CGS-CIMB Research analyst Lock Mun Yee has reiterated her “overweight” rating for the Singapore property sector, despite slower home sales in August following tightened restrictions to curb Covid-19 cases.
In a Sept 15 research note, she highlights August home sales excluding executive condominiums (ECs) came in at 1,215 units, 3.4% lower y-o-y and 23.5% lower m-o-m. She also notes that sales continued to outpace new launch volumes in August.
See also: CDL, UOL named as CGS-CIMB's preferred picks amid 'overweight' property sector for month of July
Despite the slower momentum in August, Lock notes that sales volume year-to-date remains robust. Transactions in the first eight months of 2021 totalled 9,407 units, up 48% y-o-y and making up 78%-85% of Lock’s full-year forecast of 11,000-12,000 units. Meanwhile, according to Singapore Real Estate Exchange (SRX) data, estimated resale transactions were 4.9% higher m-o-m and 40.5% higher y-o-y, with 1,860 units changing hands.
Lock believes demand was underpinned by the still-low interest rate environment.
According to SRX, private resale home prices improved 0.5% m-o-m and 6.4% y-o-y in August. “With demand outlook still brisk, we maintain our expectation of 5%-7% growth in home prices in 2021,” Lock says.
Amidst the sanguine outlook, Lock highlights that developers’ valuations remain attractive. “Developers’ valuations still look inexpensive to us, trading at a 46% discount to realisable net asset value, close to one standard deviation below long-term mean discount,” she remarks.
Given the robust activity in the residential market, she prefers developers with “visible residential pipelines” and a strong balance sheet that would enable them to tap into opportunities during this slower cycle.
For more stories about where the money flows, click here for our Capital section
City Developments (CDL) and UOL Group are her preferred picks. She has “add” calls for both counters with target prices of $8.97 and $8 respectively.
Lock notes that potential sector re-rating catalysts include good sell-through rates for new launches, while downside risks include faster-than-expected interest rate hikes and property cooling measures which could dampen demand for housing.
As at 3.54pm, shares in CDL and UOL are trading at $7.19 and $6.96 respectively.
Photo: Samuel Isaac Chua/The Edge Singapore
