Domestic developers may write off about S$3.2bn in residential landbank acquired via en-bloc transactions in 2007-08. This number can inflate to S$6.6bn if residential prices drop 25% from the current base. There will be limited impact on large developers due to their large book value, but some mid-small players will suffer - Guoco Land, SC Global, SoilBuild, Lian Beng, Heeton and Hiap Hoe. While current share prices already reflect a lot of the negativity, newsflow may keep stock performance suppressed.

Writedowns at about S$3.2bn. We track all en-bloc deals in 2007-08 by each developer and compare the cost of developing these acquired landbank (land cost paid and our estimate on construction cost) to the current endmarket home prices in the area where these landbanks are located. As a result, we estimate that S$3.2bn in landbank value has to be written down. Only 12 of the 62 site sold still provides a surplus to buyers.

Conservative estimates. Should home prices lower by another 25-30% from the current base (our base-case expectation), the potential writeoff amount can reach more than S$6.6bn. Overall, these estimates are conservative as they are based on the developer looking to break even on the landbank. Typically, developers will write down more than required so as to report profits in the future, as evidenced by MCL Land’s (MCL SP - S$0.75 - N-R) US$180m writeoff in 4Q08.

Big trouble for small balance sheets. In absolute term, the highest writedowns will be at GuocoLand, UOL and CapitaLand (CAPL SP - S$1.87 - BUY). However, the impact will be more felt at the mid-small developers given their smaller book size and higher gearing. Companies that will see a bigger impact include GuocoLand, SC Global, SoilBuild, Heeton, Hiap Hoe, and Lian Beng. We highlight in the table at the bottom the potential asset-value writedowns for some of the larger developers, such as CapitaLand, City Developments (CIT SP - S$4.20 - U-PF), Singapore Land (SL SP - S$3.11 - N-R) and Allgreen (AG SP - S$0.37 - N-R), which will be 1-3% of their book. UOL should be an exception, for which we estimate up to 7% of the book may have to be written down.

Remain cautious. Singapore developers’ share prices have fallen more than 70% from their peak, reflecting asset writedowns. However, history suggests that share prices tend to remain depressed on writeoff news. We maintain our cautious view on the sector, with CapitaLand being the only relatively positive call, thanks to its exposure to China and a stronger balance sheet.