Analysts from CGS-CIMB Research and RHB Group Research are keeping “overweight” on the Singapore property sector on the back of strong residential momentum and an increasing supply of residential land.
The government, on June 10, announced that it had released a total of 13 confirmed and reserved new land sites for the 2H2021.
The sites released are for 6,860 are residential units, while 90,000 sqm in gross floor area (GFA) have been set aside for commercial purposes. Another 530 hotel rooms are also included in the sites released for the second half of the year.
Of the 13 new sites, five are new offerings, namely Lentor Hills Road, Bukit Batok West Avenue 8 (for executive condominiums) and Pine Grove.
The government has also accepted an application from a developer who had committed to submit a bid of a minimum $1.51 billion for the white site at Marina View for sale by public tender.
To CGS-CIMB analyst Lock Mun Yee, she is “overweight” on the sector due to the inexpensive valuations of developers.
Developers are now trading at a 45% discount to revised net asset value (RNAV), close to 1 standard deviation (s.d.) below long-term mean discount, she writes in a June 10 report.
Lock also expects private home prices to continue increasing in the 2Q2021, following its 3.3% y-o-y growth in the 1Q2021, underpinned by robust demand.
Year-to-date in April, private new home sales were up by 90% y-o-y to 4,836 units.
As such, Lock has kept her estimates for private home prices to increase by 5% y-o-y in the FY2021, on the back of continued buying interest and low interest rates.
“We prefer developers with a high recurring cashflow base and strong balance sheets that would enable them to tap into any opportunities during this slower cycle,” she says.
On this, Lock has indicated that she prefers UOL, City Developments Limited (CDL) and CapitaLand.
She has kept “add” calls for all three counters with target prices of $8, $8.97 and $4.04 respectively.
In her report, Lock sees good sell-through rates for new launches to be re-rating catalysts for the sector, while faster-than-expected interest rate hikes, weaker-than-expected macro shifts could pose downside risks to the sector.
In his June 10 report, RHB analyst Vijay Natarajan echoes CGS-CIMB’s Lock’s view in that he expects the residential market to keep its upward momentum in the 2H2021 after a slight near-term slowdown.
“Key drivers remain the falling inventory levels, low interest rates and uptick in economy and employment numbers,” he writes.
Natarajan is also positive on the sector’s outlook for now as Singapore’s move to the Phase 2 (Heightened Alert) measures has helped to cool down some of the frenzy in the residential market. The lower housing sales may, in turn, reduce risks of drastic cooling measures from the government.
Like Lock, Natarajan has identified CapitaLand has his top sector pick due to its latest value unlocking move.
“Real estate agencies that are a direct proxy to residential volume will be key beneficiaries,” he adds, citing APAC Realty as his top pick among the Singapore-listed agencies.
In the same report, Natarajan has upped his pricing outlook for FY2021 to 5-7% from 0-3% previously, and keeps his full-year new sale volume estimate of 9,000 to 10,500 units.
To him, key sector catalysts are the developers’ strong unbilled sales, high proportion of recurring income stream from investment properties from developers.
“In addition, we do not anticipate further write downs or impairments to capital value, with cap rates remaining stable,” he says.
On the flipside, a prolonged lockdown due to Covid-19, severe cooling measures and higher unemployment rates may pose key risks to the sector.
Shares in CapitaLand, UOL, CDL closed $3.74, $7.44 and $7.62 respectively, or 0.83 times, 0.63 times and 0.77 times P/B, according to CGS-CIMB's estimates.
Shares in APAC Realty closed 65.5 cents, or 1.4 times P/B, according to RHB's estimates.
Photo: Bloomberg
