APAC Realty Ltd (SGX: CLN) is a real estate brokerage company that operates under the ERA brand name. It has the second highest number of real estate agents in Singapore. In 2016, it commanded a 37.5% market share of transaction value in the Singapore residential market. In the first half of 2018, the group delivered a strong performance as net profit attributable to owners spiked 8.7% on the back of an optimistic real estate market.
Recently, I also wrote an article on three reasons why I believe APAC Realty would make a good long-term investment. But every company and investment comes with its own set of risks and potential pitfalls. In this article, I will highlight three potential downside risks that could hamper APAC Realty’s future earnings growth.
Government intervention and policies
The Singapore government has shown that it is willing to step in to curb property prices appreciating out of control. The government has said that it wants prices to increase at a sensible rate, and in tandem with wage growth.
We have already seen the impact property cooling measures can have on property prices in Singapore. After the first property cooling measures were put in place, property prices spiralled downwards for 14 straight quarters.
With the most recent additional property cooling measure, one can only guess what the overall impact on demand and prices will be in the next few quarters. More interventions by the local government in the future can, therefore, have a very meaningful impact on APAC Realty’s revenue and profit growth in the future.
Short history as a listed company
APAC Realty only went public late last year, giving it a short history as public-listed company. This poses additional risk for shareholders as investors are unable to gauge management’s capabilities in capital allocation, expanding the business and keeping its business relevant in the dynamic business world. Therefore, it is preferable to monitor its business over a longer period of time…
See more at: https://sg.finance.yahoo.com/news/3-potential-pitfalls-buying-apac-023702182.html