Reports from Property Consultancy Groups show a decline in residential property values in Singapore, especially in last year’s high-end segment, which may continue up to this year. Consequently, listed property groups may encounter great pressure to create provisions and amendments for residential sites in Singapore.
As listed property groups never announce provisions for their 2008’s Q3 results, analysts think that these companies would decrease the selling price of their pricier residential units just this second half of 2009.
Recently, DTZ had issued a report, showing that in 2008, there was an estimate of 21.6 percent decrease in the average prices for prime non-landed freehold private home and foresee another 15 to 20 percent decrease for this year.
Property consultancy firm CB Richard Ellis (CBRE) says that the average prices for new luxury homes, which are yet to be completed, had dropped to 30–35 percent during 2008 in its prime district 9 and district 10 and by 10–13 percent in Sentosa Cove and Marina Bay.
Developers also noted that while consulting groups talk about the decline in their property values, lack of transactions are noted to confirm the declines. Nevertheless, for several companies that purchased sites at higher price above the current values, there are cases of reserving provisions since the fourth quarter of 2008.
For most developers, strong earning that are seen during the first half of 2008 can help lessen the provision of Singapore residential landbank only if they choose to record it in their 2008 financial reports.
However, if the company decides to postpone their decision until 2009, the decline may add another stress, which are also expected to weaken home sales, a general weak economic showing as well as lower value for investment properties such as shopping centres and office buildings that hold for rental income. For now, the economic stability is low and if developers announce provisions for its Q4 results, it may not further the sentiment. Now would be the best time to announce all their bad news-flow.
Making provisions in later time cuts down the chance of developers to create a more attractive price projects and may close any opportunity to create new project as well as begin a new cycle for profit arrangement. As a big property group said seven years ago when they announced their vast residential provisions, the provided exercise made “pricing flexibility to generate cashflow”.
Upon writing down the current values and sites, one big developer went further steps and gave more than it needed.
This is what analyst says CapitaLand exercised in August 2001. They reduced the price of its residential values by $508 million during their half-year result statement.
Most property agents of today say that before potential buyers would commit, they would try to request for at least 20–20 percent lower than its current property values. This will reduce the effect of future price drop, making more expectation for further drop on home prices for 2009.
With this scenario, several developers find it reasonable to reduce values of high-price residential sites in one big sweep instead to make a series of price adjustment for over a period of time.
However, this strategy may be lower upon the exercise of earnings management in some quarters.
This time, CapitaLand is no longer the market leader in making specifications for residential landbank. Still, some analysts pointed out the CapitaLand’s breakeven cost for that the two site it purchased last 2007, the Char Yong Gardens and Farrer Court, are higher than on what these two could provide today. Other listed property companies also acquired sites at low price during the property rush.
This include the two 99-year leasehold condo units in Sentosa Cove, the SC Global’s Beachfront Collection site worth $1,800 per square foot per plot ratio in 2007 as well as The Pinnacle Collection site acquired by IOI Properties and Ho Bee joint venture for $1,822 psf per plot ratio in early 2008.
Within the waterfront housing precinct, the largest paid price for a condo unit is the Pinnacle Collection. Another is the Grangeford, a 99-year leasehold site which the Overseas Union Enterprise acquired in 2007 at $1,810 psf per plot ratio.
According to a property agent, most of the site purchased in 2007 was much lowered as compared today, urging developers to make provisions.