SINGAPORE – Although most Singapore-listed property developers reported stronger financial results and good dividend payouts in 2022, many are expecting costs to rise and high interest rates to persist amid grimmer business conditions in 2023.
Rising interest rates have meant much higher debt financing costs for property developers, which need to borrow heavily from the banks to finance new projects or renovate existing developments.
While developers have been able to offset this with higher revenue in 2022, the outlook for 2023 is less robust with most expecting higher financing costs and other business costs to eat into their earnings.
Ho Bee Land is one example. Although revenue for the year ended Dec 31, 2022, rose 20 per cent year on year to $435.6 million, Ho Bee’s earnings fell 50 per cent to $165.9 million over the same period, partly due to higher interest cost.
The developer, which took on additional borrowing to fund its $1.3 billion acquisition of London commercial property The Scalpel and other projects in Australia, saw its net finance costs more than double to $88 million during the year compared with the year before.
Despite having no urgent financing needs in 2023, Ho Bee said it expects higher interest rates to adversely affect its financial performance during the year, and will concentrate on optimising cash flows as well as freeing up capital to reduce debt levels.
Property developer UOL also saw its financing costs jump by 90 per cent year on year to $128.3 million in financial year 2022 (FY2022).
During the year, the average interest rate on UOL’s external borrowing rose to 2.25 per cent, compared with 1.26 per cent in FY2021.
“Interest rate hikes and new loans, including those for the acquisition of the Watten Estate and Pine Grove residential development sites, contributed to the increase,” it said.
The company announced a 28 per cent year on year rise in revenue to $3.2 billion in FY2022, with higher contributions from property development and hotel operations, while earnings rose 54 per cent to $769 million over the same period.
A spokesman for UOL said interest rates will likely continue to rise in 2023, and that the company “will be actively looking for windows to lock in interest rates for some of our new loans and refinancing exercises”.
The spokesman added that UOL, which also runs a hotel business, will be keeping an eye on rising manpower and electricity costs.
Despite the rising costs, developers said they expect demand for private residential property to remain strong.
UOL, which in 2023 replenished its land bank with two new freehold sites, said it still expects demand for its residential properties to support FY2023 earnings, although price increases will be moderated by a projected higher supply of new homes this year.
It added that the additional buyer’s stamp duty (BSD), announced during the Budget on Feb 14, is likely to have a marginal impact on end-sale home demand.
Ho Bee, which also develops luxury residences in Sentosa Cove, said it expects the BSD to impact sentiment, but is confident that its properties will remain attractive to genuine home buyers due to their quality and scarcity.
A spokesman for property developer City Developments Limited (CDL) said: “With a limited supply of new project launches, residential property prices are expected to remain resilient in 2023. However, due to increased land, construction and manpower costs, there is little wriggle room for developers on pricing of units, so prices are likely to hold firm.”
The spokesman added that despite higher mortgage rates and BSD, “we believe that discerning buyers, investors and high net-worth individuals will continue to be attracted to the strong potential of property investment in Singapore”.
CDL achieved record earnings of $1.3 billion for the year ended Dec 31, 2022, on the back of a 25.4 per cent year-on-year jump in revenue to $3.3 billion after it sold 1,487 condo units in Singapore with a total sales value of $2.9 billion. This was led by three Singapore projects – Amber Park, Haus on Handy and Irwell Hill Residences.
“Source:[High interest rates, labour and energy costs to weigh on property firms’ earnings this year] © Singapore Press Holdings Limited. Permission required for reproduction”
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