SINGAPORE (Dec 20): RHB Research believes that Singapore’s residential property prices could rise by 3-7% next year, on the back of strong buying momentum and greater optimism.
“Signs of bottoming in the price market have already emerged with the URA’s 3Q17 residential price index turning +0.7% q-o-q, the first rebound after 15 consecutive quarters of decline,” says analyst Vijay Natarajan in a report on Tuesday.
According to Natarajan, the price rebound could be aided by better job market conditions, with unemployment rate at a low 2.1%.
In addition, optimism on the ground has been fuelled by a flurry of collective sales amid falling inventory levels, strong developer balance sheets, competition from overseas developers, and a low interest rate environment.
“The surge in en bloc deals has boosted the liquidity and optimism on the ground for a strong price recovery,” Natarajan says.
The total value, from about 23 residential en bloc deals so far this year, has hit some $7.8 billion – more than double the $3.3 billion in en bloc deals completed over the last five years.
“The intense competition for en bloc deals has driven land prices higher,” he says. “However, intense competition in land sales could limit profit margins.”
In addition, the analyst notes that the rise in residential property prices could be capped due to en bloc sites adding of between 10,000-14,000 units to the supply pipeline.
“While developers are actively looking to replenish land bank, the steep increase in land cost means that margin expansion could come only if there is a surge (of 20-30%) in residential prices,” says Natarajan.
As such, RHB is keeping its “neutral” rating on the real estate sector.
In this light, Natarajan says a volume-driven proxy is a better play in this kind of market conditions.
As such, RHB’s top pick in the sector is APAC Realty, which Natarajan calls “a pure-play proxy to the rebounding volumes in primary and secondary markets.”
APAC Realty, which operates real estate brokerage ERA Realty, saw its earnings grow 7.2% to $5.5 million for the 3Q ended September, from $5.1 million a year ago – despite IPO-related expenses of $1.1 million incurred during the quarter. It made its debut on SGX in September.
3Q revenue jumped 30.3% to $105.5 million from $81.0 million a year ago, mainly due to an increase in market transactions.
See: APAC Realty posts 7.2% rise in 3Q earnings to $5.5 million as revenue jumps 30%
RHB has a “buy” recommendation on APAC Realty with a target price of $1.20.
As at 12.24pm, shares of APAC Realty are trading flat at 86.5 cents, implying an estimated price-to-earnings ratio of 11.0 times and a dividend yield of 4.5% in FY18.
