Can Singapore Property Developers Survive?

2015 was a nightmare year for property agents. ERA Realty and PropNex Realty, two of the largest property agencies lost hundreds of agents.

The two largest developer within the Straits Times Index (SGX: ^STI), namely, City Development Limited (SGX: C09) and CapitaLand Limited (SGX: C31) fared almost as badly. Their shares were down 27% and 6.8% respectively.

The slump, however, allowed some value to emerge. For investors looking to pick up these “cheap” blue chips, City Development now trades only at 0.79 times book value, while CapitaLand trades at 0.75 times book value.

Smaller property developers are trading at even greater discounts. Ho Bee Land (SGX: H13) trades only at 0.5 times book value and Wing Tai Holdings (SGX: W05) trades at 0.4 times book value.

Trouble is not over yet

In an effort to curb property price increases, the government introduced the additional stamp duty and restricted loan ceilings. The measures made it significantly harder for house buyers to purchase new houses with more cash up front required. It was a prudent approach by the government to discourage speculators.

The result of the curbs was share prices of property developers tumbled. Ironically, the actual sale price of properties only fell by 4% in 2014, followed by 3.2% last year. Could the market be overreacting to the curbs? Maybe not.

There are real uncertainties looming over the property market. Rising interest rates puts pressure on both property developers and home owners, who usually require hefty finance through debt. The curbs do not appear to be lifted soon. Despite numerous calls by property developers, such as City Developments in particular, the government’s stance has not changed.

The government describes the price correction as not sufficiently “meaningful”. For instance, the price of public housing in recent years is hardly matched by the steady appreciation it has enjoyed over the past 10 years. It is little wonder that the government is in no hurry to remove the curbs.

Resale SPI for HDB

But the curb has disproportionately hurt private properties. Lenders’ listings at property auctions are on the rise as reported by The Business Times. With higher forced selling, the property market is likely to remain depressed.

Sources of hope

The market has already cooled significantly. Property agents exiting the industry could be an indication that property speculation is dying down. People are simply choosing not buy or sell.

The fact that property developers are running at such significant discount provides a margin of safety for investors. Even if cooling measures are here to stay, Singapore remains a vibrant economy, in the long run. It is significantly better to have a long term gain than a short run followed by a major crash.

Investors could look to companies with track records of government contracts. Construction contracts this year will be primarily driven by public sector. Public infrastructure is expected to account for some two-thirds of total construction demand – the highest level since 2002. Companies with strong balance sheet could likely emerge strong from the market slump.

Foolish Summary

The trends described represent a useful starting point. But further study is required to understand whether the companies mentioned above will really be able to outperform the market in the long run.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock - Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up to date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.


The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor, Wilson Ong, doesn’t own shares in any companies mentioned.