Developers here are facing record debt maturities, just as home sales posted their longest-ever losing streak.
Property firms in Singapore are facing record debt maturities – $1.8 billion of local currency bonds this quarter, $1.2 billion in the fourth quarter and another $3.7 billion next year – just as home sales registered their longest-ever losing streak, reported Bloomberg.
With this, Credit Suisse Private Banking does not recommend smaller developers due to “relatively high” leverage. JPMorgan Chase & Co believes that these firms are “most exposed” to a further correction in the property market considering their weak financial profiles.
“Many bonds are un-rated and investors aren’t adequately rewarded and have under-priced the risk,” said Ben Sy, head of fixed income, currencies and commodities at JP Morgan in Hong Kong. He added that the finances of smaller developers are weakening while leverage is rising in a local market that lacks adequate scrutiny.
Singapore has seen home values drop by 9.4 percent from the peak in 2013, with the declines showing no signs of abating. In fact, an index monitoring private home prices recorded its 11th quarterly drop in the three months ended 30 June, while the government lowered its economic growth forecasts for 2016.
The smallest 50 property firms and trusts on the Singapore Exchange are in an even weaker position to repay their debts, with operating earnings falling from 15.8 times interest expenses five years ago to 9.2 times.
“Unlike the commodity sectors, the Singapore property sector – while softening – is still perceived to be relatively stable, given the generally moderate pace of decline in prices,” noted Chua Jen-Ai, a research analyst at Bank Julius Baer Singapore.
Chua expects stresses to appear only in 2017, when property developers cease benefiting from the sales boom which ended in 2013.
Investors are asking for bigger premiums to hold notes from smaller borrowers. Bloomberg-compiled data showed that Heeton Holdings, a developer of homes along Holland Road, saw its yield on 2017 bonds increase by around 130 basis points to 6.5 percent from the previous year.
As at 30 June, the firm’s total debt stands at $369.2 million, with cash and equivalents of $11.2 million, revealed company results.
Aspial Corp, a jewellery retailer and builder of high-rise condos, saw its yield on 2017 securities rise to around 9.8 percent, the highest in data from November 2014, based on Bloomberg-compiled prices.
Given this scenario, Credit Suisse Private Bank said it prefers real estate investment trusts as regulators capped their borrowing levels to 45 percent of total assets.
“We prefer Reits where leverage is lower and cash flows are more stable,” said Neel Gopalakrishnan, Credit Suisse Private Bank’s Singapore-based emerging markets fixed-income analyst.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
