Now could be a good time to buy Singapore property stocks

JANUARY 26, 2017

SINGAPORE — Yes, you heard it right — Singapore’s home prices are set to make a comeback after a three-year losing streak. And analysts think property developer stocks are the best way to play that rebound.

Amid a restructuring push to boost a slowing economy, the government could signal its intention to reconsider property cooling measures as early as the budget speech in February, Ms Carmen Lee, head of research at Oversea-Chinese Banking said in an interview. That promises to boost the city-state’s largest developer stocks, including City Developments, which is one of the top picks for OCBC’s Lee and analysts at CIMB Research, Credit Suisse AG. Other potential winners include CapitaLand, UOL Group and OUE.

[I am leery of any "economic plan" that involves boosting the economy by pushing sale of property. That's what created the the sub-prime mortgage crisis.]



“Between buying physical property and buying stocks, stocks offer you the liquidity and they are pricing in all the negatives,” Ms Lee said. “They may not outperform in the next one to two quarters but if you ride this out for 18 months or so, you will see better upside.”

Home prices in Singapore have been driven by the city-state’s policies in recent years as the government vowed to rein in soaring values in one of Asia’s most expensive housing markets. Prices have declined by 11 per cent since 2013 and sales have dropped to about half of that year’s level.

An equal-weighted index of City Developments, CapitaLand, and UOL Group, Singapore’s three biggest property developers by market value, has outperformed Straits Times Index year-to-date after falling 3.6 per cent in 2016. CapitaLand, Southeast Asia’s largest property developer by market capitalisation, has dropped more than 20 per cent from 2013 levels, when shares reached a cyclical high.

Singapore developers are trading at a one-year forward price-to-book of 0.7 times, an “undemanding” valuation that is close to its 2008-2009 lows, according to Credit Suisse analysts including Louis Chua. “We believe the risk-reward to be attractive today, with a potential easing of measures a key upside optionality,” they wrote in a January research report.

[When an analyst "believe" something, it must be... true?]

Developer stocks have moved higher on expectations that there could be an easing of measures, Raymond Kong, a fund manager at One Asia Investment Partners Pte Ltd. in Singapore said in a phone interview. “We are looking for a pullback first; it just popped up too fast in a short period of time.”

Singapore adopted strict measures to restrict speculation on residential and industrial properties after home prices climbed to a record three years ago. The residential curbs have included a cap on debt-repayment costs at 60 per cent of a borrower’s monthly income, and higher stamp duties on home purchases, after low interest rates and demand from foreign buyers raised concern prices had risen too far too fast.

In November, the government indicated that it doesn’t intend to relax borrowing restrictions. “It is more prudent to have our current rules as the default position,” Mr Ong Ye Kung, Minister for Education said in a written reply to a parliamentary question.

Singapore’s housing market saw a surge in home sales in 2016 as developers sold more than 8,000 units, a 9 per cent increase compared with the previous year. Over 13,000 private residential units are expected to be completed this year, data from the Urban Redevelopment Authority showed. The pipeline supply will then drop to about 9,300 completed units in 2018 and 7,300 in 2019.

[How much of the 9% increase in sales were a) due to developers selling in bulk to avoid the Qualifying Certificate penalties? b) selling at a significant discount to entice buyers? Since bulk sales tend to include a hefty discount (18% in the case of the Wee Cho Yaw bulk purchase), these discounts would reduce the profitability of developers, and impact developers stock value. And there are another 13,000 units coming on the market, that has only been able to sell 8000 in 2016! How then does the analyst conclude that the market is recovering and stocks of developers will rise?

Wishful thinking.]

“As the supply overhang passes, we believe developers could resume land banking to position for growth,” CIMB analysts Lock Mun Yee and Yeo Zhi Bin wrote in a research note, referring to the practice of buying land as an investment. “With low gearing and deep capacity for reinvestment, we think that developers are well paced to tap into new opportunities.”

[Land banking as stated is an Investment. Low gearing and capacity for re-investment simply means that the developer is in a position to invest or re-invest in land or practice land-banking. IT DOES NOT MEAN THEIR PROFITABILITY IS GOING UP!]

BLOOMBERG

[Online Comment: 

Read the article carefully: "the government could signal its intention to reconsider property cooling measures". ("could" doesn't mean "would" or "have to"), "in 2016 as developers sold more than 8,000 units, a 9 per cent increase" (9% increase? sounds good!), "Over 13,000 private residential units are expected to be completed this year" (Wait! What? You sold 8000 units last year, and this year there will be 13,000 NEW units? How many percent increase is it from 8000 to 13,000? Analysts expect a 63% increase in sales this year over last year?)
What is the basis of the analysts' optimism? Why do analysts think the govt would reconsider property cooling measures this year?
"In November, the government indicated that it doesn’t intend to relax borrowing restrictions. “It is more prudent to have our current rules as the default position," "
That is NOT the pronouncement from the govt that should give you optimism about the property market!!! That is the govt telling you the OPPOSITE of "we're thinking of reconsidering the property cooling measures"!!!
As usual, property analysts sounds more like used car salesmen than economic professionals. Apologies to used car salesmen.

To be fair, the advice is to buy "property stocks". Not property per se. But still, property stocks depend on the sales of property by the developers. So if the market is going sideways, how can stock prices go up? Wishful analysis at best.]