Time for bargains?

Source : Today - 15 Aug 2008

Some frightened investors selling homes cheap: Developer

AS HIGH-END home prices fall, Mr Kwek Leng Beng says there are now some bargains available for smart investors.

“What has gone up very high in a straight line will also come down,” said the executive chairman of one of Singapore’s biggest developers, City Developments (CDL).

And as prices fall, Mr Kwek said there will be some desperate sellers. “There are some projects launched at $2,200 per square foot (psf) that went up to $3,400-$3,500psf. Today, there are some people who are so frightened, they would sell at $1,700psf.”

If you’re clever enough, Mr Kwek said: “You pick up when some people want to commit suicide. Pick up cheap. Keep it. Rent it. Stay.”

However, he added that buyers would need stamina to service the instalments.

Mr Kwek expects the high-end housing market to recover when sub-prime-related problems ease and when Singapore’s two integrated resorts open in the next two years.

As for CDL’s own strategy during the downturn, it has the ability to hold off from launching new developments if market sentiments are weak.

That’s because it is not under financial pressure to launch projects, as the group bought land cheaply, offsetting higher construction costs.

“It’s a question of how much profit you want to make. It’s a question of when we want to recognise the profit,” Mr Kwek said. “I can book in 30 per cent instead of 20 per cent. Launching at the right time will give you maximum profit.”

The CDL group, whose core businesses are property and hotels, said that its profit for the first half ended June 30 rose 3 per cent to $330 million, dragged down by slower home sales early this year. It also enjoyed a tax credit this time a year ago.

Its second quarter profit dropped 15 per cent to $165.2 million, its first quarterly decline in three years.

First-half revenue declined 0.3 per cent to $1.54 billion in the corresponding period.

About 30 per cent of CDL’s revenue comes from local housing sales.

Overall transactions in the property market here have cooled considerably, with 2,147 units sold in the first half of this year, compared to 9,385 this time last year.

According to the Urban Redevelopment Authority, home prices rose 0.2 per cent in the second quarter, the slowest growth in more than four years.

CDL doesn’t want to “cannibalise” its profit margins by rushing new development launches. Mr Kwek said his firm had enough credit lines and no problem borrowing from banks. “We have different ways of raising money, including issuing convertible bonds,” he added.

Last month, CDL launched Livia, a condominium at Pasir Ris, which saw a good response from the mass market. The average selling price was $650 to $670 psf.

Despite high construction costs, CDL said that it could price the project competitively due to its low land cost.

“In two weeks, we had 3,000 people visiting,” said Mr Kwek.

Construction costs have gone up 50 per cent over the past two years and may not fall for another three to four years, he said. Defaults by home buyers were low, he added.

CDL is planning three residential project launches in the second half of the year, subject to market conditions.

Contributions from CDL’s hotels division declined after being repatriated due to the stronger Singapore dollar. CDL has a 53-per-cent stake in Millennium and Copthorne Hotels.

“The hotel segment has slowed, but it’s not so material, you won’t fall off the cliff,” said Mr Kwek, who added that with oil prices falling air travel should pick up again.

“We’ve benefited from customers from financial institutions who used to stay in five-star hotels, now they have financial constraints, they come to us.”