As small home developers starts to cut prices, other property groups become pressured to make writedowns too. This will cut bottom lines, which have already begun to fall in the newest quarterly reports.
Way back in 2001, CapitaLand and Keppel Land had real estate projects with breakeven costs below realistic selling prices. For the Singapore residential estates, they had to make massive writedowns.
It seems that this will be repeated again as realistic and achievable selling prices are way below breakeven costs. Developers however, may barely make it through the fourth quarter.
This year’s valuation is predicted at 10-15 percent below that of the previous year for expensive homes while prime lots may decline at a higher 15-20 percent.
Because this trend has lasted for some six to eight quarters, it is expected that it will continue through the coming months. High-end sites may require a lot of written down than mass market sites. They have less choice but to make writedowns compared to others who acquired property for development in the earlier years.
What also worries developers are those who sold homes on deferred payment as some of them will realise their profits only upon the site’s projected completion. Thus, there would be trouble once these buyers would default on their payments or choose to cancel their contracts.
This scenario will lead the developers postponing the realisation of their profits while they are un-booking their previous sales. Only when they have new buyers will they be able again to make records of their expected profits.
One expert however, says that the worse from these writedowns have already been factored in and is therefore not bothered by them.