Bet on high-end developers in 2016, investors urged

Extension penalties won’t dent profits.

Luxury home developers could be headed for a turnaround in 2016 after languishing for several quarters, according to a report by OCBC.

OCBC noted that the total unsold inventory in the high-end segment is not too high at just around 4,400 units, well below the historical average of 5,700 units.

”We believe that the unsold high-end inventory is not onerous. High-end developers are currently holding 3.0k unlaunched units, and 1.4k launched but unsold units,” said OCBC.

Further, OCBC said that extension charges will hardly impact developers’ balance sheets, as Qualifying Certificate (QC) penalties account for just around 1% of total assets.

“From our analysis, we believe that the seller stamp duties and additional buyer stamp duties imposed over 2010-11 likely have had a heavier impact on the high-end segment. The ABSD – in essence a percentage upfront tax on home purchases – is a key driver of demand and will likely be a prime candidate for adjustment, in our view, if and when the authorities decide to support prices. In this scenario, the high-end segment could benefit significantly,” said OCBC.