I wonder what stocks Sumer & other property lovers will switch to, if at all, during this downturn in the property cycle. Me holding to Hiap Hoe & Chip Eng Seng but will not increase stake even if prices fall (which is unlikely for these 3 solid gems).
Citi:
2014: Lacking conviction, wait for inflexion — We expect primary sales to moderate from 15k units in 2013 to 8-10k in 2014, and forecast home prices to decline 5-10% this year, 10-15% over the cycle.
While the policy cycle is over, we believe that, under our base case, it is unlikely that we will see policy removal this year, and Singapore’s recent Budget speech has echoed this unlikelihood.
We would await the inflexion point nearer the cycle trough before getting more constructive on the residential sector.
Hi Mel, my personal holdings in 2nd liner property stocks are despite my expectations of a 20% fall in physical property prices over 2014-16. In other words, I have taken into consideration this potential % fall, and am comfortable that despite that, the counters I own will still be quite undervalued.
Reports of weak sales and price falls do not really change a stock’s discount to RNAV that much. For eg, if a stock is trading at 70ct, and from all the pre-sales of units, we already know that its RNAV will hit $1.50, and that in fact it is flushed with cash and eyeing a drop in land price in order to replenish its land bank, the company could actually benefit from a weakness in the physical property market. Using a blanket of fear to cover all property counters when negative news surface may not be necessary.
As for a sharper 30-40% physical market fall, I have also provided for that scenario, but via a prudent cash:stock ratio in my portfolio. For eg, I am currently 30% in cash and 70% in stocks, and I am prepared to increase cash to 40-50% should initial signs of a sharper than 20% price decline surface; but later I would add my holdings in those same counters after they have come down substantially.
The property sector has not been a darling among analysts for a long time. Most bears would have already exited, and in fact are looking for the “inflexion point” to re-enter the market. While they may have been right for the bigger cap property stocks (where liquidity allows for ‘shorting’ and the stocks are less undervalued), many of the 2nd liner property stocks with less liquidity and even sharper discount to RNAV (of 40% or more) have in fact performed smartly: CES, Heeton, Roxy, Hiap Hoe, LKH, KSH, Ho Bee, etc. Some, like Oxley (less undervalued but hugely sexy), have even outperformed by a wide margin.
So, at the moment, I am comfortable with my holdings, and I expect and am okay with a 20% fall in the physical market, and I have set aside 30% cash for the scenario of an even sharper fall in property prices.
Selling SuperBowl the other day made me sore. Luckily, Hiap Hoe has risen now to 93 cents, which made up for the cheap sale of my SB.
Life is fair. The market is fair. LOL
