Developers not exposed to mortgage crisis in US but investors still wary
There is no link between the deepening mortgage crisis in the United States and Singapore property counters, but try telling that to investors.
Real estate counters have taken a beating recently despite enjoying one of the biggest run-ups in prices in both the office and residential sectors last year.
And prices in the local property market are generally not exposed to the kind of bust-ups seen in the US.
Look at the bigger picture and one can see that industry heavyweights like CapitaLand have little exposure to the American market, as their overseas operations are focused mainly on high-growth economies such as China and Australia.
Yet despite all that going for it, the FTSE ST Real Estate Index - which tracks 43 property counters - has plunged 30.4 per cent since January, although it was up 0.2 per cent yesterday. The Straits Times Index (STI) has fallen 22 per cent this year.
The market yesterday reflected the downbeat mood in property. CapitaLand ended flat at $4.40 after falling to a 30-month intra-day low of $4.23, while Keppel Land closed five cents down at $3.86 and SC Global lost one cent to 81 cents.
But City Developments (CDL) bucked the trend and rose 10 cents to $10.50, on four million shares traded.
The broad market, meanwhile, was in a slumber, with the benchmark STI closing just 2.1 points down at 2,705.09.
Overall market volume slipped back to early 2006 levels, with 759.8 million shares worth $905.79 million changing hands.
Property is becoming the compelling story, with about half of the FTSE ST Real Estate Index’s fall coming in the past five weeks.
Some will say that it is unusual for property counters to come under such heavy selling pressure, given that private home prices still managed to inch up 0.17 per cent in the second quarter.
But one trader said: ‘The bullish comments from property developers are not worth anything. Most property counters are down sharply from their peaks. This is a good indication of what investors really think of property prices.’
Even the research houses, which had cheered the property sector’s bull run last year, have turned dour on the sector recently.
UBS Investment Research predicted last Friday that office prices might fall by a cumulative 34 per cent over the next four years as demand for space weakens.
It noted that while real estate investment trusts (Reits) and developers have fallen by 32 per cent and 45 per cent respectively since the middle of last year, ‘direct real estate appears not to have priced in the pessimistic outlook for global gross domestic product growth’.
The research house also cut its ratings on Allgreen Properties and CapitaCommercial Trust from ‘buy’ to ‘neutral’ and Macquarie Prime Reit from ‘buy’ to ’sell’.
And Merrill Lynch noted on Tuesday that it is too early to buy niche developer SC Global, even though it is trading at a 7 per cent discount to its distressed valuation of 91 cents.
‘Until there is concrete evidence of a turnaround in the high-end residential segment, it may be too early to turn bullish on the stock,’ it added.
Merrill also cut its call on CDL from ‘buy’ to ‘neutral’, noting that while the stock ‘ranks highest on liquidity and financial stability, it is unlikely to be spared from the unfavourable sector dynamics’.
Source : Straits Times - 28 Aug 2008
