Good time for value buys

DESPITE the gloom and doom encompassing much of the global economy these days, there are still good opportunities for cash-rich entrepreneurs and companies looking for value acquisitions.

As a more meaningful recovery of the local economy and property market will only become more evident around year-end or in early 2010, most developers will be consolidating their positions to get ready to ride on the next wave of growth.

Companies with strong balance sheets and cash reserves should look out for the right opportunities to snap up good quality assets, both within and outside the country, that may be available at more realistic prices now.

Besides local opportunities, companies should also look to the global market and consider investing in assets overseas for a wider geographical expansion as it would cost less to do so now.

Companies that have laid the groundwork by building up a pool of top-notch management and technical capability, internal processes, and financial resources should take advantage of the current slowdown to further enhance their areas of competency.

Regional markets like Singapore, Vietnam, India and China have much to offer investors as asset values have eroded by 20% to 30% since they succumbed to the contagion effect of the global financial meltdown.

According to the latest market report on Singapore by CB Richard Ellis (CBRE), out of 2,200 units in luxury projects that were launched in the city state between 2006 and 2008, 55% or 1,204 units remained unsold as of last November.

The average launch prices of new luxury condominiums fell from a range of S$2,000-S$4,000 per sq ft (psf) in the last quarter of 2007 to S$2,000-S$2,600 psf in the fourth quarter last year.

CBRE is projecting a 10% to 15% fall in prices of existing projects this year. That means retail property buyers can also look around for some value buys.

Vietnam, which is still reeling from the effects of an overheating economy and high inflation in the first half of last year, also offers good potential for some good cherry picking.

Companies with strong net cash position such as YTL Corp Bhd has already started shopping around for distressed assets.

With its war chest of more than RM10bil cash, YTL Corp is making great headway in the construction, property and infrastructure sectors in Malaysia, Australia and Britain, via acquisitions.

Last October, the company agreed to pay S$285mil for control of Macquarie Prime Real Estate Investment Trust (MP REIT).

With the price at a 49% discount to the net asset value, the proposed acquisition of MP REIT will provide stable earnings and good upside potential to the company.

By having a REIT in Singapore, YTL will be well placed to tap the city-state’s expanding real estate sector and promote its Starhill brand in the international market.

A consolation for local property players in the current challenging market is that their low gearing position and prudent financial management will likely pay off and enable these companies to ride out the current downcycle.

In fact, a number of property companies have net cash reserves to expand their landbank and pick up some value assets.

As the saying goes, “Every cloud has a silver lining.” While developers have been forced to review and delay project launches, the market slowdown also offers them the chance to consolidate and identify new opportunities to thrive when the good times return.

# Angie Ng is deputy news editor of The Star and she believes with right planning and foresight, developers will be able to ride out the tough times.

By The Star (by Angie Ng)