CapitaLand Ltd - How much weaker will the Singapore residential property market get?

The Total Debt Service Ratio property market cooling measures by the government are starting to bite. The question is how serious it will become.

23/8/2014 – CapitaLand cautions that it expects the Singapore property market to weaken in the second half of the year, because the Total Debt Servicing Ratio imposed by the government is dampening private residential property demand, and therefore prices.

Against this backdrop, their latest project, Marine Blue in Marine Parade Road is set to launch during 2H2014, adding to the 1,417 residential units it still has in the pipeline.

The story is brighter in the Grade A office market, where tight supply until the first half of 2016 should give rise to further rent increases.

Occupancy and rents in the Central Business District have risen slightly at the end of June, with 95.8% of space leased at rates which are on average 3.4% higher than at the end of March at S$10.60 psf.

CapitaCommercial Trust is doing even better, with occupancy of 99.4% and rents of between S$10.40 and S$14.00 psf.

CapitaGreen, which is being built on the site of the Market Street Carpark, is on-schedule for completion by end 2014, and 23% or 165,000 sq ft net lettable area has already been committed.

CapitaLand also has worries in China.

While it says it’s confident in the long-term outlook for the real estate market there, it will only launch its four new private residential property projects – two in Shanghai, and one each in Hangzhou and Beijing – it will only do so if market conditions are right, and regulatory approval has been given.

Four of its Raffles City retail developments are set to be opened between 2015 and 2018.

Meantime, its retail arm CapitaMalls Asia is planning to launch malls in China and India in the next few months, but didn’t say when or where.

It also wants to improve the performance of its existing malls, but didn’t say which ones were lagging.

Ascott plans to turn more public space in its serviced residences into revenue-generating rooms.

The company just announced earnings for Q2FY14:

Revenue: -13.2% to S$875.3 mln
Profit for the period: -8.4% to S$628.8 mln
Net Profit after tax and minority interests: +14.5% to S$438.7 mln
Cash flow from operations: S$178.1 mln vs S$406.2 mln
Dividend: 0 cents per share vs 0 cents per share
Order book: Not disclosed

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Net profit didn’t fall as sharply as revenue, cushioned by lower cost of sales, finance costs and so-called Other Operating Expenses.

These Other Expenses primarily relate to lower losses amounting to $31.2 million incurred on repurchase of convertible bonds.

Boosting the bottom line was a 16.2% increase in the share of earnings from joint ventures, and a S$42.4 mln non-cash gain on the value of its properties in China, Malaysia and Europe.

This marked a 25.6% increase on the prior year’s restated valuations.

Taking out discontinued operations, namely their 39.1% stake in Australand, net profit would have actually risen 31.8% to S$438.7 mln.

CapitaLand’s cash balance plummeted 60.6% to S$2.49 bln following the payment of dividends, and their cash offer for CapitaMalls Asia.

Question

1. How much weaker will the Singapore residential property market get?

We know revenue fell because of lower revenue from their property developments in Singapore and China.

And the company also flagged that the Total Debt Servicing Ratio was impacting demand, and therefore prices.

Clearly, it is hard to quantify the future – but for budgeting purposes CapitaLand will have at least penciled in some assumptions.

What range of declines is it budgeting for?

Question

2. What prices can they achieve for Marine Blue?

Against the backdrop of the market’s declines, what price per square foot are its sales agents marketing the property?

As at August 13, 2014, advertisements on Property Guru are asking for around S$2,138.64 per sq ft.

Total number of questions in the full story: 14)

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do.

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