According to Urban Redevelopment Authority’s (URA) data, the private residential property price index rose 3.9 percent quarter-on-quarter in 1Q18, ahead of its initial 3.1 percent flash estimate. The stronger-than-expected rebound signals that the four-year slump is indeed over and Singapore’s residential property market is in the early stages of a recovery.
Property prices fell 12 percent between 3Q13 to 2Q17 due to a deliberate soft landing “engineered” by the government, owing to growing excess supply of new homes. The tightening cycle has finally come to an end and the supply of new homes is expected to fall meaningfully while improved affordability should also drive pent-up demand. Sentiments among property buyers and developers have improved as transaction volumes are starting to rise, and developers are aggressively boosting their land bank. This is evident in the bullish bids seen at recent land tenders, and also in the pickup in collective sales or enbloc sales.
While the overall private residential property prices are expected to rise, the quantum of expansion is highly likely to exceed UBS’s 5 percent growth forecast for 2018. Property developers would be direct beneficiaries while banks would also profit from a healthy mortgage market.
The following are UBS’s top picks for property developers:
Among the local developers with higher market capitalisations and trading liquidity, City Developments is poised to benefit from the recovery in Singapore’s residential property market as a huge proportion of its gross asset value is attributable to the sector. Despite a pickup in residential sales momentum which leads to ongoing asset monetisation, the stock continues to trail below its revalued net asset value (RNAV). That said, with the property market on a recovery path, coupled with ongoing capital recycling initiatives, City Developments could see a higher re-rating in coming quarters.
According to UBS, City Developments is currently trading at rather undemanding valuations of forward-FY18 price-to-earnings (P/E) of 16.7 times and forward-FY18 price-to-book value (P/B) of 1.1 times.
75 percent of UOL Group’s (UOL) recurring earnings base and portfolio comprises quality commercial and hospitality assets. This gives the group a leveraged position to ride the local property upcycle. Meanwhile, its office portfolio is largely in prime districts and strong demand helps to keep rent rates and capital value supported. Notwithstanding that, the group’s retail malls are surrounded by populated residential areas and tenants enjoy higher non-discretionary spending. In turn, UOL would also benefit from stable rental income from its malls.
At the current share price of $7.60, UOL is trading at forward-FY18 P/E of 15.5 times and forward-FY18 P/B of 0.7 times.