Suicidal to buy land at current high prices: CDL Chairman

Buying land at the prevailing high prices would be “suicidal”, City Developments (CDL) Executive Chairman Kwek Leng Beng said yesterday, as he forecast private home prices to decline 5 per cent over the next year, with the Government’s cooling measures working their way through the market.

Under the law, developers with any foreign ownership — including most of the publicly-listed ones — are subject to Qualifying Certificate (QC) conditions, one of which is that all units must be sold within two years of completion. Developers can apply for an extension for a fee.

“If the Qualifying Certificate is there, it will be suicidal to keep tendering at high prices just because we want a land bank,” Mr Kwek said at a briefing to announce the company’s second-quarter results.

The QC policy imposed on developers makes it difficult for them to buy land from the private market, as they are subjected to numerous punitive restrictions. As a result, there is limited land stock-in-trade and these developers have no alternatives but to bid aggressively high for Government Land Sales (GLS) sites and take undue risks, the company said. This invariably leads to escalating land cost and lower profit margins, it noted.

GLS sites sold by the Urban Redevelopment Authority or the Housing and Development Board on behalf of the Government are exempted from the QC requirements, according to law firm Rodyk and Davidson LLP.

Mr Kwek, the head of Singapore’s second-largest listed developer, also warned of “stronger headwinds” after private home prices surged to a new record high in the latest quarter, despite the Government having imposed seven rounds of property cooling measures since 2009 and tightened loan curbs in June.

“The global economy remains fragile and unpredictable … Domestically, with the latest round of property cooling measures which has been the most effective to date, the group expects stronger headwinds in the second half,” he said.

“Transaction volume for private residential sales is beginning to be more measured and prices in general are expected to be moderated for the mass market segment, due to the tightening of bank borrowings.”

Recent residential sites released under the GLS programme attracted bullish bids by developers seeking to build up their land banks and tap on robust demand for homes. A plot at Tampines Avenue 10 received 10 bids, and was eventually awarded to MCC Land at S$289.7 million, or about S$562.01 per square foot per plot ratio.

The intense competition came despite the Monetary Authority of Singapore introducing the Total Debt Servicing Ratio (TDSR) framework in late June. Under this, financial institutions approving housing loans must ensure the borrower’s total debt obligation does not go beyond 60 per cent of his or her income.

CDL posted second-quarter net profit of S$203.8 million in the three months ended June 30, 48 per cent higher than the corresponding period a year ago, after the sale of an industrial site at 100G Pasir Panjang boosted income and offset lower earnings from its hotel arm. Its property development segment also did well, adding 22.6 per cent to pre-tax profit.

In the residential segment, CDL’s projects continue to be well received, the company said. Jewel@Buangkok achieved sales of 203 out of the 280 units launched at its first weekend preview in June. D’Nest, at Pasir Ris Grove, is now over 91 per cent sold, while Bartley Ridge has sold over 75 per cent.

But in light of the expected headwinds in the domestic market, CDL will focus on developing its existing overseas businesses to continue driving growth. The company has three projects in the pipeline in China, and is exploring opportunities to invest in the Central London residential market.

“(It is) not that we must continue building land bank (in Singapore), because there are other engines to support growth,” said Mr Kwek.

“The execution of some of these platforms will take time to develop. These engines, when in full swing, will enable the group to achieve a balanced and diversified portfolio in Singapore and abroad.”

CDL declared a special interim dividend of 8 cents per ordinary share. Following the announcement of its results, CDL’s shares opened 0.47 per cent higher but closed 0.19 per cent lower at S$10.68 per unit, compared to the 0.5 per cent decline in the benchmark Straits Times Index.

Source : Today – 7 Aug 2013

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