PROPERTY SALES may be slowing down in Singapore, but independent global research firm BCA Research believes the bull market in property stocks is set to resume.
It said so in a Apr 15 special report titled "Buy Singapore property stocks'.
Sales of last month’s residential launches slowed down to a 50% take-up rate. Also, some 26% has been knocked off FTSE ST Real Estate’s Index’s historic high of 1,045 last June.
Look past this to the strong macro-economic fundamentals in Singapore’s property sector, said Montreal-based BCA Research:
- Strong housing affordability
- High rental yields
- High residential and office occupancy rates
The sharp drop in prices of Singapore property stocks from their peak late last year "is not justified and has created a buying opportunity," according to BCA.
"The bull market in property stocks will resume."
This optimistic outlook is in stark contrast to the conservative Singapore-based broker calls cautioning against declining selling prices of high-end residences faced by local developers.
UBS Investment Research recently put out a “Neutral” call on Singapore’s largest residential developer, City Developments.
The Swiss investment bank prefers pan-Asian developers such as Capitaland and defensive S-REITs such as CapitaMall Trust, Frasers Centrepoint Trust and Parkway Life REIT.
Strong housing affordability
Not only has BCA’s Affordability Index trended up in the past five years, it is also at levels lower than the previous property bubble during the mid nineties.
(BCA’s Affordability Index measures per capita income divided by house prices and interest rate).
Singapore’s nominal GDP grew 12.1% in 2007, compared to a 31% hike in private residential property prices.
Nevertheless, abnormally low interest rates, such as the 5-year bond yield being at 1.7%, are fuelling a boom in the interest-rate sensitive property sector, says BCA.
The Monetary Authority of Singapore, which manages the Singapore dollar within an undisclosed basket of currencies of major trading partners, revealed on 10 Apr its intentions to shift the Sing dollar’s trading band upward to moderate Inflationary pressures.
Currency appreciation, however, depresses interest rates, a situation which stimulates domestic demand, especially in the property sector.
Higher rental yields
A second factor pointing to a sustained rise in the property market is the fact that rental increases have outpaced property prices.
Rental rates for prime office space spiked 60% y-o-y in 2007, with 4Q07’s median at S$12 per square foot per month.
Rentals of private residential properties also saw a jump, by 41%. In comparison, private residential property prices rose 31%.
High demand for offices
Supply of prime office space remains tight, indicated by 4Q07’s vacancy rate of 2.1%, compared to 10.5% during 4Q06.
So when is a good time to buy?
Property stocks have under-performed the FTSE ST since early 2007, and a trend reversal is underway, says BCA.
Some insiders at property developers and Reits have already leapt into action. The management of Capitamall Trust, Capitaretail China Trust, Lee Kim Tah and K-REIT have been accumulating shares in their own companies. A sampling:Past 3 months' insider trades Value of Purchases Average Price This month's action! CAPITARETAIL CHINA $9,378,600 $1.57 Executive directors Lim Beng Chee and Pua Seck Guan bought a total of 344,000 shares. KEPPEL LAND $6,195,073 $5.53 UIC $5,914,060 $2.69 HERSING $4,995,454 $0.48 MACARTHURCOOK $4,526,544 $0.98 YANLORD LAND $4,389,675 $2.03 HO BEE $2,847,330 $1.02 See table below LEE KIM TAH $1,429,087 $0.59 Share buyback of 57,000 shares GALLANT VENTURE $717,722 $0.72 CAPITAMALL TRUST $672,427 $3.48 Deputy chairman Liew Mun Leong bought 193,000 shares. FIRST REAL ESTATE INV $216,366 $0.71 CHINA YUANBANG PROP $209,860 $0.35 K-REIT ASIA $123,218 $1.54 CEO Tan Swee Yiow and director Lee Ai Ming bought 80,000 shares. BUKIT SEMBAWANG ESTATE $26,083 $8.69
| |
North America | 2.25 |
Europe | 4.00 |
Japan | 0.50 |
Asia-Pacific ex Japan |
|
Pakistan | 10.5 |
Indonesia | 8.00 |
China | 7.47 |
Australia | 7.25 |
India | 6.00 |
South Korea | 5.00 |
Phiippines | 5.00 |
Malaysia | 3.50 |
Taiwan | 3.50 |
Thailan | 3.25 |
Hong Kong | 1.92 |
Singapore | 1.41 |
Source: Merrill Lynch | |
At dividend yields of around 2.1%, property stocks are a better bet than domestic bonds which are yielding 1%-2%.
DBS Vickers today (Apr 17) upgraded the sector from Neutral to Overweight.
"The sharp turnaround in property stock valuations from 1.1x P/RNAV at the peak in mid 07 to 0.73x, has scaled valuations back to early 2005, when property prices were 36% below what it is today and have exceeded our expectation for a 20% price correction in luxury home prices and a 10% decline in mid-tier residential values," it said.
"At this point, stock performances have largely preceded the anticipated downturn in private home prices. Value and buying opportunities are emerging as stocks approach trough valuations."
Its top property buys are on City Developments (target price S$12.80), Allgreen Properties (tp S$1.66), Keppel Land (tp S$6.49), F&N (tp S$5.85), and Guocoland (tp S$4.08).
The broker likes companies with strong cashflow and minimal earnings risk - that is, landlords, S-reits or with diversified multiple income streams.
Example of insider buying since the start of the year: Property stock Ho Bee Investment,
the developer of Sentosa Cove, among other projects.
| Buyer of Ho Bee Investment shares | Date of purchase | No. of shares purchased | Average price/share (S$) | Total value (S$) | Total Shareholding |
Ho Bee Holdings | 14-03-2008 | 300,000 | 0.895 | 268,500 | 476,395,000 (64.61 %) |
| 13-03-2008 | 750,000 | 0.919 | 689,250 | ||
| 11-03-2008 | 500,000 | 0.9559 | 477,950 | ||
| 25-01-2008 | 195,000 | 1.2343 | 240,689 | ||
| 23-01-2008 | 615,000 | 1.1446 | 703,929 | ||
| Jeffery Chan Cheow Tong (Independent director) | 12-03-2008 | 100,000 | 0.9075 | 90,750 | 350,000 (0.04%) |
| 23-01-2008 | 100,000 | 1.15 | 115,000 | ||
| Ong Chong Hua (Exec director) | 7-03-2008 | 68,000 | 0.93 | 63,240 | 1,800,000 (0.24%) |
| Desmond Woon Choon Leng (Exec director) | 23-01-2008 | 150,000 | 1.15 | 172,500 | 1,150,000 (0.155 %) |
| Chin Yoke Choong (Independent director) | 22-01-2008 | 20,000 | 1.15 | 23,000 | 50,000 (0.01%) |
Apr 17 Reuters article: Property developers up on bullish reports
Recent NextInsight story: Insider buying: SINO ENVIRONMENT, YANLORD, CHINA NEW TOWN
