The drop in private residential home prices in Q3 has added pressure on developers who are already struggling to move units, reported the media.
According to analysts, margin compression is a real threat among property developers in Singapore as the government is unlikely to relax its property cooling measures anytime soon.
CIMB noted high supply, subdued expectations on property prices and financing restrictions limit buying activities, with private homes prices expected to fall by five percent this year.
With this, CIMB expects developers’ profits to be muted due to higher land costs and weaker average selling prices.
“We think it is a little too early for a relaxation of housing restrictions and expect developer stocks to be range bound in the near term,” it said.
Meanwhile, PropNex observed the price decline was accompanied by a significant decline in monthly primary private home sales. This is because buyers held back their buying decision in anticipation of a further price drop.
“We think the reduced volume transactions have reflected the near-term reduced market size and are likely to stabilise at this level as marginal buyers have been impacted by the financing restrictions put in place,” said PropNex.
“Developers are facing the prospect of margin compression on weaker ASPs and as land prices remain high. Most developers have diversified overseas into countries such as Australia and the UK, as well as have boosted their recurrent income streams by investing in investment properties. This will enable them to generate higher PBT margins of 15-20 percent vs. 10 percent from the local projects, and will lift their RNAVs,” it added.
Muneerah Bee, Senior Journalist at PropertyGuru, edited this story. To contact her about this or other stories email muneerah@propertyguru.com.sg
