Time to move out: Developers urged to go overseas to boost weak margins

Difficult times call for desperate measures.

Local residential property developers are barely managing to stay afloat given the country’s increasingly tight market conditions. Now domestic developers are being urged diversify out of SIngapore to boost their margins.

According to CIMB, margin compression is going to continue for some time on back of a supply glut, rising construction and land costs, competition from foreign developers, and a depleting domestic landbank.

“Developers that have overseas exposure, strong presales and recurring income from investment
properties are likely to fare better in this environment. Singapore developers will have to increasingly look to overseas for opportunities to maintain earnings visibility. We note that most large-cap developers have diversified out of Singapore and built up recurring income through investment properties. Singapore residential exposure forms less than 30% of overall GAV for most developers,” noted the report.

Here’s more from CIMB:
Prices and volume are likely to remain weak in the short- to mid-term, caused by 1) short term supply pressure, 2) reduction of investment demand and 3) policy restrictions.

Overall, we expect private home prices residential prices to retrace by 5% this year with a through-the-cycle correction of 15% over the next 3 years.

Primary transaction volumes have declined by 57% yoy YTD and we think this figure is likely to stay low. We estimate an excess supply of 30,000-40,000 units, which would increase vacancy to ~10-11% from the present 7.1%.

In the longer-term, we expect the short-term pain to bring about structural longer-term gain, through greater financially prudence. Affordability remains high and there is pent-up demand, leading to a more balanced long-term outlook.