In anticipation of a “sluggish year ahead” for the real estate sector, RHB Bank Singapore analyst Vijay Natarajan has maintained his “neutral” call.
The analyst says in 2023, private residential property prices rose by 6.7% y-o-y, more than expected — buoyed by selective new launches. However, volume declined, indicating more selective demand amid a growing mismatch in pricing expectations.
“We expect 2024 to be a slow grinding year, with a further moderation in property prices,” he says. “Key catalysts remain a healthy economy and resilient household balance sheets, with headwinds being increasing supply and higher interest rates.”
RHB economists anticipate Singapore’s economy to accelerate to 3% this year. Coupled with the expected easing of interest rates in the later half of the year, Natarajan sees some support for the property market.
However, in the nearer term, weighed by higher interest rates and likely cautious buyer sentiment, Natarajan expects property prices to remain “largely flattish in 1H2024”.
This year, Natarajan expects property prices to gain 1%-4%, mainly on the back of brightening prospects of a soft landing for the global economy, which should result in a more stable job market and higher wage growth.
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The analyst also expects private residential transaction volumes to remain sluggish amid signs of buyer fatigue.
The overall private residential transaction volumes fell 15% y-o-y in 2023 to 18,510 units,up until mid-December 2023, based on the Urban Redevelopment Authority estimates, indicating a steeper decline in resale market transactions.
“We estimate full-year private residential purchases (excluding executive condominiums) for 2023 to be slightly below 7,000 units, or about 7% lower than 2022 levels,” he says. “For 2024, we expect primary market transactions to be slightly higher, at 7,000-7,500 units, mainly due to a higher number of new launches expected to come on-stream, while secondary market transaction volumes are likely to remain flattish.”
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Natarajan says that further cooling measures could be implemented should property prices continue to rise, in the form of further increases to additional buyer’s stamp duty, seller’s stamp duty for investment property purchases and lower loan to value.
Finally, the analyst expects rental rates to fall across all market segments, with rents likely easing by 5%-10% in 2024.
Vacancy rates have started to climb higher on the back of more project completions, coupled with sharp hikes in overall market rental rates in the last three years (up 56%) reducing affordability, has led to the market being poised for a correction in 2024, he notes.
While he observes that the developers under RHB’s coverage are still “deep value” plays, the sector lacks strong catalysts.
Nonetheless, his top pick is City Developments, which owns a landbank that is well spread across segments and regions of Singapore, and which has limited inventory risks at this juncture. The analyst has a “buy” call on City Developments, with a target price of $8.20.
On the other hand, Natarajan warns that property agencies are likely to trade sideways amid slower transaction volumes and a weaker demand outlook. He keeps his neutral rating with a target price of 46 cents for APAC Realty CLN , which runs the ERA franchise.
As at 12.03pm, shares in City Developments are trading 3 cents higher or 0.47% up at $6.44.
