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City Developments – Betting On Greener Pastures
Corporate Digest | 17 December 2015
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By: Joey Ho
Articles (30) Profile

City Developments (CDL), Singapore’s property pioneer since 1963 and one of the country’s biggest landlords, is a well-known name which every investor would have heard about. As such, the recent fall in CDL’s share price amid weakness in both local and global property market would have kept many on their toes. The property giant’s shares have plunged 35 percent from a 52 week high of $10.95 to $7.12 as of 11 December 2015.

Weak Local Market

In the latest 3Q15 real estate statistics released by the Urban Redevelopment Authority, private residential property price index took a 1.3 percent dip while the rental index slipped 0.6 percent. Singapore’s private residential property prices have since fallen 8.2 percent from its peak in September 2013.

As at the end of 3Q15, excluding executive condominiums (EC), there was a total supply of 58,348 uncompleted private residential units in the pipeline of which 22,456 units remained unsold. As of 3Q15, there were 14,540 EC units in the pipeline, of which 6,897 units remained unsold.

Commercial properties have not been spared from the slowing economy, though the impact is lighter as compared to the residential sector. Prices of office space fell 0.1 percent while rentals of office space fell 2.9 percent continuing the decline of 2.6 percent in 2Q15. Prices of retail space slipped 0.3 percent following the 0.5 percent decline in the previous quarter, while rentals of retail space decreased by two percent extending the 0.5 decline in 2Q15.

Macro Factors

Foreign workforce and migration numbers have fallen since the Singapore government tightened both immigration and foreign worker policies amid social unrest. The number of new permanent residents fell from a high of 79,167 in 2008 and has maintained below 30,000 since 2010. Foreign employment growth slowed after reaching a high of 77,000 in 2011 to 2012 and declined to 23,000 in 2014 to 2015. The lower population growth rate translates into a lower demand for residential properties in Singapore.

From 2009, the Singapore government introduced several property cooling measures after prices took off. The four most significant being the revised seller’s stamp duty, additional buyer’s stamp duty, mortgage servicing ratio as well as the highly effective total debt servicing ratio. These measures have taken most speculators out of the private residential market and discouraged foreign investors, limiting the inflation of property prices.

Persistent Headwinds

Private residential prices in Singapore could soften further if immigration rates remain low as prices continue to be impacted by the large supply of private residential units (including ECs) that are about to enter the market as well as the high unsold inventories.

In view that the price adjustments so far have been moderate compared to earlier years, it is unlikely that the government will ease property cooling measures in the near term. However, in the unlikely event that property cooling measures are eased, we are of the view that property prices would not resume its upward surge as speculators and investors would remain wary of the potential implementation of new policies should such a scenario occur.

Seeking Greener Pastures

CDL has recently made an AUD30 million venture into Australia’s housing market, its first housing project in Australia in over a decade. While the investment is expected to have a gross development value of around AUD275 million, this figure pales in comparison with the group’s revenue of $3.8 billion and net profit of $769.6 million.

However, this move suggests that the group is actively looking to diversify a larger portion of its main revenue to overseas markets. The group also appears likely to invest further in Australia, as the group noted that Brisbane’s residential market remains attractive due to its affordability as compared to other Australian cities.

Hotel Segment To Support Top Line

Based on the latest release by the World Tourism Organization, international visitor arrivals in the first 8 months of 2015 grew by 4.3 percent, boosted by a robust five percent increase in Europe. Asia and the Pacific saw a four percent increase in international arrivals led by the Oceania region which grew 7 percent, while international arrivals in the Americas grew by four percent.

The growth in international tourism is positive news for CDL’s hotel segment which made up 44.6 percent of its total revenue in FY14. CDL’s hotel segment operates in various geographical segments which have seen higher international visitor arrivals in 2015, namely the United States 28.8 percent, Europe 24.4 percent, Singapore 19 percent, New Zealand and the rest of Asia 27.8 percent.


It is likely that a focused growth driver for CDL in 2016 would be from foreign ventures. Given the sustained growth in international tourism, we expect revenue to be strongly supported by consistent and regular income from the hotel segment.

Based on CDL’s current share price of $7.12 and the net asset value per share of $9.53 as of 30 September 2015, it is worthy to note that CDL does not take into account revaluation of its investment properties. Currently, an assigned street price of $10.25 presents a 44 percent upside to the current market price.

Equipped with a bachelor in banking and finance, Joey covers the finance, technology and healthcare industry in Singapore.

Please click here for more information about this author.

City Developments  9.830 +0.10 +1.03%   
Business: Co is an international property & hotel conglomerate. [FY18 Turnover] Property development (48.4%), hotel operations (39.8%), rental properties (8.5%), others (3.3%).

Insight: May-19, 1Q19 decreased 29.5% to $746.2m compared t... Read More

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