Singapore developers, REITs face heavy short-term debts

SINGAPORE — The Republic’s listed developers and real-estate investment trusts (REITs) face their heaviest burden of near-term maturities on record just as home prices drop.

The 80 property companies on Singapore’s stock exchange reported a combined S$23.5 billion of borrowings that have to be repaid within a year in their latest filings, Bloomberg-compiled data show. The looming debt wall comes as the vacancy rate for condominiums soared to the highest since 2006, pushing prices to the lowest in almost two years, data from the Urban Redevelopment Authority (URA) showed.

Savills predicts refinancing for home builders and REITs will be more challenging as Singapore’s economy slows, with expansion cooling to 2.4 per cent in the second quarter, from 4.8 per cent in the previous three months. Population growth on the island is at a 10-year low and Standard & Poor’s expects home prices have further to fall.

“We’re at that point in the cycle when every quarter you’re seeing selling prices come down a little bit and secondary market transactions aren’t very active,” said Ms Kah Ling Chan, a property analyst at S&P in Singapore. “I suspect we haven’t seen the bottom yet.”

Developers of residential homes are suffering not so much from lower selling prices than “collapsed” sales volumes, said Mr Alan Cheong, a senior director of real-estate research at Savills in Singapore.

Secondary home sales plunged to the lowest since 2003 in the first quarter, URA data showed, and as business slows, builders with less pre-sales money to finish projects have to rely on loans, boosting short-term borrowings, he said by phone on Oct 2.

Despite the weaker demand, the number of new residential dwellings being built remains high. Units under construction reached a record in the second quarter of last year and about 65,270 apartments were in the pipeline as of June 30, URA data show.

Regulatory measures have been introduced to damp the market. Between 2009 and mid-2013, the Monetary Authority of Singapore implemented eight rounds of property cooling measures to address concerns the low interest rate environment would lead to a property price bubble, Moody’s Investors Service said in an Oct 6 report.

Appetite to buy is already curbed and rents could fall further, said S&P’s Ms Chan. “We haven’t seen the full impact yet.”

The 42 listed developers on Singapore’s exchange reported S$13.4 billion of short-term borrowings in their latest filings, 42.5 per cent more than a year earlier, data compiled by Bloomberg showed.

City Developments posted debt of S$1.66 billion in the second quarter, 48.6 per cent more than at the end of 2013. Second-quarter net income fell 33 per cent, it said in August, and the company is looking to expand overseas to offset declining demand in Singapore. A spokeswoman for City Developments said the company has a strong financial position, noting its cash of S$3.4 billion and 33 per cent net gearing ratio.

The three-month swap offer rate, a measure of borrowing costs in Singapore, touched 0.2561 per cent on Sept 16, the highest since June last year.

REITs are in better shape than listed developers because they started refinancing with longer tenor debt ahead of rising interest rates, said S&P.

“For the REITs, I don’t see a major problem yet,” Ms Chan said. “The bigger players are still getting good rates and valuations haven’t fallen dramatically,” she said.

Starhill Global REIT, which has S$124 million of notes that mature in July, reported S$129.1 million of short-term borrowings as of June 30, more than double the amount it had in December last year.

Retail occupancy rates at the trust’s flagship Wisma Atria mall along Singapore’s Orchard Road slipped to 98.5 per cent in June from 99.5 per cent at the end of 2012, company data showed. Office occupancy rates are 100 per cent.

Mr Jonathan Kuah, a Singapore-based spokesman for Starhill, said the company has already refinanced its debt due within the coming 12 months. “The leverage situation hasn’t worsened,” he said by email on Oct 7.

Retail sales, which affect revenue at some REITs, decreased for four of the past five months, the worst performance in two years, data from Singapore’s Department of Statistics showed. Excluding motor vehicles, sales dropped 0.4 per cent in July versus the previous corresponding period.

“Singaporeans don’t shop here any more,” Savills’ Mr Cheong said. “Travelling has become so cheap and they buy more stuff on the Internet. The Chinese have also been avoiding Singapore, Malaysia and Thailand since the MH370 tragedy,” he added, referring to the Malaysia Airlines flight missing since March.

Arrivals of tourists from North Asia, which typically comprise more than a quarter of visitors, slumped almost 13 per cent the first seven months of 2014 from a year earlier, Singapore Tourism Board data showed.

“In 2008, when the refinancing situation was quite bad, the REITs still managed to pull through,” said Mr Danny Tan, a Singapore-based fund manager at Eastspring Investments, which managed US$115 billion (S$146 billion) of assets as of June 30. “There’s a high probability these REITs will be able to refinance especially because the loan market is also open to them.”

Hiap Hoe, which recently started selling apartments in its prestigious Skyline 360 building, reported short-term borrowings of S$287.6 million for the quarter to June 30, 94 per cent more than the S$147.9 million for the three months to December. A spokesman for Hiap Hoe declined to comment.

Developers on the island are changing their business models and reducing exposure to the local market, said Singapore-based Mr Tim Gibson, who helps run Henderson Global Investors’ global property equities fund.

“By buying Singapore developers now you’re really buying exposure outside of Singapore and into markets like China,” he said in an interview on Oct 8. It “doesn’t give you a huge amount of confidence that a turnaround in the residential market is coming any time soon”, he added.