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Mon, October 05, 2020 – 11:36 am
Singapore-listed property developers’ SHARES trade at deep discounts to their book values and revalued net asset values (RNAV), thus offering “good value” at current levels.
That’s according to RHB analyst Vijay Natarajan, who maintained his “overweight” rating in the sector in an update on Monday and chose CapitaLand as the best “buy” idea.
Since the reopening of the economy, the Singapore real estate market has surprised with a strong rebound in transaction volumes and stable prices.
By contrast, the housing sector index is down 28 percent so far this year. Large-cap stocks under RHB’s hedge are trading 40-60 percent off RNAV, which is a decade low and closer to standard deviation levels of minus two, Natarajan wrote.
“We do not expect any significant reduction in asset values, and we only expect a modest 2-5 percent drop in book values, as capitalization rates have remained largely unchanged,” he added.
The research team’s first pick remains CapitaLand, with a price target of S $ 3.75, given the real estate giant’s globally diversified portfolio, stable real estate investment trusts, and a growing recurring income base from its fund management platform. .
CapitaLand’s shares were trading at 2.73 Singapore dollars at 11:14 a.m. From Monday, a fall of 0.02 Singapore dollars or 0.7%.
RHB also views City Developments Limited (CDL) as a representation of the recovery of the Singapore market, given that it has the largest land bank in the country, as well as its attractive valuations.
This overcomes concerns about CDL’s hospitality portfolio, the analyst wrote. It has a “buy” rating and a target price of S $ 9.50 on the stock.
Shares of CDL lost 0.03 Singaporean dollars or 0.4 percent to trade at 7.68 Singaporean dollars as of 11:15 a.m.
Since Singapore’s economy reopened in phases starting in June after the “circuit breaker,” purchase demand in the private housing market has quickly returned to pre-Covid levels, Natarajan said.
In August, Singapore developers sold 16% more private homes than in July and 12% more than a year ago. So far this year, sales volumes are now just 5% below last year’s sales, he said.
Key drivers of this rally, in RHB’s view, included ultra-low interest rates and an increase in demand from HDB upgraders with some 50,000 HDB floors expected to cross their minimum occupancy periods in 2020 and 2021. Also driving demand was “attractive” new project launches as well as aggressive marketing.
Additionally, there has been a noticeable shift in purchasing demand from primarily shoebox units (small private homes 506 square feet or less) to all types of units now. RHB believes this was due to the changing preferences of buyers for larger units after the Covid-19 restrictions.
Overall, the research team has increased its sales volume assumptions to 8,500-9,500 units this year, representing a 5 to 15 percent year-on-year decrease, compared to its previous estimates of a 30 to 40 percent decrease. hundred.
That said, the recent crackdown by the Urban Redevelopment Authority (URA) on the reissue of purchase options (OTP) may cool some of the frenzy, Natarajan said.
Last week, the URA prevented private home developers from reissuing OTPs to the same buyers of the same unit, amid concerns that “financial discipline” was weakening despite the recession.
The URA move came as a growing number of developers reissued OTPs to buyers at maturity, without the typical loss of reservation fees. Some of these reissues were due to buyers needing more time to sell their existing units. However, other buyers were using the option as a hedge against future price increases, which RHB believes had led to an increase in speculative buying.
Therefore, RHB anticipates a slight cooling effect from the URA’s OTP restrictions, with demand likely to fall 3-5 percent in the coming months.
As for private home prices in Singapore, they have remained largely stable despite the impact of the coronavirus pandemic on the economy. Economists said The Business Times last week that the disconnect could be due to low interest rates and optimism felt by those whose livelihoods have not been affected by the pandemic.
The latest flash estimates also showed a 0.8 percent quarter-on-quarter increase in the third quarter of this year for the overall Singapore home price index, driven primarily by the real estate segment.
Therefore, Natarajan now forecasts that prices for private residential properties will fall between 0 and 3 percent for this year, compared to his previous assumptions of a decrease of 5 to 10 percent.
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