As expectations for a correction in the Singapore housing market grow, we examine the likelihood of developers having to make write-downs on their Singapore landbank.

Wheelock Properties recently made a SGD110m impairment on The Panorama, but we believe this was opportunistic and not reflective of the psyche of its competitors.

Even though we think more write-downs are unlikely, we remain NEUTRAL on Singapore developers as margins will compress amid weakening sell-through rates.

Write-downs to remain isolated instances

During the 2009 GFC, MCL Land made a hefty USD180.2m write-down on its landbank, but this did not prompt a market-wide reaction. Subsequently, write-downs were also undertaken by CapitaLand and Bukit Sembawang, but both were project-specific. Wheelock Properties said at its 4Q13 results briefing recently that it made a SGD110m impairment on The Panorama, citing as reasons the softening market conditions and slow take-up rate of the project. We believe this to be an isolated incident and do not see major write-downs by other developers.

What’s Our View

We believe Wheelock was being prudent in making the write-down just one month after the project was launched. Overall take-up rate was relatively low at 8.3% and median ASP was SGD1,343 psf, just above the original breakeven of ~SGD1,330 psf. The impairment was probably also opportunistic, given that Wheelock had booked in a divestment gain of SGD93m from the disposal of its shares in SC Global earlier in 1Q13.

We believe the landbank of the big-three developers, namely, CapitaLand, Keppel Land and City Developments, to be largely buffered from a 10% ASP correction. In the worst-case scenario, if ASPs correct by 20%, we estimate a write-down of SGD34m, SGD65m and SGD37m respectively, with the corresponding RNAVs lowered by 1.4%, 3.3% and 5.3%.

Source: Maybank Kim Eng Research - 14 Mar 2014