2nd Liner Prop Stocks

www.cnbc.com/id/101067872
Singapore home prices could fall 20% by 2015: Barclays

Residential property prices in the wealthy island nation of Singapore could be headed for a sizable correction of up to 20 percent by 2015, according to Barclays.


"We believe the risk of a residential property market correction in the next two years is rising, as expected higher interest rates look set to coincide with a large increase in housing supply over 2014-15," Tricia Song, analyst at Barclays wrote in a report on Friday.

The bank forecasts prices will remain flat in 2013, before falling 5 percent in 2014 and another 5-15 percent in 2015.


Southeast Asia's financial center is home to one of the most expensive real estate markets in the world. Prices have soared over 60 percent since mid-2009, spurred by low interest rates.

The outlook is based on expectations that short-term interest rates will begin their ascent in the second quarter of 2015, and rise 200 basis points over a period of six months. The pace of property price declines will be tied to the pace of interest rate rises, Song explained.

Singapore mortgage rates are typically pegged to the short-term three-month Singapore Interbank Offered Rate (SIBOR) rate, which tracks the direction of the U.S. federal funds rate.

Adding to higher mortgage rates, a bumper supply of private and public housing is due to complete starting in 2014.


Almost 95,000 private units are expected to come on stream over the next five years, alongside 25,000-27,000 public housing flats per annum, according to the Urban Redevelopment Authority.

"Total housing supply could average 40,000 units per annum and peak at 47,000 in 2015 - significantly above the historical average annual supply of 12,300 units," Song said.

"Assuming occupier demand of 15,500 units of private housing per annum, we expect the private vacancy rate to rise from 5.6 percent currently to 9.9 percent in 2016," she added, noting that historically when vacancy rates hit 8 percent, rents and prices start declining.

Home sales have begun softening as the government's cooling measures start to bite, with the latest monthly data showing developers sold 742 units in August, compared with an average of 1,000-1,500 units in the recent years, according to Barclays.

This year, the bank expects primary home sales to total 15,500 units, 30 percent below last year's 22,179 units.

The government has introduced nine rounds of market-cooling measures since 2009, most recently targeted at the public housing market, which house 80 percent of the country's citizens. The measures announced in August included shortening the maximum loan tenure to 25 years from 30 years, and reducing the mortgage ratio limit against the borrower's salary to 30 percent from 35 percent previously.

—By CNBC's Ansuya Harjani; Follow her on Twitter @Ansuya_H

I, too, have a feeling that the housing supply will surpass demand.
Personally, i will avoid ppty counters as i think their rise if any will be muted.
Rather, since the building will still continue, i will look into contruction counters. Even though some might feel that the labour costs might narrow profits but at least construction still must continue. Counters like lian beng koh bros lum chang low keng huat will continue to make money.
Para construction counters like taisin and lee metal asia ent eyc will follow suit.

I agree that physical prop prices may come down 10-20%. In fact this has been the calls by many analysts over the past few years, but low interest rates (the main reason I suspect) have kept prices and demand stubbornly high.

A deluge of completions in 2014-15 has also been highlighted by many analysts, but articles on such figures have been ignored by buyers over the past couple of years.

It seems actually that only stock investors are wary of a glut of completions going forward.

And I think that’s where the anomaly lies: there is greed and lack of fear in the physical market but there is a lot of fear and caution among stock investors looking at property stocks.

And it is as a result that many 2nd liner property stocks are trading at more than 50% discount to RNAV while the physical market continues dancing on its own upbeat tune. The stock prices of these counters are not building in a 10-20% fall in physical prices, but almost predicting a plunge or collapse in the physical market!

It is no wonder that insiders are buying shares in some of these counters, for eg Ho Bee, Roxy, SB/HH, etc. In fact when I look at the chart of SB, I can’t help but suspect that it could be taken private. After all, with an RNAV of about $1.30, I would be tempted to privatize the counter, if I were already holding 70% of its shares. Even buying the 30% shares over at 80ct will net me a comfortable margin of undervalued assets.

But it’s true that going forward, the macro headlines in the papers will not be rosy. So yes, I would tamper my liking for these undervalued counters somewhat. But should they fall sharply when such “negative” headlines (which I think are discounted in the share prices) appear, I would think it’s good to remember the individual stocks’ fundamentals.

For eg, in the case of CES, if it sells its Junction 9 and 9 Residences well in the launch a couple of weeks from now, it may reap over $150m gross profit. Add to this, it has not booked gross profits from sold units at various projects of as much as $350m. This, together with estimates for a couple of future launches, could boost RNAV to as high at $1.50-1.70. Its earnings visibility is quite clear for the next 3 years (despite the impending supply glut), and this could mean a consistent DPS of 4ct per year, based on how generous the company has been in the past. Add to that, IMO, its management is very capable and likable.

So there are negative stories of an impending completions glut, but there are also positive stories from individual stocks. I guess each of us just has to weigh these different stories and decide.

yes, those who wait patiently will be rewarded.

in fact, the government's plan to move paya lebar airport away will be a boost to the development surrounding areas and hupsteel's properties esp the kim chuan one is just outside paya lebar airport.

should the height restriction be removed, we should see the plot ratios being revised upwards.

which means hupsteel is even more deeply undervalued with that in mind.

with the development of paya lebar area, i think this area will be totally different from before. Big companies are slowly moving in already. u might want to check this out.

With Hiap Hoe stock also halted, I think Superbowl could well be taken private, or merged with HH. Finally, some undervalued counters among property developers get re-rated! A few more that I like are Heeton & KSH.

As for Hupsteel, am still facing uphill resistance to liking it. The core steel biz is not for me -- it's just the undervaluation of the property that tempts. :lol: But as Paul said, Paya Lebar is being transformed. Yes, very major. Then again, Lion Teck Chiang is a good proxy to bet on in that space.

I agree that liontc is also a good proxy to investing in the paya lebar transformation. But despite its healthy eps n low pe, its not rewarding its small shareholders well. Its yield is only 1-2%.
It might be a long wait in ltc, and while waiting 1-2%pa yield might not be not sweet enough to attract investors.
But yield aside, shd lt's nav be revalued regularly, its hare price shd also go up corresponding, thus providing capital gains to investors.
That being said, both hs n ltc are for at least mid-long term investm frame to yield the most out of these counters.