Two developers clarify profit margins over DBSS projects

Two developers of the Housing and Development Board’s Design, Build and Sell Scheme projects have filed clarifications on the profit margins published in an article this week in The Business Times (BT).

In a joint media statement yesterday, Hoi Hup Sunway – the consortium behind DBSS projects City View@Boon Keng and The Peak@Toa Payoh – expressed concern over the gross profit margins published by the newspaper.

Gross profit margins ranging from 19.1 per cent to 75.8 per cent were cited in a table accompanying the front-page article.

But Hoi Hup Sunway, which comprises Hoi Hup Group and Sunway Group, said that gross profit margins do not take into account essential costs incurred. These include financing costs, stamp duty, Goods and Services Tax and marketing expenses.

“Such essential costs for DBSS projects form a very significant chunk of total costs as compared with that for private mass market condominium projects and therefore exert a large negative impact on profitability,” it said in the statement.

“The profitability of our projects should hence be measured by our net profit margins, which range from 15 to 18 per cent and not by gross profit margins.”

On Thursday, mainboard-listed Sim Lian Group filed an announcement with the Singapore Exchange stating that BT’s assumed land price and maximum gross floor area for the Centrale 8 development were “incorrect”. This meant the profit and gross profit margin cited were “correspondingly incorrect”.

BT said Sim Lian Group stood to make gross returns of 75.8 per cent from the DBSS project in Tampines, factoring in a land price of S$82.2 million and a maximum Gross Floor Area (GFA) of 721,188 sq ft.

But Sim Lian bought the land for S$178.1 million and the maximum permissible GFA is 682,384.9 sq ft, which amounts to gross returns of 26.5 per cent.

Seeking to give a more balanced view on the true costs and profitability behind DBSS projects, Hoi Hup Sunway said developers “are also exposed to a whole host of business risks over a fairly long period of about four years”.

“During this period, property prices don’t always go up, and bank interest rates don’t always stay down,” Hoi Hup Sunway added.

Source : Today – 2 Jul 2011

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