Seeking growth outside Singapore, local developers have aggressively injected capital into China’s residential market over the past five years, but “while stocks initially enjoyed the benefit of the 06/07 China re-rating, they have subsequently been penalised, underperforming domestic peers over the last five years,” said a Bank of America Merill Lynch report.
Key China players include Keppel Land (KPLD) and Capitaland (CAPL). Meanwhile, Singapore’s five largest residential developers all have a presence in China and the exposure now makes up 18 percent of valuation, up significantly from five years ago.
“For CAPL and KPLD, where China exposure has increased significantly, share prices have become more volatile, correlation has shifted towards China peers & return profiles have deteriorated,” noted the report.
Expansion into China is not synonymous with improved profitability. “We have analysed the ROE profile of the Singapore residential developers. While the ROE of predominately domestic exposed developers has improved post GFC, those with increased China exposure continue to decline,” it noted.
As China’s housing market begins a healthy correction, property analysts from BoAML China expect nationwide sale prices and volumes to decline by 10 percent next year due to oversupply, although it is not a hard landing.
“The sector is not likely to perform, especially in 1H12 as we expect the physical market will suffer from cyclical downturn. Under this scenario, we do not expect Singapore developers to re-rate on the back of China.”
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