Ernst & Young (E&Y) says real estate companies in Singapore face new and increasing risks during the slump of global economy.
“The credit crunch, fluctuations in global economies and resultant pricing uncertainty are affecting real estate companies globally, including those in Singapore”, states Liew Choon Wai, market leader and assurance partner for E&Y Singapore.
Mister Liew also said that several local developers have portfolios in other countries, which include rising markets. The major concern is the markets’ economic vulnerability as well as the possible changes to the local regulations.
Another potential concern for their business is the sector of real estate investment trust (Reit). “Should the economic downturn be prolonged or worsen, we expect some form of consolidation in this sector, especially with its refinancing needs and the continuing pressure on rents”.
As residential property developer, E&Y continues to observe a “rebalancing of selling prices and judicious timing of property launches”, he says.
Real business risk report of E&Y for 2009 enumerates the top ten risks that the industry faced and these are ranked by leading and professional analysts.
The most important concerns here are the impact of credit instability and the continued uncertainty. With this, E&Y points out that real estate sector implements a much tighter credit situations, perhaps a stronger move compared to other industry.
Credit availability limits and short-term inability to release capital in acceptable levels of return had ‘paralysed’ the transactions sector of several industries, says Michael Lucki, the global infrastructure and construction leader of E&Y.
“The only lending today is on deals with 50 percent loan to value and at rates 200 to 400 basis points higher than six months ago, whereas towards the end of 2007 most loans were at 80-90 percent loan to value”.
However, some lenders are cautious to move their real estate-related assets off the book. Instead, they pave the way for forward-looking companies in order to develop new strategies in taking advantage on the troubled assets and debt situations.
Aside from instability and the lack of credits, E&Y also sees several other risks that affect the real estate sector, these include: inadequate infrastructure; global war for talent and skills; changing demographics; pricing uncertainty; the sustainability, climate change and green revolution; volatile energy costs; and the inability to exploit or find non-traditional and global opportunities.
Still, Howard Roth, real estate leader of E&Y, believes that many capitalist are waiting for the right time to take advantage and opportunities for the real estate situation.
“A structured, comprehensive due diligence programme will be more important than ever as buyers and sellers evaluate their opportunities”, Roth says.