Singapore property developers feared to make write-downs on their landbank

See which developer is highly vulnerable.

According to Maybank Kim Eng, as expectations for a correction in the Singapore housing market grow, it examines the likelihood of developers having to make write-downs on their Singapore landbank.

Here's more:

Today, after seven rounds of cooling measures and the implementation of the Total Debt Servicing Ratio (TDSR) framework for all property loans, home-buying demand has been severely curtailed. Expectations for softer residential property prices are growing (our own forecast is for a 10% decline in 2014), sparking concerns that developers may write down the carrying value of their unsold landbank.

We examined the unsold landbank of the three big-cap developers under our coverage, namely, CapitaLand, Keppel Land and City Developments.

We stress-tested the projects by taking a 20% haircut on our ASP assumptions to determine if any of their projects would turn loss-making, which would suggest they are vulnerable to write-downs.

CapitaLand Out of CapitaLand’s few remaining residential projects in Singapore, we identify the landed site at Coronation Road (to be named Victoria Park Villas) and Marine Blue (formerly known as Marine Point) as slightly vulnerable to write-downs if ASPs were to take a 20% haircut.

Marine Blue: We estimate CapitaLand’s breakeven for Marine Blue at SGD1,470 psf. Comparables nearby, such as Coralis, Parc Seabreeze and The Sea View, transacted at an average of ~SGD1,600 psf since Jan 2013. Conservatively assuming a 20% price correction from the secondary market prices, Marine Blue’s ASP would translate to SGD1,280 psf, implying that the project could incur a pre-tax loss of ~SGD19.9m.

Victoria Park Villas: CapitaLand’s breakeven for this landed development at Coronation Road is estimated at SGD1,320 psf. Our current ASP assumption for the project is SGD1,600 psf.

While we expect prices for landed property to be more resilient due to its scarcity value, a conservative 20% haircut on the ASP would translate to a potential loss of SGD13.4m.

Financial impact: Therefore, even under such conservative assumptions, we believe potential write-downs for CapitaLand are likely limited to ~SGD34m. If we mark all ASPs down by 20%, the RNAV impact is minimal at
a mere -1.4%.

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