Singapore Market Focus - A Breather for Property Stocks
- Singapore government unlikely to announce further property measures easing anytime soon given strong March new home sales figure.
- Property developer stocks vulnerable to short-term profit taking – trading at post-GFC mean P/NAV of 0.86x.
- Buy only after pullback as continued positive physical property transactions can underpin stocks – Picks UOL and Frasers Centrepoint Ltd.
- Strong technical support for UOL at $6.54. Capitaland to pull back to $3.58 followed by $3.47.
Singapore’s strong March new home sales well anticipated
- Data released by the Urban Redevelopment Authority (URA) earlier this week showed that new private home sales (excluding executive condominiums [ECs]) in Singapore rose to 1,780 units in March, up nearly 82% compared to February, and 111% higher versus March 2016.
- The latest figure is the highest since June 2013, when developers sold 1,806 private homes. Including ECs, developers sold 2,358 units in March, higher than the 1,308 units in February.
- 1Q17 primary sales transactions amounted to nearly 3,026 units, one of the highest since 2013 (c.3,800 units in 1Q13).
Great news! But that’s all well anticipated
- Our Singapore property analyst comments the strong figure came as no surprise given the recent robust selling rates for new property launches at Grandeur Park (484 units); Park Place Residences (217 units) and Parc Riveria (163 units). At the same time for ECs, Inz Residences sold 187 units while Sol Acres sold 147 units.
- The improved sentiment was boosted by the recent government relaxation of seller stamp duties (SSD). This resulted in potential buyers becoming more willing to commit to an investment purchase given that their “holding period” have been reduced from four years to three.
The irony of the strong March figure
- The post-March 10 gains came about from optimism that the easing of SSD may well signal the start of a multi-year relaxation trend of current property curbs that will mean continued sector-wide re-rating opportunities. The move that everyone is waiting for would be a tapering of the Additional Buyers Stamp Duty (ABSD) or loan-to-value (LTV) limits.
- Therein lies the irony – given the strong March new home sales figure, we see no reason why the Singapore government should announce further easing of property measures anytime soon, especially those targeted at buyers such as ABSD or LTV limits.
- The Singapore government reminded that the current property measures are necessary to “promote a sustainable residential property market and financial prudence among households”. We think investors’ euphoria regarding the start of a multi-year relaxation trend of current property curbs will fade in the weeks/month ahead.
Bottoming process takes time
- Our property analyst maintains the view that the Singapore property market is in a bottoming out process this year, led by the luxury market.
- For the suburban region, we still expect a 3-5% dip in prices given expectations of lower rental yields, high vacancy rates and the risk of higher interest rates. The process of bottoming takes time.
Property stocks susceptible to short-term profit taking
- Singapore property developer stocks have re-rated higher by close to 20% YTD and are trading at 0.86x P/NAV. This level coincides with the post-GFC mean and is seen as a near-term target for property developers. Short-term traders should thus be watchful of profit taking in the near term following the YTD run-up in stock prices.
- Investors with a mid-term horizon should look to buy on the anticipated short-term consolidation. Watch the property transactions, which should underpin property stocks on pullback if the figure remains strong going forward. The first two months’ primary sales (pre-property relaxation) were 61% higher y-o-y, suggesting good positive momentum, which bodes well for the sector in general.
Our picks are UOL and Frasers Centrepoint Ltd.
- We have a $2 fundamental price objective for Frasers Centrepoint Ltd (FCL) .
- For UOL, the initial pullback level is $6.76 while a deeper pullback to $6.54 will be similarly a good BUY opportunity.
- For Capitaland, we see a pullback to $3.58 followed by $3.47.