Singapore Property - Maybank Kim Eng 2017-11-16: Three Things To Watch

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Singapore Property Stocks Outlook UOL GROUP LIMITED U14.SI CITY DEVELOPMENTS LIMITED C09.SI GUOCOLAND LIMITED F17.SI HO BEE LAND LIMITED H13.SI CAPITALAND LIMITED C31.SI

Singapore Property - Three Things To Watch

Share-price weakness offers opportunities; POSITIVE 

• A 0.7% QoQ rebound in 3Q17’s URA PPI has marked a turning point in home prices and validated our positive view on the sector. We stay POSITIVE on the sector even after its strong 30% YTD rally. 
• We believe the sector is in the early stages of a recovery and recent share-price weakness on the back of profit taking should be an opportunity to raise exposure. Three things to watch for the next potential leg up:
  1. RNAV upgrades from accretive land deals;
  2. lower home vacancies; and
  3. a recovery in residential rents. 
• UOL and CityDev remain our preferred large caps for an unfolding rebound in Singapore’s property market. For investors with lower liquidity thresholds, we think GuocoLand offers compelling relative value with improving fundamentals.

Accretive land deals to drive RNAV upgrades 

• Tenders for at least 13 residential sites are scheduled to close at year-end. These could add 3,600 units to the pipeline for property developers and improve their earnings visibility. With the bulk of the land located in the central part of the island, tender interest could indicate developers’ confidence in the high-end market. 
• With a resurgent enbloc market providing many options to acquire fresh sites, we believe developers will be more selective and rational in their bids. We believe winners of accretive land deals could be re-rated on the back of RNAV upgrades.

Home vacancies could fall on lower net supply… 

• A weak occupier market has kept investors cautious on the residential market. Vacancy rates of private homes still hovered at 8.4% in 3Q17. However, fewer completions and an impending demolition of properties sold for redevelopment suggest they could fall in 2018. Official statistics indicate that about 7,900 private homes will be completed in 2018.
• Assuming 3,000 get torn down for redevelopment, net supply would just be 4,900 units next year. This is significantly lower than the average annual absorption of 13,200 units in the past five years. If the historical rate of absorption is maintained, vacancy rates could potentially improve to 6.5% by end-2018.

…leading to a recovery in rents 

• Even after a 13% decline from their 3Q13 peak, residential rents remain under pressure from elevated vacancy rates. However, if vacancy rates do improve, rents could start to recover. 
• Recall that during the previous enbloc cycle of 2005, vacancy rates fell from 8.4% at end-2005 to 6.5% by mid-2006 as households displaced in the enbloc process sought out new homes. A corresponding 3% uptick in rents then sparked the start of an upcycle. 
• We think an improving economy and accelerated demolitions from the current enbloc fever could provide further upside to rents in the next two years.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-11-16

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 9.850 Same 9.850

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HOLD Maintain HOLD 3.750 Same 3.750