The latest released figures have shown that development charges across all property sectors have gone up or remain unchanged.
Sectors such as hotel and industrial rates remained unchanged from half a year ago but non-residential rates surged by an average 13.8%.
It was largely attributed to the recent en-bloc transactions, which led to the cost of Tampines, Hougang, Punggol and Sengkang areas leading the rise by up to 29%.
Increasing land cost
Latest hike in development charges will increase the overall land cost for developers. Although the hike has been expected, it is believed that some of the increase has yet to be factored in at this point.
Recent transactions such as Rio Casa, Eunosville, Serangoon Ville and Tampines Court sites have yet to lock in their development charges. That will likely affect the en-bloc tender price going forward.
Several listed developers have en-bloc landbank, among which is UOL/UIC. However, it is unlikely to affect UOL/UIC’s Raintree Gardens as the charges have been locked in.
With the cost locked in, the development is expected to see a decent margin from this project. Here are three property developers CIMB Research has been looking at.
Supply of sites and reasonable pricing
The current 11 residential en-bloc will be taking out 1,998 existing units and will be redeveloped into 8,500 new apartments over the next few years.
Supply of private housing is expected to fall with fewer completions of units over the next three years.
As demand is increasing from the en-bloc sales and supply is declining, the overall market is expected to have the full ability to absorb the surplus inventory in the market.
Stock prices of property developers remain attractive at an approximate 30% discount to RNAV. With their strong YTD performance, the momentum is expected to continue supported by trading volume and sentiment recovery.
As Singapore’s leading property developer and owner, the stock is definitely one of the top stock to buy as a proxy.
Its diversified portfolio with a strong presence in China will mitigate some risk should the recovery of the local property market not go as expected.
You may read this article for an in-depth analysis of its group of companies.
CapitaLand is well liked by investors for its ability to recycle its capital through offloading properties to its REITs and reinvest its capital to new ROE boosting projects.
Analysts from CIMB Research gave CapitaLand Limited (SGX: C31) a “Buy” call with a target price of $4.21.
2. City Developments
City Developments is one of Singapore’s major property developers with an exposure in residential, commercial and hospitality.
Its diversified earnings base means that revenue is less reliant on individual segments. Notably, Millennium and Copthorne Hotels constitute the hospitality arm of City Developments.
Its Singapore and overseas residential property segment is expected to continue its strong performance and underpin its near-term growth.
RNAV will expand given its low gearing ratio of 0.16x and the developer’s decision to deploy the leverage to restock its landbank.
Analysts from CIMB Research gave City Developments Limited (SGX: C09) a “Buy” call with a target price of $12.54.
3. UOL Group
Looking at its recent en-bloc transaction, UOL/UIC’s Raintree Gardens is expected to bring in a healthy margin.
They managed to lock in their development charges before the rise with the total land cost works being at an estimated $797 per square feet of gross floor area.
Using the surrounding projects as a benchmark, Raintree Gardens is could be sold at around $1,400 per square feet.
Aside from its residential property development, UOL Group has a high recurring income base supported by rentals, hotel operations and investments.
Analysts from CIMB Research gave UOL Group Limited (SGX: U14) a “Buy” call with a target price of $9.03.