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Latest cooling measures to bite harder than earlier ones: CDL

Latest cooling measures to bite harder than earlier ones: CDL.

THE group chief executive of City Developments Ltd (CDL), Sherman Kwek, says the impact of the property cooling measures rolled out last month will be rather different from that in the 2010-to-early-2013 period.

Despite successive rounds of cooling measures being rolled out during those years, private home buyers managed to get round the negativity and continue pushing on, he recalled.

Developers sold about 16,000 private homes in each of the years 2010 and 2011 before the figure peaked at 22,197 units in 2012. These figures exclude executive condos (ECs), a public-private housing hybrid.

Private home prices also pushed north, despite the series of cooling measures. It took the introduction of the total debt servicing ratio framework in late-June 2013 to cool the market.

Mr Kwek, speaking at CDL's second-quarter results briefing, said of the latest round of cooling measures: "I feel there will be an impact on the pace of our sales and so certainly, this will affect how much we can clear of our existing inventory.

"I think prices will also certainly be affected and we have already seen that in some of the newer projects that were recently launched (in the market); if you ask me for a personal opinion, I think they are probably launching at maybe 10 to 15 per cent below what they could have launched at in terms of per-square-foot pricing.

"I think it would be naïve to assume that these cooling measures will not affect us."

Market watchers noted that during the 2010-to-early-2013 period, the Singapore private residential property market was riding the wave of euphoria created by the two integrated resorts, the Marina Bay Financial Centre (which became the address for global financial institutions expanding their presence in Singapore), and the influx of "foreign talent" .

The mood has since normalised.

Commenting on the prices at recent project launches in the market, Mr Kwek said their developers are "quite lucky" because they had acquired their sites earlier and thus "have that margin" to play with.

"But there isn't a lot of room for prices to go down a huge amount, so we're unlikely to see a massive tumble in prices because primarily, most of the developers who replenished land over the last 12 months did so at very high prices.

"There is limited flexibility when it comes to either giving out discounts or even paying so-called higher agent commissions to get sales moving. I think this time round, it will be very different from the previous cooling measures cycle," said Mr Kwek.

His father, CDL executive chairman Kwek Leng Beng, said his biggest worry is not about the magnitude of price movements.

"My greatest concern is that when everybody or a lot of people expect prices will go down, they will have a wait-and-see attitude and that is no good because that will reduce the volume."

The senior Kwek also suggested the possibility of a positive macro scenario materialising - such as if the current global trade tensions cool off , or if Brexit does not materialise or if there is a win-win outcome on the Korean peninsula.

"If all these things are settled, my belief is that Singapore will benefit a lot - and when Singapore benefits a lot, it may be too late for you to buy a property at reasonable prices.

"Don't follow the herd instinct," he advised, citing his 45 to 50 years of experience in the property scene.

"So I think that, taking everything into account, the situation is not as bad as one might imagine."

The younger Mr Kwek said that one positive effect of the cooling measures is that "it will certainly make developers more cautious in bidding for land and will hopefully moderate some of the Government Land Sales tender prices, not to mention completely quash the en-bloc sale market".

"So in a sense, that will be good because there needs to be some sanity that comes back to the land-bidding arena. Things have really gone out of hand over the past 12 months and even for us, it has been hard to really try to accumulate a landbank in Singapore at the right prices."

That said, he noted that CDL will continue to buy land but adopt more caution. "This is our bread and butter, doing residential developments in Singapore... You have seen how strongly our development segment can contribute to our performance."

For Q2 ended June 30, property development was the star performer for the group. It accounted for 78 per cent of the group's profit before tax, including share of after-tax contribution of associates and joint ventures. Profit from property development leapt to S$254.9 million in Q2 FY2018 from S$87.5 million in Q2 FY2017.

Mr Sherman Kwek also noted that the group has a residential launch pipeline of over 2,600 units across Singapore, ranging from ECs and mass-market to mid-end and luxury developments.

"This allows us to time our launches and to drive the particular segment that we feel is most appropriate for that market timing."

The group is targeting to launch its Whistler Grand condo in West Coast Vale in November. Next year, it plans to release projects on the Amber Park and Handy Road sites, as well as the EC project in Sumang Walk in Punggol. Launch plans for the more upmarket South Beach Residences in Beach Road and Boulevard 88 at Orchard Boulevard/Cuscaden Road are under review.

Adapted from The Business Times, 9 August 2018.