Sluggish sales plague local developers as margin pressures mount in Q4

The cooling measures are here to stay.

Private residential home prices continued their downward trajectory in the third quarter, putting additional pressure on beleaguered developers who are already struggling to clinch new sales and woo stingy homebuyers.

Analysts warn that margin compression is a very real threat to Singapore’s property developers, as the government’s property cooling measures are unlikely to be lifted in the near future.

According to CIMB, financing restrictions, high supply and subdued expectations on property prices limit buying activities, with private residential prices expected to slip by 5% this year.

CIMB noted that developers’ profits will be muted due to weaker average selling prices and higher land costs.
“We think it is a little too early for a relaxation of housing restrictions and expect developer stocks to be range bound in the near term,” stated CIMB.

Meanwhile, PropNex noted that the price decline has been accompanied by a significant drop in monthly primary private home sales as buyers hold back their buying decision in anticipation of a further price decline or to evaluate their affordability status post these financing restrictions.

“We think the reduced volume transactions have reflected the near-term reduced market size and are likely to stabilise at this level as marginal buyers have been impacted by the financing restrictions put in place. Developers are facing the prospect of margin compression on weaker ASPs and as land prices remain high. Most developers have diversified overseas into countries such as Australia and the UK, as well as have boosted their recurrent income streams by investing in investment properties. This will enable them to generate higher PBT margins of 15-20% vs. 10% from the local projects, and will lift their RNAVs,” stated PropNex.