Using property developer margin to gauge overpaying?

[hongonn]

In recent year whenever there is TV interview on the property price hike, those interviewees whether the property agent or developer always put on a straight face, saying the material and land cost is much higher, that's why need to sell high, they have no choice.

Out of curiosity and also wonder how much more premium developers are earning compared to before property boom, i took a few property stocks which specialize in residential properties, to compare their last quarter margin to the year 2006 & 2005 before boom.

Here are the results.

Wing Tai
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Last Quarter 2006 2005
Gross Margin 59.19% 25.23% 28.87%
Net Margin 34.83% 15.26% 9.01%

All Green
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Last Quarter 2006 2005
Gross Margin 61.54% 32.07% 41.36%
Net Margin 46.89% 18.50% 24.42%

SC Global
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Last Quarter 2006 2005
Gross Margin 48.69% 28.11% 16.37%
Net Margin 31.76% 17.03% 10.81%

As you can see both their gross margin and net margin has been doubled if compared to year 2006. The median net profit margin of above 3 stocks is 38%, 21% higher compared to 17% in 2006.

Generally the developer now can earn $210k more for every $1m property they sold compared to year 2006. Even after factored in the rise in land cost and material cost, still allowing them to have a net margin of 38% compared to 17% in 2006.

Am i making right judgement? To say that we are overpaying $210k for every $1m worth of property on top of all their cost? If compare to 2006 more sensible pricing.

[freedom]

all 3 developers bought their land before 2007. so no surprise their margin is getting higher with higher property price.

maybe you should look at developers' margin on recent purchase of land. the margin should be still around 10%

[hongonn]

all 3 developers bought their land before 2007. so no surprise their margin is getting higher with higher property price.

maybe you should look at developers' margin on recent purchase of land. the margin should be still around 10%

If the new margin is 10% after the recent land cost, then to maintain their current fat margin, the property price has to rise another 30%.

Does the market think there will be another rise of 30%? I did a quick check on their price, they were priced at undemanding PE 6x and traded 20% to 40% below their NAV (Before All Green is acquired). Seem like the market forms an opposite opinion from the property buyers, who think "the property price can only way up, buy before it is too expensive".

Interestingly people are buying the residential properties but they are unconvinced by the companies which build the properties for them.

[dydx]

It is silly to expect Singapore property prices to continue rising. I suppose the big property developers should understand this point very well, even though their marketing people/agents will always say positive things and tell bullish stories.

When the general prices for Singapore residential properties eventually fall - and this could happen in 2011 in 2012 - many developers will be saddled with unsold units, and may have to take accounting write-downs on them and their land banks acquired at high prices. In view of this risk, I guess it is rational for Mr Market to price property counters at a certain discount from their per share RNAV.