Published August 15, 2008

Property firms report weak set of Q2 numbers

Most developers see their business hit in 3rd and 4th quarters


HIT by fewer home sales, lower revaluation gains from investment properties, drops in divestment gains - and even the stronger Singapore dollar - property companies largely reported weak results for the second quarter.

And the future doesn't look rosy either.

Most listed developers have warned that the global slowdown and weakening market could hit their business in the third and fourth quarters. Even the most upbeat are only 'cautiously optimistic'.

The big three developers - CapitaLand, City Developments and Keppel Land - all posted lower profits for Q2.

CapitaLand, Singapore's and South-east Asia's largest developer, said its Q2 profit fell 43.5 per cent to $515.2 million, partly due to lower revaluation gains from investment properties, lower portfolio gains and development profits, and the absence of previous write-back provisions. Analysts called the results disappointing.

City Developments saw Q2 net profit drop 15.1 per cent to $165.2 million. Among other factors, CityDev was hurt by the translation of its overseas hotels earnings at weakening exchange rates due to the strengthening Singapore dollar.

Keppel Land reported that Q2 profit fell 16.4 per cent to $52.7 million as it sold fewer homes in Singapore and abroad.

'I think the mood is generally very cautious, and this has hurt the developers,' said an analyst. 'The trend is likely to continue for the rest of the year.'

Right now, the fear is that sectors that are currently contributing strongly to top lines, such as hospitality, may soon start to weaken.

The Ministry of Trade and Industry's latest quarterly economic survey showed there are increasing signs that segments within services - including the retail trade and hotels - are showing slower growth.

Property stocks with exposure to those sectors - such as CapitaLand, CityDev and UOL Group, to name just a few - could see contributions from those divisions drop.

For UOL, for example, a 4 per cent increase in Q2 in revenue was due largely to hotel operations, with its hotels in Singapore, Australia and Vietnam performing better.

As for the residential market here, Citigroup has said prices of luxury homes could correct sharply, which could have a negative impact on some developers.

'Scrapping of the deferred payment scheme and tighter bank financing for investment properties may have also hurt property transactions, which are off some 70 per cent from recent highs,' Citi noted in a recent report. 'Some developers may have also over-committed in terms of land purchases during the boom periods.'

Citi analyst Wendy Koh expects a 20-30 per cent price correction for high-end properties from their recent peak, and reckons the mid-tier is likely to decline 10-20 per cent.