Declining property values sock Singapore developers

Patricia Kowsmann
The Wall Street Journal

As property prices in Singapore continue to tumble, one of the country’s biggest developers posted disappointing earnings while another said it will raise capital to protect itself against the downturn.

CapitaLand Ltd., Southeast Asia’s largest developer by market capitalization, reported first-quarter net profit of 42.9 million Singapore dollars (US$28.8 million), an 83% fall from S$247.5 million a year earlier, when the company recorded divestment gains of S$141.4 million. Revenue for the period fell 23% to S$487 million from S$631.3 million.

Analysts said the severity of the earnings decline suggests the property market in Singapore and in the rest of Asia is unlikely to recover this year.

CapitaLand said revenue and earnings from its main markets — Singapore, China, Australia and New Zealand — all fell, although there were signs that consumer confidence is returning in China. It said buying sentiment in the Singapore property market will “continue to remain cautious in 2009.”

Indeed, government figures released Friday showed prices of privately owned residential property suffered their steepest drop, 14.1% in the first quarter from the prior quarter, since such data were first compiled in 1975. This is the third consecutive quarter that prices have fallen. In the fourth quarter of last year, prices dropped 6.1%.

Export-dependent Singapore has been facing its worst recession on record, and gross domestic product is expected to contract as much as 9% this year, according to a government forecast. Many analysts have said property prices could fall 25% to 30% for the whole year.

As prices fall, developers could also be hit by a drop in property values, and some have already sought to improve their capital position.

CapitaLand closed a S$1.8 billion rights issue in March, raising its cash on hand to S$5.5 billion.

Keppel Land Ltd. said Friday it will seek to raise S$712.3 million through a rights issue of up to 653.5 million shares at S$1.09 each. The company is Singapore’s third largest developer by market capitalization after City Developments Ltd.

Keppel Land’s rights offer was a 42% discount to the stock’s closing price Thursday of S$1.88, but its shares fell on news of the offer, finishing down 6.4% at S$1.76.

The developer last week reported a 39% drop in first-quarter net profit on lower sales. It said that although the global recession has affected housing demand across Asia, fundamentals in the region “remain positive in the longer term.”

Keppel Corp., which owns a 52.64% stake in the developer, said it will subscribe to the issue in full, and will buy up to an additional 280.6 million shares that aren’t subscribed for, potentially raising its stake to nearly 73%.

While analysts say raising capital eliminates a big concern for investors, a difficult operating environment means that uncertainties over developers’ earnings will continue. “The big picture here is that everybody — from developers to buyers — is expecting things to remain very tough for a while,” said CIMB analyst Donald Chua.