Contrary to thinking, property developer margins have been shrinking consistently... - Printable Version

+- SG Talk (https://sgtalk.net)
+-- Forum: SG Talk (https://sgtalk.net/Forum-SG-Talk)
+--- Forum: Market Talk (https://sgtalk.net/Forum-Market-Talk)
+--- Thread: Contrary to thinking, property developer margins have been shrinking consistently... (/Thread-Contrary-to-thinking-property-developer-margins-have-been-shrinking-consistently)

---

Contrary to thinking, property developer margins have been shrinking consistently... - sgbuffett - 24-07-2022



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.

---

RE: Contrary to thinking, property developer margins have been shrinking consistently... - sgbuffett - 24-07-2022

If you look at performance of UOL vs Capital Land stock for 20yrs. Capital Land stock as a developer had zero capital gains and return of 3% in dividends. UOL had a higher return mainly because it's ownership of prime offices.

Capital Land did shareholders a big favor delisting it's business and leaving its property management arm on the exchange ...

When investing dig into the business model and understand how value is created.
It matters in the long term.

Not all property developers are bad investments though. Quite a few have assest and trading way below the value of those assets.

---

RE: Contrary to thinking, property developer margins have been shrinking consistently... - Blin - 24-07-2022

margins thin also must do if not do what? shipyards and sweat shops?.

---

RE: Contrary to thinking, property developer margins have been shrinking consistently... - sgbuffett - 24-07-2022

(24-07-2022, 11:00 AM)Blin Wrote:  margins thin also must do if not do what? shipyards and sweat shops?.

Bo bian...they have to do. But we have a choice not to jnvest in them.

---