Singapore-Based Regional Property Developers Are Facing Rising Threats

Singapore has long been home to some of the largest regional property developers in Asia. There’s also something unique about being a regional developer – most property developers in countries like Malaysia, Thailand, China, and even Australia play only in their domestic turf.

This dynamic has conferred Singapore-based real estate developers such as City Developments Limited (SGX: C09), CapitaLand Limited (SGX: C31), Keppel Land Ltd (SGX: K17), and Frasers Centrepoint Ltd (SGX: TQ5), an advantage in terms of having a diversified business and a better understanding of the different nuances in the design and architecture of buildings in different parts of Asia.

However, it seems that this geographical advantage that some of Singapore’s property developers are currently enjoying might be facing some challenges in the future.

Many China-based developers have ventured outside the giant Asian nation in search of greener pastures after domestic demand for real estate have tapered off following the government’s implementation of property cooling measures which first started in 2011.

Competition, competition, and more competition

Just across the causeway in Johor, there are already three Chinese developers – including the Hong Kong-listed pair of Country Garden Holdings Company Limited and Guangzhou R&F Properties Co. Ltd. – launching huge real estate projects.

These developers aren’t tiny players either, considering that Country Garden and Guangzhou R&F Properties currently have net assets (total assets minus total liabilities) of around S$13.3 billion and S$9.6 billion respectively.

For some perspective, City Developments and CapitaLand, two of Singapore’s largest property developers, have net assets of S$10.8 billion and S$23.2 billion respectively. With these figures, it’s easy to see that the Chinese developers which are venturing outside of China are also very well-funded.

Meanwhile, Country Garden is also looking at launching a project in Jakarta soon. With Country Garden’s developments in both Indonesia and Malaysia, it appears that Chinese developers have ambitions to become regional developers, much like what some of the Singapore-based firms have accomplished.

If that’s indeed true, Singapore-based regional developers might find themselves faced with more competition when bidding for land to develop. This can potentially lead to lower profit margins for new projects. Furthermore, there’s a risk that the developers will collectively overbuild and result in an oversupply in the market.

All these are not good news for our local-based regional developers like City Developments, CapitaLand, Keppel Land, and Frasers Cetnrepoint.

Foolish Summary

The aforementioned rising threat to the quartet is real. With slowing economic growth in both Singapore and China, the competition for more projects outside the two countries are increasing – and with more competition comes lower profit margins for the developers.

Price to book ratios for City Developments, CapitaLand, Keppel Land, and Frasers Centrepoint

Source: S&P Capital IQ

As you can see in the table above, the four property developers are trading at relatively low valuations. But, investors still have to be aware of the risks involved with each share.

Source: Montley Fool 16th March 2016

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Singapore-Based Regional Property Developers Are Facing Rising Threats

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