Dec. 19 (Bloomberg) -- Singapore's property companies may lag behind Asian real estate developers for a second straight year in 2008 as government limits on speculation cool the housing market.
CapitaLand Ltd., Southeast Asia's largest developer, is suffering its biggest quarterly decline in more than six years after the government raised development taxes by as much as 58 percent. The Singapore Property Equities Index dropped 19 percent so far this quarter, the most since a 35 percent plunge in the third quarter of 2001.
International buyers, who accounted for more than 40 percent of real estate purchases in 2006, bought 38 percent fewer properties last quarter as capital-market gridlock caused by rising U.S. subprime mortgage defaults curbed borrowing worldwide. The supply of new homes for sale next year may almost double by value compared with 2006, weighing on prices, according to CLSA Ltd.
``We can find better propositions elsewhere in the region, where there's more growth and value to be found,'' said Leslie Phang, who helps manage $1 billion at Commonwealth Private Bank in the city. He doesn't own local builders and prefers Hong Kong developer Sun Hung Kai Properties Ltd.
The decline in Singapore's property gauge compares with a 10 percent drop in the Bloomberg Asia Pacific Real Estate Index, which tracks 164 companies. The Bloomberg World Real Estate Index has slipped 8.9 percent this quarter. Singapore's property index climbed 1.3 percent today, the biggest rise since Nov. 29.
Banks Hiring
Singapore's home price index increased 8.3 percent in the three months ended September from the second quarter. That matched the June quarter's pace, the first time the growth rate failed to rise since mid-2005.
Demand for apartments grew this year as banks hired more expatriates. New York-based Morgan Stanley, the No. 2 securities firm by market value, said in February it would open a local prime brokerage office servicing hedge funds. Citigroup Inc., the biggest U.S. bank by assets, followed with its own prime brokerage office in March.
About 19,200 jobs were created in financial services through September this year, government data show. Foreigners accounted for about 43 percent of total purchases in 2006, up from 14 percent in 2005, according to CLSA, the Asian investment-banking arm of Paris-based Credit Agricole SA. Singapore home prices rose 13 percent last year, beating all other Asian markets, according to Global Property Guide, a Manila-based researcher.
The number of foreign purchases fell 38 percent to 2,073 last quarter, from a record high of 3,332 in the three months ended June 30, according to DTZ Singapore, the local unit of DTZ Holdings Plc, a London real-estate brokerage.
`Policy Risk'
The government scrapped a program on Oct. 26 that allowed buyers of planned apartments to pay 10 percent of the asking price and defer the remainder until completion. Builders face higher fees on new developments after the government raised charges by 58 percent for apartment projects and by 42 percent for commercial properties, starting Sept. 1.
``There are still a lot of policy risks in this segment,'' said Daphne Roth, vice president of equity research at ABN Amro Private Banking in Singapore. ``The government doesn't want home prices to go up too much, too quickly and the policy changes introduced so far have already impacted the market.''
CapitaLand has slumped 25 percent in Singapore stock exchange trading during the fourth quarter, set for its biggest quarterly drop since a 47 percent plunge in the three months ended September 2001. It has lost 29 percent after reaching a record high on April 26, even though third-quarter profit more than doubled from a year earlier.
Cheaper Than Peers
City Developments Ltd., controlled by billionaire Kwek Leng Beng, declined 18 percent since the start of this quarter and plunged 23 percent from its all-time high on June 19.
The selloff has left local property shares cheaper than their regional peers. The Singapore Property Index is valued at 11 times earnings, less than a third of its high of 38 times in March 2006. The Bloomberg measure of Asian real-estate stocks is valued at 19 times, while the global index is at 17 times.
Thue Isen, who helps oversee $1 billion at Bankinvest Group in Singapore, including shares of CapitaLand and City Developments, said the decline is a chance to buy local developers, which he finds more attractive than those in Hong Kong and China.
``People's expectations for the property market here have definitely dampened, which justifies some of those declines,'' he said. ``If you look at economic and income growth and new offices starting up, the fundamentals haven't changed that much, so the pullback looks a bit excessive.''
Forecasts Cut
CIMB-GK Research Pte, based in Singapore, cut its price forecasts in a Dec. 10 note. Properties costing at least S$1,200 ($831) a square foot may climb 8 percent in 2008, compared with an earlier forecast of 15 percent. Overall home prices will rise 15 percent from a previous estimate of a 25 percent increase, said Donald Chua, a Singapore-based analyst.
The brokerage, a unit of CIMB Bank Bhd., Malaysia's largest investment bank, also cut its rating on the industry to ``underweight'' from ``overweight,'' citing slowing growth. The firm lowered its recommendation on CapitaLand to ``neutral'' from ``outperform.''
Price increases in other Asian cities continue to accelerate. The cost of Hong Kong's luxury homes jumped 12 percent in the third quarter from the second, the most since 2004, according to Los Angeles-based commercial property broker CB Richard Ellis. Prices in 70 major Chinese cities rose 9.5 percent in October, the fastest since 2005.
Worst Performance
The city-state's real estate benchmark has gained 7.8 percent this year, its worst annual performance since 2002. It jumped 65 percent last year and 39 percent in 2005. The Singapore All Equities Index has increased 20 percent this year.
The Asian property index has risen 28 percent in 2007, after climbing 32 percent and 26 percent in the previous years.
CLSA forecasts that as many as 12,000 new homes under construction could be up for sale in the next year to 18 months in the most expensive residential districts, driving up supply and hurting prices. The ``unprecedented'' inventory is worth S$21 billion, almost twice the S$11 billion invested in real estate in 2006, according to Yew Kiang Wong, a CLSA analyst in Singapore.
Increased regulation and the spread of U.S. subprime mortgage defaults are denting home purchases. The Business Times newspaper reported on Dec. 3 that the value of sales of private properties plunged to S$2.9 billion so far this quarter, less than 20 percent of the S$15.6 billion for the previous three months.
``There's just too much negative news out there right now, with the government regulations and concerns over subprime,'' said Nicole Sze, Singapore-based investment analyst at Bank Julius Baer, which manages $350 billion. ``We're unlikely to see the same kind of broad-based rally that we've had.''
