UOB Kay Hian analysts Adrian Loh has warned of possible cooling measures in the Singapore property market, saying in a April 27 note that “The strength in the Singapore property market, evidenced by strong sets of data in the past two weeks, has manifestly increased the chances that the government will implement cooling measures in the near term, in our view.
“In our view, price increases of this magnitude may be politically unpalatable and reinforces our expectation for cooling measures,” he says.
Citing statistics from the Urban Redevelopment Authority, private residential property
prices rose 3.3% q-o-q in 1QFY2021, compared to a 2.1% rise in 4QFY2020.
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Condo resale volumes also hit a 10- year high in Mar 21 with 1,662 units resold, beyond a 100% y-o-y increase and 75% above five-year average volumes for March.
“These, in addition to other bullish property data points have, in our view, increased the chances of the government possibly introducing cooling measures to limit further price increases in the next few months.” Loh highlights.
Furthermore, supply in the pipeline of private residential units remains tight. Loh notes that planned private residential units in the pipeline have seen a material 66% decline since 3Q18. The existing pipeline of 11,242 units is also at a 20-year low, which could explain the bullish sentiment surrounding the private residential market.
He is also keeping tabs on the developing situation regarding the new Covid-19 infections in Singapore’s foreign workers’ dormitories. If this is not contained, it could lead to a slowdown in construction activities and thus delay the supply of new properties.
Loh points out that prices of HDB flats are also on an upswing, rising 9.5% y-o-y and 0.8% m-o-m in March due to delays in Build-to-Order (BTO) flats, rising private property prices and improving market sentiment.
This is the ninth straight month of increases, and as a result, March prices are only 5% off their peak seen in Apr 2013. “Arguably, the Singapore government would be more worried about excessively exuberant HDB prices relative to prices for private residential units.” he says.
Loh also notes that developed markets globally have seen extremely strong property prices, with significant price increases in Canada (+25% yoy in Feb 21), New Zealand (+22.8% y-o-y in Feb 2021), the US (+11.2% y-o-y in Jan 2021), the UK (+8.6% y-o-y in Feb 2021) and Australia (+2.8% y-o-y in Mar 2021).
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He says that almost all of the above markets have also reported multi-year highs in transaction volumes. Furthermore, “with the US Federal Reserve setting the tone for other central banks, it appears that the era of ultra-low interest rates bolstering asset prices will continue, especially as governments remain sensitive in needing to support economic recovery post the COVID-19 pandemic.”
As such, Loh’s view is that investors should “maintain market weight” on the Singapore property sector, and downgrades Capitaland from “buy” to “hold” with a target price of $3.81. He maintains “buy” ratings for City Development, Oxley, Wing Tai, and Ho Bee Land, with target prices of $8.50, $0.37, $2.04, and $3.2
As at 4.39pm, shares of Capitaland were trading at $3.73, with prices of City Development, Oxley, Wing Tai, and Ho Bee Land trading at $7.98, $0.26, $1.91, and $2.74.
