As MAS sounds warning, will property stocks get hit?

Property stocks have been on a tear this year, lifted by low starting valuations and growing signs that a recovery in the property market was unfolding. And, boosting their landbanks through en bloc deals was viewed positively by the market, even if the sites were being acquired at lofty prices.

Among the more prolific acquirers was Oxley Holdings. In fact, if all its en bloc deals go through, it will have the largest potential landbank of any local developer. Notably, Oxley led a consortium of four developers, including KSH Holdings and Lian Beng Group, to acquire Rio Casa for $575 million. Oxley also acquired Serangoon Ville for $499 million with KSH Holdings and Lian Beng Group. Most recently, in mid-November, Oxley announced that it had won the bid for Mayfair Gardens for $311 million.

Eric Low, deputy CEO of Oxley, said in a recent interview that the developer acquires land based on a “good set of market intelligence and feasibility studies”, and that mitigates “a big chunk of the risk”. Even so, the prices that Oxley would have to achieve for the redeveloped sites in order to turn a profit might give some investors pause. For instance, the price tag for Mayfair Gardens works out to $1,244 psf per plot ratio (ppr), and Oxley is likely to have to price the new development at $1,700 psf in order to break even, some analysts say. Yet, prices at The Blossomvale, a neighbouring freehold property, were averaging only $1,300 psf until October, when they rose to $1,493 psf.

Elsewhere in the market, SingHaiyi Group acquired a development called Sun Rosier in September through a joint venture (JV) at $271 million. That works out to $1,325 psf ppr for the 146,000 sq ft site located off Bartley Road in District 19. Some market watchers say SingHaiyi will only be able to break even if it prices the redeveloped property at around $2,000 psf, which would be a record for that district.

Now, with the Monetary Authority of Singapore warning this past week that banks, developers and potential property buyers should tread carefully, is the sector headed for a correction? Havard Chi, head of research at Quarz Capital Asia, thinks the move is more positive than negative. “It provides further confirmation that MAS and the government continue to monitor the residential market closely and will act to stymie any runaway appreciation of housing price that is not in line with market fundamentals. The re-emphasis of its stance will help developers in forecasting the price of future developments and to bid accordingly,” he says. “We continue to remain optimistic about the Singapore residential market and see stronger growth in transactions and moderate increases in housing price in line with growth in income and population. These are driven by pent-up demand. The transaction volume in the last few years was simply below the normalised rate (population, formation of new households, smaller families) and the continuing growth in the global economy.”

One developer that appears to be making en bloc purchases at prices close to the market value is City Developments. In October, CDL acquired the freehold Amber Park for $906.7 million, or $1,515 psf ppr. The breakeven price for this project would be close to $2,000 psf. Selling prices of new launches on Amber Road are around $2,000 psf. “In the light of the exuberant en bloc market and with significant supply looming ahead, it is even more important than ever for developers to carefully select the right sites, with strong attributes such as size, location, accessibility and tenure,” Sherman Kwek, CEO-designate of City Developments, tells The Edge Singapore.

“CDL has always been careful and prudent in its landbanking approach and we will continue to do so with cautious optimism. We remain interested in participating in future GLS sites and en bloc tenders and we will be very selective.” CDL already has a large portfolio of developments that are benefiting from the upturn in the local property market. For the year to Sept 30, CDL and its JV associates sold 1,056 units, including executive condominiums, more than double the units sold during the same period last year. Total sales value amounted to about $1.8 billion, almost triple that for the same period last year.

Another large local developer that appears to be adding to its landbank at reasonable prices is UOL Group. In January, UOL bought 45 Amber Road, a former nursery, for $156 million, or $1,063 psf ppr. The new development is scheduled to be launched next year. Last year, UOL and its subsidiary, United Industrial Corp, also acquired a privatised HUDC estate, Raintree Gardens in Potong Pasir, for $334 million, or $797 psf ppr. The estimated break-even price is $1,250 psf. The development will be launched next year.

Most recently, in October, UOL teamed up with its sister company, Kheng Leong Co, to acquire Nanak Mansions on Meyer Road for $201 million, or $1,429 psf ppr. It plans to launch the new project in 2019. “We maintain our view that UOL is well positioned to benefit from a residential recovery, given its astute landbanking at significant discounts to current tenders, exhibited in the recent en bloc of Nanak Mansions,” says Credit Suisse in a recent report.