If you have any property stock in your portfolio, or you plan to buy any property stock, I have a very important message to share with you.
This radical change was made in response to criticisms from international investors and analysts that the current financial statements were inconsistently presented as well as being overly aggregated.
Then, when the property is completed and handed over, there will be a surge in revenue. By that time, the cost is also minimal as the construction has already completed. We will probably see a sudden big gain in the P&L then.
Although this is a drastic change in accounting, bear in mind that there is nothing change in the fundamental of the business, as well as the cash flow of the company. This might cause confusion to investors if not handled properly.
We can foresee that in case this happened:
- Property developers who focus on highrise building (which normally development period is 3 years) are more affected than property developers who focus more on landed property (which normally the development period is 2 years).
- Property developers who have large landbanks and a lot of development projects concurrently ongoing, are less affected than those with only a few projects running, as they can strategically schedule the development completion time more effectively.
- Property stocks who also have other type of business (such as property management, plantation, mining, etc.) are less affected than those who only involved in property development.