With the government releasing the highest residential land supply since 2013, CGS-CIMB Research analyst Lock Mun Yee remains “neutral” on the property development and investment sector.
The government has released land sites for 8,590 residential units — 5,160 confirmed, 3,430 reserve — along with 98,250 sq m gross floor area (GFA) of commercial space and 530 hotel rooms under its 2H2023 government land sale (GLS) programme.
Of the 17 sites, eight are new. Some of the new offerings include a 270-unit residential land parcel along Orchard Boulevard, two sites at Zion (with a potential of 1,560 residential units), and another two residential parcels at Upper Thomson Rd, which can yield 1,535 units.
The increase in residential land supply to meet demand is likely to enable developers to replenish their land inventory, says Lock in a June 21 note.
The confirmed residential land supply is the highest since 2013. “Overall, the private residential supply in the 2H2023 confirmed and reserve lists is 11.3% higher h-o-h and is the highest supply since 2H2014,” notes Lock.
The government has continued to ramp up development supply since 1H2022 to meet demand. “We believe this paced increase in land supply will provide market stability and enable developers to replenish their land inventory,” says Lock.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
CLI, CDL, UOL preferred picks
While Lock is “neutral” on the sector, she is positive on three listed names within the sector, recommending “add” on preferred picks CapitaLand Investment with a $4.50 target price, City Developments with $8.97 and UOL Group with $8.00.
CapitaLand Investment is one of the largest real estate investment managers in Asia, notes Lock. “Growth in its funds under management, efficient capital deployment and improved operating performance of its investment and lodging properties would likely underpin its return on equity (ROE) expansion and share price re-rating, in our view. The stock is trading at a 33% discount to revalued net asset value (RNAV).”
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
To Lock, City Developments’ land restocking activities, with a potential launch pipeline of some 2,000 units for 2023, would extend the visibility of its residential earnings from FY2023 ended December. “Its value-unlocking activities and the recovery of the global hospitality industry could catalyse its share price. The stock is trading at a 58% discount to RNAV.”
Finally, UOL Group has a high recurring income base, supported by rentals, hotel operations and investment holdings. It has good office exposure through the separately-listed Singapore Land Group U06 , says Lock, and UOL is now trading at a 51% discount to RNAV.
Share prices of developers have been range bound year-to-date, and valuations still look inexpensive at a 53% discount to RNAV, says Lock. “We prefer developers with visible residential pipelines and strong balance sheets that would enable them to tap into opportunities during this slower cycle.”
Potential sector re-rating catalysts for the sector include good sell-through rates for new launches, says Lock, but downside risks include faster-than-expected interest rate hikes, slower economic outlook and property cooling measures that could dampen demand for housing.
Home price growth to moderate
Expect a moderation in home price growth in 2023, says Lock. Year-to-date to May, there were 3,500 primary private home sales transactions, down 17.3% y-o-y.
Meanwhile, the URA Property Price Index recorded a 3.3% q-o-q rise for 1Q2023, led by a 4.4% q-o-q hike in prices for the Rest of Central Region and a 1.9% q-o-q improvement in Outside Central Region prices.
For more stories about where money flows, click here for Capital Section
HDB resale prices have also increased by 1% over the same period.
“We expect private home prices to trend between -2% to +2% for 2023, post the introduction of the latest round of property cooling measures in April 2023,” says Lock.
As at 10.34am, shares in CapitaLand Investment are trading 5 cents lower, or 1.48% down, at $3.32; while shares in City Developments are trading 7 cents lower, or 1.03% down, at $6.73; and shares in UOL are trading 12 cents lower, or 1.84% down, at $6.40.
