CGS-CIMB Group Research analyst Lock Mun Yee has kept an “overweight” call on the Singapore property development sector, as the analyst sees Singapore developers’ valuations as still inexpensive.
At their current share prices, the developers are trading at a 42% discount to their RNAV, close to 1 standard deviation below the long term mean discount.
The analyst’s recommendation comes after the government released 14 confirmed and reserve land sites for 7,310 residential units (3,505 confirmed, 3,805 reserved), 94,750 sq m GFA of commercial space and 530 hotel rooms under its government land sale (GLS) programme for the 2H2022 on June 7.
The 3,505 residential units for the 2H2022 are 12.5% higher than the 2,785 units released in the 1H2022 as the government seeks to address the dwindling unsold inventory situation.
Of the 14 sites released, seven are new offerings, namely at Marina Gardens Lane, Tampines Avenue 1, Lentor Central, Clementi Avenue 1, Jalan Tembusu, Senja Close and Tengah Plantation Loop. The Marina Gardens Lane site is the first land parcel to be offered in the Marina South precinct, located near Gardens by the Bay. Senja Close and Tengah Plantation Loop are for executive condominiums (ECs).
The way Lock sees it, the increase in residential supply is likely to enable developers to replenish their landbank.
“While the overall residential land supply earmarked under the 2HFY2022 GLS is the highest level since end-2018, it is still below the average supply over the past 10 years of approximately 9,000 units,” says Lock.
“We believe this increase in land supply will likely enable developers to replenish their landholdings and extend their development income visibility, while taking into account macro uncertainties, including rising interest rates and slower economic growth outlook,” she adds.
DBS Group Research analysts Derek Tan and Rachel Tan also see good sites available on the GLS that they believe will pique developers’ interest. “Together with planned collective sales, we see the increase in supply to be positive in tapering the price increase in land bids from developers over time,” the analysts write.
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The analysts from DBS have also noted how the Lentor area is seeing more supply, with the government putting another site at Lentor that may yield 530 units on the confirmed list. “With two sites already awarded to Guocoland (Lentor Central and Lentor Hills Road Parcel A) and 3 currently available for sale, Lentor could see up to around 2,950 units for sale in the coming years,” they write.
Private home prices estimated to increase by 5% in FY2022: CGS-CIMB
In the 1Q2022, the URA property price index recorded a 0.7% q-o-q improvement, which was supported by a 2.2% price hike for OCR (OCR) properties.
According to data from the Singapore Real Estate Exchange (SRX), private and HDB resale prices continued to rise by 0.7%/1.1% m-o-m in April, bringing price improvements to 2.7%/3.7% respectively year-to-date, or from January to April.
As such, CGS-CIMB’s Lock is keeping her expectations for private home prices to rise by up to 5% in FY2022, broadly in tandem with GDP growth projections.
Top picks: CDL, CLI and UOL Group
“We prefer developers with visible residential pipelines and strong balance sheets that would enable them to tap into any opportunities during this slower cycle,” writes CGS-CIMB’s Lock, who has indicated her preferred picks as City Developments (CDL), Capitaland Investment (CLI) and UOL Group.
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Lock has kept an “add” rating on CLI with a target price of $4.59. This is in light of how CLI is one of the largest real estate investment managers in Asia.
“Growth in funds under management and fee income, efficient capital deployment and improved operating performance of its investment and lodging properties would likely underpin its ROE expansion and share price re-rating,” writes the analyst. The stock is trading at a 24% discount to RNAV.
Next, Lock has also kept an “add” rating on CDL with a target price of $8.97. “In our view, CIT land restocking activities, with a potential launch pipeline of around 2,000 units, would extend the visibility of its residential earnings,” says Lock.
Lock also adds that value-unlocking activities and the nascent recovery of the global hospitality industry could catalyse its share price. The stock is trading at a 49% discount to RNAV.
Finally, Lock has kept an “add” rating on UOL with target price of $8. This is considering how UOL has a high recurring income base, supported by rentals, hotel operations and investment holdings, with good office exposure through Singapore Land Group.
UOL is now trading at a 45% discount to RNAV.
Re-rating catalysts for the Singapore property sector include good sell-through rates for new launches, while downside risks are: faster-than-expected interest rate hikes, slower economic outlook and property cooling measures that could dampen demand for housing, says Lock.
As at 12.33pm, shares in CDL, CLI and UOL Group are trading at $8.30, $3.85 and $7.30 respectively.
