Property developers had started to conserve cash

Property developers are starting to conserve cash as they brace for tougher times, given the severity of the global financial crisis, analysts said.

Having seen a marked drop in new property project launches this year, they said cash conservation is key to the players’ ability to proceed with ongoing projects and later rebound after a prolonged slump.

“Everyone is unsure how long this credit crisis will last. There has been credit tightening across the board… it is tougher to get loans, not only for property developers but for every industry. Staying liquid is very important now,” said a property analyst with K&N Kenanga Research.

She said property developers had started to conserve cash to buffer their existing projects. “A lot of property developers have pre-sold their projects in 2006 and 2007, and they are conserving cash to make sure they have a lifeline to readily available funds for their existing projects, which have been sold.

“Although raw material prices have come off slightly, they are still on the high side. Having a little extra cash in one’s pocket is the safer option to ensure that there is readily available funding for their projects moving forward. They do not want to be hit with late penalty payments,” she noted.

She added that they were also conserving cash to buy cheap land, should prices fall.

“Although prices of properties and land are holding up pretty well currently, it is anybody’s guess whether the prices will fall in time,” she said.

“As it is, we are already seeing a slowdown in the secondary property market in terms of take-up. However, the owner-occupancy market is holding up pretty well.”

Selangor Properties Bhd saw its cash and bank balances jumping to RM439.1 million for its third quarter ended July 31, 2008, compared with RM249.4 million a year earlier, while Penang-based Hunza Properties Bhd’s cash pile rose to RM68.7 million as of June 30, 2008 from RM18.3 million a year ago.This year has not been as good for property developers as last year. With higher raw material prices, which started rising early this year, and the ongoing global financial crisis, developers generally are not keen to launch new projects.

According to Ong Chee Ting, a senior property analyst at Aseambankers Research, developers are reading the market carefully before they launch any project.

“They are trying to read the market now… They want to see if there is demand for a product as well as to make sure the timing is right for a project launch. Although raw material prices are starting to drop, with inflation, purchasing power too has dropped,” he said.

The property analyst from K&N Kenanga concurs. “Property developers are launching smaller parcels compared to last year. A number of launches are concentrated more on townships as opposed to high-end properties. There is some softening of demand in the property market,” said the analyst.

by Joyce Goh (The Edge Daily)

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