24-07-2022, 07:45 AM
![[Image: jTgUxIX.png]](https://i.imgur.com/jTgUxIX.png)
Latest AMO, breakeven for developer est $1830psf .....avg salees $2000psf. Margin is around 10%.
For this plot there were 12 bidders. The developer has to take the risk of market slumps..slow sales that lock
k up the capital etc. Takes a year to launch and developer gets fully paid only when units are fully developed. The govt is paid once the land sales is made.
The translate to ROC ( return on capital) of 3% per annum. If developer borrows they have go shave off interest paid to bank.
In other words, this is not as good a business as people think! With many developers bidding each time it drives the cost of land up and .margins down.
Because the developer flips the property quickly go release capital for the next project it does does not gain from long term appreciation. One way to make more is to bid and launch many projects. To do this they have to borrow and that increases the risk.
You look at the perforrmance of UOL stock (developer of AMO) in the 1980s to 2000, it's margin was. 20% and the stock rose by 10% a year this return declined to low single digits reflecting the competive nature of property development business.
On the other hand, property sales and marketing is an excellent business despite the recent bump due to govt cooling measures. The 2 players propnex and era are dominant. The business is asset light and not capital intensive. The cost structure allows them to be resilient to downturn as they can just scale down the cost and go through the downturn easily. The business generates high free cashflow which shows up as high dividends paid.
That is why property agencies stocks like propnex have done much better than developers as we go through the property cycles.
I, being poor, have only my dreams; I have spread my dreams under your feet; Tread softly because you tread on my dreams.