Developers About to Lower Prices By 10% for New Properties

Analysts report that, as a response to latest property measures, developers may cut down the prices by 10% for all new launches. While downgrading stock ratings, many developers have already reduced the average selling prices by 5 to 10%; however, they also believe that it is too early for developers to decay pricings for their projects.

Derrick Heng, a property analyst, after reducing the price by 5 to 10% in his projections revealed that although they are expecting single-digitmoderation in earnings before interest and tax margins for most properties, still, no developer is losing money with current reductions. Derek Tan, DBS Bank Analyst on the other side said that it is important for all developers to reduce the prices by at least 5% to maintain the lower loan to value limits and higher additional buyer’s stamp duty. Tan also included that although these potential write-offs on land value balance sheets do not show any near-term risk, however,if the sales momentum falters, it may emerge for few years ahead.

Note that, DBS Group Research has currently dropped its primary home sales forecast by 25 to 30% because, during post-cooling measures, the investors are believed to stay out of the market. A recent report shows thatDeutsche Bank also trimmed developers’ ASP estimates by 5 to 7% along with 10 to 30% reduction in transaction volumes for the year2018-19.

Now, there are two things of common interest; first, lowered ASP forecasts for all upcoming project launches and second, an analysisfor real drop of current transacted prices that will have a directimpact on price index considering all private residential transactions. Although, most property consultants do not find any clue for these happenings; still they have reduced the growth forecasts between 8 to 12 % for price index as compared to the previous range of 8 to 20%. It is important to mention that prices have already increased by 7.4% during the firsttwo quarters of the year. Presently, consultants are less optimistic about sale volumes as the estimates have changedfrom previous 8000-12600 units to 6000-9000 units.

Last week, Oxley disclosed that its estimated asset value exposure to Singapore residential market goes up to 20.6% of the overall outstanding gross development value of projects on a globallevel. Considering the cooling measures, even after adjusting the price expectations for few projects, Oxley is still looking for a 12 to 19% net margin on upcoming new launch condos.