News of higher development charges hurts property shares

July 19, 2007

TAKING STOCK

News of higher development charges hurts property shares

By Arthur Poon


THE property engine that has driven share prices for many months slammed into reverse yesterday and left the market nursing its biggest one-day fall in three months.

The sell-off was so extensive - and panicked - that trading records were comprehensively smashed.

About 9.14 billion shares worth $4.31 billion were traded, easily eclipsing the old benchmark, set only on Tuesday, of 6.42 billion shares worth $3.05 billion.

And all this stemming from an afternoon government announcement that development charges for new building projects will jump from 50 per cent to 70 per cent, hitting developers' bottom lines. A charge is levied if the value of a site rises because of rezoning.

That post-lunch bombshell sent The Straits Times Index (STI) into a nosedive and stripped it of 67.08 points, or 1.84 per cent, to 3,583.97. Losers easily beat gainers 931 to 132. The previous biggest single-day fall was the 109.13-point plunge on April 19.

Property counters took the full force of the hit yesterday. But penny shares, which have seen a run-up this week, were also cast overboard by traders rushing for the exit.

'Property developers may need to raise their sale prices to pass on the additional costs to buyers, or come up with more innovative marketing and sale strategies for future projects to avoid having their margins squeezed too badly,' said CIMB-GK head of research Song Seng Wun.

SC Global, down 45 cents to $6.25, and Bukit Sembawang Estates, off 40 cents to $13.20, were among the big losers.

City Developments slid 40 cents to $15.90, while Orchard Parade Holdings plunged 37 cents, or 12.8 per cent, to $2.51. Fellow developer Wing Tai Holdings also finished lower at $3.70, down 26 cents.

Banking stocks were also dragged down by the weak market sentiment. United Overseas Bank declined 50 cents to $22.60, and DBS Group Holdings was down 20 cents at $23.40.

Also down was information technology firm Sinobest Technology Holdings, which fell two cents to 17.5 cents. It had issued a profit warning for the first half of this year, owing to the 'continuing fierce competitive environment'.

But there were winners amid the carnage. Singapore Petroleum Co rose 15 cents to a record $6.30 on expectations that second-quarter earnings will be boosted by a surge in refining margins.

Sports fashion footwear maker China Sports International, which made its debut yesterday, closed at $1.46, an 82.5 per cent premium over its 80-cent offer price.

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