SINGAPORE (Aug 1): DBS Group Research says there are multiple catalyst for Singapore residential prices to head higher in the next two years.
DBS also expects developers to pump more capital into the local property market which is ending a period of oversupply amid a stable environment.
“We believe a sustained rise in sales volume post a strong 47% rebound in sales in 1H17 will set the stage for developers raising prices,” says lead analyst Derek Tan in a Tuesday report entitled More (land)bank for the buck.
DBS expects property prices to rise 6%-10% in two years as volumes approaches five-year peaks.
Unsold inventories are at 16-year low at 29,000 units with market absorption rate -- the ratio of unsold units and new sales -- at multi-year low of 2.1x.
When the wave of foreigner buyers returns -- especially for homes in the Core Central region -- there will be a further rebound in volumes and prices, says Tan.
In addition, developers should turn optimistic in their pricing strategy and see plum sites for sale in the 2H17 GLS (Government Land Sale) and come out in force to bid for residential land.
Limited commercial sites will mean robust bids and reiterate DBS’s belief that office REITs (CapitaLand Commercial Trust and Keppel REIT) are trading below replacement costs.
Assuming all sites are triggered, Tan estimates the Gross Development Value (GDV) for 2H17 GLS is estimated at $14 billion and a potential $1.4 billion in profits can be reaped.
“We see strong correlations with volumes and prices to drive developer price higher going forward and see a target 1.0x P/NAV multiple as fair in the current upcycle,” says Tan.
Top developer picks are UOL and City Developments with “buy” with $8.73 and $12.63 respectively while top office REIT picks are K-REIT and CCT with target prices of $1.23 and $1.85.
Update: Shares in UOL and CityDev closed at $7.94 and $11.67 respectively. Units of K-REIT closed at $1.14 while CCT closed at $1.72.
