DBS Group Research, citing strong interest from recent private residential launches, believes that developers behind these projects deserve a re-rating, given how they are trading at merely half their book value.
“July 2023 is turning out to be one of the most active months in a while,” write Derek Tan, Rachel Tan and Tabitha Foo in their July 3 note.
Five new residential projects, with some 3,800 units, are either being previewed or newly launched, with indicative pricing largely between $2,000 and $2,300 psf.
These projects, mainly catering to upgraders’ demand, include Lentor Hills Residences (598 units) by Guocoland & Hong Leong; The Myst (408 units) by CDL, and Pinetree Hills (520 units) by UOL.
“Despite the recent cooling measures, we can sense the continued interest, ‘vibe’ and ‘excitement’ amongst buyers,” write the DBS analysts, referring to their on-the-ground visits.
They note that property developers’ share prices, year to date, have underperformed relative to REITs, and the benchmark Straits Times Index.
Year to date, developers are down 11%, versus the 1.8% drop of the STI and 3.1% decline of local REITs.
The bigger drop suffered by the developers was between May and June, which the analysts believe was a reaction to the latest round of cooling measures, which hits foreigners especially hard, but not affecting first time local buyers.
“We believe this is unwarranted due to developers having strong pre-sales performances for most of their existing projects.
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“Even with pipelines of new projects, most are either targeting the suburban space or the executive condominium space where development risk is lesser, in our view,” the analysts write.
Overall, the Singapore Developer Index (FSTREH Index) is trading at an “attractive” multi-year low, at just 0.5x P/NAV.
“With a close correlation between market volumes and P/BV, strong sell-through rates in the upcoming launches will be a positive sentiment and a catalyst for developers to see a lift in valuations,” the analysts note.
Their top picks in this sector are CDL and Guocoland, with respective target prices of $10.50 and $2.30, “for their near rock-bottom valuations, core earnings turn around and attractive launch pipeline in the near term.”
CDL closed at $6.77 on July 3, up 0.74% for the day, and down 17.03% year to date.
Guocoland, meanwhile, ended July 3 at $1.52, up 0.66% for the day, and down 5.59% year to date.
