Keppel Land - Analyst Report - Residual Income Valuation

1. Industry & Economic Characteristics

Keppel Land is basically in the business of property trading and property blood management. As of 2004, 90% of Keppel Lands r as yetue comes from property trading and investment. We after part categorise these activities under the real estate industry.

The biggest problem with the Real landed estate industry is that it is extremely uncertain. Property prices are extremely explosive and have no specific pattern. This is mainly due to 2 fundamental issues:

* Current bank accounting practices

* The time retardation between demand signal and actual supply

It is these factors which create the property bubble .

* Time Lag between Demand mark and Actual Supply

Property development has a cycle of 2-3 years. Owing to much(prenominal) a huge lag in time, it is possible that even the demand for the particular properties to change. Thus, it is possible for 10% increase in demand to produce a 50% increase in supply. It has happened in Singapore as well when the property values reached their lift in 1997 only to fall by 40% in 2004.

* Current Bank Accounting Practices

Consumers continuously depend on banks to finance their property purchases. Banks, on the other hand fund these purchases as an increase in their value also actor an increase of the banks assets.



However, it must be noted that a banks willingness in lending is directly proportional to the economy of the country. In measure of recession, banks reduce lending sharply because property prices are expiration down affecting their balance sheets drastically. When this happens, few people can afford to buy property, thus posing a immense problem to the real estate industry.

Now, the demand for property is primarily driven by population growth and a go economy. Population growth in a country only when means more demand for housing. Keppel...

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