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Annex B
Singapore developers at risks of higher borrowing and lower profit
Separately, a property market analysis conducted by BNP Paribas identified the high financial risks borne by small developers including Bukit Sembawang, Low Keng Huat and Lian Beng.
The report pointed out that these developers have almost all their debts due within a year. The bank’s assessment is that even major builders such as Allgreen, Keppel Land and GuocoLand could face difficulties after steep drops in profit in the last quarter as they launch fewer projects.
This situation has accentuated the developers' debt-to-equity ratio to dangerous levels above 70%, up from the industry average of about 62%.
In this respect, JPMorgan identified three developers, namely Allgreen, GuocoLand and Keppel Land, that could face some pressures on cash flow as their debt-to-equity ratio could be pushed up to a very dangerous level of between 80% and 130%.
Speculators who bought properties with little upfront cash before the Deferred Payment Scheme was scraped last October may need to dispose of about 700 units on the cheap this year, and another 2,000 next year, as the properties near completion and instalments are due. And this will increase the developers’ risks.
On the contrary, some ‘big gun’ developers are still hoping that the slump may be temporary and clinging on to the theory that there was always a seven-year cycle. Their wisdom stemmed from the continued arrivals of foreign investments as Singapore sees the completion of two casino projects and the influx of major events such as Formula One races and the Youth Olympics over the next few years.
However, the experts are looking at the numbers that tell a very different story.
Annex C
How to react to tough questions using the latest market information
Part One: “How’s the Market?”
Customer |
Tell me Sam, how’s the market now? |
Agent |
The economic fundamental is still good, except that the property market is a little erratic because of the problems in the US. But over here in Singapore, prices are still holding up alright. |
Customer |
In your opinion, should I sell my property now? |
Agent |
May I know why you want to sell it? As I have just said, property prices are still holding up in Singapore. Do you intend to take profit, upgrade to a bigger property or downgrading? |
Customers |
I want to cash out. What is your advice? |
Agent |
If you want to cash out; my advice is to cash out now or else you will be caught in a mad rush where everybody wants to take profit slightly before the casino is completed. But where are you going to live in? |
Customers |
I will rent a place first and wait for the market to cool down. Do you think it is a good idea? |
Agent |
I never advocate renting because it is no difference from you helping the landlord to get richer by paying his mortgage. I also don’t believe it is a good idea to go without a property on hand as you will be eaten alive by this monster called ‘hyper-inflation’. At the end of the day, whatever money you hold in your hand is going to diminish in value. |
Customers |
So what do you suggest I do? |
Agent |
You will have to pick a winner – a property that does not diminish in value so much even in recession [refer to the list of ‘Most Sellable Projects’ in First Quarter Property Market Review on www.update.sg].
You should choose a unit in one of those ‘most sellable project’ and make the switch now when prices are still strong for your ‘selling side’ and buy into a ‘winner’ project and let the inflation take care of the capital appreciation in the medium term. |
Part Two: “Should I Sell now?”
Customer |
Tell me Sam, do you think I should SELL my property now? |
Agent |
Why do you want to sell? The RENTAL VALUE of your property is still good. |
Customer |
But I am living in the house [I am not renting out], how does the rental benefit me? |
Agent |
Oh, it does sir. Rent is where the capital value of your property comes from [even though you are not renting it out]. You see sir, when your project [estate or block] is attracting good rental value, and when you put up your property for sale, investors will consider buying it because they can enjoy a good return on their investment. |
Customers |
How does it work for an investor? |
Agent |
For example, if you are selling your house at $1 million to an investor and the annual rental income is $60,000, it means that the investor is enjoying a yield of 6%. The banks are unable to pay that kind of high interest nowadays. Even if you minus the other costs of property ownership, the rate of return is still higher than the interest rate offered by the banks today. |
Customers |
So what do you suggest I do? |
Agent |
If you are going to monetise your investment, I can find a good and reliable tenant for you and ensure that the monthly rent payment is prompt. But if you really want to sell, I suggest you find an alternative home right now and I can help you pick a ‘winner’.
In this time of uncertainty, you need to pick the ‘winner’ which will not diminish so much in value even in a recession. [Refer to the ‘Most Sellable Projects’ in the First Quarter Property Market Review in www.update.sg |
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