
“Other listed developers with projects potentially with similarly thin margins (0-7 per cent) include Frasers Centrepoint Limited’s Rivertrees, UOL Group’s Riverbank and CapitaLand’s Sky Vue and Sky Habitat,” noted Standard Chartered.
But CapitaLand – which clocked impairments of $165 million for FY2013 but mostly due to projects in China – has maintained that there is no need to have any impairments on its Singapore residential projects at the moment.
“Assuming prices and demand drop as per what market consensus has shown . . . the prices that we have transacted and expect to transact are, even in the stress scenario, above the break-even prices that we have,” said CapitaLand.
Guidance from developers continues to be cautious, with a projected 5-10 per cent decline in physical residential prices.
UOB Kay Hian said that it was cutting its overall 2014 earnings forecasts, with the main culprits for the reduction being developers (due to delayed recognition of projects) and shipyards. It cut its 2014 and 2015 market earnings per share forecasts to 6.8 per cent and 11.6 per cent, from 11.5 per cent and 12.8 per cent respectively.
According to the Urban Redevelopment Authority’s figures, developers sold a total of 14,948 private residential units in 2013, one-third below the previous year’s 22,197. For the full year, prices of private residential properties rose 1.1 per cent, compared with 2.8 per cent in 2012.