To boost profit margins, Singapore’s residential property developers are urged to diversify out of the local property market given its increasingly tight conditions, said media reports.
Notably, CIMB expects margin compression to continue for quite some time on the back of rising construction and land costs, oversupply, a depleting domestic landbank and competition from foreign developers.
“Developers that have overseas exposure, strong presales and recurring income from investment properties are likely to fare better in this environment,” it said in a report.
“Singapore developers will have to increasingly look to overseas for opportunities to maintain earnings visibility. We note that most large-cap developers have diversified out of Singapore and built up recurring income through investment properties. Singapore residential exposure forms less than 30 percent of overall Gross Annual Value (GAV) for most developers.”
Looking ahead, CIMB expects prices and volume to remain weak in the short to mid-term due to a reduction in investment demand, short term supply pressure and policy restrictions.
Overall, CIMB expect private home prices “to retrace by five percent this year with a through-the-cycle correction of 15 percent over the next three years.”
CIMB also expects primary transaction volumes to remain low after falling 57 percent year-on-year year-to-date. Vacancy levels will likely increase to around 10 to 11 percent from the present 7.1 percent, with an excess supply of 30,000 to 40,000 units.
Nonetheless, it expects the short-term pain to bring about structural longer-term gain, through greater financial prudence.
“Affordability remains high and there is pent-up demand, leading to a more balanced long-term outlook,” the report said.
Muneerah Bee, Senior Journalist at PropertyGuru, edited this story. To contact her about this or other stories email muneerah@propertyguru.com.sg
