Real Estate

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Prepare for more misery. Or at least that's what City Developments' latest financial results seem to be saying to fellow Singaporean landlords. Yet the group's actions belie both its disappointing earnings and the gloomy note its commentary strikes.

Singapore's second-biggest developer by market value saw an almost 39 percent drop in third-quarter revenue. Profit slumped more than 16 percent from a year earlier.

The Singapore Sling
City Developments' hotel and real estate businesses are both struggling

The pain is widely shared. Developers sold just 341 units in the city-state in September, the worst month this year. Meanwhile, apartment prices on the island have tumbled 8 percent over the past two years after a crazy, cheap money-fueled 62 percent surge in the four years prior.

The correction could turn into a rout as still-low interest rates creep higher, while the government shows no sign of slashing stamp duties on home buyers, relaxing curbs on mortgages, or allowing more foreign workers into the city to prop up housing demand. In its earnings release on Thursday evening, CityDev pleaded with authorities to review the property cooling measures ``as soon as possible'' to ease the pain for Singaporeans, more than 90 percent of whom are home owners.

However, CityDev's own actions suggest that pessimism might be overdone. Just this week, the group agreed to pay S$321 million ($226 million) to the government after winning a tightly contested bid for a parcel of land. A decade ago, CityDev bet big on a new downtown development amid pervasive gloom about the city's economic future. If Kwek Leng Beng, the group's billionaire chairman, reckons he can fill a new 500-unit suburban condominium, then Singapore landlords should hope he's reading the market right once again.

The short-term pain though is very real. There are still more than 52,000 homes under construction, and 9 percent of existing condominium units are vacant. At the average rate at which new homes have sold in 2015, the current overhang will take almost five years to clear. If a policy switch ends up exciting smaller builders more than prospective buyers, Singapore property will become one unholy economic mess:

Property Blues
Vacant homes in Singapore rise even as oversupply abates
Source: Singapore Urban Redevelopment Authority

Oversupply is most acute for high-end real estate. CityDev said it would ``monitor market conditions carefully'' before it starts selling an upscale 174-unit condo in the Orchard Road shopping district. With S$2.9 billion of cash on its balance sheet, the developer can afford to wait a little. Many individual property owners are leveraged to the hilt and don't have that luxury.  Respite may not be so far away. With timely intervention by the authorities, Singapore's property market may well be back on its feet in 2016.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net