DBS Group Research is in the view that City Developments Limited C09 (CDL) is a proxy to the Singapore residential market. The research house has “buy” call and $10.50 target price on the stock, as analyst Rachel Tan notes that there was a positive correlation between share prices and a strong showing at new residential launches in seven out of 11 occurrences since 2018. Tan expects to see a similar trend in the coming months.
In a Jan 22 report, Tan notes that the coming two weekends will see the launch of more than about 1,000 new residential units across three projects, mainly in the Outside Central Region (OCR), with more to come in Feb 24, bringing attention back to the property developers.
This is following the quiet months of November and December 2023, when new project launches tapered off. While the Singapore property developers (FSTREH Index) saw a strong rebound of about 8% in the past two months, since the lows back in late October 2023, it underperformed S-REITs, which ran up by 15%.
The way Tan sees it, executive condominiums (ECs) are a pot of gold for home buyers.
“With suburban condominiums hitting a new pricing benchmark of $2,000 psf in recent months, we have seen buyers (that qualify) focus their attention on ECs, which are priced more attractively, at up to a about 25% discount to private property prices, mainly due to income limits and tighter affordability ratios placed on buyers,” says Tan, adding that past EC projects launched in 2022-2023 have hence seen robust sell-through rates, with about 88% to 100% sold within two-three months of launch, giving developers certainty in their returns.
With CDL set to launch the 512-unit Lumina Grand, an upcoming EC project in Bukit Batok (near the new Tengah estate), the analyst expects to see a strong buyer response, potentially boosting CDL’s share price.
Despite the high-supply pipeline and developers taking a cautious stance towards land-banking, Tan believes that developers will take a more opportunistic stance on EC sites (with three more in the pipeline offering about 1,500 units).
“We anticipate these EC sites will be hotly contested in the upcoming tenders, with the likes of CDL, Frasers Property TQ5 Limited (FPL), and UOL Group keenly looking to add it to their inventories upon launch, which would be accretive to RNAVs,” says Tan.
DBS has “buy” calls on FPL and UOL, with target prices of $1.20 and $8.40 respectively.
As at 9.30am, shares in CDL are trading at $6.31, while shares in FPL and UOL are trading at 94 cents and $6.25.
